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Lumentum Holdings Inc. (LITE)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue and EPS both exceeded the high end of guidance, driven by hyperscaler demand for cloud transceivers, record EML chip shipments, and recovering networking; non-GAAP EPS was $0.57 and revenue was $425.2M, up 5.7% q/q and 16.0% y/y .
  • Margins improved materially: non-GAAP gross margin rose 290 bps q/q to 35.2%, and non-GAAP operating margin rose 290 bps q/q to 10.8%, aided by mix (datacom lasers), yield improvement in modules, and shifting DCI production in-house .
  • Q4 FY25 guidance was raised vs the Q3 guide provided last quarter: revenue $440–$470M, non-GAAP operating margin 13–14%, EPS $0.70–$0.80, despite a ~100 bps gross margin headwind from tariffs and component costs; management still targets reaching ~$500M quarterly run rate exiting calendar 2025 .
  • Strategic positioning in AI/cloud was reinforced with OCS R300 sampling and NVIDIA silicon photonics ecosystem partnership, supporting power-efficient optical architectures and future CPO opportunities .
  • Consensus context: LITE beat S&P Global consensus estimates for Q3 FY25 revenue ($425.2M vs $418.2M*) and EPS ($0.57 vs $0.50*), with 14 revenue and 16 EPS estimates; guidance suggests potential further upward estimate revisions as cloud ramps [*Values retrieved from S&P Global].

What Went Well and What Went Wrong

What Went Well

  • Strong cloud transceiver momentum: management guided Cloud & Networking revenue up >50% sequentially in Q4 on multiple hyperscaler programs; qualification/ramp issues from December quarter are behind them .
  • Record EML shipments and expanding 200G portfolio: demand outstrips supply; 200G EMLs begin ramp late CY25, with design wins positioning LITE for 800G/1.6T transitions .
  • Margin execution: non-GAAP GM +290 bps q/q to 35.2% and operating margin +290 bps q/q to 10.8% on mix/yields and in-sourcing DCI in Thailand; adjusted EBITDA rose to $71.0M .
    • “We see a path to take gross margins above 40%... targets are achievable” — CEO Michael Hurlston .

What Went Wrong

  • Tariff and component cost headwinds: CFO quantified ~100 bps GM headwind in Q4 from tariffs/material costs on submounts/capacitors; mitigation via moving production from China to Thailand is ongoing .
  • Supply constraints across telecom: shortages on pump lasers, tunables, CDM components constrained shipments; management expects improvement into Q4 and back half but remains tight next few quarters .
  • Non-GAAP add-backs elevated: stock-based comp (incl. $28.2M related to CEO transition), restructuring charges, Huawei bad debt reserve, and legal/professional fees influenced GAAP losses; GAAP diluted loss per share was $(0.64) .

Financial Results

MetricQ3 FY24Q2 FY25Q3 FY25
Revenue ($USD Millions)$366.5 $402.2 $425.2
GAAP Gross Margin (%)16.2% 24.8% 28.8%
Non-GAAP Gross Margin (%)28.7% 32.3% 35.2%
GAAP Diluted EPS ($)$(1.88) $(0.88) $(0.64)
Non-GAAP Diluted EPS ($)$0.09 $0.42 $0.57
Non-GAAP Operating Margin (%)(0.2%) 7.9% 10.8%
Adjusted EBITDA ($USD Millions)$25.3 $57.6 $71.0
Segment Revenue ($USD Millions)Q3 FY24Q2 FY25Q3 FY25
Cloud & Networking$313.8 $339.2 $365.2
Industrial Tech$52.7 $63.0 $60.0
Total$366.5 $402.2 $425.2
KPIsQ3 FY24Q2 FY25Q3 FY25
Cash & Short-Term Investments ($USD Millions)—$896.7 $866.7
Non-GAAP R&D ($USD Millions)$66.2 $62.4 $63.3
Non-GAAP SG&A ($USD Millions)$39.6 $35.9 $40.1
CapEx ($USD Millions)—$65.0 $59.5
Actual vs S&P Global Consensus (Q3 FY25)EstimateActual
Revenue ($USD Millions)418.18*425.20
EPS ($)0.50*0.57
# of Estimates (Revenue / EPS)14* / 16*—

Note: * Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q3 FY25$410–$425 Actual: $425.2 Beat high end
Non-GAAP Operating Margin (%)Q3 FY259.5–10.5 Actual: 10.8 Beat high end
Non-GAAP EPS ($)Q3 FY25$0.47–$0.53 Actual: $0.57 Beat high end
Revenue ($USD Millions)Q4 FY25—$440–$470 Raised vs prior quarter’s Q3 guide
Non-GAAP Operating Margin (%)Q4 FY25—13–14 Raised vs prior quarter’s Q3 guide
Non-GAAP EPS ($)Q4 FY25—$0.70–$0.80 Raised vs prior quarter’s Q3 guide
Gross Margin HeadwindQ4 FY25—~100 bps tariff/materials New headwind disclosed
Tax Rate (Non-GAAP)Q4 FY25—16.5% Maintained framework
Diluted Shares (Non-GAAP)Q4 FY25—~72.7M Assumption provided

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25 and Q2 FY25)Current Period (Q3 FY25)Trend
AI/Technology Initiatives (EML, CW lasers, 800G/1.6T)Record datacom chip orders incl. 200G EML; capacity +40% by Q4 FY25; 1.6T engagement; vertical integration pacing EMLs sold out; 200G EML ramp late CY25; begin adding CW lasers; path to >40% GM; OCS R300 sampling, CPO roadmap Strengthening
Supply Chain & TariffsStrategy to manufacture outside China; limited tariff impact near term; underutilization headwinds in Thailand ~100 bps GM headwind in Q4 from tariffs/components; accelerating move to Thailand; importer-of-record dynamics with customers Headwind mitigated
Product Performance – TransceiversNew hyperscaler wins; ramp through CY25; initial yield issues in Q2 impacted GM Q4 transceivers up >50% q/q; yields improved; external CW lasers used near term, internal lasers early CY26 Improving
Telecom/DCI & Long-HaulZR/ZR+ strengthening; coherent 130/200G demand; DCI modules/components exposure DCI demand strong; pump lasers, tunables constrained; in-sourcing DCI accretive to margins Demand up, supply tight
Manufacturing FootprintThailand capacity expansion; new 3-story clean room Thailand ramp for DCI and cloud modules; tunables capacity +50% by year-end Scaling
Regulatory/Legal—Bad debt reserve for Huawei ($3.2M); legal/professional fees; executive transition costs ($6.1M) Neutral to negative
R&D/CapEx ExecutionCapEx for transceivers and InP wafers; spending ahead of revenue Q3 CapEx $59.5M; continued investment in InP and Thailand capacity Continuing

Management Commentary

  • “We see a path to take gross margins above 40%. Meanwhile, we can improve operating margins by cutting spending in noncore areas… targets are all achievable.” — Michael Hurlston, CEO .
  • “We set another record for EML chip shipments this quarter and remain on track to more than double this business by the end of calendar 2025 relative to our June 2024 baseline.” — Michael Hurlston .
  • “We anticipate strong sequential growth in our cloud and networking segment… In Q4, we expect our overall cloud transceiver revenue to grow over 50% sequentially.” — Michael Hurlston .
  • “This outlook includes an estimated 100 basis point reduction in overall company gross margin primarily driven by higher material costs and tariffs… despite this headwind, we expect a sequential improvement in gross margins from Q3 to Q4.” — Wajid Ali, CFO .
  • OCS R300: “Engineered to significantly improve the scalability, performance and efficiency of AI clusters… currently being sampled by multiple hyperscaler customers; GA in 2H 2025.” — Lumentum press release .

Q&A Highlights

  • Transceiver ramp and mix: Q4 transceivers expected up >50% q/q; near-term transceivers use external CW lasers, with in-sourcing planned early CY26; multiple hyperscaler programs ramping beyond one major customer .
  • Tariffs and supply chain: ~100 bps GM headwind from tariffs/components; active shift of production from Dongguan to Thailand; customer importer-of-record arrangements often limit direct tariff exposure for LITE .
  • CPO trajectory: Multi-year prospect; meaningful revenue in 2H CY26; lasers are initial content, with potential for additional optical chips; pluggables remain dominant near term .
  • Telecom/DCI supply constraints: Pumps, tunables, CDM products constrained; tunables capacity to rise ~50% by year-end; DCI products accretive to margins, benefiting gross margin trajectory .
  • EML demand/capacity: EMLs “sold out”; 200G ramp late CY25, layering on top of 100G; pricing optimization possible given constraints .

Estimates Context

  • Q3 FY25 results vs S&P Global consensus: Revenue $425.2M vs $418.2M* and EPS $0.57 vs $0.50*; 14 revenue and 16 EPS estimates*. Results were above consensus on both lines [*Values retrieved from S&P Global].
  • Guidance implies potential upward revisions: Q4 revenue $440–$470M, non-GAAP EPS $0.70–$0.80, with Cloud & Networking strength offsetting Industrial Tech seasonality; management reiterated confidence in >$500M quarterly run rate exiting CY25 .

Key Takeaways for Investors

  • Cloud momentum is accelerating: multiple hyperscaler transceiver ramps drive >50% sequential growth in Q4; this is the primary near-term revenue catalyst .
  • Margin trajectory favorable despite tariffs: mix (datacom lasers, DCI), yield improvements, and in-sourcing DCI are lifting margins; Q4 guide embeds a ~100 bps GM tariff headwind yet still sees sequential margin improvement .
  • EML scarcity is strategic: demand exceeds supply through CY26; 200G EML ramp late CY25 positions LITE well for 800G/1.6T; pricing optimization supports non-GAAP GM progress .
  • OCS and CPO expand medium-term TAM: OCS R300 sampling now, GA in 2H 2025; early ultra-high-power laser shipments for CPO-like solutions suggest CY26 contribution, aligning with NVIDIA ecosystem work .
  • Telecom/DCI is accretive: DCI demand strong; tunables capacity +50% by year-end; expect telecom contribution to support gross margin targets .
  • Non-GAAP adjustments are material near term: executive transition costs, Huawei reserve, restructuring, and stock-based comp drove GAAP losses; investors should focus on non-GAAP profitability trajectory and cash ($867M at Q3 end) .
  • Execution focus: ramping Thailand capacity, qualifying new programs, mitigating tariffs/material costs; delivery on these will drive multiple expansion alongside estimate revisions .

Citations: Press release and 8-K Q3 FY25 ; Q3 FY25 earnings call –; Q2 FY25 8-K –; Q2 FY25 call –; Q1 FY25 8-K/call – –; OCS press release ; NVIDIA ecosystem press release . Note: * Values retrieved from S&P Global.