Lumentum’s CEO says it’s beginning to unlock the massive potential of OCS and CPO

OCS potential grows

OCS continues to show potential for Lumentum, surpassing its initial expectations. While the company originally targeted its first $10 million quarter for the fiscal third quarter, it surpassed that mark three months ahead of schedule.

“This outperformance is a direct result of the seamless collaboration between our engineering and operations teams, proving our ability to scale complex technology at pace,” Hurlston said.

Customer demand for Lumentum’s OCS platforms continues to mount with an order backlog that has surpassed over $400 million, the majority of which it said will ship in the second half of the year.

Hurlston said that “barring any unforeseen manufacturing or supply chain disruptions, we are well-positioned to deliver on this substantial pipeline.”

Likewise, Lumentum is seeing continued growth in cloud transceivers. During the second quarter, the company’s transceiver revenue grew significantly, outperforming the legacy cloud-like run rate. It expects continued growth in the third quarter.

“We have focused on time-to-market in the business and have greatly improved our execution throughout the design cycle,” Hurlston said. “As a result, we are now in the lead pack of transceiver suppliers as customers transition their networks to 1.6T speeds. Beyond design execution, we are also improving the profitability of our transceiver business with better yields and lower scrap rates.”

Positioned for CPO

Having secured an additional multi-hundred-million-dollar purchase order for its lasers that support optical scale-out applications, Lumentum sees significant momentum in scale-out CPO applications.

Lumentum’s ELSFP modules for CPO architecture provide centralized light sources for next-generation data center designs. 

“On CPO, we feel good about our position,” Hurlston said. “I mean, certainly, for EMLs.”

He added that it has also addressed CPO’s reliability concerns, particularly for high-power lasers entering the CEO.

“One of the big issues with CPO has always been reliability, and I think now we've regained real customer confidence,” Hurlston said. “I mean, it is much more broad-based.”

Optical Scale-up opportunities

As the data center industry pushes the scale boundaries of copper, there are growing opportunities to address optical scale-up.

In current data center architecture, there’s a clear divide. Optical links handle scale-out networking, connecting relatively longer links. However, copper links dominate scale-up connectivity, referring to the ultra-short-reach high-speed pass within a single rack or a cluster.

“While copper has long been the gold standard for scale-out for simplicity and cost, it is hitting a physical wall,” Hurlston said. “An industry pivot is underway to bypass the scaling limits of copper. By late 2027, we expect our first scale-out CPO shipments to replace longer copper connections.”

In preparation for the scale-up optics opportunity, Lumentum is carefully assessing its projected wafer output plans.

“We are in active negotiations with leading customers to offset our capital requirements in exchange for long-term supply assurances,” Hurlston said. “These discussions underscore the critical nature of our technology and their road maps.”

Revenues beat expectations

From an overall revenue perspective, Lumentum’s second quarter $665.5 million in revenues came in at the high end of the company’s guidance.

Lumentum saw growth in both its components and laser chip business lines.

Components revenues reached $444 million, representing a 17% sequential increase and 68% year-over-year growth. Hurlston said, “This performance was fueled by broad-based demand across laser chips, laser assemblies, and in-line subsystems going primarily into inter-data center, DCI, and long-haul applications.”

In its laser-chip business, serving cloud transceiver customers drove sequential growth this quarter.  Led by 100 gig line speeds and bolstered by a ramp in 200G devices, Lumentum achieved another quarterly company record in EML laser shipments. It also expanded its footprint in next-generation architecture, shipping CW lasers to 800-gig manufacturers and increasing volumes of ultra-high-power laser shipments for CPO applications.

Looking to the third quarter, Lumentum has forecasted a new quarterly revenue record with its guidance midpoint exceeding historical revenue levels by a substantial margin.

“Within this outlook, we anticipate that approximately two-thirds of the sequential increase in revenue will be driven by our components portfolio, reflecting broad-based strength across cloud applications,” Hurlston said. “The remaining one-third will stem from systems, fueled by the continued ramp of high-speed transceivers and additional contributions from OCS.”

For related articles, visit the Business Topic Center.
For more information on high-speed transmission systems and suppliers, visit the Lightwave Buyer’s Guide.
To stay abreast of fiber network deployments, subscribe to Lightwave’s Service Providers and Datacom/Data Center newsletters.