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10 February 2017

Lumentum's revenue grows 21% year-on-year to record $265m, driven by 100G datacom growth of 537%

For fiscal second-quarter 2017 (to end-December 2016), optical and photonic product maker Lumentum Holdings Inc of Milpitas, CA, USA has reported record net revenue of $265m, up 2.7% on $258.1m last quarter and up 21% on $218.3m a year ago, driven by strength in demand for 100G datacom, pump laser and submarine products.

Commercial Lasers revenue was $28.4m (10.7% of total revenue), down 28.6% on $39.8m last quarter and 12.6% on $32.5m a year ago, driven by seasonal weakness in the micro-materials processing market, muted capital equipment spending in the semiconductor industry, and a major customer fiber-laser product transition (with fiber-laser revenue dropping from the record $17.2m last quarter to just $10.6m).

In contrast, Optical Communications revenue was $236.6m (89.3% of total revenue), up 8.4% on $218.3m last quarter and up 27.3% on $185.8m a year ago, based on continued growth in datacom markets. Datacom revenue was $68.1m, up 54.1% on $44.2m last quarter and almost doubling from $35m a year ago. In particular, by utilizing capacity added over the prior quarters, 100G datacom revenue grew 124% sequentially and 537% year-on-year to $52m. "Despite the increased output for 100G datacom product, our customers wanted more," says president & CEO Alan Lowe. Lower-speed datacom revenue continued to decline, to just 17% of datacom revenue. This growth was partially offset by Telecom revenue falling to $160.1m, down 3.3% on $165.6m last quarter, although up 16.1% on $137.9m a year ago. Industrial & Consumer revenue (which includes 3D sensing revenue, as well as diode lasers for industrial applications) was $8.4m, almost level with $8.5m last quarter but down 34.9% on $12.9m a year ago.

On a non-GAAP basis, gross margin has risen further, from 32.7% a year ago and 34.2% last quarter to a record 36.9%. This was driven by Optical Communications gross margin rising from 30.7% a year ago and 32.5% last quarter to 36.6%, due to the higher volume and the richer mix of new, higher-margin products including 100G datacom and WSS modules. In contrast, Commercial Lasers gross margin has fallen from 43.7% a year ago and 43.2% last quarter to 39.4% due to the impact of lower volume.

Operating expenses rose from $55.5m (21.5% of revenue) last quarter to $58.9m (22.2% of revenue). In particular, selling, general & administrative (SG&A) spending rose from $21.7m to $23.5m, while R&D spending rose from $33.8m to $35.4m (due partly to increasing investment in 3D sensing).

Operating income has risen further, from $19.6m (operating margin of 9% of revenue) a year ago and $32.7m (operating margin of 12.7%) last quarter to $39m (record operating margin of 14.7%, exceeding guidance).

Net income was $35.9m ($0.57 per diluted share, exceeding guidance), up from $30.7m ($0.49 per diluted share) last quarter and $19.1m ($0.31 per diluted share) a year ago.

Capital expenditure (CapEx) has leapt from $24m last quarter to $35m. In addition to expanding capacity for telecom and datacom products, Lumentum is also adding equipment to prepare for emerging 3D sensing applications.

During the quarter, cash balance fell by $10.9m from $166.8m to $155.9m, due to the elevated capacity expansion and the timing of accounts receivable (AR) collections from customers. Lumentum remains debt free.

For fiscal third-quarter 2017, Lumentum expects net revenue to be flat to down at $250-265m. "We expect seasonal factors will be more at play this year than they were last year (which was the start of the strong China ramp)," says Lowe. "Overall demand remained healthy, but sequential growth will likely be insufficient to overcome normal seasonality. Operating margin should fall to 12.5-14%. Diluted earnings per share is expected to fall back to $0.46-0.54 per share.

Tags: Optical communications

Visit: www.lumentum.com

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