Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference Transcript

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

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : What we're doing is asking 3 questions that are more common to a lot of the companies and just to get sort of your views on these before we dive into something more company-specific. The first one is macro. Obviously, a big discussion point for everyone. But as you look to the remainder of the year, where do you see the biggest macro risk for your business?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I was going to ask you, as a second question, the follow-up being sort of inventory versus real demand weakness, and to the point that inventory challenges could be more short-lived. It sounds like the telecom side is, just saying, is inventory, the datacom is more demand softness from your customers. Maybe just let me know if that's how we should think about it. And then when you see 3D sensing as well as commercial lasers, where would you put those?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. And the last one on that front really just talk -- help us through AI and the impact on your business. I know you just mentioned 90% of the business will be infrastructure going forward. But when do -- when we think about tailwinds, which parts of the business really benefit?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Yes.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Maybe as we get to more company-specific questions, let's start with the R&D road map as well as sort of the product road map. And starting with datacom, you mentioned sort of the move to higher speeds, but how much of it has to still play out in your R&D road map versus it's something that you've already worked on is more sort of going to be about commercialization at limited R&D, incremental R&D from hereon. Just talk us through their product and R&D road map on the datacom side.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : And I am asking this to your primary competitor as well early in the day, but is the thinking still that all of this remains eventually in a pluggable format? Or do you see technology sort of taking a leap forward in terms of either different architectures, et cetera, or even co-packaged optics just to achieve the same sort of objective?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Interesting. Switching over to telecom. At OFC, you outlined multiple new technology approaches in your telecom business, and I think there were a bunch that you discussed at OFC. So maybe help us think around -- think about the rank order of those opportunities. Which ones are the most sort of big in terms of opportunity? And how to think about timing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 22, 2023 / 6:30PM, LITE.OQ - Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Interesting. On the datacom side, you've talked about the VCSEL opportunity that can lead to some copper replacement inside the data center. Any way of sizing that up, what that opportunity could mean?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Got it. Maybe another one on sort of just thinking about the opportunity, you mentioned the CW lasers for silicon photonics. There's always been a sort of discussion around what the time lines for those are and doesn't -- I mean as much as sort of come through near term. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 22, 2023 / 6:30PM, LITE.OQ - Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference So when you're thinking about the timing, what does that timing look like? And what is the trade-off? What do you get in terms of performance versus lower cost?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. So let's move away from some of the discussions on the products individually. But in the past, you mentioned datacom and telecom

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Makes sense. NeoPhotonics, demand -- or sort of your experience in relation to demand there, particularly when you look at the current headwinds on the telecom side, is it more on the legacy Lumentum or the NeoPhotonics products?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Let me pause you and see if there's any questions. Any questions? Okay. Let me continue here. On the datacom side, going back to datacom, obviously, with AI and with some of the changes recently in the sort of customer base, there have been newer customers as well coming in on the datacom side. So what are you seeing in relation to demand from traditional data center customers versus newer customers that are looking for something more differentiated, more direct sourcing from Lumentum?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Switching gears to 3D sensing, just to dive into that a bit more. How are you thinking long-term growth drivers there? Because I think this was probably 2 FCs ago, sorry not the last one, the one before that, you're outlining sort of the headwinds that you're facing in that segment because of the higher share that you had with your primary customer, but at the same time, sort of expecting to recover that in a few years from diversified sort of opportunities of growth that you had. How do you think about now sort of what's been the trajectory in terms of that business through share loss? How long does it take to get back to the same sort of revenue level? Are you seeing enough sort of -- enough of an offset in terms of growth from outside of that primary customer?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. A bit more near-term question, but relative to the 3D sensing. We've heard cautious commentary on share from both you and Coherent. How much of the concern about market share is something that you expect to see with the new supplier coming in versus actually reflected in the order trends or sort of communicated share? Because we've known, historically, in this market, new suppliers also tend to sort of ramp slowly, slower than expected. So how much -- because both are now guiding to share loss, I'm just wondering how much of this is anticipated share loss versus something that you're seeing in the orders?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. The reason I ask is, does that then automatically mean the competitive landscape for AR/VR is tougher than we imagined 2 years ago when it seemed like much more of a slam dunk for Lumentum to really gain content on that front?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. I'll move to a few financial questions, but any questions from the audience in the meantime? Okay. Let me move to the midterm model that you outlined at OFC, $2 billion to $2.3 billion in revenue. Now with the losses that you've seen, I think some are -- as you're outlining more temporary, some are more of a market share-driven loss, how do you think about the time line to sort of achieve that $2 billion to $2.3 billion of revenue target? Is it now more delayed than what you imagine at OFC as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 22, 2023 / 6:30PM, LITE.OQ - Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. But the same question of -- I'd like to ask you on margins, 3D sensing business, where your share loss is, is a high-margin business for you. Telecom is a high-margin business. How do you think about the margin impact related to sort of those targets as well?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. On the operating margin, one of the longer-term guides -- long-term guidance that you had out OFC was that you'll be -- that you're targeting 26% to 28% operating margin long term. Now if I remember, sort of pre-Neo acquisition, you were hitting 30% already on the operating margin. And in fact, you were sort of doing some upside to that. And so if I think about the difference there, which almost is, at that point, sort of 300 basis points to maybe 400 basis points on the long run, it seems like some portion is the Neo because you're saying Neo is going to be slightly less than 25% operating margin with the synergies baked in. Is Neo the only difference that you see in terms of getting to that 30% operating margin? Are there other buckets in there, like 3D sensing and others, in terms of keeping you from that 30% margin? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 22, 2023 / 6:30PM, LITE.OQ - Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Got it. Maybe just switching gears here to a couple of opportunities. One, you've talked about progress in relation to the DSP business that you acquired from IPG. Maybe just give us an update on where things stand in terms of sort of your current visibility into getting into the market. And how much of a cost, sort of, benefit are you looking from it? Is that embedded in the model as well, the long-term model?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. In terms of opportunities, the other thing that, as I was writing out these questions, came to mind is you have capabilities at the component level. You have capabilities at the chip level as well. How does that position you with the current manufacturing footprint in terms of benefiting from funding plans like the CHIPS Act? Do you see an opportunity to participate in that given the capabilities that you have?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Got it. Any questions from the audience? Okay. So let me ask you a couple more and wrap it up. LiDAR, definitely an interesting opportunity, that's ramping but slowly. Firstly, the $3 million of revenue that you have, can you just clarify who is -- who are the customers 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. MAY 22, 2023 / 6:30PM, LITE.OQ - Lumentum Holdings Inc at JPMorgan Global Technology, Media and Communications Conference Are these the LiDAR players that we hear of? Or are these sort of OEMs? Like what is the nature of the customer there? And from what we can see, most of this market starts to ramp sort of 2024. And really, in terms of volumes, what are your thoughts in terms of time lines?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Last one for you before we wrap up. Obviously, there was sort of the intent to diversify the business in terms of going after the legacy Coherent. You've done some amount of that organically. Where do things stand now in terms of your intent to diversify the business, either organically or inorganically? Like if you separate out the 2, how much do you want to sort of delve into each? And particularly, when you think about organic sort of diversification, what are the areas you're more considering? Because with everything happening around datacom, AI, et cetera, you would probably create more index to communication than before.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. We're almost up on time, so I'll wrap it up there. Thank you. Thank you for coming to the conference. Thank you, everyone.