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17 August 2018

Lumentum’s annual revenue grows 25% to record $1.25bn, yielding record profit

© Semiconductor Today Magazine / Juno PublishiPicture: Disco’s DAL7440 KABRA laser saw.

For full-year fiscal 2018 (to 30 June), optical and photonic optical component and subsystem maker Lumentum Holdings Inc of Milpitas, CA, USA has reported revenue up by 24.6%, from $1001.6m for 2017 to $1247.7m for 2018. By segment, Commercial Lasers grew by 31.1% from $143.8m to $188.5m (driven by micro and macro materials processing). Optical Communications grew by 23.5% from $857.8m to $1059.2m, driven by 848% growth in the Industrial & Consumer segment (due to the adoption of 3D sensing in mobile devices) outweighing falls in both Telecom and Datacom revenues.

Fiscal fourth-quarter 2018 revenue was $301.1m, up slightly on $298.8m last quarter and by 35.2% on $222.7m a year ago, driven by record revenues in TrueFlex ROADMs (reconfigurable optical add/drop multiplexers), commercial lasers, and industrial pump lasers.

Commercial Lasers reached a record $56.2m (18.7% of total revenue), up 7% on $52.5m last quarter and 56.5% on $35.9m a year ago, driven by record revenue from 1kW-class fiber lasers. “We continue to ramp our newest fiber-laser products to meet strong customer demand and are benefiting from investments in capacity expansion made earlier in the year,” says president & CEO Alan Lowe.

Optical Communications revenue was $244.9m (81.3% of total revenue), down only slightly on $246.3m last quarter but up 31.1% on $186.8m a year ago. Of this, Datacom revenue was $34.5m, down 5% on $36.3m last quarter and 31% on $50.1m a year ago. However, Telecom revenue was $133.1m, up 9% on $122.6m last quarter and 11% on $120.2m a year ago (with telecom transport products contributing significantly, including record sales for TrueFlex ROADMs, including strong demand from multiple customers in China). Telecom pump laser sales continue to be strong, but remain capacity-limited (exacerbated by Lumentum’s increased internal need for pumps for its ROADMs). Industrial & Consumer revenue was $77.3m, down 12% on $87.4m last quarter (due to 3D sensing seasonality) but up 368% on just $16.5m a year ago (due mainly to the introduction of 3D sensing into consumer mobile applications).

“Industrial diode laser product lines, which is primarily driven by customers building their own fiber lasers, also delivered record revenues,” notes Lowe. “Growth was enabled by newly expanded capacity and efficiency improvements. However, even with these, the combination of external customer demand and internal demand for use in our own fiber lasers outstripped our ability to supply in the fourth quarter,” he adds. “Part of these capacity additions is in our own factory in Thailand, which started shipping qualified industrial diode products in the fourth quarter.”

On a non-GAAP basis, gross margin has risen further, from 32.9% a year ago and 36.3% last quarter to 37.2%. Despite the degradation in revenue mix (with more Telecom and less Industrial & Consumer revenue), Optical Communications gross margin rose from 31.1% to 34.8%, driven by improvements in Telecom margins associated with the higher mix of higher-margin transport products and lower average manufacturing costs due to higher volumes. Commercial Lasers gross margin rose from 42.1% to 47.9% due to the relative increase in fiber lasers in the revenue mix. Full-year gross margin has risen from 34.7% to 38.9%, driven by more higher-margin Industrial & Consumer and Laser products in the revenue mix as well as overall increased leverage over fixed manufacturing costs.

Operating expenses (OpEx) have been cut from $59.1m (19.8% of revenue) last quarter to $58.5m (19.4% of revenue). Despite growing by 7% from $222.9m to $238.9m, full-year operating expenses were cut from 22.3% of revenue for 2017 to 19.1% for 2018.

Operating income has risen from $20.4m (operating margin of 9.2%) a year ago and $49.4m (16.5% margin) last quarter to $53.6m (17.8% margin). Full-year operating margin has risen from $124.3m (12.4% margin) to $246.2m (19.7% operating margin, a larger increase than for gross margin due to strong leverage over operating expense).

Net income was $61.6m ($0.95 per diluted share), up from $50.6m ($0.78 per diluted share) last quarter and $25m ($0.39 per diluted share) a year ago. Full-year net income more than doubled from $122.4m ($1.94 per diluted share) for 2017 to $247.8m ($3.82 per diluted share) for 2018.

Due to strong free cash flow, cash and short-term investments have risen further, from $555.3m a year ago and $692.8m at the end of last quarter to $711.5m, despite higher capital investment throughout the year related to manufacturing capacity expansion, new products, and expenses related to bringing up the new factory in Thailand.

“Our strategy of investing in differentiated products addressing multiple growing end-markets critically dependent on photonics drove our strong fiscal 2018 results and positions us well for the future,” reckons Lowe.

For fiscal first-quarter 2019, Lumentum expects revenue to grow to $340-360m. Operating margin should rise to 19-21%, while diluted earnings per share is expected to be $0.90-1.10.

ROADM modules and line-card systems continue to be limited by production capacity, so Lumentum is adding more new capacity to meet the increasing customer demand.

“Later this calendar year, we will be introducing a full turnkey fiber-laser system to broaden our customer base. We expect this, along with other new laser products to be introduced in the future, will even further accelerate growth,” says Lowe. “We are also expanding pump laser capacity to meet customer demand, which we expect to remain strong,” he adds.

“Early in the fourth quarter, we started shipping VCSEL products that we believe will be used in next-generation product cycles. We expect this volume ramp to continue through the first quarter and into the fiscal second quarter of 2019,” he adds. “This earlier ramp [than expected] will result in 3D sensing volumes being spread across more quarters compared to last year’s peak profile. In the fourth quarter we had modest revenue contributions from multiple Android customers who have or will be announcing new high-end devices. We’ve numerous additional products in design with our lead customer. We are also engaged with new customers on multiple new products and have received production purchase orders from several of these customers,” he adds. “We expect to broaden our customer base and product mix over the time that 3D sensing proliferates from high-end mobile devices to a broader range of products and price points. We also continue to work on 3D sensing and LiDAR for automobile applications, and expect this to be a growth driver in 2021 and beyond. With our proven manufacturing scalability, proven field reliability and new product pipeline, we believe we are well positioned to be the partner of choice for 3D sensing customers around the world in fiscal 2019 and over the long run.”

“Later this calendar year, we’re planning to introduce a significantly cost-reduced 100G transceiver targeting the hyper-scale data-center market to increase our competitiveness and margins in this rapidly growing end market,” continues Lowe. “We also continue to make good progress on our 400G datacom transceiver programs, which are receiving a lot of interest from a broad range of customers. Moving from 100G to 400G, significant technology leads are required and Lumentum's core technologies positions us well,” he reckons.

In July, the stockholders of Oclaro Inc of San Jose, CA, USA (which provides optical components and modules for the long-haul, metro and data-center markets) approved its acquisition by Lumentum (agreed on 12 March). Although the merger has received approval under the US Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, it is subject to other closing conditions including anti-trust regulatory approval in China. “We entered Phase 1 of this approval process in mid-July,” notes interim chief financial officer & senior VP of strategy and corporate development Chris Coldren. “We continue to work with Oclaro on completing this pending transaction.”

See related items:

Oclaro stockholders approve takeover by Lumentum

Lumentum’s seasonal decline in 3D sensing revenue offset by growth in Telecom, Datacom and Commercial Laser products

Lumentum to acquire Oclaro for $1.8bn

Lumentum’s record quarterly revenue driven by VCSEL array ramp for 3D sensing in consumer mobile applications

Lumentum returns to sequential quarterly revenue growth

Tags: Optical communications

Visit: www.lumentum.com

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