Lumentum’s 8/11 concall brief summary

*LITE’s exposure to Huawei can be replaced by other customers and have been built in guidance :

“The other key point on Huawei and those indispensable products is that, we have lots of other customers for those products and we’re capacity constrained on most of those products. Therefore, even if we were to see a limitation coming from Huawei from a demand standpoint, we should be able to redirect that to other customers. And in a sense that’s largely contemplated in our guidance, so I wouldn’t in a sense, take up our outlook, just because we removed it and there’s, if there wasn’t something going wrong for the remainder of the quarter, with Huawei, I wouldn’t take up numbers because — we could be shipping that to somebody else, and that’s already in our guidance assumption.”

“I want to provide some color on our business with Huawei. Sales to Huawei declined 6% sequentially in the fourth quarter to the mid-$40 million range. We expect sales to Huawei to decline further in the first quarter. While most of the products we supply are indispensable to Huawei, and we don’t have visibility to any sharp demand reduction, given the current geopolitical uncertainty, we are taking a cautious approach to Huawei in our outlook”

“for fiscal 2020, we had $221 million of Huawei revenue, which declined through the year, ending in the mid-$40 million range in the fourth quarter.”

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1. Company increase capacity due to strong demand from Datacom and Telecom products by double InP wafer fab capacity over next 18 months and raise CAPEX to 100–110M (20–25% yoy) for FY21.
2. Datacom Chips sales is over 95% of Datacom segment, backlog for that is over 150M. In QA, company said that after 18 months they can ship 100M datacom chip sales per quarter.
3. In terms of 3D sensing, C4Q shipments will bigger than C3Q due to seasonal ramp started later than last year. But still see C3Q 3D sensing revenue will be strong sequentially. ASP of per device increase 50% due to new front facing products charge more expensive than prior one and also world facing ASP is higher than front facing’s. (two chips in front facing and one chip in world facing)
4. Over the next 2 quarters, company expect commercial lasers decline further(2Q is -20% qoq).
5. Huawei exposure is 45M (12.2% of total sales) in F4Q and 221M in FY20(13.2% of total sales) Company said that even if they cannot ship to Huawei anymore, they still got another customers to take the order due to Lumentum’s supply is tight.
6. In FY20, Lumentum still have 62M sales is from low margin products and will be immaterial in FY21. So, company expected GM will be sustainable and better after FY20.
7. Company expect Datacom and Telecom revenue increase sequentially and new products will within telecom transmission and telecom transport. Margin of new products will be higher than older ones.
8. 3D sensing of Android market is making progress but still remain in high-end phones. However, company remain conservative due to COVID and geopolitical factors.
9. Tax will be 10–11% in FY21.
10. Datacom chips lead times is three quarter and lower-end ROADMs is two months and high-end is over a quarter.