They are absorbing 150 basis points of NPI costs and still expanding margins.
Thesis: Lumentum is the bottleneck for 800G/1.6T transceivers. EMLs are sold out through 2025. Margins are expanding via mix shift (Cloud/Networking +67%) despite heavy NPI spend. The street models linear growth; this is a step-function driven by OCS ramp and 200G cycle. The capacity ceiling is temporary; the margin expansion is structural.
Verdict: LONG — Conviction: HIGH
Catalyst: First meaningful OCS revenue in 1H 2026 combined with 200G EML volume ramp.
Key Risk: Capacity constraints persist longer than expected, capping revenue below the $600M target despite demand.
The Tell: CFO Wajid Ali admitted that pricing increases are 'upside' to the 40% gross margin target. This implies the current model assumes zero pricing power despite being sold out.
Friction Level: MODERATE_FRICTION — Bull sees sold-out capacity as pricing leverage; Bear sees it as a revenue cap.
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