Lumentum is optimistic about its position as a key supplier of cloud transceivers, optical circuit switching (OCS), and co packaged optics (CPO) to support the thriving AI revolution. The company continues to make progress through direct cooperation with ultra large scale data center operators, and is also a key component supplier for its network equipment manufacturer customers.

Previously, Lumentum listed three major growth catalysts: cloud transceivers, optical circuit switching, and co packaged optics. Lumentum CEO Michael Hurlston said, “Most of these growth is still ahead of us, and we have stronger confidence in the timing and scale of the growth initiation.”

He said, “Although our Q2 performance and Q3 guidance reflect significant contributions from cloud transceivers, we have only just begun to unleash the enormous potential of OCS and CPO. In addition to these high growth drivers, our Q2 performance also benefited from the continued execution of our basic components business, particularly laser chips for cloud applications and specialized components for DCI.”

OCS potential continues to grow

OCS’s potential for Lumentum continues to emerge, exceeding initial expectations. Although the company’s original goal was to achieve its first quarter of revenue of tens of millions of dollars in the third fiscal quarter (referring to the quarter ending March 2026 in the calendar year), it exceeded this goal three months ahead of schedule.

Hurlston said, “This unexpected performance is directly attributed to the seamless collaboration between our engineering and operations teams, demonstrating our ability to rapidly scale complex technologies.”

The demand for Lumentum OCS platform from customers continues to grow, with a backlog of orders exceeding $400 million. The company has stated that the majority of these orders will be shipped in the second half of this year. Hurlston said, “Unless there are any unforeseeable manufacturing or supply chain disruptions, we are fully capable of delivering this massive order reserve.”

Similarly, Lumentum continues to grow in the field of cloud transceivers. In the second fiscal quarter, the company’s transceiver revenue significantly increased, surpassing the traditional cloud business operating rate level. The company expects to continue to grow in the third quarter.

Hurlston said, “We are focused on shortening the time to market in our business and greatly improving the execution of the entire design cycle. Therefore, as customers transition their networks to 1.6T speeds, we have now entered the first tier of transceiver suppliers. In addition to design execution, we also enhance the profitability of our transceiver business by improving yield and reducing scrap rates.”

Prepare for CPO

After obtaining another laser purchase order worth billions of dollars (to support optical Scale out applications), Lumentum sees strong momentum in Scale out CPO applications. Lumentum’s ELSFP module for CPO architecture provides a centralized light source for next-generation data center design.

Hurlston said, “In terms of CPO, we are satisfied with our position. Of course, this is especially true in the field of EML lasers.” He added that the company has also addressed the reliability issues of CPO, especially for high-power lasers entering the CEO field.

Hurlston said, “A major issue with CPO has always been reliability, and I believe we have now regained the true trust of our customers. And the foundation of this trust is much broader.”

Optical Scale up Opportunities

As the data center industry continues to challenge the expansion limits of copper cables, the optical scale up field is facing increasing opportunities. In the current data center architecture, there are clear boundaries. The optical link processing Scale out network connects relatively long links. Copper cable links dominate longitudinal expansion connections, which are ultra short distance high-speed connections within a single rack or cluster.

Hurlston said, “Although copper cables have long been the gold standard for scale out due to their simplicity and cost, they are facing physical bottlenecks. An industry transformation is underway to break through the expansion limitations of copper cables. By the end of 2027, we expect the first batch of CPO products to be shipped to replace longer copper cable connections.”

In order to embrace the opportunities of Scale up optics, Lumentum is carefully evaluating its planned wafer production plan. Hurlston said, “We are actively negotiating with our major clients in exchange for long-term supply guarantees to offset our capital needs. These discussions highlight the criticality of our technologies and their importance in their roadmap.”

Revenue exceeds expectations

From an overall revenue perspective, Lumentum’s Q2 revenue was $665.5 million, which is at the high end of the company’s guidance. Lumentum’s two business lines of components and laser chips have both achieved growth.

The revenue of the electronic components business reached 444 million US dollars, a month on month increase of 17% and a year-on-year increase of 68%. Hurlston said, “This performance is due to the widespread demand in areas such as laser chips, laser components, and online subsystems, which are mainly used for data center interconnection, DCI, and long-distance applications.”

In its laser chip business, serving cloud transceiver customers drove the quarter on quarter growth. Driven by the 100G line speed and the growth in 200G device shipments, Lumentum’s EML laser shipments have reached a new quarterly high. The company has also expanded its layout in the next-generation architecture, shipping continuous wave lasers (CW Laser) to 800G manufacturers and increasing shipments of ultra-high power lasers for CPO applications.

Looking ahead to the third quarter, Lumentum is expected to set a new quarterly revenue record, with its median guidance significantly exceeding historical revenue levels. Hurlston said, “In this outlook, we expect about two-thirds of the quarter on quarter revenue growth to come from our component product portfolio, reflecting the widespread growth of cloud applications. The remaining one-third will come from our systems business, benefiting from the continued growth of high-speed transceivers and the additional contribution of OCS.”