Lumentum’s CEO says scale-across data center interconnection is a significant opportunity
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Here are other stories on Lumentum:
- Lumentum’s CEO says it’s beginning to unlock the massive potential of OCS and CPO
- Lumentum’s CEO expects co-packaged optics (CPO) interest to accelerate
- Lumentum’s CEO says cloud is driving datacom growth
- Lumentum’s outgoing CEO, Lowe, says data center interconnect demand is rising again
- Lumentum’s CEO: We’ll accelerate the growth of our data center interconnection products
Lumentum is keen to get a piece of the burgeoning scale in the data center interconnection (DCI) segment as the industry looks to extend AI infrastructure across multiple data centers, campuses, or geographic regions, enabled by long-reach optical connectivity.
To address the scale across opportunities, Lumentum continues to offer components, including its pump lasers and narrow-linewidth laser assemblies. The pump lasers enable scale-across architectures to amplify the light signal over 4, 8, or 16 fiber pairs simultaneously. In contrast, their narrow-linewidth laser assemblies provide the precision required for 1.6T speeds and higher-order modulation.
It also offers wavelength-selectable switches (WSS) that keep the optical domain, bypassing the latency of electrical buffers, while enabling the high port counts essential for massive fiber routing between data center buildings.
Michael Hurlston, CEO of Lumentum, told investors during the company’s third-quarter fiscal year 2026 earnings call that scale across is a “significant opportunity.”
“As hyperscalers exhaust the power and space limits of individual data center buildings, they are shifting to distributed architectures that link compute domains across disparate geographies,” he said. “These scale-across networks require high-bandwidth synchronization across multiple data centers.”
Besides its traditional components, Lumentum is starting to see early momentum in scale-out co-packaged optics (CPO) and optical circuit switches (OCS).
“While we're seeing initial contributions from both scale-out CPO and OCS, they are still relatively modest,” Hurlston said. “Furthermore, our largest single growth driver, scale-up CPO, is still very much in its infancy.”
Tracking multi-rail opportunities
Within the scale-out segment, Lumentum is also closely tracking the emerging multi-rail optical networking.
Multi-rail is an architectural shift in optical line systems designed to handle the petabit-per-second capacity demands of distributed AI clusters and hyperscale data centers.
By treating filled fiber pairs, or rails, as the foundation, multi-rail systems can save space and power. From there, multiple pairs of parallel fibers—each serving as a high-capacity optical highway—are integrated into a single dense module that shares centralized components.
Joining the likes of Ciena, Cisco, Coherent and Nokia, Lumentum has taken an active part in the multi-rail opportunity, demonstrating its Multi-rail Coherent Optical Channel Monitor (C-OCM) during this spring’s OFC tradeshow.
Lumentum’s C-OCM integrates two C-band and two L-band channels. These four channels can be scanned concurrently, delivering instrument-grade resolution for enhanced diagnostics and performance monitoring capabilities.
Hurlston said the company sees potential for multi-rail technology in scale-across architectures.
“Looking forward, our emerging multi-rail technology will be vital for the increased parallelism required by the massive fiber counts and scale-across networks,” he said. “As we look out right now, we are probably more constrained in this area than even EMLs, particularly on things like pump lasers, narrow linewidth lasers for sure.”
Wupen Yuen, President, Global Business Units for Lumentum, added that while the company can’t yet fully quantify the multi-rail opportunity, “we believe there's a huge opportunity for Lumentum to grow our business and gross margins.”
Components and systems revenues rise
Lumentum reported that third-quarter revenue of $808.4 million was above the company’s midpoint of its guidance range.
The company also saw an increase in its quarterly gross margin.
“Third quarter gross margin was 47.9%, which was up 540 basis points sequentially and up 1,270 basis points year-on-year due to better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix,” said Wajid Ali, CFO of Lumentum. “The improvement in product mix was primarily driven by growth in data center laser chips.”
Systems revenue reached $275 million, representing a 24% sequential and 121% year-over-year increase. Cloud transceivers accounted for the lion's share of this growth, increasing over 40% sequentially as the company leveraged its expanded manufacturing footprint in Thailand.
Components revenue for the quarter was $533 million, reflecting a 20% sequential increase and 77% year-over-year growth. Shipments of our narrow linewidth laser assemblies grew for the ninth consecutive quarter, rising over 120% year-over-year, while pump laser shipments grew 80% year-over-year.
During the third quarter, its cash and short-term investments increased by $2.02 billion to $3.17 billion, primarily driven by NVIDIA's direct investment in Lumentum.
To support the expected growth in our cloud and AI-related revenue, Lumentum raised its inventory levels by $62 million sequentially. The company spent $125 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers.
Looking ahead to the fourth quarter, Lumentum forecasts net revenue in the range of $960 million to $1.01 billion. The $985 million midpoint would represent another new all-time quarterly revenue record for Lumentum.
“Looking ahead to Q4, we expect to set another quarterly revenue record. We anticipate that over half of the sequential growth will stem from our components business,” Hurlson said. “The remainder will be driven by the continued ramp of our systems portfolio, primarily through high-speed transceivers and additional contributions from OCS.”
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Sean Buckley
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