Optical vendors insist demand strong despite Lumentum warning

Optical component supplier Lumentum set alarm bells ringing this week when it revealed its fiscal Q3 2023 revenue is expected to come in millions below its original forecast due to a decision by one of its major customers to pull back on its orders. But Dell’Oro Group VP Jimmy Yu told Fierce the news shouldn’t necessarily be a surprise.

Yu tracks the optical transport market for Dell'Oro. He noted that on recent earnings calls, most major optical systems vendors said they plan to exit 2023 with less inventory on hand. That includes Ciena, whose CFO James Moylan said last month “we expect inventory levels to come down as we move through fiscal 2023, but to remain elevated relative to historical levels. We do believe that inventory will be lower in Q4 of this year than in Q4 of 2022.”

According to Yu, equipment vendors accumulated stockpiles of component inventory over the past few years in response to the strained supply chain environment brought on by the Covid-19 pandemic. Now that conditions are easing, he said, they are looking to scale back down.

Indeed, it seems those plans are what’s impacting Lumentum. In a press release, Lumentum stated a network equipment manufacturer which represented more than 10% of its revenue in its fiscal Q2 indicated it will not take previously expected shipments due to inventory management efforts. That customer’s decision will negatively impact Lumentum’s fiscal Q3 2023 revenue. It dropped its forecast range from $430-460 million to $380-$384 million for the quarter.

While the timing may be unexpected, the pullback shouldn’t be. What’s not clear, Yu added, is where exactly the shortfall is. Lumentum sells optical components that go both inside the data center as well as outside the data center, but it didn’t specify which components were impacted.

Optical equipment vendors, of course, supply carriers, enterprises and data centers alike. At least as far as data center demand is concerned, Ciena and Infinera indicated demand remains strong when speaking with Fierce in recent interviews about hyperscaler trends.

“We haven’t seen any slowdown in activity in terms of infrastructure construction and expansion,” Infinera’s SVP of Marketing Rob Shore said.

Following Lumentum’s statement, Ciena also publicly reiterated its guidance for both its fiscal Q2 and its full fiscal year 2023. Fiscal Q2 revenue is expected to rise year on year from $949.2 million to between $1.035 million and $1.115 million, the company said.

Infinera, meanwhile, has forecast its Q1 2023 revenue will grow from $338.9 million in 2022 to between $365 million and $395 million.