AI data center demand surges, Lumentum (LITE.US) optical component orders booked until 2029

According to Zhihui Finance APP, as technology companies race to build high-speed AI data centers, Lumentum’s (LITE.US) optical components are nearly “sold out,” with orders scheduled through early 2029. Lumentum CEO Michael Hurlston said in an interview in Tokyo on Friday that next year the company will be unable to meet about 70% of demand for certain products, and by 2028 it will still be unable to meet 30% of the demand for other products. Just six months ago, Hurlston had stated that Lumentum was on track to sell out its capacity before 2028.

Earlier this year, Lumentum and competitor Coherent (COHR.US) each received a $2 billion investment from NVIDIA (NVDA.US). The company supplies advanced indium phosphide devices, which help enable high-speed cloud computing and data transfers. Analysts on average expect Lumentum’s sales to more than double this year.

“We’re really working to catch up and add capacity as fast as we can, but we’re way behind customer demand,” Hurlston said. “Our capacity is already fully sold out, and there are no signs of relief.”

Supply Shortage and Expansion Race Highlight the Value of Japan’s Supply Chain

With the global boom in data center and other AI infrastructure construction, some investors have grown increasingly cautious about rising costs and debt. To address concerns of key suppliers, major technology companies are providing guarantees for long-term contracts.

Reports say the United States is considering a ban on imports of China’s new optical transceivers, which could further worsen supply restraints in the industry. According to Counterpoint Research, Lumentum and Coherent will not be able to fill the gap.

To meet surging demand, California-based Lumentum has increased the capacity of its main plant in the Greater Tokyo Area twelvefold over the past two years. The company plans to invest at least $350 million in this factory and nearby facilities. Additionally, Lumentum has expanded the capacity of its Caswell plant in the United Kingdom.

Hurlston stated that the company needs to consider acquisitions to expand its product portfolio. He said, “I think possibly within the next year, we would like to add new capabilities beyond our existing ones.”

It takes companies like Lumentum three to five years to build new capacity. However, Hurlston added that hyperscale cloud providers have agreed to bear some of the capital expenditure risk. “These hyperscale cloud firms are willing to invest in this,” he said.

Silicon photonics technology, which transmits data using light, is expected to replace copper interconnects in data center clusters, meeting the increasing need from AI hardware for faster transfer rates. Optical networks also help reduce heat generation and lower energy consumption in these systems.

Japan is home to many companies with expertise in indium phosphide semiconductors, optical fiber, and silicon photonics, including Fujikura, Sumitomo Electric, Furukawa Electric, Hamamatsu Photonics, Mitsubishi Electric, and Hitachi High-Tech.

Lumentum acquired some of its technology originating from Japan through its 2018 purchase of Oclaro Inc., which had inherited optical research from Hitachi. Today, its factory in Sagamihara is one of the world’s most advanced indium phosphide device production facilities, providing stable and high-quality products.

Earlier this year, Israel-based silicon photonic foundry operator Tower Semiconductor Ltd. took full control of a 300 mm plant in Uozu, Toyama Prefecture, central Japan, planning to increase shipment volumes of photonics devices.