Lumentum Holdings Inc at Bank of America Global Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vivek Arya - BofA Global Research - Analyst : (Conference Instructions) Pretty warm welcome Alan Lowe really appreciate you joining us at our conference.

Question: Vivek Arya - BofA Global Research - Analyst : And maybe let's start at a high level. Just maybe give us a state of the union, Alan, as you see in terms of end market demand across your cloud and telecom and industrial tech markets as you look into the second half?

Question: Vivek Arya - BofA Global Research - Analyst : Got it. I think you mentioned of the or at the start of the 1.6 terabit per second transceiver generation. Maybe walk us through Alan, like you've been in this industry for a long time. How is this transition different from what you saw as the industry move towards 400 gig and then 800 gig? So first of all, what does it mean from an industry perspective? And then specifically, how does it impact Lumentum's prospects?

Question: Vivek Arya - BofA Global Research - Analyst : How do you see the content change as you double the speed? I don't know whether it's quite a double of what you saw in 800 gig, but how does the content change. And then the other aspect of it is that we do see optical transceiver price compression number down. So you think with 1.6T kind of follow that historical compression levels that you've seen or do you think will be something different about 1.6T?

Question: Vivek Arya - BofA Global Research - Analyst : And as you mentioned, the 200 gig e-mails are ramping actually right at this time, right? So it's kind of a sweet spot of when it's when the ramp is how big can 1.6T be this year? Or is it more of a 2025 growth drivers?

Question: Vivek Arya - BofA Global Research - Analyst : But one thing that you presented that OFC was a $16 billion addressable opportunity or cloud-like. Could you help unpack right? What are the big kind of moving pieces of this $16 billion by [2028]?

Question: Vivek Arya - BofA Global Research - Analyst : What is your share you think in optical transceivers today and what are your aspirations?

Question: Vivek Arya - BofA Global Research - Analyst : Got it, one thing that we are seeing is just that the size of these clusters continues to grow, right. What used to be 10,000 is now 30,000 a year and we are then very present earlier, and Ray spoke about 100,000, if I'm right a cluster, what does that mean for attach rate of optical transceivers? And I would imagine that there is an exponential growth factor there.

Question: Vivek Arya - BofA Global Research - Analyst : If any of your telecom output fungible to become data from output like? And can you make that conversion over?

Question: Vivek Arya - BofA Global Research - Analyst : Right. When you see your Thailand facility become tangible results, is that again something that happens next year, you'll see it happening this year?

Question: Vivek Arya - BofA Global Research - Analyst : Got it, makes sense. Cloud-like past the product transition issue that it had on the large customer when you acquired the company?

Question: Vivek Arya - BofA Global Research - Analyst : Got it, what helps, Alan to make optical transceivers, more accretive to the business because you mentioned that, you know, there are two large suppliers are right now you want to be a third supplier. So how do you make sure that it doesn't end up becoming just a pricing game because there's going to be a lot of volume right required you So are the products from the three companies that different? How do you make sure that you are able to make this business accretive over time?

Question: Vivek Arya - BofA Global Research - Analyst : I see, and how's the visibility? So for example, if let's say, you know what you have been ramping with [black well], you have a and the right thing, but that MI products, how early do you know of how your share the progress in a given year, the euro that like six months ahead, nine months ahead, how far is your visibility into that share gain opportunity for next year?

Question: Vivek Arya - BofA Global Research - Analyst : Makes sense. On the telco side, we have seen right now, not just for Lumentum, but across the industry across your peers, that's kind of consistent drip down in telco. How's the visibility right now? Like do you think that the industry or Lumentum is in a better position to predict when you are done with that inventory burn, which I know is always because that is always tricky.

Question: Vivek Arya - BofA Global Research - Analyst : It's interesting to compare what we are seeing in the telco end market versus what you see in the industrial end market up there, a lot of your industrial peers, I think, well, we could have better than seasonal orders because it's not like the industrial economy, we were under-shipping demand. Do you think that whenever telco bottom that I you under shipping to an extent that they could actually be a hockey stick with the company or that is not that easy to say, right?

Question: Vivek Arya - BofA Global Research - Analyst : Last question on telco, is there a specific recovery catalyst like in the past, we could have said all of that is 5G or there is some broadband deployment. Is there some specific catalysts that you think you're excited about that can help drive recovery there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 05, 2024 / 9:00PM, LITE.OQ - Lumentum Holdings Inc at Bank of America Global Technology Conference

Question: Vivek Arya - BofA Global Research - Analyst : As I said last one, actually, I have one more on telco, which is kind of the non US demand in China in the past had been a big buyer of night of optical components for their wired rollout? Where is China demand standing right now?

Question: Vivek Arya - BofA Global Research - Analyst : And then on NeoPhotonics, what is NeoPhotonics add in terms of value to Lumentum so far? And then in terms of the cost synergies, where are you in that? I think you've achieved about $70 million. So up, when do you plan to achieve remaining $30 million or so?

Question: Vivek Arya - BofA Global Research - Analyst : On gross margins right now, low to mid 30s on right or so on. What is the plan to get it back to the 40%? What is the role of mix versus the role of just your fab utilization type? What are the different building blocks of getting gross margin.

Question: Vivek Arya - BofA Global Research - Analyst : Got it. One question I had about your EML output. Do you plan to keep it mostly for your own transceivers? Or do you think that you will have it available on a merchant basis?

Question: Vivek Arya - BofA Global Research - Analyst : But as you mentioned, Alan exiting next year at the $500 million run rate, what are the underlying assumptions about the datacom versus telecom mix in that and Industrial tech, of course? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 05, 2024 / 9:00PM, LITE.OQ - Lumentum Holdings Inc at Bank of America Global Technology Conference

Question: Vivek Arya - BofA Global Research - Analyst : Who makes that decision on a whose datacom transceiver will be used? Is it something that's specified in a reference architecture by these companies, who are supplying accelerators or is it done by the end cloud customers?

Question: Vivek Arya - BofA Global Research - Analyst : Got it. And then finally, Alan, M&A has been a key part of your or your strategy company still has a very strong balance sheet. So how do you look at? Does this industry downturn kind of open up opportunities for you to look at like it? Do you think that thing focused on just the comms market by both datacom and telecom. Is that the right strategy for Lumentum because your competitors have kind of branched out into many things, right? So do you plan to stay focused? Or do you plan to be more diversified? What is the strategic we are thinking about?

Question: Vivek Arya - BofA Global Research - Analyst : Got it stayed focused. And then finally, I think you did mention that the goal is to get to the mid-10s EBIT by the time you get to the $500 million. So it just final question on operating expenses. How are you managing expenses as the company comes out of this downturn?

Question: Vivek Arya - BofA Global Research - Analyst : Interesting, great Alan, thank you so much for your time. Really appreciate it.