Lumentum
Thesis
- The business: own III-V fab capacity with enough scale, sell merchant chips in addition to finished module.
- Moat:
- Owned InP wafer fabs.
- Merchant laser-chip position, EML qualification with hyperscalers and Nvidia.
- 3-year take-or-ay customer agreements offsetting planned capex.
- Barriers for the industry: InP epitaxy capacity and yield. Substrate access. Hyperscaler qualification.
- Growth drivers:
- Networking has become a bottleneck with computing power growing on a faster curve.
- Competition:
- In module assembly: China (Innolight and Eoptolink) make 70% of the transceivers sold into the U.S.
- In 200G EMLs, Lumentum and Broadcom.
- In high-power CPO lasers, Coherent.
- In OCS, Lumentum is the only merchant shipping at $100m a quarter, while its largest customer keeps an internal version.
- Risks:
- Two customers are 41.6% of revenue.
- Architecture: silicon photonics and CPO cut laser content per port.
- Factory utilization works both ways on margin.
- Competition from Coherent and Broadcom.
- Industry-wide capacity expansion landing in 2028 to 2029.
- China substrate restrictions + U.S. export control risk.
- The convertible overhang competing with capacity ramp.
- Disclosure moving backward.
Lumentum versus Coherent
- Lumentum is the better engine at the top of the cycle. Coherent is an average engine with a wider floor.
- The duel is Coherent's module scale against Lumentum's chip scarcity.
- Lumentum is one of the two merchant laser chip seller (with Broadcom), with a smaller cost base, higher pricing power, higher margins (through mix tilt to component) and less China competition. It is also ahead in OCS and CPO shipment.
- Lumentum's exposure is operating leverage on a concentrated customer base.
- Moat: Coherent's moat is process scale consumed internally; Lumentum's is design and process at the scarce layer, sold to everyone. Lumentum monetizes its moat in price; Coherent in volume and security of supply.
- Customers: Lumentum has more price power per unit and more buyer concentration; Coherent has broader, longer-dated cover. A single hyperscaler's build plan is a fixed-cost event for Lumentum and a revenue wobble for Coherent.
- Suppliers: Coherent's integration buys continuity; Lumentum buys flexibility and lighter commitments ($2.35bn). In a supply shock Coherent keeps shipping; in a demand shock Lumentum has less to unwind.
