# Lumentum (LITE) Financial Model

Free Excel 3-statement financial model and company analysis for Lumentum.

- Canonical: https://finamodel.com/companies/lumentum
- Industry: Electronics
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/LITE.xlsx

## Model Purpose

This model provides a comprehensive equity valuation and scenario planning tool for Lumentum Holdings Inc. (LITE) to determine whether the current market valuation accurately prices in the hyper-growth of its AI-driven Cloud & Networking segment against the cyclical headwinds in its Industrial Tech business.

## Company Overview

- Lumentum is a market-leading designer and manufacturer of innovative optical and photonic products that enable optical networking and commercial laser applications worldwide.
- **Business Segments**: Cloud & Networking (~85% of FY2025 revenue) and Industrial Tech (~15% of FY2025 revenue).
- **Key Geographies**: Global revenue base with significant sales to network equipment manufacturers in North America and Asia, and manufacturing heavily concentrated in Thailand and internal wafer fabs in the US/UK.
- **Business Model Type**: Asset-heavy manufacturing combined with high-IP component design (indium phosphide wafer fabs and transceiver assembly).
- **Competitive Position**: A top-tier supplier of electro-absorption modulated lasers (EMLs) and pump lasers. Key competitors include Coherent (COHR), Fabrinet (FN), and vertically integrated players like Cisco (Acacia).
- **Recent Major Events**: Acquired Cloud Light Technology in November 2023 for ~$750 million to accelerate its datacom and AI transceiver capabilities. Transitioned segment reporting from "Optical Communications" and "Commercial Lasers" to "Cloud & Networking" and "Industrial Tech". Michael Hurlston recently succeeded Alan Lowe as CEO.

## Revenue Deep Dive



### Cloud & Networking

- **Segment Name**: Cloud & Networking (formerly Optical Communications)
- **Revenue Driver Formula**: (Datacom Transceiver Volume x Datacom ASP) + (Telecom Pump Laser/Component Volume x Telecom ASP)
- **Historical Growth Rate**: 30.0% YoY in FY2025 (Revenue of $1,410.8m).
- **Key Growth Levers and Headwinds**: Explosive demand for 800G and 1.6T optical modules for AI data centre interconnects (DCI) is the primary lever. Headwinds include legacy telecom carrier capex cyclicality and inventory digestion.
- **Pricing Dynamics**: Highly competitive, volume-based contractual pricing with hyperscalers, though leading-edge components (e.g., 200G EMLs) command significant ASP premiums.
- **Revenue Recognition Notes**: Recognised at a point in time upon transfer of control (shipment or delivery).
- **Seasonality**: Historically stronger in the second half of the calendar year due to consumer electronics and telecom build cycles, though AI demand has recently smoothed this into sequential quarter-on-quarter growth.

### Industrial Tech

- **Segment Name**: Industrial Tech (formerly Commercial Lasers / 3D Sensing)
- **Revenue Driver Formula**: (Commercial Laser Units x ASP) + (3D Sensing Diode Volume x ASP)
- **Historical Growth Rate**: -14.6% YoY in FY2025 (Revenue of $234.2m).
- **Key Growth Levers and Headwinds**: Driven by macro manufacturing trends (sheet metal cutting, micro-machining) and smartphone 3D sensing adoption. Headwinds include loss of share in legacy smartphone platforms and weak industrial macroeconomics.
- **Pricing Dynamics**: Spot and short-term contracts; subject to intense price competition from Asian laser manufacturers.
- **Revenue Recognition Notes**: Point in time upon shipment.
- **Seasonality**: Tied to consumer electronics launch cycles (historically peaking in the September/December quarters for 3D sensing).

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown**: Raw materials (indium phosphide, gallium arsenide), direct manufacturing labour, fab overhead, yield losses, freight, and inventory write-downs.
- **Gross margin range**: GAAP Gross Margin has ranged from 18.5% to 28.0% recently; Non-GAAP Gross Margin ranges from 30.2% to 37.8% (FY2025 average was 34.7%).
- **Key input costs**: Precious metals, semiconductor substrates, and outsourced assembly/test costs.
- **How COGS scales**: Step-function. Wafer fabs have high fixed costs; as utilisation increases with AI demand, gross margins expand rapidly due to operating leverage.

### Operating Expenses

- **R&D**: ~15-20% of revenue. Covers next-generation photonic integrated circuits, 1.6T transceiver design, and process engineering. Rarely capitalised.
- **SG&A**: ~10-15% of revenue. Largely headcount-driven, covering global sales teams, corporate IT, and administrative functions.
- **Depreciation & Amortisation**: ~8-10% of revenue. Heavy amortisation of acquired intangibles from NeoPhotonics and Cloud Light acquisitions.
- **Stock-Based Compensation**: ~8-12% of revenue. A material expense used to retain highly specialised photonics engineers.
- **Restructuring / one-time charges**: Frequent in recent years due to manufacturing footprint consolidation (moving assembly to Thailand) and M&A integration.

### Margin Profile

- **Gross margin**: 30-38% (Non-GAAP). Expanding due to mix shift toward high-margin 200G EML chips.
- **Operating margin**: 0% to 15% (Non-GAAP). FY2025 was 9.7%, expanding rapidly as AI volumes scale.
- **Net margin**: 8-12% (Non-GAAP).
- **Margin trend**: Expanding aggressively. The transition from legacy telecom to high-speed AI datacom components is driving significant gross and operating margin accretion.

## Balance Sheet Structure

- **Total assets**: ~$3.5 to $4.0 billion.
- **Key asset categories**: Cash & Short-Term Investments, Inventory, PP&E, Goodwill, and Intangible Assets.
- **Goodwill & intangibles**: ~35-40% of total assets, driven by the NeoPhotonics, Oclaro, and Cloud Light acquisitions.
- **Working capital profile**:
  - **Days Sales Outstanding (DSO)**: 60-75 days.
  - **Days Inventory Outstanding (DIO)**: 120-150 days (high due to long fab cycle times for indium phosphide).
  - **Days Payable Outstanding (DPO)**: 50-65 days.
  - **Net working capital**: Positive and a significant use of cash during high-growth ramps.
- **PP&E**: ~$600-$800 million. Consists of wafer fabrication facilities in the US/UK and assembly/test facilities in Thailand.
- **Right-of-use assets**: Material but manageable (~$80-$100 million) related to leased office and manufacturing spaces.

## Capital Expenditure & Investment

- **Capex as % of revenue**: 8-14% (FY2025 saw elevated capex for AI capacity expansion).
- **Maintenance vs. growth split**: ~30% maintenance / 70% growth (currently heavily skewed to growth for Thailand facility buildout and new fab equipment).
- **Major capex programmes**: Expanding indium phosphide wafer fab capacity and building out the Thailand transceiver manufacturing facility.
- **Capitalised software**: Immaterial.
- **M&A pattern**: Transformational and bolt-on acquirer (Oclaro in 2018, NeoPhotonics in 2022, Cloud Light in 2023).
- **Typical acquisition multiple**: 3-5x EV/Revenue depending on the target's margin profile and technology IP.

## Debt & Capital Structure

- **Total debt**: ~$1.0 to $1.2 billion (primarily convertible notes).
- **Net debt**: Negative (Net cash position, with ~$877 million in cash and short-term investments as of FY2025).
- **Debt/EBITDA ratio**: ~2.5x - 3.5x on a gross basis, but <0x on a net basis.
- **Key debt instruments**: 0.50% Convertible Senior Notes due 2026 and 0.50% Convertible Senior Notes due 2028.
- **Maturity profile**: Near-term maturity of the 2026 convertible notes requires monitoring for potential refinancing or cash settlement.
- **Interest rate profile**: Almost entirely fixed at very low coupon rates (0.50%), though the effective interest rate is higher due to the debt discount amortisation.
- **Share repurchase programme**: Active opportunistically to offset dilution from stock-based compensation and convertible note conversions.
- **Dividend policy**: No dividend. 100% of cash flow is reinvested or used for buybacks/M&A.

## Cash Flow Characteristics

- **Operating cash flow conversion**: Highly variable. OCF was $24.7m in FY2024 and improved significantly in FY2025, but conversion is often <1.0x during hyper-growth due to working capital needs.
- **Free cash flow margin**: Historically 10-15%, but recently negative or low single digits due to aggressive capex for AI capacity.
- **Major non-cash items**: Depreciation, amortisation of acquired intangibles, stock-based compensation, and amortisation of debt discount.
- **Working capital cash flow impact**: Major use of cash. Inventory builds are required months in advance of revenue due to long semiconductor manufacturing cycle times.
- **Capex intensity**: High. Photonics manufacturing requires expensive, specialised equipment.
- **Cash tax rate**: ~15-18% (Non-GAAP tax provision is ~16.5%), differing from the GAAP rate due to jurisdictional mix and IP structures.

## Sheet Structure

1. **Summary & Scenarios**: Dashboard with key outputs, share price implied, and scenario toggles (Base, AI Supercycle, Telecom Recession).
2. **Assumptions**: Hardcoded drivers for revenue, margins, working capital, and capex.
3. **Revenue Build**: Segment-level forecast for Cloud & Networking and Industrial Tech, driven by volume and ASP assumptions.
4. **Income Statement**: GAAP and Non-GAAP P&L, mirroring Lumentum's 10-K line items (Net Revenue, COGS, Gross Profit, R&D, SG&A, Restructuring, Operating Income).
5. **Non-GAAP Reconciliation**: Bridge from GAAP to Non-GAAP (adding back SBC, Amortisation of Intangibles, Restructuring).
6. **Balance Sheet**: Assets (Cash, AR, Inventory, PP&E, Goodwill) and Liabilities (AP, Accrued Expenses, Convertible Debt, Equity).
7. **Cash Flow Statement**: OCF (Net Income + D&A + SBC +/- NWC), CFI (Capex, M&A), CFF (Debt issuance/repayment, Buybacks).
8. **Working Capital Schedule**: DSO, DIO, DPO calculations and absolute balances.
9. **Debt & Interest Schedule**: Tranche-by-tranche build of Convertible Notes, OID amortisation, and interest expense.
10. **PP&E & Intangibles**: Capex, depreciation waterfall, and amortisation of acquired intangibles.
11. **DCF Valuation**: Unlevered free cash flow build, WACC calculation, terminal value, and implied share price.

## Key Financial Relationships

1. `Cloud & Networking Revenue = Prior Year Cloud & Networking Revenue x (1 + Cloud & Networking Growth Rate)`
2. `Industrial Tech Revenue = Prior Year Industrial Tech Revenue x (1 + Industrial Tech Growth Rate)`
3. `Total Net Revenue = Cloud & Networking Revenue + Industrial Tech Revenue`
4. `Non-GAAP COGS = Total Net Revenue x (1 - Non-GAAP Gross Margin %)`
5. `GAAP COGS = Non-GAAP COGS + SBC in COGS + Amortisation of Acquired Developed Technology + Restructuring in COGS`
6. `R&D Expense = Total Net Revenue x R&D % of Revenue`
7. `SG&A Expense = Total Net Revenue x SG&A % of Revenue`
8. `Non-GAAP Operating Income = Total Net Revenue - Non-GAAP COGS - (R&D excluding SBC) - (SG&A excluding SBC)`
9. `Inventory Balance = (GAAP COGS / 365) x DIO`
10. `Accounts Receivable = (Total Net Revenue / 365) x DSO`
11. `Interest Expense = (Convertible Notes 2026 Balance x 0.50%) + (Convertible Notes 2028 Balance x 0.50%) + Non-cash Amortisation of Debt Discount`
12. `Unlevered Free Cash Flow = Non-GAAP Operating Income x (1 - Cash Tax Rate) + D&A - Capex - Change in Net Working Capital`

## Cross-Sheet Dependencies

- **Assumptions** feeds **Revenue Build**, **Income Statement**, and **Working Capital Schedule**.
- **Revenue Build** feeds the top line of the **Income Statement** and drives AR in the **Working Capital Schedule**.
- **Income Statement** generates Net Income, which is the starting point for the **Cash Flow Statement**.
- **Working Capital Schedule** calculates changes in NWC, which feeds the **Cash Flow Statement**.
- **PP&E & Intangibles** calculates D&A, which feeds the **Income Statement** and the non-cash add-backs in the **Cash Flow Statement**.
- **Debt & Interest Schedule** calculates interest expense for the **Income Statement** and debt balances for the **Balance Sheet**.
- **Cash Flow Statement** generates ending cash, which links to the **Balance Sheet** (critical chain for balancing).
- **Circularity Risk**: Interest income depends on average cash balances, which depends on net income, which depends on interest income. A circularity breaker (toggle) must be included.

## Sign Convention

- **Revenue**: Positive
- **Expenses (COGS, R&D, SG&A)**: Positive in their specific schedules, subtracted in the Income Statement to yield profit.
- **Assets**: Positive
- **Liabilities & Equity**: Positive
- **Cash Flow Statement**: Cash inflows are positive; cash outflows (e.g., Capex, increases in Inventory, debt repayment) are negative.
- **Contra-accounts** (e.g., Accumulated Depreciation): Positive, but subtracted from gross balances.

## Things Most Likely to Go Wrong

1. **Segment Restructuring**: Lumentum changed its segments in FY2024 to "Cloud & Networking" and "Industrial Tech". Historical data prior to FY2024 must be mapped correctly; do not use the old "OpComms" and "Lasers" segments for future projections.
2. **GAAP vs. Non-GAAP Confusion**: Lumentum's GAAP margins are heavily depressed by acquisition-related amortisation and SBC. The model must forecast on a Non-GAAP basis and bridge to GAAP, otherwise valuation multiples will be distorted.
3. **Convertible Debt Dilution**: The 2026 and 2028 convertible notes have strike prices that, if exceeded, will increase the diluted share count. The model must include a treasury stock method calculation for these notes.
4. **Inventory Build for AI**: Do not assume historical DIO will compress. The company is intentionally building inventory to secure long lead-time indium phosphide wafers for AI transceivers.
5. **SBC Misallocation**: Stock-based compensation is spread across COGS, R&D, and SG&A. The model must strip this out to calculate true cash operating margins.
6. **Tax Rate Volatility**: The GAAP tax rate is highly volatile due to valuation allowances and IP transfers. Use the management-guided Non-GAAP tax provision (~16.5%) for cash flow forecasting.
7. **Thailand Facility Capex**: Capex is currently elevated above historical averages due to the Thailand facility ramp. Do not straight-line historical capex % of revenue; it must peak in FY2025/FY2026 and normalise thereafter.
8. **Fiscal Year Timing**: Lumentum's fiscal year ends in late June. Ensure the model headers reflect FY ending June, not December.

## Validation Checks

1. "Non-GAAP Gross margin should be in the 34-40% range; flag if outside this band."
2. "Total Assets must equal Total Liabilities + Equity in every period (Balance Sheet check = 0)."
3. "Capex as % of revenue should peak around 12-15% in FY25/FY26 and normalise to 8-10%."
4. "Cloud & Networking revenue should represent >85% of total revenue in the forecast period."
5. "Cash flow from operations must reconcile exactly with the change in cash on the balance sheet minus CFI and CFF."
6. "Effective Non-GAAP tax rate should remain between 15.0% and 18.0%."
7. "Diluted share count must increase if the implied share price exceeds the convertible note conversion prices."

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| Cloud & Networking Growth (FY26) | 45.0 | % | Reflects massive AI data centre interconnect demand and 800G/1.6T module ramp. |
| Industrial Tech Growth (FY26) | 0.0 | % | Assumes stabilisation after a 14.6% decline in FY25 due to weak macro conditions. |
| Non-GAAP Gross Margin | 36.5 | % | Expansion from FY25 (34.7%) driven by higher mix of 200G EML chips and fab utilisation. |
| R&D as % of Revenue (Non-GAAP) | 14.0 | % | Operating leverage on higher revenue base, down slightly from historical 15-16%. |
| SG&A as % of Revenue (Non-GAAP) | 9.0 | % | Operating leverage as AI volumes scale without requiring proportional sales headcount. |
| Days Sales Outstanding (DSO) | 65 | Days | In line with historical averages and hyperscaler payment terms. |
| Days Inventory Outstanding (DIO) | 135 | Days | Remains elevated due to long fab cycle times and strategic buffer builds. |
| Days Payable Outstanding (DPO) | 55 | Days | In line with historical supplier payment trends. |
| Capex as % of Revenue | 12.0 | % | Elevated near-term to support Thailand facility and indium phosphide capacity. |
| Non-GAAP Tax Rate | 16.5 | % | Management guidance for the non-GAAP tax provision. |
| Diluted Shares Outstanding | 71.0 | Millions | Base share count plus estimated dilution from convertible notes at current prices. |
| WACC | 10.5 | % | Reflects high beta associated with optical component cyclicality and tech sector risk. |
| Terminal Growth Rate | 3.0 | % | Long-term growth rate reflecting data consumption secular tailwinds. |

## Data Sources & Benchmarks

- **SEC Filings**: Lumentum Investor Relations (investor.lumentum.com) or SEC EDGAR for 10-K (filed August) and 10-Q filings.
- **Key Peers for Benchmarking**: Coherent (COHR), Fabrinet (FN), Infinera (INFN), Applied Optoelectronics (AAOI).
- **Industry Data Sources**: LightCounting (for optical transceiver market sizing and 800G/1.6T forecasts), Dell'Oro Group (for telecom and datacom capex trends).
- **Consensus Estimates**: Bloomberg or FactSet for quarterly revenue and Non-GAAP EPS consensus to validate near-term model outputs.

## Sources

- Lumentum FY2025 Earnings Release and Presentation (August 2025)
- Lumentum Q2 FY2026 Earnings Release (February 2026)
- Lumentum Annual Report on Form 10-K for the fiscal year ended June 28, 2025
- Semiconductor Today: "Lumentum's quarterly revenue grows 65% year-on-year to $665.5m" (February 2026)
- MLQ.ai: Lumentum Holdings Business Model & Financials (March 2026)

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## Frequently asked questions

### What does Lumentum do?

Lumentum is a market-leading designer and manufacturer of innovative optical and photonic products. These products are crucial for enabling optical networking and commercial laser applications worldwide, serving a global customer base.

### What are Lumentum's primary revenue drivers?

Lumentum's revenue is predominantly driven by its Cloud & Networking segment, which accounts for approximately 85% of its FY2025 revenue and is experiencing hyper-growth due to AI demand. The company also generates revenue from its Industrial Tech business, though this segment faces cyclical headwinds.

### How does Lumentum's capital expenditure strategy impact its financial outlook?

Lumentum's capital expenditure, typically ranging from 8-14% of revenue, is currently heavily skewed towards growth investments, with about 70% allocated to expansion. This includes significant programs like expanding indium phosphide wafer fab capacity and building out the Thailand transceiver manufacturing facility, which are key uses of cash.

### What are the key financial assumptions used in the Lumentum model?

The Lumentum financial model uses key assumptions such as a revenue growth rate of approximately 3.08% and COGS as about 58.54% of revenue. Other significant assumptions include R&D at 13.25% of revenue, SGA at 15.18% of revenue, and a tax rate of 17.94%.

### What is the significance of Lumentum's net working capital in its valuation?

Lumentum's net working capital is positive and acts as a significant use of cash, particularly during periods of high growth. This is influenced by a high Days Inventory Outstanding (120-150 days) due to long fab cycle times for indium phosphide, which impacts cash flow projections.

### Is there an Excel financial model available for Lumentum (LITE)?

Yes, an Excel financial model for Lumentum (LITE) is available for download. This model offers a comprehensive tool for equity valuation and scenario planning, with a forecast horizon that extends from FY2026 through FY2030.

[Interactive forecast calculator](https://finamodel.com/companies/lumentum/forecast)