Lumentum Holdings Inc. Q2 FY2025 earnings call

• Leadership Transition: Alan Lowe is retiring as CEO, succeeded by Michael Hurlston.
• Second Quarter Performance: Exceeded guidance for revenue and EPS, driven by cloud customer demand. Cloud and Networking growth from strong end market demand; Industrial Tech had sequential increase but year-over-year decline.
• Strategies: Three-pronged strategy for cloud business: expanding customer base, scaling capacity, and partnering with customers.
• Product Highlights: Cloud and Networking saw sequential growth in Datacom transceivers, EML shipments at record, and DCI products in demand. Industrial Tech had new 26 kW fiber lasers and ultrafast laser shipments at record.

Cloud and Networking segment revenue was $339.2 million in the second quarter, increasing 20% sequentially and 18% year-over-year. This was driven by strong end market demand from cloud hyperscale customers, with sequential growth in nearly all Cloud and Networking product lines, including Datacom transceivers and EML unit shipments reaching a record. Industrial Tech segment revenue increased 15% sequentially but was down 21% year-over-year. The sequential increase was due to higher industrial laser shipments, offset by seasonally lower 3D sensing shipments. Year-over-year decline reflected a challenging industrial end market.

Fiscal Q3 net revenue expected to be in the range of $410 million to $425 million. Cloud and Networking expected to grow sequentially, while Industrial Tech expected to decline sequentially. Non-GAAP operating margin projected 9.5% to 10.5%, diluted net income per share $0.47 to $0.53. Projections assume a non-GAAP annual effective tax rate of 16.5% and approximate share count of 73 million shares.

• Supply chain constraints, particularly for hermetic packages affecting coherent components and narrow line width lasers.
• Macro-economic challenges impacting industrial laser demand.
• Minimal tariff impacts expected in the short to mid-term, but potential consequences for the industry worldwide.

Q: Samik Chatterjee asked about the drivers of sequential revenue increase in Cloud and Networking.

A: Wajid Ali responded that Datacom business (chips and transceivers) is driving growth, with supply chain constraints somewhat limiting growth, and Industrial Tech expected to decline by about $10 million.

Q: Thomas O'Malley inquired about 200 gig EML capacity and the $500 million target.

A: Alan Lowe stated they are on track for capacity growth, with demand outstripping capacity, and are on track to reach $500 million by end of calendar 2025.

Q: Simon Leopold asked about Co-Package Optics (CPO) and telco demand.

A: Wajid Ali discussed CPO as an opportunity for Lumentum, and Alan Lowe mentioned telco demand showing uptick with strong interconnecting data center demand.

Q: George Notter asked about transceiver customer transitions and milestones for new cloud provider customers.

A: Alan Lowe said there's a pipeline of new products with largest customer, and new customers are in qualification with shipments expected to ramp.

Q: Meta Marshall asked about gross margins and customer size.

A: Wajid Ali explained gross margin impacts from ramp-up yield issues and infrastructure in Thailand, with Alan Lowe adding on customer size potential.

Q: Ruben Roy asked about supply chain constraints and EML/SiPho mix.

A: Alan Lowe discussed supply chain constraints for hermetic packages and EML/SiPho mix expectations.

Q: David Vogt asked about gross margins and tariffs.

A: Wajid Ali explained gross margin drivers and minimal tariff impacts, with Alan Lowe adding on infrastructure utilization.

Q: Ryan Koontz asked about DCI CapEx and space industry interest.

A: Alan Lowe said DCI is additive with strong demand, and space industry has small but growing business.

Q: Karl Ackerman asked about Datacom transceiver wins and CapEx trajectory.

A: Alan Lowe discussed transceiver win speeds and Wajid Ali talked about CapEx trajectory in back half of fiscal year.

Q: Ananda Baruah asked about new customer ramping and CapEx for EMLs.

A: Alan Lowe provided ramping timelines for new customers, and Wajid Ali discussed CapEx for EML capacity expansion