Lumentum Holdings Inc Q1 2025 Earnings Call Transcript

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

Question: Samik Chatterjee - JPMorgan - Analyst : Hi, thanks for taking my questions, and congrats on the strong guide here. If I can just ask on the guide first. I think the implied increase quarter

Question: Samik Chatterjee - JPMorgan - Analyst : Got it. Got it. And for my follow up, you announced another sort of new customer win. Now, you have -- I mean, if I take in aggregate the two new customers you've announced in recent quarters, how should we think about the magnitude of the opportunity maybe after a full ramp with both of them compared to what was the original customer for Cloud Light? How should we think about the magnitude relative to the first original customer there when we take the new customers together? Thank you.

Question: Samik Chatterjee - JPMorgan - Analyst : Okay. Thanks for taking my questions.

Question: Simon Leopold - Raymond James & Associates - Analyst : Thank you very much. I wanted to dig a bit more into what's going on with the Cloud Light business. Reflecting back on when you reported your third fiscal quarter last year, you had talked about sort of the cadence of that business where we'd see a bit of a pause in June and September, which I think we've seen in sort of the snapback in December. And so what I'm trying to get an assessment of is sort of what's changed in that December outlook versus what you thought several quarters ago? Is it above, below, and what's different in terms of informing that expectation on Cloud Light? Thank you.

Question: Simon Leopold - Raymond James & Associates - Analyst : And then just as a follow-up, I'd like to get your perspective on how you see the market for 1.6 terabit devices evolving and what you would anticipate your role would be in that market, really sort of timing and magnitude perspective? Thank you.

Question: Simon Leopold - Raymond James & Associates - Analyst : Thank you.

Question: Karan Juvekar - Morgan Stanley - Analyst : Thank you. This is Karan Juvekar on for Meta. Just quickly and congrats on the quarter. I guess, are there any changes to your time line for vertical integration with Cloud Light? I think you mentioned sort of no shipments until the end of fiscal 2025, but just sort of any updated time line on your vertical integration 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. NOVEMBER 07, 2024 / 10:00PM, LITE.OQ - Q1 2025 Lumentum Holdings Inc Earnings Call

Question: Karan Juvekar - Morgan Stanley - Analyst : Okay, that's helpful. And then a quick follow-up on the telecom side. Are you sort of expecting sequential growth primarily from new products or products that didn't previously had inventory buildup? I think you mentioned that last quarter. I guess how do you expect sort of traditional telecom products to track and sequentially across the year? Thank you.

Question: Karan Juvekar - Morgan Stanley - Analyst : Thank you.

Question: Ananda Baruah - Loop Capital - Analyst : Hey guys, good afternoon. Thanks for taking the question. We just love to get your thoughts out on how to think about tariff positioning, tariff risk, hot topic kind of these days. So just your thoughts there in the context of diversifying out of China, and then I have a quick follow up as well. Thanks.

Question: Ananda Baruah - Loop Capital - Analyst : That's super helpful context. Thanks. And then a quick follow up is just on EML lasers given the this constraint position. Is there any -- I guess pricing power that you guys have or, or that you're using? And thanks. And that's it for me.

Question: Ananda Baruah - Loop Capital - Analyst : Thanks guys. Appreciate Alan.

Question: Mike Genovese - Rosenblatt Securities, Inc. - Analyst : Okay. Thanks very much. I guess can I just ask for more color on the telecom market. And when you make comments about '26 and '27 and that kind of visibility, is that all on the datacom side? Or how far does the telecom visibility extend?

Question: Mike Genovese - Rosenblatt Securities, Inc. - Analyst : Great. That's very helpful. And then finally, I guess, can you give me more color on the optical switch product in the data center? Like what's going to do in the data center? And is this kind of a completely new function? Or is it kind of like the -- will it replace anything or replace part of anything? And I'm specifically thinking about Ethernet switches, whether there's anything there?

Question: Mike Genovese - Rosenblatt Securities, Inc. - Analyst : I was just going to say, so basically sounds like larger cluster sizes of GPU as they get larger and larger, you need larger optical switches basically, to sort of summarize (multiple speakers)

Question: Mike Genovese - Rosenblatt Securities, Inc. - Analyst : Perfect. Thanks so much.

Question: Thomas O'Malley - Barclays Corporate & Investment Bank - Analyst : Hey guys, nice results, and thanks for taking the questions here. So, I wanted to understand the qualification process on the transceiver side. So you've now won another award, and you talked last quarter about kind of qualification in the first quarter time period with that first customer. So can you maybe refresh us here? So, two new customers, are both of them qualified yet, and when they are qualified, when do you normally get a feel for the volume that you're going to get? Obviously, being qualified and the amount that you actually end up shipping is a different thing, but you're very confident to next year. So just can you remind us when are these two customers going to be qualified, and then when will you have a feel for those volume forecasts for those two customers?

Question: Thomas O'Malley - Barclays Corporate & Investment Bank - Analyst : Super helpful. And then just looking at the moving parts to kind of get to that $500 million a quarter, you guys have kind of expressed an increased confidence there, perhaps a little bit above that. So, you're kind of in the low $300 million a quarter right now. You talked about EML setting a record. I think previously, you were about $80 million or so a quarter. So let's just assume a little bit above that. But you kind of talked about capacity being outstripped for 2025, so you're basically sold out there. So when I look at where you go from here, the low $300 million to kind of that $500 million range, is more of that incremental the EML lasers or is more of that incremental the qualifications of the new transceiver customers and they're ramping? Any help there would be really helpful. Thank you.

Question: Karl Ackerman - BNP Paribas - Analyst : Yes. Thank you. I wanted to double click on the hyperscale win as well as the design win you spoke about last quarter. Specifically, are these transceiver opportunities being driven by hyperscalers or large customers connecting their own AI processors? Or is it being driven by you being included on reference designs of maybe perhaps new GPU platforms? And as you address that question, are these initial transceivers now integrating your EMLs? If not, does that push out the ramp of these customers or hyperscalers ramping your optical products in 2025? Thank you.

Question: Karl Ackerman - BNP Paribas - Analyst : Yeah. I guess perhaps along the same lines then, could you discuss whether the new wins that you're receiving are driven by data center customers reallocating procurement of these optical transceivers to US. domiciled suppliers like yourself? Can you just comment on that? And then perhaps in addition to that, are you able to quantify maybe the expanding TAM that you see as these AI clusters now have the option of being of disaggregating some of the components of scale-up architectures? Are you also seeing that as a new opportunity? Thanks.

Question: Ryan Koontz - Needham & Company Inc. - Analyst : Great. Thanks for the question. I wanted to circle back to your comments around DCI and understand your exposure there on tunables. But can you maybe talk about what your opportunity is in the module space there? Are you present? Do you have any design wins in ZR today for ZR modules? And how should investors think about that opportunity for the company?

Question: Ryan Koontz - Needham & Company Inc. - Analyst : Yes. That makes sense. It's more of a mature market there. And then a quick question for Wajid around gross margins and kind of in lieu of kind of a lot of puts and takes going on here. How should we think about gross margins as the fiscal year unfolds here?

Question: Ryan Koontz - Needham & Company Inc. - Analyst : That's great. And just that capacity, you just talked about -- adding that capacity talk about? And does that have an overhead impact, also a little headwind there until it's fully (multiple speakers)

Question: Ryan Koontz - Needham & Company Inc. - Analyst : Sure. Thanks a lot guys.

Question: Christopher Rolland - Susquehanna International Group, LLP - Analyst : Hey guys. Thanks for the question. So Alan, I wanted to double click on your prior answer around vertical integration into lasers in particular, into Cloud Light. You said it mostly didn't change. I wanted to know what actually did change there. And then you suggested the second half of 2025 for those margin benefits. So, I would assume that's a timetable for integration. And perhaps I may have been wrong here in my assumption, but my assumption is that you would be more meaningfully integrating in the first half. So I'd love to know, is this a qualification issue? Is this not a delay? Was this just my understanding that's wrong? Is this EML constraints?? What exact is that timetable pushing out indeed a bit for vertical integration? And what's causing it?

Question: Christopher Rolland - Susquehanna International Group, LLP - Analyst : Thank you very much guys. That actually cleans up a lot for me, clears up a lot at least. It also probably brings me to my second question, which is trying to understand more about EMLs. I mean it just seems like the whole market is moving here. AI demand is inflecting units. There's one other big EML player as far as I recognized at least. It seems like if you have this EML capacity available, it actually has pull into your transceiver units pipeline, market share, customers, new customers, et cetera. So, why are we talking about 40%? Like why aren't we talking about like 100% or even more here? Why is 40% the right number here? And like how capital intensive is this? If you wanted to, like how fast could you get new lines up? And would you be leaning on overbuilding versus underbuilding just given what seems like the importance of this part into this new cycle? Thanks.

Question: Christopher Rolland - Susquehanna International Group, LLP - Analyst : Perhaps just one more follow-up. Why don't you use -- okay. thanks guys. I was just going to say, why don't you use your limited EML capacity to bring new cloud like customers online? It seems like that would be two birds stone?

Question: Christopher Rolland - Susquehanna International Group, LLP - Analyst : Thanks guys. Sorry for the third question.

Question: Richard Shannon - Craig-Hallum Capital Group LLC - Analyst : Hi. Glad to get in under the wire here. Thanks for taking my questions guys. I'll follow up on the topic of the optical circuit switching here is a couple of earlier questions and comments. Maybe you can just kind of delineate the timeframe for qualification and volume ramps here just to get a sense there? And then also your close peer who reported recently has obviously talked about a product in this area. Maybe you can discuss how you're differentiated or different or complementary to what they're doing.

Question: Richard Shannon - Craig-Hallum Capital Group LLC - Analyst : Okay. That's great detail. Thanks for that, Alan. My second question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 10:00PM, LITE.OQ - Q1 2025 Lumentum Holdings Inc Earnings Call

Question: Richard Shannon - Craig-Hallum Capital Group LLC - Analyst : Okay, great. Thanks for that Alan. My second question is on a topic that hasn't been asked in a while, and that's 3D sensing. Is there anything going on here either in your kind of past markets or new markets here that's going to give us any signs of growth and improvement anytime soon?

Question: Richard Shannon - Craig-Hallum Capital Group LLC - Analyst : Great. Thank you guys.