Lumentum Holdings Inc. (LITE)

Business overview

BUSINESS General Overview Lumentum Holdings Inc. (“we,” “us,” “our”, “Lumentum” or the “Company”) is a global leader in optical and photonic technologies and an industry-leading provider of optical and photonic products based on revenue and market share. Our products are essential to a range of cloud, artificial intelligence and machine learning (“AI/ML”), telecommunications, consumer, and industrial end-market applications. We operate in one reportable segment as a single, integrated enterprise. See “Note 17. Operating Segments and Geographic Information” to the consolidated financial statements.

We disaggregate revenue by type of product, which are Components and Systems, and by geography. A Components product is defined as one of the individual building blocks that goes into creating a larger solution. It is typically not a complete solution on its own but rather a specialized element that enables system functionality. This includes semiconductor laser chips, laser sub-assemblies, line subsystems and wavelength management systems. These are supplied to customers who then integrate them into their own full system solutions. Components represent foundational parts that support or enable that system’s operation and include optical chips and subsystems that are supplied to cloud data center operators, AI/ML infrastructure providers, and network equipment manufacturer customers.

A Systems product is defined as a complete, stand-alone solution that delivers full functionality to the end customer. It is typically self-contained and ready to operate within a customer’s network or application environment. This includes optical modules, optical circuit switches, and industrial lasers such as short-pulse solid-state lasers and kilowatt-class fiber lasers. These products integrate multiple technologies and subsystems into a finished solution that directly addresses a customer’s needs. A system represents the end-product that can be deployed and used independently. Our products enable high-capacity optical links for cloud computing, AI/ML workloads, and data center interconnect (“DCI”) applications, as well as for communications service provider networks.

Our offerings support access (local), metro (intracity), long-haul (intercity and global), and submarine (undersea) network infrastructure. Our products serve enterprise network infrastructure needs, including storage area networks (“SANs”), local area networks (“LANs”), and wide area networks (“WANs”). Demand for our products is fueled by the ongoing expansion of network capacity required to support cloud services, AI/ML processing, streaming video, video conferencing, wireless and mobile connectivity, and the internet of things (“IoT”). In addition, our industrial laser products are used for precision material processing across diverse industries, including semiconductor and microelectronics fabrication, electric vehicle and battery production, metal cutting and welding, and advanced manufacturing that emphasize greater manufacturing precision, flexibility, and sustainability.

2 We have a global footprint that enables us to address global market opportunities for our products with employees engaged in research and development (“R&D”), administration, manufacturing, support and sales and marketing activities in various locations worldwide. Our headquarters are located in San Jose, California, and we have manufacturing capabilities and facilities in North America, Asia-Pacific, and Europe. Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (“JDSU”) on February 10, 2015. In August 2015, we were spun off from JDSU and became an independent publicly traded company through the distribution of our common stock by JDSU to its stockholders. Since our spin-off from JDSU (now Viavi Solutions, Inc.

, or Viavi), we have completed a number of acquisitions, including Oclaro, Inc. (“Oclaro”) in 2018, NeoPhotonics Corporation and IPG Photonics’ telecom transmission product lines in 2022, and Cloud Light Technology Limited (“Cloud Light”) in 2023. These acquisitions have enhanced our product portfolio, broadened our revenue mix and strengthened our position to meet the evolving needs of our customers. Our Industry Our business is driven by end-market applications leveraging the performance advantages of advanced optical and photonic solutions. We operate within global markets characterized by robust, long-term growth trends that are increasing demand for our products and technologies. The convergence of factors including the growing reliance on data transmission, the rapid adoption of AI/ML, and the increasing digitalization of society is driving expansion in cloud data centers and the demand for higher-bandwidth network solutions.

Our products and technologies are at the forefront of these trends, engineered to support increased data volumes and computational loads while meeting the industry's need for advanced network capabilities. Additionally, the manufacturing industry's pursuit of higher precision, innovative materials, and improved efficiency fuels demand for industrial laser-based solutions. Lumentum is well-positioned to capitalize on this trend through the provision of ultrafast lasers for micromachining and advanced material processing. In addition, we also produce laser emitters for 3D sensing applications in consumer electronics. […]

Management discussion and analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with the audited consolidated financial statements and the corresponding notes included elsewhere in this Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Refer to “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Overview We are a global leader in optical and photonic technologies and an industry-leading provider of optical and photonic products based on revenue and market share.

Our products are essential to a range of cloud, artificial intelligence and machine learning (“AI/ML”), telecommunications, consumer, and industrial end-market applications. We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that will increase the need for our photonics products and technologies. We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum’s products and technology enable the scaling of these optical networks and data centers to higher capacities. AI/ML has caused a dramatic surge in the growing demands on data networking in cloud data centers and accelerated the usage of optical components and modules. We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life will continue into the future.

Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technologies address. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser-based approaches, including the types of lasers Lumentum supplies. Laser-based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles will over time significantly add to our long-term market opportunity.

To maintain and grow our market and technology leadership positions, we are continually investing in new and differentiated products and technologies and customer programs that address both nearer-term and longer-term growth opportunities, both organically and through acquisitions, as well as continually improving and optimizing our operations. Over many years, we have developed close relationships with market-leading customers. We seek to use our core optical and photonic technologies and our volume manufacturing capability to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide. We disaggregate revenue by type of product, which are Components and Systems, and by geography. A Components product is defined as one of the individual building blocks that goes into creating a larger solution.

It is typically not a complete solution on its own but rather a specialized element that enables system functionality. This includes semiconductor laser chips, laser sub-assemblies, line subsystems and wavelength management systems. These are supplied to customers who then integrate them into their own full system solutions. Components represent foundational parts that support or enable that system’s operation and include optical chips and subsystems that are supplied to cloud data center operators, AI/ML infrastructure providers, and network equipment manufacturer customers. A Systems product is defined as a complete, stand-alone solution that delivers full functionality to the end customer. It is typically self-contained and ready to operate within a customer’s network or application environment.

This includes optical modules, optical circuit switches, and industrial lasers such as short-pulse solid-state lasers and kilowatt-class fiber lasers. These products integrate multiple technologies and subsystems into a finished solution that directly addresses a customer’s needs. A system represents the end-product that can be deployed and used independently. Our products enable high-capacity optical links for cloud computing, AI/ML workloads, and data center interconnect (“DCI”) applications, as well as for communications service provider networks. Our offerings support access (local), metro (intracity), long-haul (intercity and global), and submarine (undersea) network infrastructure. Our products serve enterprise network infrastructure needs, including storage area networks (“SANs”), local area networks (“LANs”), and wide area networks (“WANs”). […]

Key risk disclosures

“Risk Factors” of this Annual Report. 3 Geopolitical Developments As a global business with operations spanning diverse geographic regions, we are exposed to geopolitical risks. Fluctuations in the geopolitical landscape, including war, military conflicts, changes in export regulations, the effects of heightened, scheduled, or proposed tariffs, and shifts in national priorities and foreign relations policies, can significantly impact our business. For instance, modifications to trade restrictions and export regulations can adversely affect both product demand and our ability to supply customers, which would harm revenue and profit margins. Moreover, disruptions in our customers' supply chains due to geopolitical events could reduce or delay their demand for our products, ultimately impacting our revenue and operating results.

For more information on risks associated with the change in geopolitical landscape and regulatory actions, refer to Item 1A “Risk Factors” of this Annual Report. Markets We maintain leading market positions in our fast-growing optical networking markets through our extensive product and technology portfolio and close relationships with a wide range of market-leading customers. We provide a wide range of optical and photonic components, modules, and subsystems that support high-speed, high-capacity transmission of data over fiber optic links in cloud data centers, AI/ML, enterprise and communications services networking. Our customers include cloud and network service providers, AI infrastructure providers, and network equipment manufacturers (“NEMs”). Within data center and AI/M applications, our products enable high-speed interconnection across networked servers, AI accelerators, storage, and switches.

Within communication service provider applications, our products support high-capacity access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) optical networks. Within the industrial market, our diode lasers serve as pump sources for high-power fiber lasers used in metal fabrication and other demanding applications. Our ultrafast lasers cater to industries such as printed circuit board manufacturing, semiconductor processing, electric vehicle battery production, solar cell production, and flat panel display fabrication, where precise micromachining is essential. In the consumer electronics market, our laser light sources are integral components of 3D sensing cameras used in smartphones, computers, and other consumer electronics devices. These 3D sensing capabilities enable applications such as biometric identification, augmented and virtual reality, and computational photography.

Trends The convergence of cloud computing and AI is driving rapid innovation and expansion in optical hardware for hyperscale operators. The immense computational demands of training and running AI models are shifting infrastructure from traditional copper interconnects to high-speed photonics. Concurrently, surging data traffic from video streaming, search engines, e-commerce, and cloud services continues to fuel the data center expansion. Photonic solutions offer substantial advantages over copper connections, including ultra-fast, high-volume data transmission and reduced electromagnetic interference, enabling data traffic to continue to scale to accelerate AI model training and enhance high-performance computing (“HPC”) efficiency. To address these challenges, web-scale companies are adopting distinct optical architectures: • Scale-Out Optical Solutions: Optical hardware connects individual compute clusters, servers, and switches across the broader data center network to manage massive parallel workloads.

This includes the adoption of 200G lane speed optical components that double data transfer rates compared to traditional 100G lanes. • Scale-Up Optical Solutions: High-speed photonics and optical switches are deployed to directly cluster and interconnect GPUs and AI accelerators within the compute fabric, maximizing cluster efficiency and processing speeds. • Scale-Across DCI Solutions: High-speed data center interconnects (“DCIs”) are constructed to enable seamless, low-latency data exchange across geographically dispersed data center units. This scale-across capability optimizes resource utilization by allowing cloud operators to leverage and balance computing power across multiple disparate locations. The exponential growth of data across industries also drives the expansion of long-haul, metro, and access networks.

Dense wavelength-division multiplexing (“DWDM”) technologies are being leveraged to increase data speeds while reducing costs. High-end networking equipment must now handle both legacy and internet protocol traffic while meeting stringent requirements for bandwidth, scalability, speed, reliability, compactness, and cost-effectiveness. 4 Further, the dynamic nature of network traffic demands agile optical networks that adapt to changing conditions. Technologies like Reconfigurable Optical Add-Drop Multiplexers (“ROADMs”), wavelength-selective switches, and tunable transmission products facilitate remote capacity adjustments. This need for capacity expansion across DCIs, metro regional networks, and long-haul networks is further accelerated by the widespread deployment of 5G mobile networks and bandwidth-intensive applications is increasing data speed at the network edge. The industrial laser market is driven by the pursuit of precision and efficiency in material processing. Fiber lasers have surpassed gas lasers in sheet metal processing and welding due to their superior power, beam quality, power efficiency, and cost-effectiveness. […]

Source and methodology

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