Written by: Rita

Lumentum's revenue for the June quarter increased by 109% year-on-year to $1.01 billion, with demand for various types of lasers experiencing a surge.

Nomura Securities pointed out in its global AI trend tracking report published 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 at least until FY26 to FY27, and technological upgrades and supply chain management capabilities are becoming a moat for market leaders. The global shortage of optical chips is creating structural opportunities for Chinese manufacturers.

Supply-demand imbalance of optical chips persists from FY26 to FY27

Lumentum's 4QFY26 component revenue increased by 103% year-on-year to $649 million, with strong momentum maintained across all segments for laser products.

The shipment volume of narrow linewidth laser components grew by over 130% year-on-year, and the shipment volume of pump lasers increased by 80% year-on-year. Management expects further growth of 4 times in the coming quarters, although capacity is rapidly expanding and is still largely sold out. The company holds a 70% to 80% market share in the pump laser sector, possessing technological and pricing leverage.

Regarding laser chips, EML once again set a quarterly record, primarily driven by the demand for 100G devices. The momentum for 200G EML is accelerating, currently accounting for over 25% of total EML revenue, and is expected to exceed 50% by mid-2027. Management anticipates that 2026's December quarter EML shipments will increase by over 50% year-on-year, while allocating more capacity to CW lasers.

Nomura believes that the supply gap for EML and CW lasers remains significant, which supports ongoing upward momentum in the optical module market.

Clear pathway for technological upgrades, NPO and CPO will drive growth

Lumentum's management pointed out that CW lasers are currently supporting most of the transceiver output in 1.6T silicon photonics applications, while EML is expected to regain significant market share in the 3.2T era.

The chip size of CW lasers has significantly decreased, and performance enhancements have narrowed the gross margin gap with EML, although EML remains superior. Both 200G EML and CW lasers have a positive contribution to the company's profit margins, with 200G EML currently accounting for 25% of product portfolio profit margins, anticipated to exceed 50% by mid-2027.

NPO (Near Package Optics) is seen as an intermediate step before the widespread adoption of CPO (Co-Packaged Optics), expected to commercialize by the end of 2027 to 2028. Management noted that NPO represents a market opportunity not fully reflected in previous financial targets, which will significantly expand the optical total addressable market (TAM). Lumentum recently received its first ELS module purchase orders, with delivery scheduled for the second half of 2027. NPO and CPO lasers share a design platform, encompassing 120 mW, 150 mW, and 400 mW output levels, with industry-leading efficiency.

OCS sees double growth, aiming for $400 million target

Lumentum's OCS (Optical Circuit Switch) shipments doubled from 3QFY26 to 4QFY26, with management guiding that 1QFY27 OCS revenue will grow by triple digits year-on-year.

The company is pushing towards achieving its $400 million OCS revenue target in 2H26, having resolved previous supply chain issues. Management stated that the demand signals for 2027 are "extremely strong" and has begun collaborating with contract manufacturers to increase capacity while continuing to boost output at internal factories. The company is also planning products with higher and lower port counts, including dedicated in-tray products.

Nomura noted that OCS demand is closely related to upgrades in optical interconnect architectures for AI data centers, making it an important component of incremental demand in the optical communication market.

Shortage equals opportunity: A window of opportunity for Chinese suppliers

Nomura believes that the global shortage of optical chips has created a clear market share acquisition window for Chinese manufacturers. SourceLink Technology is expected to gain global market share in the optical chip sector. In terms of optical modules, Zhongji Xuchuang is expected to benefit from its strong execution in supply chain management, with upgrades from 800G to 1.6T and increased silicon photonics penetration. Tianfu Communications will benefit from the incremental opportunities brought by NPO.

Nomura has provided clear ratings and target prices for the three A-share companies: SourceLink Technology is rated neutral with a target price of 1375 yuan (based on 21 times the expected earnings per share for 2027); Zhongji Xuchuang and Tianfu Communications are rated as buy.

Lumentum's performance validates an accelerating structural trend: the bandwidth demand for AI data centers is cascading from the optical module level to the upstream optical chip level, while supply-side capacity ramp-up is far slower than the explosion on the demand side. This gap provides a time window for China's optical communication industry chain across various stages from chips to modules.

Disclaimer

This article is a整理与解读 of a third-party brokerage research report (Nomura Securities, August 12, 2026) by Chao Xiang Research, along with整理 of public market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the article are the opinions of analysts at that brokerage and represent their institution's position, not the viewpoint of Chao Xiang Research, nor does it constitute any investment advice.

The market has risks; decisions should be made independently. This article should not be used as a basis for buying or selling any securities.