Can you run to the Lumentum room and try to find Wupen? He's not here.
Okay.
Yeah.
Okay.
Yeah. I sent Tripp to go try to find him. Yeah. We can. Just tell me later. I'm live.
Barclays' tech conference. Really appreciate y'all being here, and hopefully I get a chance to catch up with you over the next couple days, but you should be here in one second.
Hi, Kathy.
Thank you very much for being here.
All right, everyone. Welcome back to the Barclays Global Tech Conference. I'm Tom O'Malley, semi and semi-cap analyst here. I'm very happy to have Wupen Yuen with Lumentum. Thank you for being here.
Thank you.
So, it's been some crazy times, of late. You've seen an unprecedented demand.
Absolutely.
In AI kinda coming to the market. You guys have talked about certain areas in your portfolio in which things have gotten tight. So maybe start with like a mark-to-market. Where are you seeing tightness? Is this across the portfolio? And then maybe how long do you think that dynamic lasts?
Yeah. Actually, to be honest, I think the short summary is that we're seeing tightness across the board.
Okay.
You know, every single product line we have today, we are basically capacity constrained. Demand is exceeding supply. You know, of course, certain different areas have different levels of tightness. You know, indium phosphide lasers are really, really tight. But even the scale-across optics is also very tight. So overall, we are seeing the demand to be, especially on the backlog and customer commitments, really through 2027.
Wow.
So that's what we're seeing, right? For example, our, you know, EML lasers is basically sold out for 2026 and largely booked through 2027, right? So where the capacity were increasing continuously, it's actually spoken for fairly quickly, right? So we see that strength lasting for the next two years.
And in this type of dynamic, how do conversations change with your customers? Because to get that much surety on supply, obviously there's a.
Right.
An economic, you know, ask that you'll have for them as well.
Right.
So how is this impacting pricing broadly? And then maybe talk about the timeline, LTAs, contractual agreements. Are you seeing those that you know exist for six months, one year, one and a half years? How are you seeing those?
Yeah. I think, let's take laser, for example, right? That, you know, we are for the largest customers is typically a two-year commitment, so we definitely the price is not gonna be the same as before, right? So because what we're seeing here really is that the longer it is, you're not supposed to get a discount given this kind of a seller's market. So we're actually then raise the price, of course, you know, relatively flat price over those two years, but definitely at an elevated level compared with before, right? But the larger customers typically are the ones that are willing to give the longest contract because they also see the demand, right, for the next two years.
So how does that work with the ability to only supply some customers? Is it the guys that are willing to sign up for a longer period of time that get supply first? Is it the guys that are more strategic?
Yeah.
'Cause when we were on the road.
Yeah.
A couple months ago.
Right.
You guys talked about, like, you guys are the ones that are gonna allow larger customers to be able to have product or not, right?
Right.
How do you go about choosing who's getting supply?
Yeah. I think one big thing here we want to make sure that number one, we're not a kingmaker around our end customers, right? So we're trying to make sure that, hey, are we, because we have a good visibility about, you know, who's selling to who, right, the end customers. So I want to make sure that we don't, you know, favor Amazon over Google, for example. I want to make sure that we can supply them, well across the board, right? So that's one very important element. Of course, pricing matters. Of course, geopolitics matters. All this playing a role. By the end of the day, we want to make sure that every single cloud customers are, we're actually, support them visibly, right? They can see that we're supporting them.
Why don't we go into some of the product verticals? On EMLs in particular, you've talked about 40% capacity increase over the next couple of quarters.
Right.
How is that progressing? You have a facility in Thailand. How's that coming along?
Mm-hmm.
Should we expect that to be pulled forward given how quickly the market is kind of growing?
Growing? Yeah. I think on the laser front, right, so definitely the 40% is we're actually well on track of that. And then, you know, it's not like one-step jump, right? It's a quarter-by-quarter we're increasing. And the reason for that is actually we don't have like one piece of equipment that, "Oh, this is a bottleneck. You remove it, it's gonna jump up." No. We have like it's, you know, incremental, you know, additions, you know, over time. So we're doing well in the ramp. EO is holding up pretty well, which has ranging from three- to four-inch, right? In the beginning, it was a little bit rocky, but now we have gone through it. So EO is holding up well. So overall, I think we're actually on track on the chip side, right?
On the assembly side, we're definitely pulling in, right, the demand, you know, on the OCS, for example, the demand on the module, for example, all these are kind of accelerating. So we're definitely pulling in the capacity there too, right, kinda accelerating beyond what we were thinking about before.
So it sounds like it's not a particular tool that's got you short. It's just multiple tools.
Multiple tools at different capacity level, right? Imagine you have like 20 steps, 20 machines.
Yeah.
And, you know, everybody, everyone has a different capacity level. As capacity requirement goes up, you know, okay, then someone's gonna fall short, right? It's not like one over here, and one over here is really short. It's actually really across the board, right? So kinda incrementally addressing all the equipments and to ensure that we get the capacity we need.
Okay. In the same vein, you've kinda talked about allocating for either EML or SiPho modules. I think that that's been an important kind of distinction as well.
Correct.
Maybe talk about why you would choose to put capacity towards one versus the other.
Right.
And then what's your current view on your directing of capacity?
Right. So definitely one most important factor there is really kinda gross margin per wafer, right? So if you look at that, you know, the EML is better than the CW laser for Silicon Photonics, and then 200G EML is better than 100G EML, right? So that kind of logic is our kind of our how we're thinking about allocating the capacity. However, right, even though we are sold out for EMLs, we still want to make sure that we are seeding the CW laser opportunities because Silicon Photonics is important. It is gonna take more share, on the longer term and we have a really, really good CW laser, right? So I want to make sure that we are in the game as well.
So we basically say, "Hey, majority of the capacity is allocated for EMLs," and then but we also still providing some capacity to CW lasers to the customers so we're in. And also we're providing some to ourselves, to our own modules starting from middle of next year, right, to ensure that we can bridge through the gap of our own laser supply too for our own modules.
How fungible is that capacity? Let's just say, customer demand profile changes or you internally decide.
Right.
That you wanna split that dynamic a little bit differently. If you wanted to take capacity going towards EML and move that to SiPho, what's the timeframe that you could get that done in?
It's actually just the lead time, right? So today, both the CW laser and EML lasers are made in our Japan fab, right? So really it's just a lead time of changing the wafer start. 200G 100G CW lasers is actually fungible capacity, you know, in our Japan fab.
So let's just say if we move towards 1.6T, I'd love to hear your opinion on.
Right.
Do you think that the world moves more towards silicon photonics versus EML at 1.6T? And do you feel like because your existing footprint is so fungible, like you could move your capacity very quickly to address that?
Yeah.
So yeah, just general thoughts on.
Yeah.
Technology for 1.6T and.
That's a good question, right? I certainly, number one, the fungibility is there, right? That's why we want to make sure we're designing to every customers, right, with silicon photonics laser too, so if their demand changes, we can always change, right? That's number one. Number two is actually then we do silicon photonics actually. They are kind of got designed into the transceivers slightly later than EMLs, but not by too much, right? So we do, we definitely see SiPho will take in the market share increase will be faster than the 100G generation, right, but on the other hand today though, given the supply constraint situation, it's not about technology choice anymore. It's about which one you can get lasers for, right? Can you get EMLs or can you get CW lasers, so our largest customers all have two, two solutions.
And depending on the laser availability, they will go with that solution, right? And keep in mind today, the Silicon Photonics supply chain is also constrained, right? So now you have constraint on Silicon Photonics, you have constraint on lasers, constraint on EMLs. So every single customer of ours is trying to figure out is how can I supply to the demand based on the constrained supply chains that I have, right?
In prior generations, you've also seen VCSELs take share as time has gone along.
Mm-hmm.
Generally lower cost option.
Right.
Is that a reality at 800G? Is the performance good enough to get there? Do you think people move in that direction? And then same question for 1.6T. You kinda talked about SiPho in that way, right?
Right.
Where it takes share over time.
Right.
Is that the same way you think that VCSELs will be at 800G?
Yeah. 800G, 800G definitely, you know, VCSEL has always been there, right? When the Hopper was ramping the first in the beginning, it was a lot of VCSEL-based modules, right? And then it got shifted over silicon photonics and to EMLs because they didn't have the capacity. Now capacity is back. So we see 800G kinda coming back, you know, the multi-mode kinda coming back a little bit, not to the previous level, right? Now for 1.6T, despite some of the vendors pushing for 200G VCSELs, we're not seeing it being, you know, adopted broadly, right? People have already made their mind up and say, "We're gonna shift over to single-mode-based architectures, actually infrastructures." And then we have not seen the effect of coming back.
So we were seeing the constraint of the lasers and silicon photonics and things like that, but we're not seeing people say, "Hey, we're gonna use a 200G VCSELs as a replacement.
Got it.
We're not seeing that yet.
Less of a factor.
Less of a factor, yeah. Because it's very limited, right? You only do like 30 meters. It's just too limited, right, for especially now, nowadays all the racks, right, are really high power, and then the rack spacing becomes wider and wider. You really need about a couple hundred meters to, to cover, you know, the scale of networking, so 30 meters is too, too short to cover the use cases.
Got it. Maybe switching gears to another vertical, and I do wanna come back to kind of row scale architecture and solutions to that.
Absolutely.
But why don't we start with just OCS? So.
Right.
I think on the last earnings call, you guys talked about OCS going from kind of single-digit millions to something around 100 million per quarter by December of 2026.
Right.
If you listened throughout the quarter, you guys have kind of been incrementally more positive there.
Correct.
Could you talk to why you're more positive? Are you seeing more customer engagement? Is it a broadening of customers or kind of a deepening of your existing customers? And maybe just from a technical perspective, I get a question a lot of times like, "Is this replacing packet switching? Is this existing alongside packet switching?" Maybe spend a little time explaining where this fits in?
Yeah. I think, you know, first of all, I would say that we're getting deeper with the customers. And then, you know, today's primary use case, there are actually two primary use cases. One is the scale-up, right? It's a scale-up architecture that really drives the volume, right? And second one really is I would call it a multi-building campus scale-across, right? So you have like, say, three or four different campus buildings, big data centers, 100,000, you know, GPUs each. You wanna connect them at the campus level. These are two major applications, right? We also see the scale-up, which might be a replacement of the spine switch, right? We also opportunity for scale-up that will also be a replacement for the kind of called the NVLink switches. But those are kinda further out, right?
So today, the dominant one really is a kinda scale-across level application and then the scale-up portion, right? So these are the big ones. And we see this scale-up portion is actually strengthening, our position strengthening, the demand strengthening. And this customer also starts to sell their solutions outside, right? That's also an upside. So all these add together, you know, we're seeing that's what give us increasingly more confidence, right? It's because we're seeing our progress. We're seeing backlog visibility, and we're seeing, you know, our customers' demand, because of their own success, right? That's all the factor together that we say, "Hey, you know, this looking better and better.
Outside of the customer who kind of evangelized this technology, is it a lot of greenfield expansion where you're seeing new data centers get deployed and customers are saying, "I'm gonna deploy optical switching along with packet switching in tandem"? Are you seeing OCS kind of eradicate some spend that you would need on traditional packet switching? I guess that's the question that people ask a lot of times. Like, should I be worried about players in the traditional packet switching environment because OCS is coming on? Like, how would you answer?
How would I think about it?
Yeah.
I think right now, I would say the following, right, so right now, it is really an architectural decision. Okay. Answer first, 21st. We definitely are seeing much more interest in OCS. People, especially from the AI model companies, they definitely are interested in exploring and even in some cases demanding the use of optical switches, okay, but it's actually right now, as it's building on top of the packet switches. They're using it because architecturally it is a better choice, right? There's all the benefit about, you know, cost and then power consumption, all that stuff like that. That will play out over time. In the near term, I don't see it kinda cannibalizing the packet switches. It's gonna be supplementing the packet switches.
Over time, when it goes to more into the spine or even into the scale-up architectures, I think it will, you know, kinda eat into the share of the packet switches, right? But the market's gonna grow really, really fast. So you're gonna see packet switches still grow, but then increasing amount of the share is gonna be allocated over to OCS. That's how I see it.
And so will that business as well, OCS, be limited by supply like your other businesses? You just kinda started saying we see constraints across, you know, our entire portfolio.
Right. Right.
Like you are starting from a very low number, getting to, you know, a moderately sized number there. That is in that same camp, right, where you are limited by certain?
Yeah. Right now, because the OCS supply chain is still pretty new, right? So the whole spectrum needs to kinda be primed to support the volume, right? So right now, it's not so much of a constraint because of the capacity, fundamental capacity per se. It's just, it's new, right? So it takes time for the supplier to adjust to it, right? We're not seeing like supply constraint fundamentally, like we're seeing on the laser side, you know, for the next couple years, but you know, depending on how fast the OCS will grow, and we've already started thinking about how we're gonna plan for that to enable the, you know, further ramp of OCS.
Got it.
Yeah.
Switching gears to CPO. It sounds like late 2026 is kind of the timeframe where you'll see,
Scale-out.
Yeah. Scale-out technology.
Correct.
At first, which is revenue towards you guys there. When you look at like volume of switches that are moving to CPO, do you expect a significant volume transition in late 2026, early 2027, or is that something closer towards the end of the decade?
Oh, that's a fantastic question. I think our customers don't know.
Yeah.
Right? So what they're asking us really is that, "Hey, do you have fungibility between the CPO laser and the regular lasers?" right? The answer is yes, we have some fungibility. But we do see that, I think, let me just give you some rough ideas. I think by 2027, by 2028-ish, we should see, let's say 40%-50% of the switches of the first user of this CPO to be a CPO-based, right? They have the incentive to really drive the adoption of CPO, right, and then selling the whole solution. We'll see at that vendor in 2028 timeframe, late 2027, 2028, it will be like 50/50 between a pluggable-based versus a kinda CPO-based. That's our best view, right, and then themselves actually has a large uncertainty. They're trying to gauge from their customers too, right?
But meanwhile, I think it's fair to say we see the CPO activities picking up at every single hyperscalers, every single one of them. And not just for scale-out, but also for scale-up, right? So we definitely think that 2026 ramp is happening and 2027 will continue to ramp. And we're gonna see, you know, the share of CPO increasing from 2027 and in onward to 2028, probably reaching 40%-50% in 2028. And then around that timeframe, probably scale-up will start to show up as well, right? That's how we're picturing the CPO demand.
Yeah. 40%-50%'s a pretty large number going into that 2028 timeframe.
Right.
I guess if you're already at that adoption rate with that large first customer, what is the barrier to moving to scale-up architectures? 'Cause I think the idea that we've heard as an industry is scale-up is where most of the benefit comes. It's just gonna take a little bit longer.
Right.
What's gating you from getting into scale-up architectures and systems?
That's a fantastic question. I think, you know, from a system point of view, there's still, you know, power consumption, you know, cost considerations from the application perspective, right? But also from, if you look at from our biased angle, capacity, right? Because again, the scale-up's gonna be several X.
Yeah.
Of the demand, right? So we're gonna scale. We're already ramping very aggressively. Now we're gonna actually tilt that slope by another several X, right? So we're already planning for that and thinking about it, how we're gonna actually address, actually enable, right? We want to enable the scale-up opportunities, right? Again, there's multiple conversation, not just one customer, right? So how we're gonna do that as industry? So that's what we're actually already starting to work on.
Gotcha.
Yeah.
All right. Broadly into 2026, you're getting, I would say, more substantial 1.6T volumes. 800G, I think you said before, is still supposed to be the largest node in the market for next year.
Correct.
Could you give us some view on what you think total port count looks like next year or just optical ports in general for 2026?
Yeah. I think optical ports, our estimation's probably about 60 million ports, 60 million to 70 million ports in that range, you know? Actually, the number's kinda doubling, almost nearly doubling year over year, right? This year, probably 40 million to 50 million. Next year, gonna another one, maybe 50% increase.
Yeah.
Next year, probably 70 million to 75 million ports, and we're getting, if you look at from the GPU count, you know, you can do some attached rate calculation, and you can look at, you know, the TPU, you know, multiplier, right, and then we'll hear from the hyperscaler directly, probably around 75 million ports. Around which I would say probably 55-ish or 60-ish is like 100G or 800G.
Yeah.
And then, you know, 15 to 20 is, you know, what, 1.6T.
So that's largely the hyperscalers. That's.
Hyperscalers.
The hyperscalers.
Hyperscalers.
Yeah. That's all.
Hyperscalers.
Hyperscalers.
Including, you know, whether it's NVIDIA, whoever, it doesn't matter, overall the market, right? That's what we're looking at.
Gotcha.
Yeah.
And then your customer exposure within that vertical, like Cloud Light was well understood to be kind of a Google provider very early on. In terms of like the diversification and your scale, like, do you still feel like you have a very good position at that customer versus where you were with?
Yeah, we are. So I think we originally, you know, our strategy a year ago was, "Oh, let's go proliferate and win more share." We're like, "Well, actually, we don't need to do that." Because every single customer's so demanding. The lead customer's particularly demanding. So we want to make sure that we focus on serving them well. And then just we have three customers. Just the three customers can keep us really busy, right? So we want to make sure we're serving them really well. And then, yes, we're positioned still very strong, right, in those lead customers. And, you know, we have roadmap visibilities, you know, multi-year into the future, and that's what we're focused on.
When you look at those three big customers, longer-term looking to get to kind of a billion-dollar business or so, what are the biggest challenges in getting from where you are today? Is it manufacturing? Is it yields? Like, where's the hang-up? 'Cause I would assume that today, if those customers could get more modules from you, they would happily do so. Where's the hang-up?
It's really just capacity.
Okay.
It's really just capacity. I think every single customer, frankly, today, if I were to win more customers, I just go offer capacity.
Yeah.
You'll get it.
Yeah.
You'll win it, right? Especially if they hear you have your own laser supplies, "Oh my God, please come in," right? So that's the dynamics, right? So really for us, it's like, "Okay. Let's be careful with this," right? "Let's make sure we can produce and deliver the capacity," right? That's really the only gating item, really.
'Cause historically, I remember, you know, at the 400G transition and then early 800G, a hyperscaler would qualify two, three, four modules, and then there would really.
Right.
Very little requalification process, right?
Right.
What was set was set from that point forward, you got nothing.
Move on, right?
Now, if you have supply and you go rebid that project, are they like welcome in? Is that, has that dynamic changed?
Yeah. I think that's a little bit, right, so basically now, the customers are still favoring the existing supply chain because they have a lot of trust. They know these guys can ramp, these guys can good reliability, quality. All that trust takes time.
Yeah.
Especially now, opportunity cost now for them becomes really high, right? Everything has to ramp instantaneously. They have no time to qualify new vendors. However, we've been getting a lot of invitations to say, "Hey, are you interested in bidding for this opportunity?
Mm-hmm.
We're like, "Why?" Because we're short. We heard you have your lasers, right? So that's become a common theme, right? But we're like, "Okay. Let's be careful," right? "Let's make sure we hold on to our current customers really well because the capacity is short in the industry," right? Even the DSPs could be short because, you know, TSMC is moving capacity from 5 nanometers to 3 nanometers, and they're struggling to supply, you know, the world's GPU, TPU, XPU demand, right? So, you know, everything's gonna be short. And therefore, even if you want to invest in the capacity, you may not be able to get the parts, even semiconductors, right? So that's the challenge I think industry's facing. So, but opportunity's there. If we want to grab it, it's there.
Helpful. So in the last quarter, you look at all your large new opportunities in the data center you have, switching. You've got your module business.
Right.
You've got your laser business. It was surprising where you saw a lot of your upside was actually in the telco business, where you saw like more broad telco strength.
Right.
Could you maybe point out where you're seeing that strength? Is this just the ZR, ZR Plus market actually starting to come to fruition, or is it a certain subsector of component that's going in there?
It's actually broad-based, right? So, you know, the term scale-across was invented, right? That really was the case, right? So you look at our portfolio, all of our other products, whether it's a Wavelength Management or WSS or pump lasers or tunable lasers or, you know, modular products across the board, every single product line is increasing, right? So basically what we're seeing here really is that you have a supercharged growth of data center optics, and we'll talk about it already here. And then all that, some of the portions that you're leaking out, means we're leaking out to the broader, wider area networks, right? So really across the board, everything is actually growing, right? So if you look at our kind of a forward-looking view, there's kinda this baseline, not at 2x, 3x per year growth, but at, you know, 50% year-per-year growth, that kinda thing.
And then on top of that, then you have this supercharged data center growth, right? That's how we're looking at it. So still, we're seeing that trend, continuing.
Things sound fantastic across the board. Thank you very much for joining me. I.
Oh, thank you. Thank you for the opportunity.
Thank you.
This is great. Thank you so much.
Thank you so much.
Thank you. Thank you, Tom. Thank you.