Author: Rita
Lumentum's June quarter revenue grew 109% year-over-year to $1.01 billion, with demand for all categories of lasers exploding.
Nomura Securities pointed out in its global AI trend tracking report released on August 12 that Lumentum's performance and guidance provide a clear signal for the optical communication market: the supply-demand imbalance for EML and CW lasers will not ease until at least FY26-FY27, with technology upgrades and supply chain management capabilities becoming the moat for market leaders. The global shortage of optical chips is creating structural opportunities for Chinese manufacturers.
Optical Chip Supply-Demand Imbalance to Persist Through FY26-FY27
Lumentum's 4QFY26 component revenue grew 103% year-over-year to $649 million, with laser products maintaining strong momentum across all segments.
Shipments of narrow linewidth laser components grew over 130% year-over-year, while pump laser shipments grew 80% year-over-year. Management expects shipments to quadruple in the coming quarters, with capacity already mostly sold out despite rapid expansion. The company holds a 70% to 80% market share in pump lasers, possessing technological and pricing initiative.
Regarding laser chips, EML again set a quarterly record, primarily driven by demand for 100G devices. Momentum for 200G EML is accelerating, now accounting for over 25% of total EML revenue, and is expected to exceed 50% by mid-2027. Management anticipates EML shipments in the December quarter of 2026 to grow over 50% year-over-year, while the company is allocating more capacity to CW lasers.
Nomura believes the supply gap for EML and CW lasers remains significant, a judgment that supports the continued upward trajectory of the optical transceiver market.
Clear Technology Upgrade Path, NPO and CPO to Drive Successive Growth
Lumentum management noted that CW lasers are carrying the majority of transceiver output for 1.6T silicon photonics applications, while EML is expected to regain significant share in the 3.2T era.
The die size of CW lasers has shrunk significantly, with performance improvements narrowing the gross margin gap with EML substantially, though EML still holds an advantage. Both 200G EML and CW lasers contribute positively to the company's margins. 200G EML currently accounts for 25% of the product mix's margin and is expected to exceed 50% by mid-2027.
NPO (Near-Packaged Optics) is viewed as an intermediate step before the large-scale adoption of CPO (Co-Packaged Optics), with commercialization expected by late 2027 to 2028. Management indicated NPO represents an incremental market opportunity not fully reflected in previous financial targets, which will significantly expand the optical TAM. Lumentum recently secured its first ELS module purchase orders, with delivery scheduled for the second half of 2027. NPO and CPO lasers share a design platform, covering output levels of 120mW, 150mW, and 400mW, with industry-leading efficiency.
OCS Doubles, $400 Million Target in Sight
Lumentum's OCS (Optical Circuit Switch) shipments doubled from 3QFY26 to 4QFY26, with management guiding for triple-digit year-over-year OCS revenue growth in 1QFY27.
The company is progressing towards its goal of achieving $400 million in OCS revenue in 2H26, as previous supply chain issues have been resolved. Management stated that demand signals for 2027 are "extremely strong," and they have begun working with contract manufacturers to increase capacity while continuing to ramp output at internal fabs. The company is also planning products with higher and lower port counts, including dedicated in-tray products.
Nomura points out that OCS demand is closely tied to the optical interconnect architecture upgrades in AI data centers, constituting a significant portion of incremental demand in the optical communication market.
Shortage as Opportunity: A Window for Chinese Suppliers
Nomura believes the global optical chip shortage creates a clear window for Chinese players to gain market share. In the optical chip space, Source Photonics is expected to capture global market share. In the optical transceiver space, Zhongji Innolight benefits from its strong execution in supply chain management, the upgrade from 800G to 1.6T, and increasing silicon photonics penetration. TFC Optical Communication benefits from the incremental opportunity brought by NPO.
Nomura issued clear ratings and price targets for the three A-share companies: Source Photonics at Neutral with a target price of CNY 1375 (based on 21x estimated 2027 EPS); Zhongji Innolight and TFC Optical Communication both at Buy.
Lumentum's performance validates an accelerating structural trend: the bandwidth demands of AI data centers are transmitting from the optical transceiver level upstream to the optical chip level, while supply-side capacity ramp-up lags far behind the demand-side explosion. This scissors gap provides a time window for all segments of China's optical communication industry chain, from chips to modules.
Disclaimer
This article is Chaoxiang Research's compilation and interpretation of a third-party brokerage research report (Nomura Securities, August 12, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein are the views of the respective brokerage analysts, representing the stance of their affiliated institutions only, and do not represent the views of Chaoxiang Research, nor constitute any investment advice.
Markets are risky, decisions should be made independently. This article should not be used as a basis for trading any securities.
