Clarify the indium phosphide capacity ramp, its impact on the 40% target, and future capacity plans. Also, update on the transceiver business, specifically the $250 million/quarter run rate target given increased demand.

Lumentum delivered over 20% of the 40% capacity increase in Q2 FY26 alone, expecting to exceed the 40% target. Additional capacity is in sight for H2 CY26 from Sagamihara, Caswell, and Takao fabs. The transceiver business will likely exceed the $250 million/quarter target due to high demand, especially for 1.6T, which has better margins, allowing the company to manage the portfolio for increasing gross and operating margins. “I do think that it's going to be more difficult than we outlined in the last call to sort of cap that to $1 billion. We're definitely seeing a lot of demand for our transceiver products, not only from the primary customer, but from other customers as well.”

Discuss the 1.6T transition, the role of EMLs vs. SiPho, and derivative laser opportunities. Also, compare the competitive landscape for CPO lasers to the transceiver laser market.

Initial 1.6T transceivers are heavily EML-based, driving strong demand for Lumentum's 200-gig EMLs. SiPho is still expected to dominate 1.6T transceiver shipments eventually, but EML volumes will still grow. Lumentum feels very strong about its position in high-powered lasers for CPO, citing high power levels and proven reliability from subsea applications as key differentiators. The company is also exploring external light source (ELS) modules for CPO, which would significantly increase ASP. “I mean, look, I think on CPO, we feel really good about our position. I mean certainly, for EMLs, we also feel very good about our position, but I think we feel even better about our position on high-powered lasers going into CPO.”

Can you size the CPO quarterly run rate with the new multi-hundred million dollar order? And given the strong ramp and sold-out capacity, do you expect pricing to be a tailwind for indium phosphide through this year and next?

CPO scale-out is expected to be around $50 million in calendar Q4, with the new multi-hundred million dollar order clicking in H1 CY27. The high-powered laser fab is sold out, and demand is ramping faster than forecast. The demand-supply imbalance for indium phosphide continues to increase, even with added capacity. Pricing is expected to be a tailwind, especially with the mix shift to 200-gig lasers (expected to be 25% of mix by end of CY26) which have a 2:1 pricing advantage, and the introduction of differential 200-gig EMLs. “I mean look, we really are sold out. I mean I think that we've talked about sort of trailing demand, even as we add capacity, it seems that the demand-supply imbalance increases.”

LITE

Lumentum (LITE) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Dec 2025 (Q2 FY26)· Information Technology· Feb 3, 2026

Source: earnings call transcript

Executive summary

Lumentum Q2 FY26 — Record Revenue Driven by AI Networking Demand

Lumentum delivered a record second quarter, driven by strong demand for its AI networking technologies, particularly in cloud transceivers and optical circuit switches. The company is accelerating its growth trajectory, with Q3 guidance significantly exceeding prior expectations, and is actively expanding capacity to meet surging customer demand across its foundational components and systems businesses. Management highlighted the increasing importance of optical scale-up and scale-out solutions in next-generation data centers.

Highlights

Record quarterly revenue of $665.5 million, up 65% year-over-year.
Non-GAAP operating margin increased by over 1,700 basis points year-over-year to 25.2%.
Q3 FY26 revenue guidance midpoint of $805 million, representing an 85%+ year-over-year increase.
Optical Circuit Switches (OCS) backlog surged past $400 million, exceeding internal expectations.
Secured an additional multi-hundred million dollar purchase order for ultra-high power lasers for CPO applications.

Concerns

Industrial end market shipments remained roughly flat sequentially in Q2, reflecting persistent cyclical softness.
Transceiver business remains a margin headwind despite improvements in execution and profitability.
EML supply-demand imbalance persists, with demand undershipped by approximately 25% to 30%.

Guidance & targets

Category	Target	Timeline	Confidence
Net Revenue	$780 million to $830 million high materiality	Q3 · FY26	High
Non-GAAP Operating Margin	30% to 31% high materiality	Q3 · FY26	High
Diluted Net Income Per Share (non-GAAP)	$2.15 to $2.35 high materiality	Q3 · FY26	High
Non-GAAP Annual Effective Tax Rate	16.5% medium materiality	FY26	High
Shares Used for Non-GAAP Diluted Earnings	approximately 92 million shares medium materiality	Q3 · FY26	High
OCS Revenue	well above $100 million high materiality	Calendar Q4	High
200-gig Lane Speed Mix	25% of mix medium materiality	End of Calendar Year 2026	High
CW Laser Introduction	late Q2, early Q3 low materiality	Q2/Q3 FY27	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Components Fueled by broad-based demand across laser chips, laser assemblies, and in-line subsystems primarily for inter data center, DCI, and long-haul applications. Laser chip business serving cloud transceiver customers drove outsized sequential growth. Mix shift towards 200 gig lane speeds provided meaningful ASP uplift. EML laser shipments: record quarterlyCW lasers for 800 gig manufacturers: increased volumesUltra-high-power laser shipments for CPO: increased volumesNarrow linewidth laser assemblies: grew for eighth consecutive quarterLong-haul portfolio (coherent components and aligned subsystem products): grew sequentially and year-over-yearPump lasers: record quarter, revenue surging over 90% compared to prior year3D sensing: grew modestly	$443.7 million	68%	17%	—
Systems Cloud transceivers accounted for the lion's share of this growth, increasing by approximately $50 million sequentially, leveraging expanded manufacturing capacity in Thailand. Optical circuit switches (OCS) continued to grow. Industrial end market shipments remained roughly flat sequentially due to persistent cyclical softness.	$221.8 million	60%	43%	—

LITE operating KPIs by quarter

LITE operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2025 Q3 FY25	Jun 2025 Q4 FY25	Change vs prior quarter
Customers Cloud Transceiver	3 We're building momentum in the transceiver market with 3 cloud transceiver customers already on board and more wins expected in the pipeline. Source: earnings call transcript	3 We shipped cloud modules to all 3 of our major hyperscale customers, and we expect shipments to grow sequentially in the coming quarters. Source: earnings call transcript	0%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Optical Circuit Switches (OCS) Backlog well past $400 million Q2 FY26

surged

Majority slated for shipment in H2 CY26. Composed of orders from multiple customers.

Product announcements

Product	Type	Timeline	Details
PicoBlade Compact line of products	update	—
Differential 200-gig EMLs	launch	—

Deals & partnerships

Undisclosed customer(s) Purchase Order multi-hundred million dollar

Additional purchase order for ultra-high power lasers that support optical scale-out applications (CPO).

Capital programs

Indium Phosphide Wafer Fab Capacity Expansion underway 40% expansion target

Spent to date: over half of 40% target delivered in Q2 FY26

Benefit:Increased indium phosphide wafer output

Scaling rapidly through precision tool optimization and yield gains in Sagamihara, with additional capacity from Caswell, UK and Takao, Japan fabs.

Risks & headwinds

Persistent Cyclical Softness in Industrial Market

Shipments roughly flat sequentially in Q2 FY26.

Mitigation:Increasing design win funnel for newly introduced PicoBlade Compact line of products.

Transceiver Business Margin Headwind

Still a margin headwind, though less so due to improvements.

Mitigation:Improved execution, better yields, lower scrap rates, and focus on 1.6T products with better margins. Management of portfolio to increasing gross and operating margins.

EML Supply-Demand Imbalance

Undershipping customers' demand by approximately 25% to 30%.

Mitigation:Actively investigating new fab capacity, squeezing product from current fabs through yield improvements and die size reduction, and leveraging long-term agreements (LTAs) to manage allocation and pricing.

Factory Capacity Constraints

Significant challenge in addition to fab capacity.

Mitigation:Pivoting to more contract manufacturing, optimizing floor space in existing factories (e.g., China to Nava), and leveraging new leadership with CM community experience.

Q&A highlights

Can you provide more color on the OCS market's acceleration, backlog, and customer diversification? Also, quantify the impact of price increases on growth and margins.

OCS market is developing better than expected, with backlog exceeding $400 million, mostly for H2 CY26 shipment, from multiple customers. The run rate for 2027 is expected to be higher. Price increases are having a modest impact on revenue and a greater impact on gross margin, alongside other initiatives like cost reduction and yield improvements.

“The OCS market is definitely developing a lot better than we believed. It's accelerating certainly from a time standpoint. So the data point we gave today is that our backlog has increased to well in excess of $400 million, most of which is going to be shipped in the first two quarters of fiscal 2027.”

asked by Simon Leopold · answered by Michael E. Hurlston

3 min read 6 chapters

Detailed narrative

AI Revolution and Foundational Engine Status

Lumentum has established itself as a foundational engine of the AI revolution, with its technology powering virtually every AI network either directly through hyperscaler partnerships or as a critical component supplier to network equipment manufacturers. The company's momentum is accelerating, with Q2 FY26 revenue reaching a record $665.5 million, and Q3 FY26 guidance projecting an 85%+ year-over-year increase, comfortably surpassing the $750 million quarterly revenue milestone previously projected for mid-2026.

Growth Drivers: OCS, CPO, and Cloud Transceivers

The company's growth is primarily driven by cloud transceivers, optical circuit switches (OCS), and co-packaged optics (CPO). OCS business is exceeding internal expectations, clearing the $10 million quarterly revenue bar three months ahead of schedule, with a backlog now surging past $400 million.

Cloud transceiver revenue grew significantly in Q2 FY26, with continued growth expected in Q3, as Lumentum improves execution and profitability in this segment. The company also secured an additional multi-hundred million dollar purchase order for ultra-high power lasers supporting CPO applications, with shipments expected in H1 CY27.

Emergence of Optical Scale-Up as a New Growth Driver

A fourth generational game-changer, optical scale-up, is taking shape. This involves replacing copper links in ultra short-reach, high-speed connections within data center racks or clusters, where copper is hitting physical limits. Lumentum expects its first scale-up CPO shipments by late calendar 2027, leveraging its ultra-high power lasers and external light source modules.

The company is deeply embedded in design-in cycles and is proactively assessing wafer output plans and negotiating with customers to offset capital requirements for long-term supply assurances.

Indium Phosphide Capacity Expansion and Mix Shift

Lumentum's indium phosphide wafer fab capacity is fully allocated due to surging customer demand. The company front-loaded its 40% expansion target, delivering over half of it in Q2 FY26, and expects additional capacity online over the next two quarters and beyond, including contributions from its Caswell, UK, and Takao, Japan fabs.

Revenue in Q2 was also propelled by a favorable mix shift towards 200-gig lane speeds, which provide a meaningful ASP uplift, contributing approximately 10% of data center laser chip revenue from 5% of unit volume.

Strategic Shift in Manufacturing and Supply Chain

In response to tremendous demand, Lumentum is pivoting its manufacturing strategy to rely more on contract manufacturers. The company is optimizing its factory footprint, including clearing out space in China, to focus on high-value products. A new leader for back-end operations, with extensive experience in contract manufacturing, is outlining a strategy to move more products to CMs to accelerate various ramps and address factory capacity challenges, which are as significant as fab capacity constraints.

Long-Term Agreements and Pricing Strategy

Lumentum has successfully implemented long-term agreements (LTAs) for its EML capacity, with all capacity spoken for through the balance of calendar 2027. These LTAs provide pricing leeway and have helped from a pricing standpoint overall, as customers are willing to commit to secure supply.

The company is actively pursuing similar LTA strategies for other product lines, including telecom components and transceivers, to optimize pricing and prioritize partners who commit to long-term agreements, especially in the current seller's market.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.