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8 May 2018

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

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

For fiscal third-quarter 2018 (to 31 March), optical and photonic optical component and subsystem maker Lumentum Holdings Inc of Milpitas, CA, USA has reported revenue of $298.8m, down 26.1% on $404.6m last quarter (driven by an expected reduction in 3D sensing product revenue, offset partially by growth in Telecom, Datacom and Commercial Laser products) but up 16.8% on $255.8m a year ago.

“Our strategy of investing in differentiated products and technologies, focusing on close relationships with market leading customers, and leveraging our technologies across multiple growing end markets, is working,” says president & CEO Alan Lowe. “Driven by strong customer demand and execution on capacity expansion, in the third quarter we achieved new record Lasers revenues, which increased 18% sequentially, and grew Telecom revenues by more than 11% sequentially, with notable strength in ROADMs [reconfigurable optical add/drop multiplexers], which were up 27% sequentially.”

Commercial Laser revenue was a record $52.5m (17.6% of total revenue), up 18% on $44.5m (11% of total revenue) last quarter and 32.2% on $39.7m (15.5% of total revenue) a year ago. Growth was driven by both micro-machining and kilowatt laser products (for both micro and macro material processing markets).

Optical communications revenue was $246.3m (82.4% of total revenue), up 14% on $216.1m a year ago but down 31.6% on $360.1m (89% of total revenue) last quarter. This is due mainly to Consumer & Industrial revenue of $87.4m, which rose by more than 600% year-on-year due to 3D sensing volumes but fell 59% from $215.5m last quarter due to customer seasonality. “Though seasonally down, we made good progress on new 3D sensing customer programs and are well positioned for new customer product introductions during fiscal year 2019,” reckons Lowe. “The seasonality is continuing into the fourth quarter, but we expect volume will ramp up again in the first half of fiscal 2019.” Telecom revenue was $122.6m, down 25% on a year ago but up 11% on $110.2m last quarter due to 27% growth in ROADMs, for which shipments were limited by production capacity). Sales of telecom pump lasers (both 980nm and Raman) continue to be strong, but quarter-on-quarter growth was also limited by production capacity. Telecom transmission and Datacom revenues also grew sequentially after having had a few slow quarters. Datacom revenue was $36.3m, down 7% on a year ago but up 6% on $34.4m last quarter.

On a non-GAAP basis, gross margin was 36.3%, down from 44.9% last quarter (due mainly to product mix and lower volumes) but up from 34.4% a year ago.

Optical Communications gross margin has fallen from 45% last quarter to 33.7% (despite 3D sensing margins being better than the corporate average), due to product mix and lower volumes (diluted by lower-margin datacom products plus start-up expenses from the firm’s Thailand manufacturing operation, which will remain diluted for the next 5-6 quarters or so).

Commercial Lasers gross margin has risen further, from 44.7% last quarter to 48.4%, due to higher volumes (execution on ramping capacity) and product mix.

Operating expenses have fallen from $67.2m last quarter to $59.1m (19.8% of revenue).

Operating income was $49.4m (operating margin of 16.5% of revenue), down from 28.3% last quarter but up from $32.2m (12.6% margin) a year ago. Likewise, net income was $50.6m ($0.78 per diluted share), down from $107.8m ($1.67 per diluted share) last quarter but up from $30.8m ($0.49 per diluted share) a year ago.

Capital expenditure (CapEx) has been cut from $26m last quarter to about $17m. During the quarter, cash and short-term investments hence rose by $68m, from $624.5m to $692.8m.

During fiscal Q3, Lumentum agreed to acquire Oclaro Inc of San Jose, CA, USA (which provides optical components and modules for the long-haul, metro and data-center markets), and the firm continues to work with Oclaro on the pending transaction.

For fiscal fourth-quarter 2018, Lumentum forecasts revenue of $275-300m, with 3D sensing down again seasonally (counteracting growth in other sectors, most notably Telecom transport). Operating margin is hence expected to fall to 14-16%. With OpEx roughly level with the March quarter, diluted earnings per share should fall to $0.55-0.75.

“Our industrial diode laser product line, which is primarily driven by customers building their own fiber lasers, also delivered continued strong results [in fiscal Q3],” says Lowe. “Growth in this business was limited by production capacity. The combination of external customer demand and internal demand for use in our own fiber laser outstripped our ability to supply,” he adds. “We are expanding capacity in these product lines to enable higher external sales as well as increased supply into our own fiber lasers. All these capacity additions are in our own factory in Thailand, which started shipping qualified industrial diode laser products in April.”

“We are extending pump laser and ROADM capacity to meet customer demand, which we expect to remain strong,” says Lowe.

“We are very close to releasing a very low-cost hyperscale-focused Datacom transceiver later this year and continuing those engagements with hyperscale data centers… it is our strategy to keep that door open as we introduce the new lower-cost product,” continues Lowe. “Through this quarter and next we’re going to continue to have some challenges with respect to the margins on hyperscale, but we expect to rectify that later this year.”

“We expect continued strength in our Commercial Lasers business as we ramp our newest fiber-laser products to meet strong customer demand,” says Lowe. “Later this calendar year, we will be introducing a full turnkey fiber-laser system to broaden our fiber-laser customer base and further accelerate growth,” he adds.

Regarding 3D sensing, fiscal Q3 revenue contained modest contributions from Android customers including those purchasing Lumentum’s latest high-performance edge-emitting lasers. “These customers are expected to drive far more business in the future, as we look to our fiscal 2019 and beyond,” says Lowe. “Between these customers, and numerous additional customer engagements under way, we expect we will broaden our customer and product mix overtime. With our proven manufacturing scalability, proven fuel 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.”

See related items:

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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