Lumentum Holdings Inc at Raymond James TMT and Consumer Conference Transcript

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

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So I think it's sort of nice in terms of a December conference to sort of think about the next year. So I know you're on a fiscal year ending in June. But how do you sort of -- what's sort of your expectation, your high-level view of what's in store for us in calendar '25?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So what do you think will be kind of the main characteristics of your business if we sort of look out that three years? How is it going to be different than today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 7:20PM, LITE.OQ - Lumentum Holdings Inc at Raymond James TMT and Consumer Conference

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So take us back to the present. We've gone through a period where there was excess inventory at your customers. And I think it affected primarily two lines of your business if I'm thinking about it correctly as the telecom components and the industrial lasers. Help us and understand where does that stand today? And what does a recovery look like?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Now, I want to maybe unpack a little bit about what you've said about your long term financial model and how we get there. So I think in the most recent quarter, you've done just over $300 million in quarterly sales, gross margins in the 30s. But you've talked about getting gross margins back up towards the 40% range and operating margins back into the 20s. Yeah, I reflect back at the sort of the prior cycle when you were big with 3D Sensing, we had operating margins.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : High-30s, right?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So what's sort of the moving parts to get to those milestones?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Now, to get to those kind of higher revenue rates, higher margin rates, what's the planning in terms of factory capacity footprint investment? And when do you opt to outsource? So in the past, you've used contract manufacturers, what's sort of your build by decision process?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So one of the areas that is just dominating our inbound discussions, it's all about AI. So maybe talk a little bit about the specifics of the AI opportunities for Lumentum. I think, we've generally assumed that when you sell an 800-gig transceiver that correlates directly to AI. Can debate whether or not your data center interconnect is related to AI. How do you factor this into your own planning? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 7:20PM, LITE.OQ - Lumentum Holdings Inc at Raymond James TMT and Consumer Conference

Question: Simon Leopold - Raymond James Financial Inc - Analyst : What's your sort of best guess or, third party research on how do you size the TAM for that? So I assume we've got the optical switches, the transceivers, your EMLs, what's the opportunity?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And maybe take the opportunity to educate folks a bit and we're trying, but we often get these questions around vixels versus silicon photonics versus EML. And the questions often sound like who's the winner as if something is going away and the other one wins. How do you think about this because you played in all three flavors, how would you explain to a financial audience how to sort of factor that market, what's important?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So I would appreciate because of your position in the EML market, you might have an EML bias.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : But cloud light products have been mostly silicon photonic. So how do you explain that sort of difference? Why or when would you migrate that to an EML or is it a matter of sort of build materials? What's the logic behind that?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Now, this industry is, I think always been a little bit crazy in that you've got a lot of coopetition. So you sell to your competitors, you buy from your competitors. How do you explain that to somebody who's new to following the space of you're selling EMLs to companies that are selling transceivers up against your transceivers. Why does that work? Why is that a good strategy?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Now, you mentioned a couple of sort of leading edge technologies like co-package optics, which I feel like have been on the horizon for ever. And we're hearing more and more about coherent technology getting use cases inside the data center. How does this affect your business? How does it affect your strategy? What do you need to do or how would it affect you?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And in those cases you've got, you need to partner with or align with either a network processor or GPU, right. So you'd have to work with some basically semiconductor company. There's not something you could be doing on your own there.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Now, am I correct in remembering that you had a DSP effort for coherent optics, and you scrapped that, is that correct?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Which makes sense to me. So you seem apologetic. I'd rather you grow faster and get better earnings and throw money where it's not needed. So I don't think apologies, make sense there, but nonetheless, so how do you sort of play into that market if coherent starts getting inside the data center, how does that affect your business?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So maybe use this to sort of pivot to the Telecom discussion. So that market has been in sort of an excess inventory situation for some time, and I guess there's some debate as to what a recovery looks like. So some of the discussions we've had with some of the OEMs, your customers have said, "hey, you don't need to replace the ROADMs every year because they're speed agnostic". So maybe this market doesn't go back to the prior peaks between the usability and between, overbuying. What's sort of your thinking of how to forecast out that overall market?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And is this, -- how has this changed your customer mix in that generally you've sold into OEMs manufacturers of systems. Now, maybe you have more direct sales to operators, the cloud guys. How's, that snapshot look today and how is it going to change over time?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And how is sort of the changes in architecture going to these open line systems? How has that affected your business? Are you seeing opportunities to sell directly to telcos now or you can sell them a ROADM line card, or did that never really play out?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And how do you feel about the submarine market? Your amplifiers are generally, there well, just the other day my mom sent me an article about all these submarine cables being cut out by Africa which I had missed. So we keep hearing about these constraints and this argument that there's a major build cycle for submarine. What's your thought on that market dynamic?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Well. It also speaks to the importance of route diversity though.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : So how big a business is that for you, the amplifier side of it, that's in Telecom, is that material or?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : Yeah.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : It's basically a duopoly is my impression.

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And then, the ROADM market, you've talked a bit about some new opportunities as with L-band. Can you help us really frame out how material that is? How does sort of the next cycle of upgrades compared to the previous cycles?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : How about I want to pivot to the commercial laser business? I personally, it's been frustrating because it always feels like we're talking about the ROADM to $200 million in sales, getting to $400 million in sales and then something happens. So we've had a couple of disappointing quarters of late. We've had some product transitions just help us reflect on maybe lessons learned in that. It's always looked like there's a lot of promise on the horizon and then there's some obstacle pops up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 7:20PM, LITE.OQ - Lumentum Holdings Inc at Raymond James TMT and Consumer Conference

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And I guess, I've developed a better appreciation of the complexity of that industry. So when I first started covering, I just sort of industrial lasers are one thing. And I guess it would help to maybe help, frame who are your competitors because that maybe set some context because there are companies like IPG; and Enlight; and Coherent; and then Raycus in China. So it seems like a crowded market, but everybody's kind of got their thing. So what's sort of where you're competing?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : How long does that normally takes?

Question: Simon Leopold - Raymond James Financial Inc - Analyst : And we're just about out of time. So I always like to close with the same question, this is coming. So what do you think is the least appreciated aspect of either Lumentum story or the stocks? Give you a chance to sort of leave the investors audience with a sound bite. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 09, 2024 / 7:20PM, LITE.OQ - Lumentum Holdings Inc at Raymond James TMT and Consumer Conference