Lumentum Holdings Inc.

This is our first report on Lumentum Holdings, a manufacturing company operating in the niche of optical and photonic products. In its result result, the company delivered an all-around beat with strong revenue in Datacom EMLs, coherent components, pump lasers, tunable products, and sub-sea components. Due to solid fundamentals in the company’s Telecom and Datacom businesses, it is well-positioned for double-digit growth through the coming fiscal. The management also completed the acquisition of NeoPhotonics, broadening their photonics toolkit to include ZR and ZR+ modules, silicon photonics, high-bandwidth coherent components, ultra-narrow linewidth external cavity tunable lasers, and RF integrated circuits, as well as increasing Lumentum’s exposure to the rapidly expanding 400 gigabits and above optical communication opportunities. Earlier in the year, they also purchased IPG’s telecom transmission product lines. In addition to their 400G ZR and ZR+ solutions, this opens up prospects for vertical integration in upcoming coherent transceivers that target opportunities in data centres and at the edge of the network. Overall, Lumentum is in a good position to profit from the expanding applications for photonics in various end markets. We initiate coverage on them with a ‘Buy’ rating.