Lumentum(LITE -3.76%) reported fourth quarter fiscal 2025 results on August 12, 2025, with non-GAAP revenue of $480.7 million and non-GAAP EPS of $0.88, both exceeding the high end of guidance. The company’s non-GAAP gross margin rose to 37.8%, up 260 basis points quarter-over-quarter and 1,000 basis points year-over-year, driven by a 67% year-over-year surge in cloud and networking revenue and strong demand for high-speed laser components and optical circuit switches. The following insights highlight the company’s capacity constraints, new product milestones, and margin expansion, all of which shape the outlook for fiscal 2026 and beyond.

Lumentum demand outpaces supply in cloud and networking

Cloud and networking segment revenue reached $424.1 million, up 16% quarter-over-quarter and 67% year-over-year (non-GAAP), propelled by record electro-absorption modulated laser (EML) shipments and robust demand from hyperscale cloud customers. The company’s wafer fab expansion is ongoing, but manufacturing capacity for laser assemblies remains supply-constrained, with a substantial 200-gig line speed EML chip order scheduled for delivery in December (fiscal Q2 2026).

"Our wafer fab expansion is progressing on schedule, enabling us to support higher volumes of EMLs and other indium phosphide-based devices, including CW lasers and coherent components. Recently, we received a substantial order for 200 gig line speed EML chips, which we expect to fill in December. Overall, we expect 2026 to be a breakout year for laser chip sales of both 100 gig and 200 gig lane speeds. Shipments of our narrow linewidth lasers, which are critical components for ZR and ZR plus modules, have now grown for six consecutive quarters. While our manufacturing capacity for these laser assemblies continues to ramp, demand is outpacing supply and is expected to do so through the rest of fiscal 2026."
-- Michael Hurlston, President and Chief Executive Officer

Persistent supply-demand imbalance is enabling Lumentum to maintain pricing power and margin expansion, positioning the company to benefit from ongoing AI and cloud infrastructure investment cycles.

OCS and CPO drive new high-margin growth for LITE

The company recorded its first optical circuit switch (OCS) revenues with two hyperscale cloud customers and secured a third for deployment in calendar 2026, while also receiving its largest-ever purchase commitment for ultra-high-power lasers used in co-packaged optics (CPO). Lumentum is accelerating in-house OCS manufacturing capacity and investing in U.S.-based indium phosphide wafer fabrication to support these opportunities.

"In optical circuit switches, or OCS, we recognized our first revenue in the quarter with shipments to two hyperscale customers. Not only is our order book expanding with these two customers, but we now have a third hyperscale customer committed to deploy our OCS product in calendar 2026. Our leadership in optical performance, particularly in 300 by 300 form factors, has allowed us to capture volume opportunities earlier than competitors. As a result, we are accelerating the expansion of our in-house OCS manufacturing capacity to meet the high level of demand. Our commitment to co-packaged optics, or CPO, is stronger than ever. We just received the largest single purchase commitment in company history for our ultra-high power lasers, and we have already announced additional investment in our US-based indium phosphide wafer fab to support it. Our investments in this facility will position us for a significant revenue ramp in CPO by 2026."
-- Michael Hurlston, President and Chief Executive Officer

These developments signal Lumentum’s ability to secure long-term, high-value partnerships with leading cloud providers and to capture multi-hundred-million-dollar opportunities in emerging photonics markets.

Margins expand on mix, efficiency, and pricing discipline

Gross margin increased by 1,000 basis points year-over-year to 37.8% (non-GAAP), while non-GAAP operating margin rose by over 2,000 basis points year-over-year to 15%, and Adjusted EBITDA reached $98.7 million. These improvements were driven by higher manufacturing utilization, a favorable product mix emphasizing datacom lasers and modules, and disciplined cost management, even as capital expenditures rose to $59 million to support future demand.

"Non-GAAP gross margin was 37.8%, up 260 basis points sequentially and 1,000 basis points year on year, due to better manufacturing utilization and favorable product mix as a result of increased datacom laser shipments. Fourth quarter non-GAAP operating margin was 15%, which was up 420 basis points sequentially and up over 2,000 basis points year on year, primarily driven by improved cloud and networking profitability."
-- Wajid Ali, Executive Vice President and Chief Financial Officer

Lumentum’s ability to expand both gross and operating margins while investing in capacity and innovation supports a structurally higher earnings base and greater flexibility for future growth initiatives.

Looking Ahead

Management projects fiscal Q1 2026 non-GAAP revenue of $510 million to $540 million, non-GAAP operating margin of 16% to 17.5%, and non-GAAP diluted EPS of $0.95 to $1.10. Quarterly revenue (non-GAAP) is expected to surpass $600 million by fiscal Q4 2026 or earlier, with non-GAAP gross margin anticipated to approach 40% at that run-rate. No material impact from semiconductor tariffs is expected due to current exemptions, and ongoing portfolio optimization and manufacturing shifts are expected to further support operational focus and risk mitigation.