Lumentum Holdings Inc. Common Stock Deutsche Bank 2026 Technology Conference

Yeah. First, Gianni, thanks for having me. Really a pleasure. Not too bad a setting, I must say.

Look, what is happening right now is the speed that is required in these compute racks has gone up to a degree that copper cannot carry it over X distance. At 800G, the connection rate of, let us say, 800G, copper can carry 800G reliably, maybe 10 meters. Now we are at 1.6T, copper can carry that maybe reliably 2 to 3 meters. There are many, many links inside a rack or inside a cluster inside a data center that are longer than 2 to 3 meters. As these speeds go up, you go from 800G to 1.6T, eventually we are going to go to 3.2T, the presence of copper and the technical aspects of copper become more and more difficult to make work.

We have always been, as you know, for going a reasonable distance inside the data center, has always been the purview of optics. It has been relatively small numbers because the distance is long. You are going from a compute rack out to scale-out switches, and that is hundreds of meters, let us say. You have always had scale-out optics where there are these transceivers, typically it has been, and optical transceivers have always been in there. What the new change has been is now you are seeing optics go inside clusters and then, more importantly, inside the rack itself. That is really what is driving the number. If you think about Lumentum, we have always been playing in scale across, right? Connecting data centers to one another.

That number has gone crazy because the number of data centers has gone up, and the amount of connectivity you now need between data centers has gone up. Really, you are just beginning to see optics now come inside the rack and inside the cluster, and that is really what is driving our number and why many people have a pretty good growth rate ascribed to us.

Yeah, the first thing I would say is the breadth of customer engagement is very high on OCS. We started with customers other than Google. People are ascribing us to be shipping to Google. Google deploys a great number of OCSs in their topology, but we actually have customers that were much more substantial than Google in our early rounds of shipments. The breadth of customer discussion is significant, and probably one of the more interesting use cases is deploying an OCS inside the rack itself, being able to use one per rack to route around GPUs or TPUs that may be overloaded. You have a surprising amount of GPUs in a data center actually fail. When these fail and the compute model is $20, 30, $40 million of compute time, and you have something that gives out, that is a problem. Right? Now there's a move to say, okay, how do we route around those GPUs, and how do we get to a point where a GPU might be overloaded and we can better route traffic?

A great way to use an OCS is exactly in that application. Now, what I'd say, Gianni, is been very significant for us in that our largest customer has taken up their orders very significantly on us, really since our last earnings call. We've seen a huge uptick in our order book and the order rate. That actually gives us confidence to increase or give a new guidance, a new guidance for the company. That is that in 2028, we figure that we can now deliver $40 of earnings power.

A very, very significant number and a take-up, I think, against all the sell side analysts in terms of where we think our earnings power can be. That's now driven significantly on the back of OCS. The OCS numbers have come up a lot since our last earnings call, and that really gives us a lot of confidence, given the margin profile of that good, to substantially take up where we think our earnings power will be in 2028, in our fiscal 2028.

Yeah, I think so. Kathy, who you work with rather closely, has given a TAM number. That TAM is $8 billion. We think that and we gave that at OFC last year. I think the TAM now looks like it's significantly under called. You have just such a rush toward finding ways to use OCS. OCS has significant power advantages relative to an electrical switch, significant loss advantages. The loss through the switch is far less than you'd see in an electrical switch. Those two together are stimulating a lot of discussions from the customer base around how to use it. I think as we look out in time, this, we think, will be one of the largest growth drivers in the company. Yes, we're predominantly today, I'd say, tied to one customer who's figured out a topology in which to use it and use it meaningfully.

Their numbers are growing very significantly. They are doing well in the market. The number of OCSs per torus is going up. All of those things are obviously very good for us, which is lending us to give this new target for 2028. Beyond that, the customer base is increasingly widening, and we are very excited. I think in the next OFC in March of next year, I am sure Kathy will put together a new set of numbers around that TAM, and I think they will be significantly up from the $8 billion that we have given previously.