Lumentum reported its fourth quarter and full fiscal year 2026 on 11 August 2026, after the market closed. We are writing about it now.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
A Note That Has To Come First
Lumentum's fiscal year ends in June. This report covers the fourth quarter and the whole of fiscal year 2026, ended 27 June 2026.
What Lumentum Does
Lumentum sells light.
It makes lasers, optical components and transceivers - the parts that convert electrical signals into light and back. Inside an AI data centre, data between servers no longer moves through copper but through optical fibre, and whoever makes the components at the end of every fibre sits on a genuine bottleneck.
And the trend the company points to is particularly interesting: per the CEO, optics are beginning to penetrate connectivity inside the rack itself, not only between racks. If that holds, the addressable market grows materially - because every short copper link replaced by light is a new product.
The Quarter
| The quarter | Last quarter | A year ago | |
|---|---|---|---|
| Revenue | $1,006.3 million | $808.4 million | $480.7 million |
| Change | +24.5% Q/Q | +109.3% Y/Y | |
| GAAP gross margin | 47.4% | 44.2% | 33.3% |
| GAAP operating margin | 27.8% | 21.6% | minus 1.7% |
| Non-GAAP gross margin | 50.4% | 47.9% | 37.8% |
| Non-GAAP operating margin | 36.6% | 32.2% | 15.0% |
| Non-GAAP diluted EPS | $3.23 | $2.37 | $0.88 |
And by product:
| $ millions | The quarter | Share of revenue | A year ago | Y/Y change |
|---|---|---|---|---|
| Components | 649.4 | 64.5% | 320.4 | +102.7% |
| Systems | 356.9 | 35.5% | 160.3 | +122.6% |
Revenue more than doubled, and both product lines grew at a similar pace. So the growth is broad rather than resting on a single product.
And the most impressive number in the report is the GAAP operating margin: a swing from minus 1.7% to plus 27.8%.
That is a move of 2,950 basis points in a single year.
And it is not only volume leverage. GAAP gross margin rose from 33.3% to 47.4% - 1,410 basis points - meaning the company both sells more and earns more on each unit.
In a components business, a gross margin jumping fourteen percentage points usually means one thing: a product mix that has shifted towards things that are harder to make.
And Then the Line That Jumps Out
The GAAP loss in the quarter was $7.2 billion, or $84.65 per diluted share.
At a company whose annual revenue is $3.0 billion.
And the explanation is in the release itself: the loss comes from converting a portion of the company's convertible notes into equity, which created a one-time, non-cash charge of $7.8 billion on debt extinguishment.
What that means in practice, without the terminology: the company had notes convertible into shares. The share price rose sharply, so conversion is worth far more to the noteholders than the debt was originally worth. The difference is booked as an accounting loss.
And here is the important point: no money left the till. But the real price was paid - in shares. The company issued new shares to the noteholders, and that dilutes every other shareholder.
So: reading the $7.2 billion as an operating loss is a mistake. And dismissing it entirely is a different mistake - because dilution is a real cost, even when it never appears in cash flow.
Which is why the number that describes the quarter is the non-GAAP result: $326.3 million, or $3.23 per share, against $0.88 a year ago.
The Full Year
| Fiscal year | 2026 | 2025 | Change |
|---|---|---|---|
| Revenue | $3,014.0 million | $1,645.0 million | +83.2% |
| GAAP gross margin | 41.7% | 28.0% | +1,370 bps |
| GAAP operating margin | 17.4% | minus 10.9% | +2,830 bps |
| Non-GAAP gross margin | 46.0% | 34.7% | |
| Non-GAAP operating margin | 29.8% | 9.7% | |
| Non-GAAP diluted EPS | $8.67 | $2.06 | |
| Components | $2,005.6 million | $1,116.3 million | +79.7% |
| Systems | $1,008.4 million | $528.7 million | +90.7% |
And here is the difference from Supermicro, which reported the same evening: at Lumentum the annual margin rose, not only the quarterly one. GAAP operating margin for the full year swung from minus 10.9% to plus 17.4%. That is a trend, not an outlier quarter.
On the balance sheet: cash, equivalents and short-term investments of $2.7 billion - down $433.9 million from the previous quarter, but up $1.9 billion from the end of fiscal 2025.
The Outlook
For the first quarter of fiscal 2027:
- Revenue of $1.225 to $1.275 billion - roughly 24% above the reported quarter
- Non-GAAP operating margin of 39.5% to 40.5% - against 36.6% in the reported quarter
- Non-GAAP diluted EPS of $4.05 to $4.35 - against $3.23
So the company expects revenue and margin to keep rising simultaneously.
And CEO Michael Hurlston adds a line worth flagging: he says the company is reaching its target model "more than a quarter ahead of schedule".
What Is Driving It, Per the Company
The CEO names several engines that are only beginning to enter the numbers:
- Optical circuit switching solutions (OCS)
- The cloud module business, advancing 1.6T adoption
- Rising demand for ultra-high-power CPO lasers - lasers for co-packaged optics
- An initial order for ELS modules
- A breadth of NPO engagements
And the conclusion he draws: optics are starting to penetrate in-rack connectivity, which significantly increases the addressable optical market.
The Market Reaction
The report was published after the close, so no regular session reflecting it has taken place yet. The market's response will be visible in Wednesday's session.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This is a report where anyone reading only its accounting headline will conclude the exact opposite of what happened.
"A $7.2 billion loss" sounds like a catastrophe. In practice this is the best quarter in the company's history.
And the gap comes from a single non-cash item: converting notes to equity, which created a $7.8 billion charge. And there is a small paradox worth understanding - that charge is large precisely because the share price rose sharply. The higher the stock, the more conversion is worth to the noteholders, and the larger the accounting loss. So in a sense, this charge is evidence of success.
But I would not erase it entirely, and that is my reservation. No money left, but shares were issued - and every existing shareholder now holds a smaller slice. Dilution is a real cost, even when it never shows up in the cash flow statement.
And what genuinely impresses me is not the revenue but the margin.
A GAAP operating margin swinging from minus 1.7% to plus 27.8% is not a volume result alone. Volume improves operating margin, but it does not move gross margin by 1,410 basis points. That only happens when the mix changes - when you sell things that are harder to make.
And what reinforces it is that the annual figure improved too, not only the quarterly one. That is the difference between Lumentum and Supermicro, which reported the same evening: at Supermicro the entire margin jump sits in one quarter, and the annual margin actually fell. At Lumentum both rose.
And what I will watch is the claim about in-rack connectivity. If light really is starting to replace copper at short distances too, that expands Lumentum's market by an order of magnitude. But at this stage we are talking about an initial order for ELS modules and a set of engagements - a beginning, not revenue. The number that will reveal whether it is happening is simple: whether gross margin keeps climbing, or settles around fifty percent.
