Lumentum NASDAQ: LITE reported fiscal fourth-quarter revenue of $1.01 billion, up 109% from a year earlier and 23% sequentially, as demand tied to AI data-center connectivity lifted sales of optical components and systems. The company said the quarter marked its eighth consecutive period of year-over-year revenue growth and its third consecutive quarter with sequential growth exceeding 20%.
Chief Executive Officer Michael Hurlston said the results reflected a shift toward optical links as AI workloads require greater computing speed and bandwidth. “Driven by broad-based momentum across our scale-out and scale-across product lines, revenue surged 109% year-over-year,” Hurlston said.
Components revenue reached $649.4 million, rising 103% year over year and 22% sequentially. Systems revenue was $356.9 million, up 123% from a year earlier and 30% from the prior quarter. The company cited cloud transceivers and optical circuit switches, or OCS, as major systems-growth drivers.
Margins Expand as Mix and Utilization Improve
On a non-GAAP basis, Lumentum reported gross margin of 50.4%, up 250 basis points sequentially and 1,260 basis points year over year. Non-GAAP operating margin rose to 36.6%, an increase of 440 basis points from the prior quarter and 2,160 basis points from a year earlier.
Executive Vice President and Chief Financial Officer Wajid Ali attributed the gross-margin improvement to higher factory utilization, favorable product mix and increased pricing for certain products. Non-GAAP net income was $326.3 million, or $3.23 per diluted share, compared with the company’s prior outlook range, according to Ali.
GAAP gross margin was 47.4% and GAAP operating margin was 27.8%. Lumentum recorded a GAAP net loss of $7.2 billion for the quarter after taking a one-time, non-cash $7.8 billion charge related to the conversion of a portion of its convertible notes. The company said it reduced debt by $1.1 billion, or about 35% of its outstanding convertible debt, through the transaction.
Cash and short-term investments declined by $430 million sequentially to $2.74 billion, primarily because of the convertible debt conversions. Capital expenditures were $167 million during the quarter, largely for manufacturing capacity supporting cloud and AI customers. Inventory increased by $59 million sequentially to support expected growth in cloud- and AI-related revenue.
Transceiver, Laser and OCS Demand Drives Outlook
Lumentum said it shipped a record amount of 800G cloud transceivers during the quarter and began production shipments of 1.6T modules. Hurlston said the company expects adoption of 1.6T transceivers to intensify in fiscal first-quarter 2027 and continue through calendar 2027, supported by hyperscale customers deploying custom AI clusters.
The company also said OCS shipments doubled from fiscal third quarter to fiscal fourth quarter. Its fiscal first-quarter guidance includes what management expects to be its first quarter with OCS revenue above $100 million. Hurlston said Lumentum is expanding internal output and beginning work with contract manufacturers to add capacity, while also developing higher- and lower-port-count OCS offerings, including in-tray products expected to represent an additional opportunity in 2028.
In components, the company said narrow-linewidth laser assembly shipments grew sequentially for a 10th straight quarter and rose more than 130% year over year. Pump laser shipments increased more than 80% from a year ago, and management said the business remains effectively sold out despite capacity expansion. Lumentum expects pump laser shipments to increase fourfold over the next several quarters.
For EML laser chips, Lumentum reported another record quarter, led by demand for 100G-per-lane products. Its 200G EML products accounted for more than 25% of total EML revenue. The company expects demand for both EML and continuous-wave, or CW, lasers to grow through the second half of calendar 2026 and into 2027.
Near-Packaged Optics Adds to Longer-Term Opportunity
Management addressed market discussion surrounding co-packaged optics, or CPO, and near-packaged optics, or NPO. Hurlston said the production plans of Lumentum’s lead CPO customer remain on track and that the customer’s demand signal has increased since the company’s prior update.
Lumentum expects high-volume shipments of ultra-high-power laser chips for scale-up applications to begin in the second half of calendar 2027, ahead of customer deployments in 2028. The company also received its first purchase order for an external light source module for delivery by the second half of calendar 2027.
Hurlston characterized NPO as an additive opportunity that expands the market for the company’s laser chips. NPO positions optical engines near an accelerator on a board, while CPO places optics directly on a substrate or interposer. President of Global Business Units Wupen Yuen said NPO applications require efficient, high-density laser technology to fit into compact optical engines, and he expects NPO to reach the market in the late-2027 to 2028 period.
During the question-and-answer session, management said it has not seen an impact from potential new Chinese indium phosphide manufacturing capacity. Hurlston said Lumentum believes its EML, high-power, mid-power and CW laser offerings remain differentiated, including through tight specifications that can improve customer manufacturing yields.
Fiscal First-Quarter Guidance Calls for Another Record
Lumentum forecast fiscal first-quarter 2027 revenue of $1.225 billion to $1.275 billion. At the $1.25 billion midpoint, the company expects more than 130% year-over-year growth and said it would reach its previously discussed $1.25 billion revenue target more than one quarter ahead of schedule.
- Non-GAAP operating margin is expected to be 39.5% to 40.5%.
- Non-GAAP diluted earnings per share are projected at $4.05 to $4.35.
- Guidance assumes a 16.5% annual non-GAAP effective tax rate and about 102 million diluted shares.
Ali said the midpoint of the operating-margin outlook is already near the midpoint of the company’s prior 38% to 42% target range associated with a $2 billion revenue level. He said further gross-margin improvement as revenue increases could support additional operating-margin expansion.
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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