Lumentum 2026財年Q3業績直播
Key Takeaways (AI-Generated)
Financial Performance
- Record Q3 revenue of $808 million, up 90% year-over-year
- Non-GAAP operating margin expanded to 32.2%, up 2,140 basis points year-over-year
- Non-GAAP EPS of $2.37, above guidance expectations
- Components revenue grew 77% year-over-year to $533 million
Business Highlights
- Narrow line width laser assemblies grew for 9th consecutive quarter, up 120% year-over-year
- EML shipments achieved quarterly record with 200 gig revenue doubling sequentially
- Acquired indium phosphide fab in Greensboro for future capacity expansion
- Secured multi-year, multi-billion dollar purchase agreement for sustained growth
Financial Guidance
- Q4 revenue guidance of $960-$1.01 billion, representing another quarterly record
- Q4 non-GAAP operating margin projected at 35-36%
- Q4 diluted EPS guidance of $2.85-$3.05
- Expects over 50% growth in EML units by December 2026
Opportunities
- Market expansion through scale-across networks requiring high bandwidth synchronization
- Product innovation in multi-rail technologies for increased parallelism
- Strategic partnerships through long-term agreements to offset capital expenditures
- Operational efficiency improvements through contract manufacturing to enhance margins
Risks
- Supply chain constraints on critical components keeping shipments below customer demand
- Market competition from Chinese competitors showing OCS solutions at industry events
Full Transcript (AI-Generated)
Operator
Good day everyone and welcome to the Lumentum Holdings Third Quarter Fiscal Year 2026 Earnings Call. All participants will be in a listen only mode. Please also note today's event is being recorded for replay purposes. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. To withdraw your question, press *1 again. At this time, I would like to turn the conference call over to Kathy TA, Vice President of Investor Relations. Miss TA, please go ahead.
Kathy Todd
Thank you, Melissa, and welcome to Lamentum's third quarter fiscal year 2026 earnings call. This is Kathy Todd, Lumentum's Vice President of Investor Relations. Joining me today are Michael Pearlston, President and Chief Executive Officer, Rajit Ali, Executive Vice President and Chief Financial Officer and Wuhupen, UN President, Global Business Units.
Today's call will include forward-looking statements including without limitation statements regarding our future operating results, strategies, trends and expectations for our products and technologies that are being made under the safe harbor of the Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the lists set forth in our SEC filings under risk Factors and elsewhere.
We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10 Q for the fiscal quarter ended December 27, 2025 and in our most recent 10Q for the fiscal quarter ended March 28th, 2026 to be filed by the Mentum with the SEC. The forward-looking statements provided during this call are based on Momentum's reasonable beliefs and expectations as of today. Momentum undertakes no obligation to update or revise these statements except as required by applicable law.
Please also note that unless otherwise stated, all financial results and projections discussed in this call are non GAAP. Non GAAP financials have inherent limitations that are not to be considered in isolation from or as a substitute or as a substitute for or superior to financials prepared in accordance with GAAP. You can find a reconciliation between non GAAP and GAAP measures and information about our use of non GAAP measures and factors that could impact our financial results in our press release and our filings with the SEC.
Momentum's press release with the fiscal third quarter results and accompanying supplemental slides are available on our website at www.lamentum.com under the Investors section. We encourage you to review these materials carefully. With that, I'll turn the call over to Michael.
Michael Pearlston
Thank you, Kathy and good afternoon everyone. Lamentum delivered an exceptional third quarter with revenue growing 90% year over year to a record $808 million. Top line growth was primarily driven by our transceiver business and laser chips. Our revenue growth was impressive. Our non GAAP operating margin was more so expanding by over 2100 basis points year over year fueled by a rich product mix and strong operating leverage.
The margin expansion was primarily driven by our industry leading scale out portfolio, but another part of the story was our broad array of scale across products. As hyperscalers exhaust the power and space limits of individual data center buildings, they are shifting to distributed architectures that link commute domains across disparate geographies. These scale across networks require high bandwidth synchronization across multiple data centers.
To enable this, we provide critical hardware components that provide high density optical interconnects while meeting aggressive power and performance targets. Our pump lasers allow scale across architectures to amplify the light signal over 48 or 16 fiber pairs simultaneously. Complementing this, our narrow line width lasers assemblies provide the precision required for 1.6 T speeds and a higher order modulation, all within highly compact pluggable form factors.
To manage all this traffic, our wavelength selectable switches or WSS function. As the optical traffic cops, WSS keeps traffic in the optical domain, bypassing the latency of electrical buffers while enabling the high port counts essential for massive fiber routing between data center buildings. Looking for our emerging multi rail technologies will be vital for the increased parallelism required by the massive fiber counts and scale across networks.
While we've spent the last few calls detailing our revenue growth drivers, it is important to outline the considerable role to scale across portfolio will play in our ability to expand gross and operating margins. As we look forward, we expect this part of our business to grow appreciably and the supply demand imbalance likely improve profitability at the same time.
Now let's look closer at the metrics to define our third quarter, starting with the components product category. Components revenue for the quarter was 533 million, reflecting a 20% sequential increase and 77% year over year growth. Shipments of our narrow line with the laser assemblies grew for the 9th consecutive quarter, rising over 120% year over year, while pump laser shipments grew 80% year over year.
These components remain effectively sold out for the pre foreseeable future and we are actively working to secure long term agreements that will help offset anticipated capital expenditures. Turning to laser chips, we achieved another quarterly company record in EML shipments led by 100 gig lane speeds, 200 gig EML revenue more than doubled sequentially. We continue to ship CW lasers to 800 gig transceiver manufacturers and starting in fiscal Q3, we began supplying CW lasers for internal use in our cloud transceiver business.
Our wafer capacity, wafer capacity in Japan remains at a premium and is fully allocated to meet surging customer demand. We shipped twice the number of laser chips as we did in the same quarter of last year and we are on track to achieve more than 50% growth in EML units by the December quarter of 2026 as compared to the December quarter of 2025.
Our ultra high power laser chip manufacturing ramp for CPO applications is also proceeding according to plan. We achieved sequential growth this quarter and are on schedule to both deliver meaningful revenue in our December quarter and fulfill the multi $100 million purchase order slated for the first half of calendar year 2027. In addition, our development work continues with multiple CPO customers through collaborations that leverage our laser chip technologies within a pluggable turnkey Els module solution.
In mid March, we announced our acquisition of 1/5 Indium phosphide fab in Greensboro, NC, which provides the capacity needed for years of future growth. But our grand opening ceremony held just days ago, we highlighted our commitment to US manufacturing and the significant job creation we expect to generate in the state. We onboarded the plant's team and plans to convert the facility from gallium arsenide to Indium phosphide are well underway. Another positive note is that we expect to take advantage of a significant number of the tools that already exist in our Greensboro site.
Now I'll move to our systems product category. Systems revenue reached 275,000,000, representing a 24% sequential and 121% year over year increase. Cloud transceivers accounted for the lion's share of this growth, increasing over 40% sequentially as we successfully leveraged our expanded manufacturing footprint in Thailand. In addition, we are poised to ramp 1.6 T speed transceiver shipments in fiscal Q4 with a portion of this volume leveraging our own CW lasers.
We are improving transceiver profitability through better yields and lower scrap rates. Despite these gains, supply constraints on critical components keep our shipments well below customer demand in OCS. The multi year multi billion dollar purchase agreement we recently announced ensures sustained long term growth. Our OCS ramp is largely on track, although our pace and slope are gated by the supply chain we are experiencing.
Considerable tightness in this product area due largely to the significant step up in requested output. On the other hand, the number of new opportunities we're seeing for optical switches is putting tension on our road map and we're having to make choices across the company in order to service them. Rounding out our systems business performance, industrial lasers and cable access remains muted. Industrial lasers were approximately flat sequentially, while cable access shipments declined on quarter due to customer and timing factors.
Looking ahead to Q4, we expect to set another quarterly revenue record. We anticipate that over half the sequential growth will stem for our components business. The remainder will be driven by the continued ramp of our systems portfolio, primarily through high speed transceivers and additional contributions from OCS. Our current numbers and guidance reflect continued success in e-mail, lasers and our scale across components.
We are seeing improved performance in our cloud modules business, which has grown significantly across the last few quarters. In addition, while we are seeing initial contributions from both scale out CPO and OCS, they are still relatively modest. Furthermore, our largest single growth driver scale up CPO is still very much in its infancy. Taken together, this gives us confidence that we are very much on track to reach our $2 billion quarterly revenue goal as we articulated at our OFC events. Now I'll hand the call over to Wajid.
Wajid Ali
Thank you, Michael. Third quarter revenue of $808.4 million was above the midpoint of our guidance range and non GAAP EPS of $2.37 was above our prior expectation range demonstrating the leverage of our business model. GAAP gross margin for the third quarter was 44.2%. GAAP operating margin was 21.6%, GAAP net income was $144.2 million and GAAP net income per share was $1.50.
Turning to our non GAAP results, third quarter gross margin was 47.9%, which was up 540 basis points sequentially and up 12170 basis points year on year due to better manufacturing utilization across the majority of our product lines, increased pricing on select products and favorable product mix. The improvement in product mix was primarily driven by growth in data center laser chips.
Third quarter non GAAP operating margin was 32.2%, which was up 700 basis points sequentially and up 2140 basis points year on year, primarily driven by revenue growth and components products. While continuing to invest in critical R&D programs serving cloud and AI customers, we have maintained the rigorous cost controls necessary to optimize our business model. Third quarter non GAAP operating profit was $260.7 million and Adjusted EBITDA was $293.5 million.
Third quarter non GAAP operating expenses totaled $126.2 million or 15.6% of revenue, an increase of $11.3 million from the second quarter and an increase of $22.8 million from the same quarter last year in support of expanding cloud opportunities. Q3 non GAAP SGNA expense was $47.8 million. Non GAAP R&D expense was $78.4 million. Interest and other income was $9.6 million.
On a non GAAP basis, Third quarter non GAAP net income was $225.7 million and non GAAP net income per share was $2.37. Our diluted weighted shares for the third quarter was 95.2 million on a non GAAP basis. Turning to the balance sheet, during the third quarter, our cash and short term investments increased by 2.02 billion to $3.17 billion with the increase primarily driven by Nvidia's direct investment in Lamentum.
Our inventory levels increased by $62 million sequentially to support the expected growth in our cloud and AI related revenue. In Q3, we spent $125 million in CapEx primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details, Components revenue of $533.3 million increased 20% sequentially in Q3 and 77% year on year. Systems revenue of $275.1 million increased 24% sequentially in Q3 and 121% year on year.
Now let me move to our guidance for the fourth quarter of fiscal 26, which is on a non GAAP basis and is based on our assumptions as of today. We anticipate net revenue for the fourth quarter of fiscal year 26 to be in the range of $960 million. To $1.01 billion, the $985 million midpoint would represent another new all time quarterly revenue record for Lamenta.
We project fourth quarter non GAAP operating margin to be in the range of 35% to 36% and diluted net income per share to be in the range of $2.85 to $3.05. Our non GAAP EPS guidance is based on a non GAAP annual effective tax rate of 16.5%. These projections also assume shares used for non GAAP diluted earnings of approximately 102 million shares. With that, I'll turn the call back to Kathy to start the Q&A session.
Kathy Todd
Watching to allow as many as possible an opportunity to ask questions. Please keep to one question and one follow up. Now let's begin the Q&A session.
Operator
We will now begin the question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. To withdraw your question, press *1. Again, please stand by while we compile the Q&A roster. Your first question comes from the line of Samik Chatterjee with JP Morgan. Your line is now open. Please go ahead. A reminder to unmute your device locally go to Ryan. Thank you. Our next question comes from the line of Ryan Koontz with Needham and Co. Your line is now open. Please go ahead.
Ryan Koontz
Great, thanks. Can you hear me? Yes, we can. Yes, we do. Great. Maybe let's start with you know your strength in in e-mails and laser supply. Clearly demand is not a concern here and you guys are just done an incredible job of executing. What are the dynamics both on the supply side as well as your ability to ramp production. Maybe give some color on kind of where you are in in meeting demand, you know what the gap looks like as well as you know what are some of the puts and takes that you're battling with on 1/4 to quarter basis?
Michael Pearlston
Yeah, Hey, Ryan, thanks for the question. Look, I, I think we're still chasing behind relative to demand. We are steadily increasing supply. I think we just gave the benchmark that we'd expect our supply line to increase 50% on year, meaning as measured from December quarter to December quarter. So we're actually stepping up our supply in a pretty significant way. That being said, as we've said kind of over and over again, we continue to lag demand.
The supply demand imbalance is probably even higher than we said we reported. In our last call somewhere greater than 30%, I think last time we gave a metric of of 25 to 30. We still seem to be behind significantly. We had conversations today with customers, you know significant customers looking to really up their demand and and get output from us and, and we simply can't service that. So we are stepping up, we're doing everything we can to step that up. I think you know that story pretty well. But we continue to to lag demand.
Ryan Koontz
And is, is that largely in your own control, sorry Michael, but large in your own control in terms of executing against that and getting the equipment you need or do you have input? That is a big challenge.
Michael Pearlston
Yeah, right now it's it's largely within our own control. So some of these for example substrate shortages that's been reported out, you know, I think you know our story better than most and that is that we've executed some long term arrangement agreements that we feel leave us in in pretty good shape on substrates. That being said, I mean the number of of lasers that we're going to have to output for example at 2027 is really a massive step up just given the scale out and scale up demands that we're seeing in that time frame.
So it's certainly near term. It's it's mostly on us. I think as we head into 2027, we're going to continue after work. The substrates think we have that mostly under control. But you know, we we've got we got a lot of work to do to sort of catch up to demand at this point.
Ryan Koontz
That's great. And and maybe on the on the scale of cross part, you really highlighted that as you know, I think something that's the market opportunity is probably less appreciated with Lamentum. Obviously you've got the kind of the components there among among lasers and you talked about the multi rail opportunity. Can we expand on that in terms of, you know what, where, where you fit in that supply chain and that value chain and then how, how big you size that opportunity as it moves to to multi rail, you know, amplification, amplification hot densification. Thanks.
Michael Pearlston
Yeah, look, it's it's a significant opportunity. I think it, we chose this call to talk about it because I think it's a significant contributor to our, our margin enhancement. So we've, we focus very much on sort of the four main growth drivers. I think you know those well, the transceiver business, OCS optical scale out, optical scale up. We spend less time I think on our our scale across components and they are actually big, big contributors to the gross margin line.
As we look out right now we are probably more constrained in this area than even Emls, particularly on things like pump lasers, narrow line load lasers for sure. And both of those are going into the coherent sub assemblies that drive a lot of the scale across activity, the synchronization and high bandwidth. We we mentioned in the prepared remarks a multi rail increases that COM content, right, because you got more pumps that need to go into those.
We are focused right now on on ramping our pump capacity. We expect to make pretty appreciable step UPS and at the right time we'll give you some color around that. But those numbers are going up from an output perspective actually to a much greater degree than even our EML output. We would expect to output a lot more of these here in the near term because there's a little bit less constraint on the fat that puts these out. So we have a little more ability to inflect that line. Wu Pat, any more on the sort of the multi rail and how you think about it?
Wu Pat
Yeah, so couple things, right. So first of all, the pump lasers actually goes into the optical amplifiers right at the. We call the inline amplifiers at the at the at the sites. Where you know a lot of the traffic and then the. The the density has to really increase right to get the traffic through. So that's one big areas of growth. And frankly the multi rail opportunities are are huge.
And then you know, with all these special plans that Michael talked about just now, you know, the, the our view actually is that the multi rail could be even bigger than that. So we don't yet have a full qualification. We share that when we are more ready, but we believe there's a huge opportunity for for women that are trying to grow our business and and gross margins.
Ryan Koontz
That's great guys. Really appreciate it. Thank you.
Michael Pearlston
Thanks, Ryan.
Operator
Our next question comes from the line of Samik Chatterjee with JP Morgan. Your line is now open. Please go ahead.
Samik Chatterjee
Hey, guys, can you hear me now? We can hear you now. You figured out. You figured out the mute button. Good. Good. We knew you're a smart guy. Still learning. Still learning, Michael, maybe on OCSI, knew you mentioned sort of multiple customers that you're still working with and you had the customer announcement at OFC. Can you just talk about sort of where maybe the engagements are in terms of how close you are to finalizing additional sort of award wins on the OCS front?
And do you see some of the wins being sizable compared to the what you announced at OFC? How should we think about the additional wins that you can sort of lock in and how we size them relative to the win that you announced at OFC And I have a follow up. Thank you.
Michael Pearlston
Yeah, I mean, I think look, we continue to work with the three customers that we've we've been talking to. Two of those three are are making up the majority of the of the volume as we've been saying. I think that we are really making progress now on sort of additional wins. I think it's too early to call when we would be able to talk to those, but I would say that they're they're quite sizable.
We really are as I said in the remarks, working the road map to add differentiation, different port counts, different configurations to service these multiple opportunities. And these multiple opportunities are substantial. They're on the order of what we've talked to relative to, you know this backlog that we're seeing for 2027. So it is our biggest area. Wu Pen and the engineering teams are working aggressively to to drive the those new designs.
Samik Chatterjee
OK, great. And for my follow up, maybe I can ask you on the revenue guide a bit. You did deliver when I look quarter or quarter like a 140,000,000 increase and you're expecting that to acts rate as you get into the June quarter, which is in the backdrop of sort of the supply constraints that you're also dealing with. So maybe if you can just sort of highlight which are the areas you see accelerating compared to the March quarter itself as you go into June and where are the supply constraints maybe impacting you more than others, others, if you can sort of highlight that. Thank you.
Michael Pearlston
Yeah, I think in the guide is contemplated obviously sort of the the basic business meaning Emls we'd expect to go up, we'd expect the scale across components to go up. We continue to increment OCS so that that will go up. But really the big story is, is transceivers, right? That is going to be quite strong. And you know, I think it's impressive to note that as we you and I have talked about our margins, they're relatively challenged, but we expect to see margin improvement in the face of a growing transceiver business.
So I think that's important too to highlight as we go into the back half of the year. You know I that's when you're going to start seeing big, much bigger contributions from OCS in the 4th calendar quarter. You're going to see more contributions from the the scale out CPO. So there's a lot of things that begin to layer in. But specific to your question and the guide, I think the big headline is going to be transceivers.
We appear to be ahead on 1.6 T We seem to be executing relatively well. I think Wupan and the team have done a really, really good job turning around our designs. Our constraint is going to be on transceivers. So we are we could ship quite a bit more in the guide, actually quite a bit more this quarter in the in the quarter we just completed certainly quite a bit more in the guide, have we not the supply constraints that that we see and as we detailed there's you know electrical components are driving that laser diodes are in that mix, right, which is necessitating the switch.
To our internal laser diodes, So there's quite a few things that are contributing there, but the the main headline is we're we're under shipping demand there quite significantly.
Samik Chatterjee
Great, Thank you. Thanks for taking my question.
Michael Pearlston
Thanks, Sammy.
Operator
The next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.
Vijay Rakesh
Hi, thanks Michael and Rajiv. Just a question on question back to the pump laser side on a scale across. Just wondering, you know, given that demand pickup obviously looks like those will be? Hyper lasers as well. Just wondering what is the mix of demand you're seeing going to scale across and does that imply, you know, given that significant pickup in demand with that and 1.60 that you continue to see this? Supply demand imbalance of 30% as you go through into next year as well and I follow.
Michael Pearlston
Yeah, Vijay, I mean, couple things. I'd say 1, you know, the, the constraints on, on lasers or pumps are probably the biggest that we, we, we are. It's somewhat unanticipated. I mean, we haven't talked to you about this in the last couple quarters, but it's somewhat unanticipated. It's hit us relatively suddenly and you know, I, I don't even, I don't think we've given a number of the supply demand imbalance, but it's certainly greater than that, that 30% number.
We are significantly under shipping demand and we're having to make choices as to who we support. We're trying to be as fair and reasonable as possible, but we are having to make choices as to how we we allocate our our pump demand. That being said, you know, I think we're, we're trying to ramp capacity here quickly. We have a plan to ramp capacity over the next four quarters that's coming out of our our local facility here in the United States, our Rose Orchard facility.
And you know, we think we have room there to to build some, some significant capacity And you know, we're we're obviously spending a lot of money on on CapEx to try to enable that as as wide you highlighted. So hopefully that that caught the gist of your question, Vijay.
Vijay Rakesh
Yeah, sure. Just a quick follow up to back on the OCS side. You know, obviously it looks like Google is now. Talking the V8 inference rack with 1152 Tpos and the trading rack with like 100. 30,000 PPS. Does that drive your OCS? To drive a pretty nice uptick there back to the like the 300 radix or the 500 radix. OCS wax into next year, right And looks like even Anthropic now announcing a massive potential, not Anthropic, but looks like there's some information actually noting Anthropic could do 200 billion with Google positive for you guys, but just wondering how you're looking at OCS into 2728. Thanks.
Michael Pearlston
Yeah. Look, I mean, you know, we're not sort of commenting on, on specific customers and, and specific customer architectures. You know, based on, based on what we know, I would say that Google is obviously doing very, very well in the market. I would say that Google is driving a lot of demand on our business, right. They're they're certainly one of our largest customers and we've we've we've benefited greatly from that relationship as we know it.
As we understand it, the sort of the difference in V7 and V8 in terms of OCS poll is a little bit it's incremental. It's not that big. But we would expect as as you are correctly saying that they are doing, look, hopefully we we can, we can get engaged. I think it would drive significant upside for us just given the expansion of their business as they look at V8.
Vijay Rakesh
Got it. Thank you.
Michael Pearlston
Thank you, Vijay.
Operator
The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open. Please go ahead.
Meta Marshall
Great, thanks. Maybe a couple questions. Just on you know you expecting to supply some of The CW lasers into the transceivers into the next quarter. Just any kind of further commentary there on just the path and progression of kind of the insourcing of your own lasers into that piece of the transceiver portfolio? And then maybe just as a follow up, just any kind of disclosure we could have in terms of, you know, obviously a great step up in the gross margins just on kind of like rough mix of pricing yield mix and kind of the contributions there. Thanks.
Michael Pearlston
Yeah, I mean, I, I would say meet up maybe to the to the second question on mix, it's, it's sort of all of the above. I I think, you know, the the headline has been better factory absorption. I mean that helps. I think our mix and we made some big decisions here throughout the last year to drop certain product lines that are not margin beneficial. So we really worked on the portfolio to to a great degree and I think that's helped considerably.
And then of course there is price increases. Obviously pricing with this kind of supply demand imbalance is something that we consider is something that where we see biggest area of constraints. We, we are have applied and we we continue to think about applying. We, we think there's, you know, continued room, right? Gross margin is something that as a management team we have focused on tremendously.
And you know, look, I, I think people who followed my history know that gross margin is super, super important. And although we're trailing what we've done in our previous instantiations, I do think there's a lot of room for improvement on the gross margin line relative to the insourcing of of the lasers. You know, that's something that's driven by a margin, right. But we are forced to do that probably faster than and that forecast oscillated as as you know, I mean you followed our story extremely closely.
We had initially forecasted sometime in calendar Q2 we'd be introducing the lasers. Then we backed off just seeing so much tension on the EML line. But now we've seen a little bit of tension in our own supply line externally to get lasers from the external market, CW lasers. And as such, now we've allocated more of our fab capacity to CW lasers. I think in our mix, you know, roughly as we think about it in this, in the in, in the guide, it would be about 20% of our modules would have our own CW lasers. It's still minority, but we'd expect to step that up through time and see some of the associated margin benefit as a result.
Meta Marshall
Thanks. Thanks, Mita.
Operator
The next question comes from the line of Papa Sila with Citi. Your line is now open. Please go ahead.
Papa Sila
Thank you and Congrats on the very strong results. Michael, I guess one a little bit longer term question kind of on the CPO slash scale up opportunity, it seems like even that kind of. You mentioned kind of the longer term target and most of it may be more ultra high power lasers, but at high level it seems like there is also a real opportunity into becoming more kind of vertical and doing some more Els that. Hey, Papa. I don't know. I hopefully it's not us, but at least your line seems to be cutting out a bit. I I didn't catch the the last part of your question. Sorry for that. Hopefully it's not. Is it better now? It's better now. We can hear you.
Yeah. Sorry about that. Yeah, I I was just asking on this. The opportunity around the kind of CPU kind of. Market most of it. It seems like you are mostly around the ultra high power lasers looking into maybe the second-half of the year in 2027. I'm just curious on. The opportunity around kind of being more vertically integrated as well, kind of providing more. Els type of product, I'm curious if you are also getting engagement from the same customers you are providing ultra high power lasers opportunities.
Michael Pearlston
Yeah, I great question Papa and of course I, I continue to thank you for for following the company. Look, I I think that on Els we definitely have a, a very significant opportunity and it's you know, we have not, we've only talked about opportunity there. I think we're we're getting ever closer to being able to convert and start thinking about that as as part of our, as our, as part of our numbers as we've outlined on previous calls.
What I would say with Els in particular is the the non primary customer engagements are largely driven by Els. Simply the engineering teams there are less familiar with optics, although frankly everybody's becoming a lot more converse on optics. But our currency to engage those customers at least initially will be the Els. And so again, we've not really talked about as yet any significant wins there. I feel that's just around the corner quite frankly. And it's, it's something that, you know, at the right time we'll be able to articulate more deeply.
But I in particular, as we expand the CPO horizon, we are going to need that vertical integration strategy that you asked in your question.
Papa Sila
Got it, That's very helpful. And for my follow up, it might be for you again Michael as well on the kind of supply front, kind of EML capacity it seems like across the board. Continues to be very strong despite kind of the very strong effort you. We are making on raising supply, but we are also hearing kind of a lot of competitors also providing very large growth numbers. I'm just curious on the, the, the risk of oversupply if any, I guess where would you put the risk? Is it still very low at this point?
Michael Pearlston
I mean, I, I feel it's, it's low. We are you know engaging all sorts of transceiver customers right now. Wu Pen's team is out doing that actually as we speak. I just got a report in this morning from our our sales leader and the discussion is very, very much around, you know, extending the long term agreements that we already have. So if there was an expectation from our customers that they'd see a, an oversupply of any kind of laser, well, BML or CW laser, I just think there'd be a lot more reticence to engage in the kind of conversations we're having.
So yes, we're hearing the same things. I mean, we know that all, all, everybody is trying to add supply, but the reality on the ground now seems to be quite a bit different. We we definitely have some pricing flexibility which would indicate that that supply demand imbalance isn't going to be solved for a while and we certainly are engaging in extending some of these long term agreements that we currently have.
Papa Sila
Got it. That's very helpful. Thank you so much.
Michael Pearlston
Thanks Papa. Thanks, Papa.
Operator
The next question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.
Sush
Hey guys, this is the head thing on on for Ruben Roy. Maybe maybe just Michael, tagging on to the Ltas that you're, you're, you're mentioning there, you know, even even on the scale across portfolio, you sort of outline that you know, it's pump lasers, narrow line with lasers WSS. These are not only supply constrained, but but real margin levers for you guys distinct from the poor growth levers.
And you know, 9 consecutive quarter of narrow line with that, I think you said 120% year on year and pump lasers at 80%. That's impressive. And, and you're still describing this as sort of an unanticipated bump up. And so you know, you're talking about these Lt. as maybe we can, we can dive a little deeper there. You mentioned that the long term agreements being negotiated are, are helping in some sense to, to offset CapEx and I think that was what scale across, but it, it sounds like more broadly.
So could you maybe give us a, a sense of the structure? Are these, you know, prepayment style commitments maybe somewhere in, in maybe spirit, I would say to the NVIDIA, NVIDIA agreement or are they take or pay capacity reservations or are they, you know, volume commitments tied to ASP floors? How, how should we be thinking about, you know, the, the, the CapEx where they build by offshore these agreements are, are effectively underwriting. I'll stop there. And I, I have one, one other.
Michael Pearlston
Yeah, look, I mean it's, it's all of the above. We're in active discussions right now on our pub lasers. And again, we have sort of a finite amount of capacity and we're being asked to put on considerably more. And so, you know, we are, are, are talking to the major customers around trying to help right and put some skin in the game around the cap backs that we're going to try, try to, to lay out one that can entail prepayment, that can entail take or pay that can entail price increases.
And you know, Wu Pen's team is an active negotiation with all of the scale across suppliers on how that looks. And you know, again, as I say, we're, we're, we, we have some really big customers and important historical customers of ours involved in that. And we want to treat them obviously as fairly as we can. But it's really coming down to, you know, how these discussions play out as to how I think Lupen and his team think about the allocation.
Sush
Understood. Thank you. And, and, and for the second, you know, as I, I read through the print, you know, the beat was, was really a margin beat. And you know, system sales as, as, as you're mentioning was was a driver and, and seems to, to, to be so. And this is happening all, all while sort of the capacity story is happening and, and, and new, new programs are ramping.
And, and then as as we look to the to the next quarter, I think the margin story kind of gets a little washed out with the diluted chairs jumping up. So maybe. Could you help frame the waterfall dynamics on margins right now? I mean, you set out the targets that you did during OFC and I think this sort of ties into I believe Meta asked a question around this as well. But you know the waterfall dynamics maybe more across a matrix of product mix and and the program ramps within those segments.
You know how CapEx is dragging on that again on the build buy offshore sort of dynamic and and, and then maybe also on the volume versus ASP conversation that is becoming more and more prevalent amid, you know, this this supply concern.
Michael Pearlston
Yeah, look, I mean, as we said, there are many, many contributing factors to our our margin improvement. I think we've had a big step up. It's an area of focus for us. I think we're going to continue to work the margin line. It comes from. It obviously comes from mix. And we keep making mixed decisions every single day allocated toward the most margin rich parts of the portfolio. It comes from factory utilization, right? We've historically been underutilized and we're just now getting our utilization up to where it needs to be.
As we've outlined, we have some of our fabs that are still underutilized. Some of the for example, our fab in United Kingdom that now Wu Pen has put products in that we expect to see in margin contributing output from them and and and fixing some of the underutilization. And then as we said, there is some price dynamics that are that are working in our favor. So we think there's a lot of room on the margin line. We we gave a long term target. We feel very comfortable with that.
I think there's, you know, room from here to continue to really step up margin. We've been surprised to a certain extent by how quickly we've been able to move up that margin line. And again, people that know my history know that we had, you know, 30% tight moves in my last company. So it's not a total surprise that you'd be seeing this kind of step up on the on the margin line.
Sush
Thank you guys.
Michael Pearlston
Thanks, Sush.
Operator
The next question comes from the line of Christopher Roland with CISO Susquehanna. Your line is now open. Please go ahead.
Christopher Roland
Thanks for the question. And Michael, I am familiar with the margin focus you have. My, my, my question is actually, I think in your prepared remarks, you might have also mentioned some constraints around OCS. So I, I guess first of all, I wanted to dig a little bit more into that. But also at OFC there were some Chinese competitors showing off some OCS boxes. I was wondering if you could speak to competition there, whether you think it's viable or whether you think the kind of MEMS market might might be yours for for quite some time.
Michael Pearlston
Yeah, Crystal, I appreciate that look. One, I, I, my colleague to the right, Wajid Ali, is personally responsible for getting the supply chain right on OCS. We've assigned that to one of the most important people in the company. It's a challenge. Look, I mean, it's a big step up, right? We've gone in, in, in many instances really from zero to you know a significant number very, very quickly. We, you know, we think we have things under control. We've outlined this sort of $400 million that we can ship in the back half of the year. We think we have that under control.
As we look at in 2027, that number continues to step up. You know, we think we have that under control, but we are definitely on a tightrope on this product line, right? It's probably our biggest ramp. You know, now I honestly pump lasers, CPO, all of these things are, are keeping us awake. The big three ramps are these pumps, right, OCS and, and, and the high-powered lasers. So we've got a lot of work on our hands and the biggest single tightrope that we're walking probably is OCS.
I think relative to competition, you know, we feel pretty good about our position. We really do. I think we, we feel like we're in a, in a very, very strong position that's not going to last forever. I we, we know that, but I think certainly in the, the next year, it's hard for me to imagine anybody is going to be able to ship one of these very innovative solutions. We are also, you know, not standing still. We are working on cost reducing. We are working on some innovative solutions in ROCS, which increases the complexity of the decisions that I was outlining relative to what Wu Pen is facing, right, Because we've got a lot of new customer demands coming on.
And meanwhile, we are trying to focus on new architectures that would keep us in a leading position with maps, right? We do believe that that's the right technology for us long term. But we do believe that there's cost we can take out simplifications we can make to continue to compete with these very innovative solutions.
Christopher Roland
Excellent. And I do know you have your hands full with those 3. Very large opportunities, but are there some more adjacencies for you guys to pursue? I think it OSC talked about maybe full module design and assembly. I don't know if this would involve silicon photonics chips, you know, Pics, EICS, etcetera. Are there any other adjacencies or components that you may be be able to absorb or organically create that you can bring into the organization as you look forward?
Michael Pearlston
Look, there's, there's a ton of stuff that goes into these transceivers or into a ACPO based solution that today we don't share, right? Pics, photo diodes, right, laser drivers, there's a ton of stuff to your point and we're looking at all of these areas. I mean, I think we we have Rd. maps that contemplate all sorts of different things around our strength and lasers. And I think there is quite a bit more that we can do around that.
A previous questioner asked and I'd say again on Els, which is a vertically integrated module that your, your question sort of led to, we believe that there's significant opportunity there, right. We think that we can integrate up and take more of the, the, the dollars by generating A vertically integrated Els. And I, I think as we engage on CPO, we're finding that to be a more convincing and shorter path to market than is just supplying lasers.
Christopher Roland
Thank you. Thank you, Michael.
Operator
The next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. Please go ahead.
Michael Mani
Hi, this is Michael Mani on from Vivek Aria. Thanks so much for taking our questions. My first question is on the consumer business #1 how large would it have been if you had been able to address all the demand that you saw in the quarter or if you could peg that number relative to the 30% overall imbalance of the entire company? And then on 1.60 specifically, you talked about how you know the margin structure is still the challenge and is a work in progress.
But as we move into 1.60, we're hearing from many of the suppliers and ecosystem is that the margins are just significantly better maybe it led by pricing. So to what extent is does that transition that's happening in the next quarter or two help your margin structure for transceivers? Thank you.
Michael Pearlston
Yeah. I mean on the on the first one, I don't think that we've, we've given a figure of merit around our own transceiver imbalance. It was, it was significant. I mean we, we had a lot of demand that was placed on us and we simply weren't able to ship due to largely due to supply constraints. The 30% number that I gave is on our our Emls, right. So it's a supply imbalance. It's not relative to our whole business. It's on that particular line of business.
I would say here, you know, the supply demand imbalance on our own transceivers was somewhere in that zip code, but it was, it was, it was definitely appreciable, although I don't I don't know that we've calculated that. I think the second part of your question, you know we what was it the second part was on 1.6. No, no doubt, right. The margins are definitely better. I would say that too when I said the margins are are challenging our transceiver business as we've outlined over and over again is is definitely a challenge for us on the margin line.
I think we are underperforming peers. We have room to grow, we're getting better. I think we are, we certainly got in the lead in terms of design and now in terms of margin I think we're improving. We still trail that being as you said to your point 1.60 definitely better structurally from a margin standpoint is definitely better than 800 gigs. So there's definitely we will see step up in our our margin line. We have room as a unique Lumentum entity to do better and we will do better.
Michael Mani
Thank you, Michael. Thank you. And for my follow up on, on OCS specifically, you said you're still constrained. Maybe that's more, you know, due to your current output right now relative demand. How do you think about engaging with more contract manufacturers? I know you mentioned that. But where are you in that process, maybe not just for OCS, but for other product areas as well?
And then within OCS specifically, how do you think given that given the demand you're seeing from multiple customers, maybe multiple different applications and multiple types of products between, you know, medium Radix, high Radix products, how do you think about prioritizing all those different sources of demand, right, or applications based on your own competitiveness or share? Thank you.
Michael Pearlston
Yeah, look, I, I'm going to answer the first part of it, right, just in the interest of time and to get some more questions. I, I think one of the one of the, you know, levers we do have is contract manufacturing. We have historically insourced everything and we found that working with good contract manufacturers of which there are are several, we can actually improve our, our margins. So as we have started to shift and we're early in those innings back to a contract manufacturing base, we would actually expect to see improvement in our our margins. The margins that we pay to those contract manufacturers are more than offset by the efficiency and cost benefit that they can drive on common components. So that that ends up being a lever for us.
Michael Mani
Thank you, Michael.
Operator
So, Melissa, I think we have time for one more question. Thank you. Our last question comes from the line of Ananda Barua with Loop Capital. Your line is now open. Please go ahead.
Ananda Barua
Yeah, thank God for taking the question. Really appreciate it. I guess I have to say apologies have just already been asked. Hopefully it hasn't been. But Michael you announced I think it was last week the opening of the of the Greensboro, new Greensboro facility that you that you recently purchased. I think it was also in the press release that that capacity was new and I think is it all it was a clarification, is it also incremental to the revenue projections that you gave it at OFC? So could you clarify that? And then also what's a good way to think about the capacity potential coming out of Greensboro? Appreciate that. Thanks.
Michael Pearlston
Yeah, I mean look that that is not in our numbers, right. It is very, very significant. I think what we've said is that we are we will have a massive supply demand imbalance on CPO. It's going to be very, very significant. We've seen multi billion dollar orders that we've characterized on previous calls come in mostly on on scale out. We expect to scale up to be, you know, significantly more than that in terms of of revenue opportunity.
I think it's going to be, you know, somewhere greater than $5 billion of incremental revenue that we can add if we execute properly. Now what I would say is the Greensboro fab is not going to come online until 2028. So we've sort of set expectation that's a sort of in the early 2028 line, we start to be adding that incremental revenue. So we're still, you know, 6 or so quarters away from seeing significant contribution from.
Ananda Barua
Got it, super helpful. I appreciate it. I'll keep it there. Thank you, guys.
Michael Pearlston
Thanks. Thank you so much.
Kathy Todd
Thank you for your questions. I will now turn the call back to Kathy for closing remarks. Thank you, Melissa. That is all the time we have for questions and we look forward to connecting with you at upcoming investor conferences and meetings throughout this next quarter. And with that, I'd like to thank you for joining us today. This concludes today's call.
Operator
Thank you for attending. You may now disconnect.
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