News: Optoelectronics
1 November 2023
Lumentum acquiring Cloud Light to accelerate data-center speed and scalability
Lumentum Holdings Inc of San Jose, CA, USA (which designs and makes optical and photonic products for optical networks and lasers for industrial and consumer markets) has entered into a definitive agreement to acquire Cloud Light Technology Ltd of Hong Kong (which designs and makes optical modules for automotive sensors and data-center interconnect applications) in a transaction worth about $750m (subject to certain adjustments). At the time of closing (expected by the end of 2023, subject to receipt of regulatory approvals and other customary closing conditions), this will be paid in cash (from Lumentum’s balance sheet) and the assumption and substitution of outstanding unvested Cloud Light options. The transaction has been unanimously approved by the boards of directors of both firms and by Cloud Light’s shareholders.
Lumentum expects the acquisition to accelerate its push into the fastest growing segments of the multi-billion-dollar opportunity for optical modules used in cloud computing data-center infrastructure. Cloud Light has a track record of developing and manufacturing the highest-speed connectivity solutions at the leading edge of new and rapidly growing technology transitions. Nearly all of Cloud Light’s more than $200m revenue in the last 12 months was derived from 400G or higher-speed transceiver sales. In the most recent quarter, over half of Cloud Light’s optical transceiver revenue was derived from 800G modules.
With the acquisition, Lumentum reckons that it will be well positioned to serve the growing needs of cloud and networking customers, particularly those focused on optimizing their data-center infrastructure for the demands of artificial intelligence and machine learning (AI/ML). Lumentum expects its more comprehensive product and technology portfolio to enable customers to more effectively manage the escalating compute and interconnect requirements of AI workloads. The combination also brings what are reckoned to be best-in-class design and assembly, test and packaging capabilities together with Lumentum’s global scale and customer reach.
“With Cloud Light, we are making a strategic investment to significantly expand our opportunities in the cloud data-center and networking infrastructure space,” says Lumentum’s president & CEO Alan Lowe. “Cloud Light provides us with the highest-speed transceiver solutions at scale and complements our advanced component capabilities. This results in a broad product and technology portfolio that addresses a wide range of cloud operator needs,” he adds. “This transaction will deliver substantial, long-term value to our stockholders, with immediate earnings accretion and accelerated revenue growth,” he believes.
“We founded the company with a vision that our deep expertise in high-volume precision manufacturing would result in a superior value proposition for cloud data-center customers,” says Cloud Light founder & CEO Dr Dennis Tong. “Having worked closely with the technology teams within leading cloud operators, we believe we can build upon our success to date and further accelerate cloud data-center growth by combining Lumentum’s advanced photonic integration and transmission technologies with our highly automated packaging and manufacturing processes.”
Strategic and financial benefits
The acquisition is expected to enable Lumentum to:
- Capture AI inflection with expanded intra-data-center opportunity: The complementary combination is reckoned to position Lumentum as a leader in providing photonics to cloud operators, enabling a more than a five-fold expansion in the firm’s served opportunity within data centers. With the advent of generative AI, cloud network needs for 400G and higher-speed optical transceivers have accelerated rapidly, with the opportunity for these intra-data-center products expected to grow at a compound annual growth rate (CAGR) of 30% and exceed $10bn by 2028. Cloud Light provides the highest-speed optical transceiver products to leading hyperscale cloud customers, with even higher-speed solutions well along in their development, complementing Lumentum’s existing portfolio of laser transmitters and other integrated components for data-center transceivers.
- Better address future customer roadmaps: AI models are driving an exponential increase in compute requirements, where performance is now doubling every 3–4 months, compared with the historical doubling every two years according to Moore’s Law. Scaling workloads even higher is limited by existing network and interconnect bottlenecks. With the addition of Cloud Light, Lumentum reckons that it better addresses these challenges — both now and into the future — by combining advanced optical interconnect technologies based on chip-scale photonic integration, together with highly automated packaging and manufacturing technologies.
- Become a more strategic partner to cloud and AI infrastructure customers: With Cloud Light, Lumentum can more effectively address the growing and diverse needs of cloud operator and AI infrastructure providers. This includes providing next-generation optical connectivity and optical switching within data centers, as well as coherent pluggable modules and optical line system components for data-center interconnect applications. Lumentum expects that, with its vertical integration capabilities in components and diversity in its global manufacturing footprint, customers can benefit from improved security of supply and superior technology and cost roadmaps.
- Amplify edge and metro networking opportunities: Cloud Light’s proven capabilities in low-cost product development and high-volume manufacturing are relevant not only for cloud data-center and data-center interconnect solutions but also for network edge applications, including those served by direct detect and coherent tunable DWDM transceivers. A broader set of networking customers should benefit from the added advanced packaging technologies and manufacturing capabilities offered by the combination.
The transaction is expected to be immediately accretive to Lumentum’s non-GAAP earnings per share and is expected to more than double the firm’s cloud data-center infrastructure revenue in the 12-month period following the transaction close. In the last 12 months, over 90% of Cloud Light’s revenue was derived from 400G and higher-speed products and, in its most recent quarter, over half of its optical transceiver revenue was derived from 800G transceiver products.
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