Lumentum Jumps As 3D Sensor Opportunity Shadows Weak Guidance
Shares of Lumentum Holdings (LITE) are skyrocketing after investors put a higher premium on the consumer electronics potential ahead of near term fiber optic view.
Q3 EARNINGS: Milipitas, California-based Lumentum reported third quarter earnings per share of 49c on revenue of $255.8M. The company's EPS for the quarter were in-line with analysts' estimates despite missing revenue expectations by a few million dollars. "During the third quarter we made solid progress on our strategic goals in each of our markets," said Alan Lowe, president and CEO. "Our revenue from 100G QSFP28 transceivers targeting hyperscale datacenter applications picked up materially, we shipped record levels of next generation TrueFlex ROADMs, our commercial lasers business returned to growth, and we made substantial progress on 3D sensing for mobile devices applications." Citing a slowdown in China, the optical component maker provided fourth quarter guidance that fell far short of analyst views. The company expects net revenue to be in the range of $220M-$235M, non-GAAP operating margin to be 9%-11%, and adjusted earnings per share to be 30c-40c per share. Analysts' consensus view for revenue and EPS was 55c and $275.22M, respectively, prior to the report. Lowe added that "Late in the third quarter we saw demand from China slow significantly, and this softness persisted through April. Despite this near-term softness, we remain optimistic about our longer-term outlook. Demand continues to grow for bandwidth across the world's datacenters and communications networks. Manufacturers are increasingly adopting advanced laser-based techniques. And, leaders in next generation consumer electronics, as well as the automotive industry, are looking to 3D sensing to enable new applications."
3D SENSING OPPORTUNITY: On its earnings conference call held earlier today, Lowe confirmed that the company has received "volume" 3D sensing production orders for delivery in the September quarter. Amid industry speculation that Lumentum or Finisar (FNSR) or both may be chosen by Apple (AAPL) as suppliers for 3D densor devices, the CEO highlighed that "We expect 3D sensing to be a significant growth driver over the coming years." Apple is said to be interested in 3D technology to enhance the new iPhone version with facial recognition as well as augmented reality. Referring back to earlier 3D comments, the CEO added that the "multimillion unit orders are just the initial orders. We expect to be receiving orders on a weekly basis moving forward to cover our lead times. As I said in the prepared remarks, we have been approved to start volume production. And so, we are ramping our production to be able to achieve the volumes and our customers need in the short-term. And you can imagine that the cycle time of 3D sensing for us a few months, and so, given that we are in production today, you can determine when the production ramp starts and given a 13-week lead cycle time. So we will be ramping through the quarter. And in the December quarter, we will be at full volume production capability assuming the program goes as we expect." Adding to investors' enthusiasm for the 3D sensor potential in consumer electronic, Chief Financial Officer Aaron Tachibana said that 3D sensing gross margins will be "significantly north of our corporate gross margin average and it's going to be should be over 50%."
PRICE ACTION: Lumentum is up 12.6% to $48.15 in afternoon trading, while rival Finisar is up nearly 2% to $23.01.
Disclosure: None.