It's anticipated that Apple's (NASDAQ:AAPL) upcoming premium iPhone with OLED display will include a new 3D sensing feature. This 3D sensing technology is expected to, at the very least, be a key enabler of the rumored facial-recognition technology Apple intends to replace Touch ID with in the premium iPhone.
Though this 3D sensing technology is interesting from the viewpoint of Apple's introducing of compelling new features to its consumers in a bid to increase its iPhone shipments and average selling prices, it's also worth seeing the impact to Apple suppliers that the inclusion of this technology will have.
One company that's expected to benefit nicely from the inclusion of 3D sensing in the new iPhone is Lumentum (NASDAQ:LITE). The company, which holds itself out as a "market-leading manufacturer of innovative optical and photonic products enabling optical networking and commercial laser customers worldwide," spent a good deal of time on its most recent earnings call talking up the ramp-up of its 3D sensing components.
Let's see what it had to say.
The big picture
Lumentum President and CEO Alan Lowe said the company has received "more than $200 million" worth of 3D sensing-related orders since April. In its most recent quarter, Lowe said the company shipped "approximately $5 million of 3D sensing revenue."
"We have a lot of work to do to translate these orders into shipped revenue," Lowe said. "But we expect 3D sensing to be a material contributor to our business in the coming quarters as well as the coming years."
This isn't surprising, as the Apple business should drive significant revenue over the next couple of years. 3D sensing is rumored for just the premium OLED iPhone this year, but Apple will surely want to expand this technology across its iPhone and possibly even iPad product portfolio in the years ahead.
But it's more than just Apple. Apple is leading the way, which means other premium smartphone makers are going to want to follow suit soon enough. And, of course, features that begin life in premium smartphones have a wonderful way of waterfalling down into mid-range and eventually low-end smartphones.
If 3D sensing becomes a must-have feature in smartphones, then Lumentum should be poised to benefit from the adoption of the technology.
Some important details
Lowe provided some insight into the near-term production ramp-up of 3D sensing components.
"Our near-term focus in 3D sensing is to ramp production to higher levels than anticipated just three months ago," Lowe said. "We expect monthly volumes to increase throughout the end of the calendar year to meet our strong customer demand."
The executive clarified later in the question-and-answer session that the increase relative to initial expectations was between 25% and 30%, though he did add that if Lumentum could increase its production even more, its "customer would probably take it."
That might be an indication that Apple expects to ship more of its OLED iPhone models than it previously thought. That wouldn't be a surprise, considering Apple's iPhone shipments surprised to the upside last quarter, which could bode well for the coming iPhone cycle.
Here's another notable comment from Lumentum CFO Aaron Tachibana: "We accelerated our 3D sensing demand immediately after receiving customer approval for production readiness early in the fourth quarter."
The executive added that Lumentum's 3D sensing revenue "will increase materially in Q1" and "is only limited by [Lumentum's] ability to ramp faster." Here, incidentally, the executive is referring to the current quarter. Its most recently reported quarter was the fourth quarter of its fiscal year 2017.
Clearly, Apple is buying as many 3D sensing components as it can get its hands on. Considering how popular the OLED iPhone is likely to be, I'm not surprised.
This is going to be a fun iPhone product cycle for both those who follow Apple, as well as those who follow its suppliers.