Lumentum NASDAQ: LITE reported what President and CEO Michael Hurlston described as an “exceptional” fiscal third quarter of 2026, with revenue rising 90% year-over-year to a record $808 million, driven primarily by transceivers and laser chips. The company also posted significant profitability gains, citing favorable product mix and operating leverage.
Quarterly results and margin expansion
Wajid Ali, executive vice president and CFO, said third quarter revenue of $808.4 million came in above the midpoint of the company’s guidance range, while non-GAAP EPS of $2.37 exceeded expectations. On a GAAP basis, gross margin was 44.2% and operating margin was 21.6%, with net income of $144.2 million, or $1.50 per share.
Non-GAAP gross margin rose to 47.9%, up 540 basis points sequentially and 1,270 basis points year-over-year, which Ali attributed to “better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix,” with mix improvement “primarily driven by growth in data center laser chips.” Non-GAAP operating margin was 32.2%, up 700 basis points sequentially and 2,140 basis points year-over-year.
Hurlston said non-GAAP operating margin expanded by more than 2,100 basis points year-over-year, citing “a rich product mix and strong operating leverage,” and he pointed to contributions from both the company’s “industry-leading scale-out portfolio” and “scale-across products.”
Components, laser chips, and “sold out” conditions
Lumentum reported components revenue of $533 million, up 20% sequentially and 77% year-over-year. Hurlston said shipments of narrow linewidth laser assemblies grew for the ninth consecutive quarter and increased more than 120% year-over-year, while pump laser shipments rose 80% year-over-year. He said these components “remain effectively sold out for the foreseeable future,” adding that the company is working to secure long-term agreements to help offset anticipated capital expenditures.
In laser chips, Hurlston said the company set another quarterly record in EML shipments. He said 200 gig EML revenue more than doubled sequentially, led by 100 gig lane speeds. Lumentum continues to ship CW lasers to 800 gig transceiver manufacturers and, starting in fiscal Q3, began supplying CW lasers for internal use in its cloud transceiver business.
Hurlston said the company’s wafer fab capacity in Japan “remains at a premium and is fully allocated” to meet demand, adding that Lumentum is shipping “twice the number of laser chips” compared with the same quarter last year. He also said the company is on track to achieve more than 50% growth in EML units by the December quarter of 2026 versus the December quarter of 2025.
Systems growth led by cloud transceivers and OCS ramp
Systems revenue was $275 million, up 24% sequentially and 121% year-over-year. Hurlston said cloud transceivers accounted for the “lion’s share” of the increase, rising more than 40% sequentially as the company leveraged expanded manufacturing in Thailand. He said Lumentum expects to ramp 1.6T transceiver shipments in fiscal Q4, with a portion of volume using its own CW lasers.
Hurlston said transceiver profitability is improving through better yields and lower scrap rates, but supply constraints on critical components are still limiting shipments relative to customer demand. In response to questions, he said the constraint in transceivers is significant and tied to supply chain issues including electrical components, noting that laser diodes are also part of the mix and are “necessitating the switch to our internal laser diodes.”
On optical circuit switches (OCS), Hurlston said the company’s “multi-year, multi-billion dollar purchase agreement” supports long-term growth and that the OCS ramp is “largely on track,” but still “gated by the supply chain” amid a sharp increase in requested output. Later in the Q&A, he described OCS as “probably our biggest ramp” and said the company is “definitely on a tightrope on this product line.”
Performance industrial lasers and cable access were weaker, with industrial lasers “approximately flat sequentially,” while cable access shipments declined due to “customer and timing factors,” Hurlston said.
Demand, supply constraints, and long-term capacity additions
Management repeatedly highlighted supply-demand imbalances across key products. Discussing EMLs, Hurlston said the company is “still chasing behind relative to demand” and that the supply-demand imbalance appears to have increased to “somewhere greater than 30%,” compared with the prior quarter’s 25% to 30% range. He added that near-term constraints are “largely within our own control,” citing long-term agreements for substrates, while acknowledging additional work will be needed as volumes rise into 2027.
For pump lasers, Hurlston said constraints were “somewhat unanticipated” and that the supply-demand imbalance is “certainly greater than that 30% number,” forcing allocation decisions among customers. He said Lumentum plans to ramp pump capacity over the next four quarters from its Rose Orchard facility in the U.S., supported by increased capital spending.
Hurlston and Wupen Yuen, president of global business units, also emphasized “scale-across” opportunities—linking compute domains across geographies—as hyperscalers reach power and space constraints in single data center buildings. Hurlston said scale-across architectures require high-bandwidth synchronization across multiple data centers, supported by Lumentum’s pump lasers, narrow linewidth laser assemblies, wavelength selectable switches, and emerging “multi-rail” technologies. Yuen said multi-rail opportunities are “huge,” adding that the company does not yet have a full quantification.
The company also discussed capacity expansion through a newly acquired facility. Hurlston said Lumentum acquired a fifth indium phosphide fab in Greensboro, North Carolina, and is converting the site from gallium arsenide to indium phosphide, with plans to reuse a “significant number of the tools” already installed. In response to a question about timing, he said the Greensboro fab “is not in our numbers” and is “not gonna come online until 2028,” with expectations for “early 2028” to begin adding incremental revenue.
On long-term agreements, Hurlston said discussions can include “prepayment,” “take or pay,” and “price increases,” depending on customer needs and capacity commitments.
Regarding competition in OCS, Hurlston said the company “feel[s] pretty good about our position,” adding that while the lead won’t last forever, “in the next year, it’s hard for me to imagine anybody is gonna be able to ship one of these very innovative solutions.” He also said Lumentum is pursuing cost reductions and new architectures to maintain leadership.
Balance sheet and Q4 outlook
Ali said cash and short-term investments increased by $2.02 billion to $3.17 billion during the quarter, “primarily driven by NVIDIA’s direct investment in Lumentum.” Inventory increased by $62 million sequentially to support expected growth in cloud and AI-related revenue, and capital expenditures were $125 million, focused mainly on manufacturing capacity for cloud and AI customers.
For the fiscal fourth quarter of 2026, Lumentum guided for non-GAAP revenue of $960 million to $1.01 billion, with the $985 million midpoint representing “another new all-time quarterly revenue record,” Ali said. The company projected non-GAAP operating margin of 35% to 36% and non-GAAP diluted EPS of $2.85 to $3.05, based on a 16.5% non-GAAP annual effective tax rate and approximately 102 million diluted shares.
Hurlston said the company expects more than half of sequential growth in Q4 to come from components, with the remainder driven by systems—primarily high-speed transceivers and additional OCS contributions. He said early contributions from scale-out CPO and OCS are still “relatively modest,” and described scale-up CPO as “still very much in its infancy,” but said the company remains on track toward its previously discussed goal of reaching $2 billion in quarterly revenue.
About Lumentum NASDAQ: LITE
Lumentum Holdings Inc, headquartered in San Jose, California, is a leading provider of photonic technologies that enable high-speed optical communication networks and advanced industrial applications. The company designs and manufactures a broad range of lasers, optical modules and subsystems tailored to the evolving requirements of telecommunications carriers, cloud data centers and enterprise networking.
Its core product portfolio includes tunable and fixed-wavelength laser transmitters, coherent optical engines, transceivers for long-haul, metro and data center interconnects, as well as test and measurement instruments.
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