Lumentum Holdings Inc. ($LITE)

Good morning, everybody. For those of you who don't know me, my name is Darlene Pasquill, and I run the Americas Equity division at Mizuho. On behalf of myself and others on Mizuho's leadership team, Jerry Rizzieri, our President and CEO and Head of the Corporate Investment Bank as well as Michal Katz, both of whom I'm sure will be wandering around shortly. Michal runs our investment in corporate banking. It's a pleasure from us to welcome you to New York City into the Conrad Hotel. It's an electric time to be in New York City. For those of you who might have had the experience of being in Penn last night, it was certainly very electric. We're looking for a better outcome on Wednesday night, but it was a great night to be out. Many of you have traveled across the country and across the world. to be here, and we're generally grateful for your time and for the trust you have in us, it means everything to me into the franchise. We're convening here at a remarkable moment in time. Technology has always been a driver of change what we're witnessing today with artificial intelligence feels different in kind. It's reshaping. AI is reshaping how we live actually, how businesses operate, how consumers engage in the world and how capital flows towards opportunities. Last week at Mizuho, we did a 2-day mandatory off-site for the leadership team and many of our members of our management teams under us. And importantly, we focused on AI and how we want to continue to adopt it. For a global institution like Mizuho, technology sits at the center of everything that we do. And our CIO, John Buchanan, who also will be here and our IT teams are essential partners as we invest in our capabilities to remain at the forefront of this transformation. This conference wouldn't be possible without the exceptional work of our organizing team. So my sincere thanks goes to research and sales leadership under Bill Featherston and [ Shobha Patel ] respectively. A big thank you to Jessica Mays and her corporate access team and also to Melissa Mendel and Hannah Zeitlin, who are in the audience as well who have a tremendous partnership with equities and investment banking, who help shape what we'll deliver to you today. Over the next 2 days, we'll have almost 500 investors who engage with us in one-on-one meetings, keynote addresses, fireside chats and also thematic panels. We designed this agenda to add value to deepen how you think about technology and shopping your conviction in your investments and strengthen relationships. We also invite you to join us this evening at 5:00. We have drinks on the main floor. So please do stay if you have the time, it's great networking. Now to get this underway, I'm pleased to turn the microphone over to V.J. Rakesh, who's our Managing Director and our senior second quantum computing research analyst, who will introduce our keynote speaker, Michael Hurlston, CEO of Lumentum. So with that, welcome Vijay and Michael to the stage.

Thanks, Darlene. Thank you, everybody, for joining us today at the Mizuho 2026 Global Tech Conference. And thank you, Michael, for joining us. Obviously, a big year for you. Just want to give you a quick preamble, I think [indiscernible] is the key driver for the AI data industry today. You are spearheading the whole photonics transformation in the data center. And I think as you look at the optical networking side, that's one of the biggest transformations in the data center industry today. So I think as you look at where Lumentum sits, you are supplying some of the key lasers and optical engines for this entire data center transformation globally. And as they say, electrons do the work, photon do the show, right? And a couple of other [indiscernible] catching for you. As the same momentum, I guess, future moves to the speed of light, right? But with that, I had a distinct pleasure of producing CEO of Lumentum, Michael Hurlston. Please join me in welcoming. Thank you. So obviously, as you look at Lumentum, it's been a massive year. I think your market cap last year at this time was about $7 billion. Now you have $70 billion, now you have grown 10x, it has been just an incredible run. Did you see that?

Wow, that's a tough one.

That's an easy one.

It's no, I didn't see this. I think it's unusual. CEOs, as you likely know, have kind of 2 outcomes in life. They're either fired or they retire. So I was lucky enough to join the company as a CEO, which almost never happens. And I think when the Board showed the forecast to me, I'll derate that by about 50%, I should have multiplied it by about 8%.

But it's well deserved. I think you guys have almost quadrupled or went up 5x since we initiated on you guys back in November, December, so well done. I mean, as you look at Lumentum, you are growing 80%, 90% in the top line. That's massive growth. I mean that's what we have grown in the last couple of years. You have laid out a massive fiscal '28 June, somewhere the $8 billion top line. You're running $7 million to $5 million, $6 million here. You have laid out a massive TAM of $90 billion and you have just $8 billion now. So it's almost like there's so much growth ahead of you. Maybe you can start off talking about how you see the big vectors of growth for you in Photonics in the data center, whether it's scale out, scale up yes, and then we can probably pass through all of them. So...

Look, Darlene was talking about in her opening remarks that we're in the middle of an exciting time, and she's absolutely right. It's an AI super cycle. But within that AI super cycle, as you're saying, it's a photonic super cycle. I mean we've never seen anything like this in the optics industry. I think the highest revenue quarter that Lumentum had in its history was about $500 million, and we're poised to go over $1 billion this quarter. So double the highest quarter ever. And I think there's so much runway ahead as you're pointing to. The growth drivers for the company are vast and varied, and really none of them are hitting yet, right? So really, the best is yet to come in terms of optical scale up, optical scale out. Our optical circuit switches none of which really you see in the number is yet. So I think we've got a lot of runway. You initiated coverage on us and we were very pleased with that. We've gone up, but I think we've got a lot of runway and a lot of gas in the tank from here.

Absolutely. And as you mentioned, there is so much ahead of you. I mean, right now, as you look at -- if I were to take a couple of segments there, especially on scale-out, what you supply is one of the electromodulated lasers, EML, it's a mouthful, but I'll try. But you obviously dominate that market. And as you go from 800 gig today to 1.60 next year to 3.2T, that content goes up massively. And you dominate that market globally, you supply to many of the other peers in that market. Maybe talk to us about how you see that growth -- how do you see that picking up? How do you see the capacity that you're adding in those areas?

Yes. Look, super question, Vijay. If you look at our scale-out business, there's 2 components to it. There's -- it's actually probably 3 components. There's the EMLs that we supply to everybody else. And right now, the majority of those EMLs are 100-gig per lane. Meaning it's 800 gig transceivers that are getting manufactured based on those EMLs. We see a transition now to 1.6T, led by NVIDIA and Google. They have taken the lead on 1.6T. And now we're supplying 200-gig EMLs to that market. And that ASP is roughly double. So it's a huge tailwind for us as we start working through that transition. That's the first thing. Then the second thing is, of course, in the scale-out we supply transceivers. And you and I have spoken a number of times about the transceiver business, probably not our best business, but all of a sudden, it's a business that's growing really well, right? We have 1 main customer that's done very, very well in the market. They're picking up a ton of share. And they're deploying 1.6T right now. So we have done very, very well with them. And then we have a second customer that's been really a positive surprise for us. So our scale-out transceiver business is doing quite well. And then the third thing is the scale out as it relates to the CPO switches, right? And so we have a business there that's very unique, a high-powered laser that we supply to NVIDIA. That partnership has been announced and discussed. They obviously invested some money in the company. And that scale-out business has been surprisingly strong. We've talked about in the fourth quarter of this year, seeing somewhere between $50 million and $100 million incremental revenue coming from our scale-out CPO and sort of the sum total of that scale-out business leads to a lot of optimism. I mean, all 3 things are beginning to hit. You don't see anything from us yet and scale out CPO. You don't see a lot from us yet in the 1.6 transceivers. So those 2 things are going to layer on to a base business that's already pretty strong.

Yes. Yes. I said, I think just to put that in perspective, I think most of the interconnect market trades copper, but you are starting to see that transition to optical. But you are benefiting not just from the number of data centers coming on, but even as bandwidth goes up, that content goes up double, ASP goes up double. So you have 2 big tailwinds there from both unit and ASP going up. Plus just increasing penetration within that. Maybe if you look at the scale up side -- or sorry, scale-out side, how do you see -- what actually drives your the dominant position there, how do you differentiate? What's the -- what gets you the leadership there? Because you pretty much own that space. I mean, you supply pretty much every other supplier of EML. You supply the lasers there. So...

Yes. It starts with our laser business. And so if you think about lasers, it's really interesting. It's not as a Broadcom or an NVIDIA would talk about where you have a process coming from TSMC, a manufacturing process. And then you have a design. And the 2 things are actually somewhat divorced from each other. You run a design, you run that separately in some cases, to the process. With lasers, that's not the case. The 2 things are totally intermingled. You have a process and you have a design and the 2 things sort of work hand in hand, and there's a lot of iteration that goes into that. So our laser design really separates us out. We have lasers, particularly at higher power levels that other people simply can't get to with the reliability and with the performance, and that makes us very difficult to compete with. EMLs are also very difficult to make. They are an area where we're able to differentiate because they deliver very high quality and our customers report the transceivers that they're able to build using our EML lasers yield much higher. So we really have a big differentiator, I think, a moat with that laser business.

Got it. And I mean you're growing at a pretty envious 80%, 90% top line, but that's just sellout. You have a scale-up market ahead of you that's arguably 5x to 10x of the scale-out market. So let me talk to that when you see that start to come together because that's that is going to turbocharge growth. I mean -- and that's just coming on second half of next year. But maybe you can talk to like what you're seeing there, what are the trends there and how you can differentiate?

Yes, you're -- you said a minute ago that there were in this cycle where you see copper replacement. This is really where it is. It's in scale up, right? So scale up is where we see an opportunity for the optical industry and arguably we're the leader in the optical industry to take our technology and put it in racks and in clusters. So everything we've talked about so far, when you talk about scale out, you're going from a cluster of compute out to what we call a scale-out switches. This is something completely new, where we're going inside the cluster, and we have connections that run either cross rack between racks or now, in many cases, we're seeing inside the rack itself with an emerging NPO opportunity, near packaged optics that you and I haven't talked about. But the sum total of that, the magnitude is far greater than scale out, even in the first instantiation, which we would expect for us to start shipping in the second half of '27 and for you to see scale-out products, scale up optical products in the market in the first part of 2028. So it's very soon. I mean we're working together now very much with customers who are designing their CPO systems, scale up CPO systems and now NPL, the near packaged optics which, again, you and I haven't spent a lot of time on, but we see that as even a bigger opportunity for us here in the near term.

Got it. I want to go quickly to the CPO side, since we almost got to that topic. Obviously, when you're looking at CPO, you have 1 big customer there, I mean there's not a lot of people on the AI data center side is NVIDIA, is Google, which pretty much dominate that landscape. And you are a sole supplier to 1 of the leaders there. I think, obviously, as supplying to NVIDIA. But maybe you can talk to what you're seeing in CPO, what are the risks there? And how you see that pipeline coming to?

Yes. I think CPO is technically quite difficult, right? So there's a lot that goes into it. And we've had to shape our technology through multiple years to get this to work to a degree that NVIDIA can get things to yield and they can effectively ship a co-package solution. So co-package means that there's a substrate, right? And their device sits on that, in this case, let's say, a switch chip. And then our -- the photonic solution is right there on the substrate. But in some of these instantiations, you have an external light source. So there's actually little fiber runs that go out to what looks like a pluggable similar to what we'd see in transceivers that actually sits on the face plate. And that's how I think NVIDIA is thinking about their co-packaged optics solution. So there's a lot that goes into that. We think that they really worked out a lot of the technical kinks on scale out and now they can move it into a scale-up situation, which we're super excited about.

Got it. So I think, as you mentioned, 1 of the reasons why people are going to co-packaged optics is to might be reduced latency, reduce the number of components, reduce the power consumption, it all makes this whole thing go turn a whole lot faster, I guess. But maybe what outside of the big leader there, are you seeing CPO, interest in CPO coming from other customers as a you're seeing other big ASIC guys also jumping on the CPO bandwagon because it's going to be a massive trend in terms of how this industry transform from all the different cabling and all that to the CPO packages that doing the whole connectivity.

Yes. What we see -- we certainly see some CPO. But what I think is important to understand is there's a second technology that's being discussed, which is near packaged optics. Near package optics means now I have that substrate with the same chip semiconductor solution. And then just off it, outside the substrate, you put what we call an optical engine. That optical engine may have the laser in it. So different to this face plate idea that we just discussed with the ELS or it may actually employ an ELS. What we've seen probably in the last 2 months, really since our last earnings, is a marked shift in interest to -- from others. I mean non-NVIDIA-class customers around NPO. They're trying to solve the same problem at 1.6T, 200 gig per lane, you have some difficulty with copper. It simply can't go over any sort of reasonable distance even with retime copper. So you've got to start thinking about optics. And what we see now is you saw yesterday, 1 major hyperscaler had announcement with Corning, right? I think you talked about that. That is really indicative of how that guy is thinking about near packaged optics, how they're thinking about employing a heavier degree of optics in the back plane. We think even though you probably have lower volumes generally with the hyperscalers who are doing their own ASICs or with other chipset folks that are trying to compete with NVIDIA, but the number of lasers that they would want to deploy because they're going much more aggressively to an optical backplane, the number of lasers they want to deploy is actually larger -- so we're looking in the face suddenly of an opportunity that's really started to snowball.

Yes. And that's Amazon with Corning, I guess. I think as you -- NPO has not even started yet. I mean, it's more like, let's say, next year, as you mentioned. CPO has been talked about, but it looks like you're thinking NPO probably gets pulled in because that's not a little bit easier to do than CPO. How would you size that market, I guess, because it's a couple of hundred million in CPO revenues for you this year, next year. But I think some of your peers have talked about a $15 billion CPO market. I'm wondering, NPO could be size something similar. How do you see that -- where do you see that fit in?

Yes. Look, what's interesting about it is from a number of racks, we're probably talking smaller, but from a number of optical lanes, it's actually bigger because they're going all in, right? They're saying, look, in order for us to leapfrog, let's say, NVIDIA, we're going to have to move quickly and have more 1.6T lanes going down the back plane of the rack. And in that context, you're going to have to use a lot more optical engines. So the size of it looks like it's frankly bigger than even the CPO opportunity that we've -- you and I have talked about.

Got it. I mean inherent to all these scale out, scale up and whole NPO, near packaged optics and co-packaged optics. The heart of that is the laser. And I think we always come to this point where supply is tight. We need to add capacity. I know NVIDIA put $2 billion in you guys. You're building out the Greensboro fab, but with some of these new opportunities that are coming on, like can you talk to how that ramp is going from 3-inch 4-inch today to 6-inch? Obviously, it looks like your customers want their supply yesterday, right? I mean, they wanted -- they want to see or line of sight to how that capacity is coming on, et cetera. Maybe you can talk to what's happening there? How you -- how comfortable you feel with the ramps, et cetera.

Look, it's putting a lot of pressure on the organization, right, for people that have been around optics...

Good pressure.

It's good pressure. Maybe it's like the pressure Darlene puts on [indiscernible] good pressure. So the optical industry, if you look at it, you used to think in scales of thousands, right? If you think about when we were serving AT&T and Verizon and these optical providers that built the Internet backbone, right, it's really units of thousands. And now we're getting into units of hundreds of millions. So it's multiple orders of magnitude in terms of how the industry, not just Lumentum, but the industry has thought about producing these things. And our fabs are definitely straining, right? We've gone from, again, very small number of shipments to massive, massive numbers, and it's still not enough. We're under shipping demand by more than 30%. Our estimate on EMLs and sort of this very early phase of co-packaged optics -- scale-out co-packaged optics. We're bringing a ton of supply online. We've just bought this fab in Greensboro and we spent a lot of time in North Carolina, and we think that can generate $5 billion of incremental revenue. I think that's the number that Kathy has put out there, and that seems right. So with all of that said, at the end of that journey, we actually feel like we're going to be further behind as fast as we're adding supply, as fast as our competitors are adding supply, the demand is going up. You're just in the middle of this optical super cycle, where the number of optical lanes is going from 0 to some massive number in a short period of time to try to intersect this 1.6T transition.

Yes. And so as you bring on your 6-inch, how much capacity does it add? Are you seeing customers start to talk to you about maybe getting better visibility, long-term agreements -- how is that conversation going?

Yes. Look, I mean, again, sort of if you look at the demand on our CPO products, you would argue that 100% of the capacity, including the 6-inch line in Greensboro is spoken for. So as we now think about how do we add these new NPO opportunities, extremely challenging. So we're obviously trying to squeeze as much as we can out of the fab assets that are there. We have -- we're unique in operating 5 fabs. And as you correctly said, we're probably far and away the leader in this laser market, both in terms of product quality, product performance, but also sheer output, right? When we talk about adding 10%, that's a big number. And so our -- what we're trying to do right now is get the most out of these existing fab assets and then boot Greensboro up. We're still -- as I said, we're still going to be significantly behind. So the industry is going to have to find a path, right, because there's just a lot of optical demand and simply not enough supply.

Beyond the indium phosphide capacity that you're adding, is there a constraint in the supply chain on the substrate side, you get a lot of your substrates from the U.K. and Japan, JX and [ IQ ] a little bit, can you talk to -- is there a supply constraint there? Are you qualifying more suppliers?

Yes. No, it's -- again, it's the question that we get a lot, and I think you asked it of us after the earnings call. It's -- we're uncomfortable right now with our substrate position. For sure, Again, with our numbers escalating like this, we are going to have tension in the system. I mean there's just -- it's just unavoidable. When we talked after the last earnings call, we felt like we were well covered with our primary supplier. We've done a long-term agreement with them, and we felt like, okay, we're pretty well covered. Numbers have gone up considerably since then. So I'd say, no, we're not well covered anymore. We're going to have to find alternate sorts of supply. One of the issues right now is the substrates are controlled by the Chinese government. So outside of a couple of Japanese suppliers, there are a preponderance of suppliers coming from China. And the Chinese seem to be adding supply faster than the Japanese. And so you have to now find a workaround. We're a little bit uniquely situated. You kind of drew to it in your question in that you can -- we can have substrates go from China to the United Kingdom. And in so doing work around some of the licensing and restrictions, restrictive environment, so we're uniquely positioned in that way. But make no mistake. It's something we're working on. It's definitely become a little bit tighter than the last time we checked it.

Got it. And so as you look at that supply chain, you mentioned China. Is there a risk that there are domestic suppliers there? Or obviously, 1 of the things that we hear is your laser, you do some secret sauce in it. So the performance on the laser is just phenomenal. And -- but the question is, is there a competitive threat or risk from China where they can copy or since they have that resource, can they -- is there any IP or a moat there that protects you from this China suppliers?

Yes. Look, I -- and I saw it in your questions, I thought the -- your thinking on the question was right. Chinese supply is definitely there, even with lasers. But where it's -- for the most part, it's pigeon hold is the CW laser. So if you look at the stack up, you probably have the most difficult thing to do are these ultra-high-powered lasers that go into co-packaged optics. Then you have the near packaged optics lasers, then you have EMLs and at the bottom of the stack or CW lasers, which are an increasingly important part of the demand side but we don't make many CW lasers. We've sort of skated outside of that zone because it is a bit more of a competitive environment. And we definitely can see Chinese suppliers coming in there. We still think we have advantage. We still think the performance advantage we offer, the reliability we offer, the yield that we offer is there. And look, it's difficult for some of these Chinese guys. -- who have been supplying themselves now to go into the open market. So we don't think it's [indiscernible]. But again, for our position, probably not as much a threat as it might be for somebody else.

Got it. The EML itself is growing pretty nicely. So I mean, CW will grow too, but...

Yes, you and I discussed it. Our view in the transceivers now, right, so the first leg, the current leg of scale out, the majority of 1.6T shipments today are all EML. It's almost all EML, outside actually, interestingly enough, the transceivers we make, which are silicon photonics or CW laser-bed. We do anticipate a shift to silicon photonics, right? But even in that shift, we believe the number of EMLs is going to go up cycle over cycle.

Got it. Just 1 last question on the laser side before we move on because I think we have beaten lasers up quite a bit, I guess. On the CPO side and the NPO side, you mentioned obviously, NVIDIA is there. Are you seeing most of the other CSPs also start working, especially on the ASIC side trying to incorporate a CPO,, NPO roadmap? Is that a fair assumption?

Yes. I think for the same reasons that we've seen NVIDIA shift low the physics, right? If you are trying to transmit data at 1.6T at 200 gig per lane over any distance, copper has its challenges, right? It doesn't mean copper goes away, but certainly longer runs of copper are going to have their challenges. And so what we see as other ASICs are running at 200 gig SerDes and 200 gig per lane, they are going to have to deploy optics. And what we see is more of this NPO coming online. It's a little easier to deploy. Some performance hit, but the laws of physics still apply as they're trying to bring on their custom TPUs. And we say other ASIC guys that might be competing with NVIDIA really considering how do I leapfrog and part of that leapfrog strategy is a heavy degree of optics in the backplane.

Yes. Got it. And just to tack on that. I mean 1 of the things you see on the laser side is you need a single laser for every wavelength for every channel. So that drives as you need more more bandwidth, you need more lasers, et cetera. Is there a way -- do you see come lasers coming in, meaning you can split the laser into multiple narrower wavelengths and -- so then you don't need additional lasers. You can use a single laser but use kind of a greater waiting to kind of split up the -- that single laser into multiple wavelengths -- do you see that? Or is that still kind of out there?

Yes. I mean, look, we -- it would certainly understand the way that technology works. I think the problem of it, any time you're going to take an optic through another optic, there's going to be some inherent loss. And so our view and what we actually see in some of this NPO is now deploying different wavelengths to try to pack more data. So if you look at a system, if you have 1 wavelength per fiber, okay, that's 1x the data. If I'm able to actually get multiple different wavelengths into a single fiber which is effectively what you would do with the come. Another approach is without the loss, without passing an optic through another optic is now make a set of lasers that actually emit different frequencies. And so we call this a DWM approach, a dense wave division multiplexing, you're basically shooting now multiple frequencies into the fiber, and it accomplishes the same thing without the loss, right? So what we do see, Vijay, and I thought your question was I was reading it in preparation was a good one. What we see now is as these NPO opportunities come online, more of them are considering a DWDM, again, to try to leapfrog, more data per fiber and if they're able to do that, they think they can offer differentiation against some of these initial CPO types of products.

Got it. Fantastic. I want to move to other markets that you serve, which is the optical compute switch. I don't have a timer here guys, oh there you go -- see up there. It's too far. So on the optical compute switch, that sounds an area where you dominate as well. I think the big player there is Google. Everybody knows it. You guys are a big supplier there. How do you -- and I think you've given out $400 million for next year, somewhere like that. But obviously, your size at marketed 4 billion 10x that market. If you can talk to what you're seeing there on the optical compute switch side. You have talked about multiple other CSPs also looking at it, potentially, I think, might be Amazon, Microsoft or AWS Microsoft all these guys. Maybe talk to how you see that market evolving.

Yes. I mean, look, sort of in a backward look, right, the majority of our shipments actually have been to a spine switch replacement type application. So we are shipping to multiple customers. We're shipping in reasonable volume to 2 right, 1 of which is the spine switch replacement type of opportunity. Kathy was talking to me in the car. I think we've actually sized the TAM more like $10 billion and we see that opportunity actually growing, not decreasing. You have this idea of Google deploying the OCS to optical circuit switch, but OCS in as scale up topology. So the way they're able to deploy OCS sort of negates all this conversation we've just been having about CPO and NPO, their architecture is very elegant and by deploying the OCS, and it's used in sort of the scale-up type of configuration they have much shorter optical runs, more shorter copper runs as a result. And so they really don't need to deploy CPO and NPL. But what we're seeing on the OCS side is an emerging opportunity, we think, is the biggest yet. And that is to deploy an OCS in the rack itself, 1 per rack, a smaller, narrower circuit switch, meaning from a height perspective, -- and the use case here is the racks, the GPUs have a loading problem at times, they can have a failing problem at times -- and if you're running these big inferencing models, which is now what everybody is talking about, if you direct traffic to a GPU that's failing, you're going to lose millions of dollars in a compute run, right? You just don't want that to happen. And so what people are considering is, look, how do we create resiliency in our racks, in our clusters and be able to route traffic to the least loaded GPUs and an easy and elegant way to do that is with 1 of these OCS. So where we've built into this massive TAM is considering a lot of these new and emerging applications outside optical scale up, this 1 big use case outside these optical circuit switches we see in the spine layer and the sum total of that leads to some pretty interesting numbers.

Yes. I think more like a [indiscernible], I guess.

It's a [indiscernible], yes, exactly, right? Creating resiliency, some redundancy in the system. Yes.

And just a little bit of self promotion here. We raised our Google TPU numbers yesterday. So we now see it growing more than double next year. And from about $4 million this year to of $10 million next year and $30 million in 2028. So that's a massive ramp in TPUs. And I would assume maybe Kathy will go back and do some math and figure out what those CS implications are -- just kidding, but great. I mean I think as you look at optical computer age, what you guys delivers what's called MEMS OCS. And maybe you can -- if you can set the table on how MEMS OCS differs from some of the other modalities out there in terms of whether it's LED, OCS, piezoelectric why did Google finally decide to go to MEMS? And you're seeing other CSPs also get on the same MEMS optical compute, which is what you do. And that will probably continue to grow a lot faster.

Yes. Look, I think that the First of all, going back to Google, they are manufacturing their own MEMS-based switch today. So they designed it. They actually have some brilliant optical engineers, and they design that optical circuit switch. They're deploying it in tremendous numbers, right? And certainly, there's an opportunity, we think, for us to be a third-party merchant supplier and eventually take all of that. I mean does it make sense for Google to manufacture OCS? I'm not sure that's a business they want to be in. But we feel like there's a really distinct opportunity. The important thing to note is their switch is MEMS based. And so MEMS is sort of the de facto standard in switching. Why? Well, it's a mirror it deploys a mirror. And what you want to have, first and foremost, in switching is no loss. And if I'm just shining light from a mirror and directing it from 1 port to another, there is no loss. If you have piezoelectric, you have LCOS or some of these other things, there's loss in the system. And you really can't have that. That's an issue. The knock on MEMS-based solutions has been the reliability because you have a moving mirror. It's actually a mechanical device that has to move to move the light from 1 port to another. What we've said is our WSS solution, as you know, that has been in the ground for 20 years and forming the backbone of the United States Internet, that's also MEMS based. And so if you have Verizon or AT&T that has to go dig up something out of the earth, that's a problem. So we better have reliability built in. We think we figured out the reliability a long, long time ago. And that's why we're having great, great success with our MEMS based approach.

And is that what is being adopted by other CSPs too -- is that primarily the reasoning for why other CSPs might be looking at MEMS better than some of the other competing optical compute switch?

Yes, that's right, Vijay. I mean it's 100%. It's about the loss, right? You just don't want to introduce another loss element in the system if you can avoid it, right? You trying to go to optics to have speed, you don't want to introduce a lot of loss as you do that. So good answer.

Got it. And I think this probably benefits on some of the same tailwinds as the interconnect lasers, et cetera, too, right? Because as the rack sizes go up from 72 GPUs to 576 GPUs to 1,128 or something that you have Jensen talked about. The number of connections in the spine goes up as well. And that's similar for TPUs as well where TPUs are growing from 64 to I think the V8 that the short had some 1190 TPUs in inference. So I think maybe you can talk to what is happening. I think today, the optical compute switch that you supply has 64 interconnections. And you're going to R300 I believe the the 300 metric connectivity. And I'm sure there's more down the road in 512 or something. But maybe how that is picking up and that obviously drives a massive jump in your dollar content, your ASPs there. And so all of that is feeding into the number of TPU ramps, too, I guess. But -- yes...

Yes. Look, I think outside all the first part of our conversation on optical scale-up and optical scale-out, the OCS is -- we think, is a singular opportunity for the company. We've diverted a ton of resources to work on this. And the roadmap is vast and varied, I mean, is exactly what you're pointing to. So our standard product today is 300 by 300, not a smaller radix. There's 300 ports on it and you're able to switch light to any of those 300 ports. That's our primary offering. And what we see are opportunities to run the ports up, which is going to make it very, very difficult for a competing technology to come in. MEMS almost has to be used. The higher the port count, the more this loss principle that we just discussed works in our favor. And we see port counts going up in our road map. And then we actually see ports going down. So there, it's going to be a little more competitive, and we're going to have to think about cost we're going to have to think a architect the solution still taking advantage of MEMS, but perhaps reimagining it so we can get the cost down to really get these numbers up drop the ASP a bit and compete in these very, very high-volume emerging applications that we're seeing.

Got it. I want to go back to the road maps, like as you've been there probably the best part of Lumentum's journey, I guess, in the last 18 months. But as you look out, look forward, the road maps on the laser side on CPO, on OCS like -- what's your vision? What gets you excited? What are you seeing as you look out, where is -- because the space keeps accelerating. Every month, it's a whole new landscape in terms of what people are looking at in terms of data center investments coming in new, new clouds, new engagements from private equity. But maybe you can talk to how as you sit back and look at not the last 18, which has been phenomenal 10x. How do you see the next 18 months? How do you see the next 24 months?

Yes. Look, I think that there's been a market strategic shift in the company, and that strategic shift has been toward our components. So I think the previous administration and frankly, optics in general, sort of value systems. And if you look at some of our competitors, they're systems first, right? They're really going after high dollar content and generating boxes, they're generating platforms. And we were very much in that space. We weren't particularly good at making systems, but we were very much competing in the systems arena. What we've done over the last year has pivoted the company a lot more to components. So I'm much more content feeding into these system suppliers and being a strategic partner for them rather than us in some instances competing. But we just don't see ourselves as being a differentiated systems guy. We'd much rather be in components. And so I think if you fast forward for 5 years, we want to add more components to our portfolio. We think we can compete in more than just lasers. We think there's a lot of things that go around the laser that are interesting, photonics photodiodes, maybe laser drivers, maybe even getting in more to the semiconductor world with TIAs, there's a lot of things that we think we can do. And so we're now looking aggressively as to how we can increase our shore line on the components end of the business.

Got it. I mean you mentioned briefly the administration might be -- I think they have been very pro trying to get the AI space to ramp up, get that growth going. Are you seeing more interest from not just administration but also customer CSPs to onshore some of that supply chain -- to derisk some of that supply chain, I guess.

It's been a conversation. I mean it's interesting for us, if we look at the sum total, I mean it's not just us, but you can check with Jim Anderson at Coherent. I think the sum total of products that we ship to hyperscalers is 0 -- to Chinese hyperscalers, right? So we've been very specifically blocked out of the Chinese hyperscaler market. Meanwhile, there's a lot of sourcing of Chinese components that are going into U.S. hyperscalers Part of the problem is between the U.S. supply chain, we couldn't supply at all. So even if you said tomorrow, look, let's wave on and kick the Chinese out of the U.S. supply chain, it would actually bring the U.S. hyperscalers to their needs because they are sourcing a ton of components. And in their defense, it's not like I can run out and fill that void immediately. It has to be a concerted effort. And I think the Chinese have made a concerted effort to keep us out, and that's very disappointing. But I understand their strategy. The U.S. government and our side of the industry would have to work together in a much more concerted fashion, I think, to make that a reality and reverse and keep the Chinese out of the U.S. hyperscalers.

Yes. We've got 5 minutes left before I go for any questions. One last one. I think we talked about everything within the data set, the racks, how on the spine, you're adding lasers and optical compute, which, I guess, how about the DCI, the data center interconnect. You have the issue where you don't have all the power in 1 place. So we had to set up all these data centers and geographically dispersed locations and then you need to connect them optically on massive lasers interconnect between data centers. What's the opportunity there, either it's -- I don't know, you call it center interconnect or multirail or maybe you can spend 2 minutes on that and open up for some questions.

No. Look, if you look at all of these opportunities, we've been talking about $10 billion OCS opportunity, $15 billion, which is probably undercalled on CPO. NPO, we have in size, but again, another number. This is a smaller TAM, right, but a very interesting 1 because we have very, very high market share. So I think Kathy and I were doing a calculation in preparation for our chat, I think the current component piece of the DCI market or scale across is about $1.5 billion. And we see that growing to about $4 billion by 2029. So there's good growth in that market, driven by 2 things. One is, frankly, the politics of data centers. right, where people are not looking to have these massive data centers in their backyard. And then the second is the power, right? If you make a more modular data center, you don't have the power draw at least localized on that particular grid. The sum total of course, is going to be the same, but it's much more distributed across the entire electrical network. And so we see a lot more of these smaller data centers getting built out, and you have the emergence of inferencing, this agent AI is creating a lot of need for compute and that compute really can't be contained to 1 specific area. You're going to have a lot more of these data centers working together, that is creating the scale across opportunity. We're trying to connect data centers at full bandwidth. DCI was always connecting data centers but not necessarily at full bandwidth. Now with the inferencing, you got to connect at full bandwidth full rate and that's playing really nicely to the component sets that we provide. Our pump lasers, right, really important in multi-rail, our narrow line with lasers really important in the DCO, the modules. -- and then the WSS, what you're going into line subsystem. So there's a lot of components that we bring to our systems providers that enable this multi the-scale or opportunity.

Got it. So basically connecting all the data centers. So they look like one big monolithic GPU.

Correct, right, which, again, super important for inferencing, and it creates a little bit of a more friendlier political environment, if you will.

Fantastic. Maybe we can take some questions from the audience. Go ahead, gentlemen.

Thank you, Michael, for speaking today. I had a question on high gross margins. You've done a fantastic job since you've been at the mention expanding increasing the gross margins and the investors are happy to see the trajectory and then you've outlined them getting much higher over time. One question I get from investors is the ability to sustain that how much of that is coming from the mix of these new products, which I think you kind of hinted to, these are generally accretive to the margins, but also one pushback or concern as well these laser suppliers for indium phosphide are just raising prices and that's because there's just massive amounts of demand that exceeds supply. But when the supply catches up as you guys are all adding alloy capacity that deal and the benefit comes down because you guys can't sustain that. Can you address like how you see the pricing playing out and then also the mix.

Thanks, Jordan. Good questions. It's not that we haven't heard that 1 before, but I appreciate you being the straight man. Look, I come from the semiconductor business, as many of you know, and we had one of the best gross margin stories of my previous company, I think in history. We went from mid-30s to over 60% gross margin. It was one of the biggest gross ever. We're on that trajectory now with Lumentum. So we see -- we've grown gross margins by about 14% and from about 33% now to 47% 48%, depending on whose numbers you believe in a little over a year. That's definitely been driven by price. It's been driven by mix. It's been driven only a very small amount by cost. We haven't taken a lot of cost out of the variable cost out of the product. But going back to the Synaptics story, there was a massive run up on price during COVID, right, if you remember, in the semiconductor business that never reset. That never reset, right? So once the demand fell off and we saw it fall off very significantly, pricing didn't go down, right? And so we would say the same thing here. I'm not worried about a pricing reset because I think it's a lot more durable than as given credit for. And I think the evidence point is what we saw in semis during the COVID crisis, the massive run-up from TSMC that then people passed on, and that was -- that proved to be sustainable.

Yes. right. I think that brings us to the top of the hour. Michael, what a phenomenal run has been?

I mean I just want my picture out there on Times Square. That's pretty good, Matt. I was pretty good. I need to get my picture out there. That's amazing.

But I mean I can't say this enough. I think you guys have executed phenomenally. I think as you look out, you fiscal '28 number at $8 billion, but everything that you say from $10 billion on the OCS and the whole NPO, CPO coming together and you have the whole laser side picking up. I think the opportunity is just phenomenal.

My job is to keep you happy, okay. That's it. That's it.

To another 10x in the next 18 months, I guess.

Thanks, Vijay. Thanks. I appreciate it.

Thanks everybody for joining us. Thank you, Michael.