What does Lumentum's latest financial report mean for LITE and the optical interconnect sector? LITE's financial report is strong today, and the stock price trend in the night market is also good. Let's talk about a few key points: 1. The non GAAP gross profit margin reached 50.4%, and the original plan was to reach this threshold when the quarterly revenue scale reached $2 billion. The quality of this financial report is very high, and the profit quality of the financial report is very high. Incremental income is converted into profit at a very high proportion. Q4 revenue increased by $197.9 million compared to the previous quarter, Non GAAP gross profit increased by $120 million, and Non GAAP operating profit increased by $108.1 million; The corresponding incremental gross profit margin is about 60.6%, and the corresponding incremental operating profit margin is about 54.6%. This means that for every $1 increase in revenue this quarter, approximately $0.61 goes into gross profit and $0.55 goes into operating profit. At the same time, Non GAAP operating expenses only increased by $11.9 million month on month, with the operating expense ratio decreasing from 15.6% to 13.7%. It is no longer solely based on price increases, but the result of the combined effects of product mix, capacity utilization, yield, and fixed cost dilution. For three consecutive quarters, the month on month growth rate has exceeded 20%, and the median performance guidance for the next quarter is $1.25 billion, an increase of 24% compared to this quarter. The month on month growth rate is also accelerating. 2. View by business 1) Growth is no longer just betting on one laser or one customer. EML (Electro Absorption Modulation Laser), CW laser (Continuous Wave Laser), pump laser, narrow linewidth laser, 800G/1.6T optical module, and OCS are all synchronously expanding. 2) The 1.6T has entered the shipping phase from the 'Next Generation Story' This quarter, the cloud based optical transceiver module is still mainly 800G, but the company has started shipping 1.6T as planned and expects its adoption rate to accelerate from the first quarter of fiscal year 2027 and continue until the natural year 2027. The management believes that the 1.6T design is more difficult and actually amplifies the company's advantages in signal integrity and engineering capabilities. As customer customized AI clusters switch from 800G to 1.6T, the average selling price and profitability of optical modules are also increasing. 3) OCS is entering the main revenue stream from the verification period Lumentum's OCS shipments doubled from the third quarter to the fourth quarter of fiscal year 2026, and the company expects to achieve OCS single quarter revenue exceeding $100 million for the first time in the first quarter of fiscal year 2027. More important companies are no longer planning for a single specification, but are developing products with higher and lower port counts, as well as tray built-in designs. The management stated that these new forms are incremental opportunities outside the existing market and are expected to have an impact around 2028. 4) NPO and CPO coexist rather than replace each other, but rather serve as accelerators for light entering the rack CPO is still regarded by the company as the long-term technological finale, but most customers are prioritizing the promotion of NPO. LITE regards NPO as an intermediate architecture for copper interconnection migration to CPO, and has received its first ELS (External Light Source) module order. It is expected that ultra-high power lasers will increase in volume in the second half of 2027, corresponding to customers' vertical expansion deployment in 2028. This means that the same high-power laser technology can serve both NPO and CPO simultaneously; For Lumentum, what NPO brings is not a transfer of demand, but an additional expansion of the optical total service market. 5) The real bottleneck has shifted to indium phosphide and laser production capacity The demand for EML is still higher than the supply, and the supply-demand gap for ultra-high power lasers is even further expanding; The pump laser is still in a state of almost sold out production capacity after rapid expansion. The company is expanding two indium phosphide wafer fabs in Japan, introducing AXT to provide additional substrates, and promoting the transition of the Greensboro plant from gallium arsenide to indium phosphide processes. In other words, the constraint on this round of growth is not whether there are enough orders, but whether high-performance laser chips can be produced on time. 3. The significance of the optical interconnect industry 1) The incremental growth of optical interconnect services is greater than people think LITE CEO Michael Hurlston said, "To give everyone a clear idea, for a major hyper scale cloud vendor, the network capacity connecting only two AI data center sites is twice the total global backbone network capacity they have built over the past decade. ” NPO is completely incremental for us, significantly expanding the optical TAM market. With the help of our differentiated laser chips, NPO has strong momentum in high-speed customer cooperation; Even our largest CPO clients are evaluating NPOs for specific new use cases. ” 2) This time Lumentum has revised the path of optical interconnection more clearly: Light will not immediately replace all copper connections inside the cabinet, and the first step is more likely to occur in scale up topologies across cabinets and larger than single cabinets. 800G, 1.6T, and OCS are currently being cashed out, while the large-scale revenue from NPO and CPO entering the scale up will depend more on the second half of 2027 to 2028. The direction of scaling up to increase the optical value has not changed, but the time and location have changed - first cross the cabinet, and then gradually move towards the interior of the cabinet. As the scale up domain continues to expand, the industry chain cannot continue to be calculated based on the number of GPUs multiplied by the value of a single card. The computing domain has now expanded from single card to full cabinet, and will further extend to cross cabinet, switching, optical interconnection, and more in the future PCB、 The importance of power supply and liquid cooling will increase accordingly, and the proportion of NPO usage and optical interconnection in the total value will gradually increase. 3) If we combine the phone conversations from the first two quarters together At the Q2 earnings conference in early February, a lot of concepts were thrown out, including 1.6T, OCS, CPO, ELS, and higher InP production capacity, but there was no clear timeline or clarity. But this quarter has clearly given a clearer timeline And this time it is explicitly stated that the actual deployment time of NPO may be even earlier than CPO, and may even be about a quarter earlier. Previously, it was believed that relying on indium phosphide substrates provided by Japanese suppliers could basically support future production expansion. This time it is explicitly acknowledged that the supply of InP has become tight again, and the company needs to re lock in more supply capacity. It seems that Lumentum himself has not accurately predicted the magnitude of demand growth or how much supply is needed to meet it. Can you please provide the previous AAOI financial report at https://(x.com)/qinbank/status/2086281764356665611? When combined with s=46&t=k6rimWs Ebo2D2TXolYcM-A, the development rhythm of optical interconnection will be clearer. Previously, I was optimistic about the logic of the optical interconnect sector in the near future. Here is the link: https://(x.com)/qinbufark/status/2084449500744319334? s=46&t=k6rimWsEbo2D2tXolYcM-A This article is sponsored by @ bitget_zh, titled 'Bitget Buying US Stocks: Instant Entry, Smooth Trading'