Lumentum Holdings Inc. (LITE) June 9, 2026 Conference Transcript

Thank you, everybody, for joining us today at the Miseo 2026 Global Tech Conference, and thank you, Michael, for joining us. Obviously, big year for you. Just want to give a quick preamble. I think, obviously, is the key driver for the AI data industry today. You are spearheading the whole photonics transformation in the data center, and I think as you look at the optical networking side, that's one of the biggest transformations. In the data center industry today. So I think as you look at where Lumentum sits, you are supplying some of the key lasers and optical engines for this entire data center transformation globally. And as they say, electrons do the work. Photons too, the show, right? And I have a couple of other catchy ones too for you. As they say in Lumentum, I guess the future moves to the speed of light, right?

But with that, I have the distinct pleasure of introducing CEO of Lumentum, Michael Hurlston. Please join me in welcoming. Thank you. So obviously, as you look at Lumentum, it's been a massive year. I think your market cap lasted at this time was about 7 billion. Now you're 70 billion. You've grown 10x. It's been just an incredible run. Did you see that?

Well, that's a tough one. That's a tough one.

That's an easy one.

No, I didn't see this. I think it's unusual. CEOs, as you likely know, have kind of two outcomes in life. They're either fired or they retire. So I was lucky enough to join the company as a sitting CEO, which almost never happens. And I think when the board showed the forecast to me, I said, hmm, I'll derate that by about 50%. I should have multiplied it by about eight.

But it's well-deserved. I think you guys have almost quadrupled or went up 5x since we initiated on you guys back in November, December. So well done. I mean, as you look at Lumintum, you are growing 80-90% on the top line. That's massive growth. I mean, that's what you've grown the last couple of years. You have laid out a massive, you know, fiscal 28, June, somewhere at the 8 billion top line. You're running somewhere in the 5-6 billion here. You've laid out a massive TAM of 90 billion, and you're just 8 billion now. So, it's almost like there's so much growth ahead of you. Maybe you can start off talking about how you see the big vectors of growth for you in photonics in the data center, whether it's scale out, scale up, OCS, and then we can probably parse through all of them.

Look, Darlene was talking about in her opening remarks that we're in the middle of an exciting time, and she's absolutely right. It's an AI super cycle, but within that AI super cycle, as you're saying, it's a photonic super cycle. I mean, we've never seen anything like this in the optics industry. I think the highest revenue quarter that Lumentum had in its history was about $500 million, and we're poised to go over a billion dollars this quarter, so double the highest quarter ever. And I think there's so much runway ahead, as you're pointing to. The growth drivers for the company are vast and varied, and really none of them are hitting yet, right? So really the best is yet to come in terms of optical scale up. Optical scale out, our optical circuit switches, none of which really you see in the numbers yet. So, I think we've got a lot of runway. You initiated coverage on us, and we were very pleased with that. We've gone up, but I think we've got a lot of runway and a lot of gas in the tank from here.

Yeah, yeah, absolutely. And as you mentioned, there is so much ahead of you. I mean, right now, as you look at, you know, if I were to take a couple of the segments there, Especially on scale-out, what you supply is one of the what's called electro-modulated lasers, EML. It's a mouthful, but I'll try. But you obviously dominate that market, and as you go from, you know, 800 gig today to 1.6 T, the next year to 3.2 T, that content goes up massively, and you dominate that market globally. You supply to many of the other peers in that market. Maybe talk to us Tell us about how you see that growth, you know, how do you see that picking up, how do you see the capacity that you're adding in those areas?

Yeah, look, a super question, Vijay. If you look at our scale-out business, there's two components to it. There's actually probably three components. There's the EMLs that we supply to everybody else. And right now, the majority of those EMLs are 100 gig per lane, meaning it's 800 gig transceivers that are getting manufactured based on those EMLs. We see a transition now to 1.6T led by NVIDIA and Google. They've taken the lead on 1.6T. And now we're supplying 200 gig EMLs to that market. And that ASP is roughly double. So it's a huge tailwind for us as we start working through that transition. That's the first thing. Then the second thing is, of course, in the scale out, we supply transceivers. And you and I have spoken a number of times about the transceiver business, probably not our best business, but all of a sudden, it's a business that's growing really well, right? We have one main customer that's done very, very well in the market. They're picking up a ton of share, and they're deploying 1.6T right now. So we have done very, very well with them. And then we have a second customer that's been really a positive surprise for us. So our scale-out transceiver business is doing quite well. And then the third thing is the scale-out as it relates to the CPO switches. And so we have a business there that's very unique, a high-powered laser that we supply to NVIDIA. That partnership has been announced and discussed. They obviously invested some money in the company. And that scale-out business has been surprisingly strong. We've talked about in the fourth quarter of this year seeing somewhere between $50 and $100 million incremental revenue coming from our scale-out CPO. And sort of the sum total of that scale-out business leads to a lot of optimism. I mean, all three things are beginning to hit. You don't see anything from us yet in scale-out CPO. You don't see a lot from us yet in the 1.6T transceiver. So those two things are going to layer on to a base business that's already pretty strong.

Yeah, well said. I think just to put that in perspective, I think most of the interconnect market today is copper, but you are starting to see that transition to optical. But you are benefiting not just from the number of data centers coming on, but even as bandwidth goes up, that content goes up double, ASP goes up double. So you have... Two big tailwinds there from both unit and ASP going up, plus just increasing penetration within that. Might be, if you look at the scale-up side, or sorry, scale-out side, How do you see, you know, what actually drives your, you know, the dominant position there? How do you differentiate? What's the, what gets you that leadership there? Because you pretty much own that space. I mean, you supply pretty much every other, you know, supplier of EML. You supply the lasers there, so.

Yeah, it starts with our laser business. And so if you think about lasers, it's really interesting. It's not as a Broadcom or an NVIDIA would talk about where you have a process coming from TSMC, a manufacturing process, and then you have a design. And the two things are actually somewhat divorced from each other. You run a design, you run that separately in some cases to the process. With lasers, that's not the case. The two things are totally intermingled. You have a process and you have a design, and the two things sort of work hand in hand, and there's a lot of iteration that goes into that. So our laser design really separates us out. We have lasers, particularly at higher power levels, that other people simply can't get to with the reliability and with the performance, and that makes us very difficult to compete with. EMLs are also very difficult to make. They are an area where we're able to differentiate because the EMLs we deliver, very high quality, and our customers report the transceivers that they're able to build using our EML lasers yield yield much higher. So we really have a big differentiator, I think, a moat with that laser business.

Got it. And, I mean, you're growing at a pretty envious 80-90% top line, but that's just scale-out. You have a scale-up market ahead of you that's, you know, arguably 5 to 10x the size of the scale-out market. So, maybe talk to that when you see that starting to come together, because that is going to turbocharge your growth. I mean, and that's just coming on second half of next year. But maybe you can talk to what you're seeing there, what are the trends there, and how you can differentiate.

Yeah, you're absolutely right. You said a minute ago that we're in this cycle where you see copper replacement. This is really where it is. It's in scale up, right? So scale up is where we see an opportunity for the optical industry and arguably we're the leader in the optical industry to take our technology and put it in racks and in clusters so everything we've talked about so far when you talk about scale out you're going from a cluster of compute out to what we call a scale out switches this is something completely new where we're going inside the cluster and we have connections We're seeing applications that run either cross-rack between racks, or now, in many cases, we're seeing inside the rack itself with an emerging NPO opportunity, near packaged optics that you and I haven't talked about. But the sum total of that, the magnitude, is far greater. Then scale out, even in the first instantiation, which we would expect for us to start shipping in the second half of 27, and for you to see scale out products, scale up optical products on the market in the first part of 2028. So it's very soon. I mean, we're working together now very much with customers who are designing their CPO systems, scale up CPO systems, and now NPO, the near packaged optics, which again, Again, you and I haven't spent a lot of time on, but we see that as even a bigger opportunity for us here in the near term.

I want to go quickly to the CPO side since we almost got to that topic. Obviously, when you're looking at CPO, you have one big customer there. I mean, there's not a lot of people on the AI data center side. It's NVIDIA, it's Google, which pretty much dominated that landscape. And you are a sole supplier to one of the leaders there. I think, obviously, you're supplying to NVIDIA. But maybe you can talk to what you're seeing in CPO, what are the risks there, and how you see that pipeline coming to this?

Yeah, I think CPO is technically quite difficult, right? So there's a lot that goes into it. And we've had to shape our technology through multiple years to get this to work to a degree that NVIDIA can get things to yield and they can effectively ship a co-packaged solution. So co-packaged means that there's a substrate, right, and they're... Device sits on that. In this case, let's say a switch chip. And then our, the photonic solution is right there on the substrate. But in some of these instantiations, you have an external light source. So there's actually little fiber runs that go out to what looks like a pluggable, similar to what we'd see in transceivers, that actually sits on the faceplate. And that's how I think NVIDIA is thinking about their co-packaged optic solution. So there's a lot that goes into that. We think that they've really worked out a lot of the technical kinks on scale out, and now they can move it into a scale-up situation, which, you know, we're super excited about.

All right. So I think, you know, as you mentioned, one of the reasons why people are going to co-packaged optics is to maybe reduce the latency, reduce the number of components, reduce the power consumption, which all makes this whole thing go turn a whole lot faster, I guess. But might be... What, outside of the big leader there, are you seeing CPO, interest in CPO coming from other customers as well? Are you seeing other, other big ASIC guys also jumping on the CPO bandwagon? Because it's going to be a massive trend in terms of how this industry transformed from all the different cabling and all that to little CPO packages that's doing the whole connectivity, so.

Yeah, what we see, we certainly see some CPO, but what I think is important to understand is there's a second technology that's being discussed, which is near packaged optics. Near packaged optics means now I have that substrate with the same chip semiconductor solution, and then just off it, outside the substrate, you put what we call an optical engine. That optical engine may have the laser in it, so different to this faceplate idea that we just discussed. It's addressed with the ELS or it may actually employ an ELS. What we've seen probably in the last two months, really since our last earnings, is a marked shift in interest from others, I mean, non-NVIDIA class customers around NPO. They're trying to solve the same problem. At 1.6 T, 200 gig per lane, You have some difficulty with copper. It simply can't go over any sort of reasonable distance, even with re-timed copper. So you've got to start thinking about optics, and what we see now is you saw yesterday one major hyperscaler have made an announcement with Corning. I think you talked about that. That is really indicative of how that guy is thinking about near-packaged optics, how they're thinking about employing a heavier degree of optics in the backplane. We think, even though you probably have lower volumes, generally, with the hyperscalers who are doing their own ASICs, or with other chipset folks that are trying to compete with NVIDIA, but the number of lasers that they would want to deploy, because they're going much more aggressively to an optical backplane, the number of lasers they want to deploy is actually larger. So we're looking in the face suddenly of an opportunity that's really started to snowball.

Yeah, and that's Amazon with Corning, I guess. I think NPO has not even started yet. I mean, it's more like, let's say, next year, as you mentioned. CPO has been talked about, but it looks like you're thinking NPO probably gets pulled in because that's probably a little bit easier to do than CPO. How would you size that market, I guess? Because, you know, it's a couple of hundred million in CPO revenues for you this year, next year. But I think some of your peers have talked about a $15 billion CPO market. I'm wondering, NPO could be sized something similar? How do you see that? You know, where do you see that fit in?

Yeah, look, what's interesting about it is from a number of racks, we're probably talking smaller, but from a number of optical lanes, it's actually bigger because they're going all in, right? They're saying, look, in order for us to leapfrog, let's say, NVIDIA, we're going to have to move quickly and have more 1.6T lanes going down the back plane of the rack. And in that context, you're gonna have to use a lot more optical engines. So the size of it looks like it's frankly bigger than even the the CPO opportunity that we've you and I have talked about got it.

I mean, Inherent to all these, you know, scale out, scale up, and whole NPO, you know, near-packaged optics and co-packaged optics, the heart of that is the laser. And I think we always come to this point where supply is tight. We need to add capacity. I know NVIDIA put two billion in you guys. You're building on the Greensboro fab, but with some of these new opportunities that are coming on, like, can you talk to how that ramp is going from the, from three inch, four inch today to six inch? You know, obviously, it looks like your customers want their supply yesterday, right? I mean, they want it, you know, they want to see it or line of sight to how that capacity is coming on, etc. And we can talk to what's happening there, how comfortable you feel with the ramps, et cetera.

Look, it's putting a lot of pressure on the organization, right, for people that have been around optics. It's good pressure. Maybe it's like the pressure Darlene puts on you.

It's good pressure.

We'll talk about it another day. So the optical industry, if you look at it, used to think in scales of thousands, right? If you think about when we were serving AT&T and Verizon and these optical providers that built the internet backbone, right, it's really units of thousands. And now we're getting into units of hundreds of millions. So it's multiple orders of magnitude in terms of how the industry, not just Lumentum, but the industry has thought about producing these things. And our fabs are definitely straining, right? We've gone from, again, very small number of shipments to massive, massive numbers, and it's still not enough. We're under shipping demand by more than 30%. Our estimate on EMLs and sort of this very early phase of co-packaged optics, scale-out co-packaged optics. We're bringing a ton of supply online. We've just bought this fab in Greensboro, and we spent a lot of time in North Carolina, and we think that can generate $5 billion of incremental revenue. I think that's the number that Cathy has put out there and that that seems right so all with all of that said at the end of that journey we actually feel like we're going to be further behind as fast as we're adding supply as fast as our competitors are adding supply the demand is going up you're just in the middle of this optical super cycle where the number of optical lanes is going from zero to some massive number in a short period it's Time to try to intersect this 1.6 T transition.

Yeah, and so as you bring on your six inch, how much capacity does it add? Are you seeing customers start to talk to you about maybe getting better visibility, long term agreements? How is that conversations going?

Yeah, look, I mean, again, sort of if you look at the demand on our CPO, You would argue that 100% of the capacity, including the six-inch line in Greensboro, is spoken for. So as we now think about how do we add these new NPO opportunities, extremely challenging. So we're obviously trying to squeeze as much as we can out of the fab assets that are there. We have, we're unique in operating five fabs, and as you correctly said, we're probably far and away the leader in this laser market, both in terms of product quality, product performance, but also sheer output, right? When we talk about adding 10%, that's a big number. And so what we're trying to do right now is get the most out of these existing fab assets and then boot Greensboro up. You know, we're still, as I said, we're still going to be significantly behind. So the industry is going to have to find a path, right? Because there's just a lot of optical demand and simply not enough supply.

Beyond the indium phosphate capacity that you're adding, is there a constraint in the supply chain on the substrate side? You get a lot of your substrates from the UK and Japan, JX and IQ, et cetera. But can you talk to, is there a supply constraint there? Are you qualifying more suppliers?

Yeah, no, again, it's the question that we get a lot, and I think you asked it of us after the earnings call. We're uncomfortably comfortable right now with our substrate position. For sure, again, with our numbers escalating like this, we are going to have tension in the system. I mean, it's just unavoidable. When we talked after the last earnings call, we felt like we were well covered with our primary supplier. We'd done a long-term agreement with them, and we felt like, okay, we're pretty well covered. Numbers have gone up considerably since then, so I'd say, no, we're not well covered anymore. We're going to have to find alternate sorts of supply. One of the issues right now is the substrates are controlled by the Chinese government. So outside of a couple of Japanese suppliers, there are preponderance of supply is coming from China, and the Chinese seem to be adding supply faster than the Japanese. And so you have to now find a workaround. We're a little bit uniquely situated. You kind of drew to it in your question in that we can have substrates go from China to the United Kingdom. And in so doing work around some of the licensing and restrictions, restrictive environment, so we're uniquely positioned in that way. But make no mistake, it's something we're working on. It's definitely become a little bit tighter than since the last time we chatted.

Got it. And so as you look at that supply chain, you mentioned China. Is there a risk that... There are domestic suppliers there, or, you know, obviously, one of the things that we hear is your laser, you do some secret sauce in it, so the performance on the laser is just phenomenal, but the question is, is there a competitive threat or risk from China where they can copy, or, since they have that resource, can they, you know, is there any IP or a moat there that protects you from some of these China suppliers?

Yeah, look, and I saw it in your questions. I thought your thinking on the questions was right. Chinese supply is definitely there, even with lasers. But where it's, for the most part, it's pigeonholed is the CW laser. So if you look at the stack up, you probably have the most difficult thing to do are these ultra high powered lasers that go into co packaged optics. Then you have the near packaged optics lasers. Then you have EMLs. And at the bottom of the stack are CW lasers, which are an increasingly important part of the demand side. Yeah. But we don't make many CW lasers. We've sort of skated outside of that zone because it is a bit more of a competitive environment. And we definitely can see Chinese suppliers coming in there. We still think we have advantage. We still think the performance advantage we offer, the reliability we offer, the yield that we offer is there. And look, it's difficult for some of these Chinese guys who have been supplying themselves now to go into the open market. So we don't think it's a fait accompli, but again, for our position, probably not as much a threat as it might be for somebody else.

But I mean, I guess the EML itself is growing pretty nicely. So, I mean, CW will grow too, but, you know.

Yeah, you and I discussed it. You know, our view in the transceivers now, right? So the first leg, the current leg of scale out, the majority of 1.6 T shipments today are all EML. It's almost all EML, outside of, actually, interestingly enough, the transceivers we make, which are silicon photonics or CW laser-based, we do anticipate a shift to silicon photonics, right? But even in that shift, we believe the number of EMLs is going to go up cycle over cycle.

Got it. Just one last question on the laser side before we move on, because I think we have beaten lasers up quite a bit, I guess. On the CPU side and the NPO side, you mentioned, obviously, NVIDIA is there. Are you seeing most of the other CSPs also start working, especially in the ASIC side, trying to incorporate a CPO, NPO roadmap? Is that a fair assumption?

Yeah, I think for the same reasons that we've seen NVIDIA shift, law of physics, right? If you are trying to transmit data at 1.6 T at 200 gig per lane over any distance, copper has its challenges, right? It doesn't mean copper goes away, but certainly longer runs of copper are going to have their challenges. And so what we see as other ASICs are... Running at 200 gig Surtees and 200 gig per lane, they are going to have to deploy optics, and what we see is more of this NPO coming online. It's a little easier to deploy. Some performance hit, but, you know, the laws of physics still apply as they're trying to bring on their custom TPUs, and we see other ASIC guys that might be competing with NVIDIA really considering how do I leapfrog, and part of that leapfrog strategy is a heavy degree of of optics in the backplane.

Got it. And just to tack on that, I mean, one of the things you see on the laser side is you need a single laser for every wavelength, for every channel. So, you know, that drives as you need more bandwidth, you need more lasers, etc. Is there a way, do you see comb lasers coming in, meaning you can split the laser into multiple, you know, narrower wavelengths? So then you don't need additional lasers. You can use a single laser, but use a, you know, kind of a grated grating to kind of split up that single laser into multiple wavelengths. Do you see that, or is that still kind of out there?

Yeah, I mean, look, we certainly understand the way that technology works. I think the problem of it, any time you're going to take an optic through another optic, there's going to be some inherent loss. And so our view, and what we actually see in some of this NPO, is now deploying different wavelengths to try to pack more data. So if you look at a system, if you have one wavelength per fiber, okay, that's 1x the data. If I'm able to actually get multiple different wavelengths into a single fiber, which is effectively what you would do with a comb. Another approach is, without the loss, without passing an optic through another optic, is now make a set of lasers that actually emit different frequencies. And so we call this a DWM approach, a dense wave division multiplexing. You're basically shooting now multiple frequencies into the fiber, and it accomplishes the same thing without the loss, right? So what we do see, Vijay, and I thought your question was, I was reading it in preparation, was a good one. What we see now is as these NPO opportunities come online, more of them are considering a DWDM, again, to try to leapfrog, more data per fiber. And if they're able to do that, you know, they think they can offer differentiation against some of these initial CPO types of products.

Got it. Fantastic. Fantastic. I want to move to another market that you serve, which is the optical compute switch. I don't have a timer here, guys. Oh, there you go. See it up there. It's too far. So on the optical compute switch, that's another area where you dominate as well. You know, I think the big player there is Google. Everybody knows it. You guys are a big supplier there. How do you, and I think you've given out 400 million for next year, somewhere like that, but, you know, obviously your size set market at 4 billion, 10x that market. Maybe you can, let's, if you can talk to what you're seeing there on the optical compute switch side. You've talked about multiple other CSPs also looking at it, potentially, I think, might be Amazon, Microsoft, all the AWS, Microsoft, all these guys. Maybe talk to how you see that market evolving.

Yeah, I mean, look, sort of, in a backward look, right, the majority of our shipments actually have been to a... Spine switch replacement type application. So, we are shipping to multiple customers. We're shipping in reasonable volume to two, right? One of which is this spine switch replacement type of opportunity. Kathy was talking to me in the car. I think we've actually sized the TAM more like 10 billion, and we see that opportunity actually growing, not decreasing. You have this idea of Google deploying the OCS, it's an optical circuit switch, but OCS in a scale-up topology. So the way they're able to deploy OCS sort of negates all this conversation we've just been having about CPO and NPO. Their architecture is very elegant, and by deploying the OCS, and it's used in sort of this scale-up type of configuration, they have much shorter optical runs, shorter copper runs as a result. And so they really don't need to deploy CPO and NPO. But what we're seeing on the OCS side is... An emerging opportunity we think is the biggest yet, and that is to deploy an OCS in the rack itself, one per rack, a smaller, narrower circuit switch, meaning from a height perspective, and the use case here is the racks, the GPUs, have a loading problem at times. They can have a failing problem at times. And if you're running these big inferencing models, which is now what everybody's talking about, if you direct traffic to a GPU that's failing, you're going to lose millions of dollars in a compute run, right? You just don't want that to happen. And so what people are considering is, look, how do we create resiliency in our racks, in our clusters, and be able to route traffic to the least loaded GPUs? And an easy and elegant way to do that is with one of these OCSs. So, you know, where we've built into this massive TAM is considering a lot of these new and emerging applications outside optical scale up. This one big use case outside these optical circuit switches we see in the spine layer. And the sum total of that, you know, leads to some pretty interesting numbers.

Yeah, I think more like a failover, I guess.

It's a failover, yeah, exactly, right, creating resiliency, some redundancy in the system.

And just a little bit of selfless promotion here, we raised our Google TPU numbers yesterday. So we now see it growing more than double next year. And from 4 million this year to 10 million next year, and 30 million in 2028. So that's a massive ramp in TPUs. And I would assume, maybe Cathy will go back and do some math and figure out what the OCS implications are. Just kidding. But great. I mean, I think as you look at optical compute switch, what you guys deliver is what's called MEMS OCS. And maybe if you can set the table on how MEMS OCS differs from some of the other modalities out there in terms of whether it's LED OCS or piezoelectric. Why did Google finally decide to go to MEMS? And you're seeing other CSPs also get on the same MEMS optical computers, Which is what you do, and, you know. That will probably continue to grow a lot faster.

Yeah, look, I think that the... The first of all, you're going back to Google. They are manufacturing their own MEMS-based switch today. So they designed it. They actually have some brilliant optical engineers, and they designed that optical circuit switch. They're deploying it in tremendous numbers, right? And certainly there's an opportunity, we think, for us to be a third-party merchant supplier and eventually take all of that. I mean, you know, does it make sense for Google to manufacture OCSs? I'm not sure that's a business they want to be in. But we feel like there's a really distinct opportunity. The important thing to note is their switch is MEMS-based. And so MEMS is sort of the de facto standard in switching. Why? Well, it's a mirror. It deploys a mirror. And what you want to have first and foremost in switching is no loss. And if I'm just shining light from a mirror and directing it from one port to another, there's no loss. If you have piezoelectric, you have L-COS or some of these other things, there's loss in the system. And you really can't have that. That's an issue. The knock on... MEMS-based solutions has been the reliability because you have a moving mirror. It's actually a mechanical device. It has to move to move the light from one port to another. What we've said is our WSS solution, as you know, that has been in the ground for 20 years in the forming the backbone of the United States Internet, that's also MEMS-based. And so if you have Verizon or AT&T that has to go dig up something out of the earth, That's a problem. So we better have reliability built in. We think we figured out the reliability a long, long time ago, and that's why we're having great, great success with our MEMS-based approach.

And is that what is being adopted by other CSPs, too? Is that primarily the reasoning for why other CSPs might be looking at MEMS rather than some of the other competing optical compute switchers?

Yeah, that's right, Vijay. I mean, it's 100 percent. It's about the loss, right? You just don't want to introduce another loss element in the system if you can avoid it, right? You're trying to go to optics to have speed. You don't want to introduce a lot of loss as you do that. So MEMS is the right answer.

Got it. And I think this probably benefits from some of the same tailwinds as the, you know, interconnect lasers, et cetera, too, right? Because as the rack sizes go up from 72 GPUs to 576 GPUs to, I don't know, 1128 or something that you have Jensen talk about, the number of, you know, connections in the spine goes up as well. And that's similar for TPUs as well, where TPUs are growing from 64 to, I think, the V8 that they showed had some 1190 TPUs in inference. So I think maybe we can talk to what is happening. I think today the optical compute switch that you supply has 64 radics or 64 interconnections, and you're going to R300, I believe, the 300 matrix connectivity. And I'm sure there's more down the road in R512 or something, but it might be how that is picking up, and that obviously drives a massive jump in your dollar content, your ASPs there, and so all of that is feeding into, you know, the number of TPU ramps too, I guess.

Yeah, look, I think outside all the first part of our conversation on optical scale up and optical scale out, the OCS is, we think, is a singular opportunity for the company. We've diverted a ton of resources to work on this, and the roadmap is vast and varied. I mean, it is exactly what you're pointing to. So, our standard product today is 300 by 300, not a smaller Radex. There's 300 ports on it, and you're able to switch light to any of those 300 ports. That's our primary offering. And what we see are opportunities to run the ports up, which is going to make it very, very difficult for a competing technology to come in. MEMS almost has to be used. The more the higher the port count, the more this loss principle that we just discussed works in our favor. And we see port counts going up in our roadmap, and then we actually see ports going down. So there it's going to be a little more competitive, and we're going to have to think about cost, we're going to have to think about how we re-architect the solution, still taking advantage of MEMS, but perhaps reimagining it so we can get the cost to really get these numbers up, drop the ASP a bit, and compete in these very, very high volume emerging applications that we're seeing.

Got it. I want to go back to the roadmaps, like, as you... You've been there. Probably, you know, the best part of Lumentum's journey, I guess, in the last 18 months. But as you look out, look forward, the roadmaps on the laser side, on CPO, on OCS, like, what's your vision? What gets you excited? What are you seeing as you look out? You know, because the space keeps accelerating every month. It's a whole new landscape in terms of what people are looking at in terms of data center, investments, I have a lot of questions coming in, new cloud, new engagements from private equity, but maybe you can talk to how, as you sit back and look at... Not the last 18, which has been phenomenal. It's around 10x. How do you see the next 18? How do you see the next 24?

Yeah, look, I think that there's been a marked strategic shift in the company, and that strategic shift has been toward our components. So I think the previous administration, and frankly, optics in general, sort of value systems. And if you look at some of our competitors, they're systems first, right? They're really going after high-dollar content and generating boxes. They're generating platforms. And we were very much in that space. We weren't particularly good at making systems, but we were very much competing in the systems arena. What we've done over the last year is pivoted the company a lot more to components. So I'm much more content feeding into these system suppliers. And being a strategic partner for them, rather than, in some instances, competing, but we just don't see ourselves as being a differentiated systems guy. We'd much rather be in components. And so I think if you fast forward for five years, we want to add more components to our portfolio. We think we can compete in more than just lasers. We think there's a lot of things that go around the laser that are interesting, photonics ICs. These photodiodes, maybe laser drivers, maybe even getting in more to the semiconductor world with TIAs. There's a lot of things that we think we can do, and so we're now looking aggressively as to how we can increase our shoreline on the components end of the business. Got it.

I mean, you mentioned briefly the administration might be, I think they've been very... Pro trying to get the AI space to ramp up, you know, get that growth going. Are you seeing more interest from not just the administration, but also key customers, CSPs, to onshore some of that supply chain, to de-risk some of that supply chain, I guess?

You know, it's been a conversation. I mean, it's interesting for us if we look at the sum total. I mean, it's not just us, but you can check with Jim Anderson at Coherent. I think the sum total of products that we ship to hyperscalers is zero, to Chinese hyperscalers, right? So we've been very specifically blocked out of the Chinese hyperscaler market. Meanwhile, there's a lot of sourcing of Chinese components that are going into U.S. hyperscalers. Part of the problem is between the U.S. supply chain, we couldn't supply it all. So even if you said tomorrow, look, let's wave a wand and kick the Chinese out of the U.S. supply chain, it would actually bring the U.S. hyperscalers to their knees because they are sourcing a ton of components. And in their defense, it's not like I can run out and fill that void immediately. It has to be a concerted effort. And, you know, I think the Chinese have made a concerted effort to keep us out, and that's very disappointing. But you know, I understand their strategy. The U.S. government and our side of the industry would have to work together in a much more concerted fashion, I think, to make that a reality in reverse and keep the Chinese out of the U.S. hyperscalers.

Yeah, we've got five minutes left before I go for any questions. One last one. I think we talked about everything within the data center, on the racks, you know, how on the spine, how you're adding lasers and optical computer switch, I guess. How about the DCI, the data center interconnect? You know, you have the issues, the issue where you don't have all the power in one place. So you have to set up all these data centers in geographically dispersed locations, and then you have to connect them them optically on massive lasers, you know, interconnects between data centers. What's the opportunity there, you know, either it's, I don't know, you call it data center interconnect, or multi-rail, or maybe you can spend two minutes on that and then open up for some questions.

Yeah, no, look, if you look at all of these opportunities, we've been talking about, you You know, $10 billion OCS opportunity, $15 billion, which is probably under-called on CPO, NPO, we have in size, but again, another number. This is a smaller TAM, right, but a very interesting one because we have very, very high market share. So I think Kathy and I were doing a calculation in preparation for our chat. I think the current component piece of the DCI market or scale across is about a billion and a half. And we see that growing to about 4 billion. By 2029. So there's good growth in that market driven by two things. One is, frankly, the politics of data centers, right, where people are not looking to have these massive data centers in their backyard. And then the second is the power, right? If you make a more modular data center, you don't have the power draw, at least localized on that particular grid. The sum total, of course, is going to be the same, but it's much more distributed across the entire electrical network. And so we see a lot more of these smaller data centers getting built out, and you have the emergence of inferencing. This agentic AI is creating a lot of need for compute, and that compute really can't be contained to one specific area. You're going to have a lot more of these data centers working together. That is creating the scale across opportunity. We're trying to connect data centers at full bandwidth. With DCI was always connecting data centers, but not necessarily at full bandwidth. Now with the inferencing, you've got to connect at full bandwidth, full rate, and that's playing really nicely to the component sets that we provide. Our pump lasers, right, really important in multi-rail. Our narrow line-width lasers, really important in the DCO, the modules, and then the WSS, which are going into line subsystems. So there's a lot of components that we bring to our systems providers that enable this multi, this scale across opportunity.

Got it. So basically connecting all the data centers so they look like one big monolithic GPU.

Correct.

Right.

Which, again, super important for inferencing, and it creates a little bit of a more friendlier political environment, if you will.

Fantastic. Maybe we can take some questions from the audience. Go ahead, Jordan.

Thank you, Michael, for speaking today. I had a question.

Oh, that's not it. That's a camera.

I had a question on high gross margins. You've done a fantastic job since you've been at the momentum, expanding and increasing. I'm happy to see the trajectory, and then you've out. You know, them getting much higher over time. One question I get from investors is the ability to sustain that, how much of that is coming from the mix of these new products, which I think you've kind of hinted to. These are generally accretive to the margins, but also one pushback or concern as well, these laser suppliers, radium phosphide, are just raising prices, and that's because there's just massive amounts of demand that exceeds supply. But when the supply catches up, as you guys are all adding all this new capacity, that tail of the benefit comes down because you guys can't sustain that. Can you address, like, how you see the pricing playing out and then also the mix? Thanks.

Thanks, Jordan. Good questions. Not that we haven't heard that one before, but I appreciate you being the straight man. You know, look, I come from the semiconductor business, as many of you know, And we had one of the best gross margin stories of my previous company, I think, in history. We went from mid-30s to over 60% gross margin. It was one of the biggest gross ever. We're on that trajectory now with Lumensum. So we see we've grown gross margins by about 14% from about 33 now to 47, 48, depending on whose number you believe, in a little over a year. That's definitely been driven by price. It's been driven by mix. It's been driven only a very small amount by cost. We haven't taken a lot of cost out of the variable cost out of the product. But going back to the synaptic story, there was a massive run-up on price during COVID, right, if you remember, in the semiconductor business. That never reset. That never reset, right? So once the demand fell off and we saw it fall off very significantly, pricing didn't go down, right? And so we would say the same thing here. I'm not worried about a pricing reset because I think it's a lot more durable than is given credit for, and I think the evidence point is what we saw in semis during the COVID crisis, the massive run-up from TSMC that then people passed on, and that proved to be sustainable.

Yep. Great. I think that brings us to the top of the hour. Michael, what a phenomenal run it's been.

I just want my picture out there on Times Square. That's pretty good, man. That is pretty good. I need to get my picture out there.

That's amazing. But, I mean, I can't say this enough. I think you guys have executed phenomenally. I think as you look out, you know, you have fiscal 28 number at 8 billion, but everything Everything that you say from 10 billion on the OCS and, you know, the whole NPO, CPO coming together and, you know, you have the whole laser side picking up, I think the opportunity is just phenomenal.

My job is to keep you happy, okay?

That's it.

That's it.

To another 10x in the next 18 months, I guess. Thanks, Vijay. I appreciate it. Thank you everybody for joining us. Thank you. Thank you.