Lumentum's sold-out date moves to 2029

Lumentum Holdings, which makes lasers and optical components for the data centres being built for artificial intelligence, has sold all the capacity it can produce until early 2029, its chief executive said on Friday. "We are completely sold out, so there's no end in sight," Michael Hurlston told Bloomberg in an interview in Tokyo, according to Yahoo Finance's account of the interview.

The shortfall is large. Lumentum is unable to meet roughly 70 per cent of demand for some of its products through next year, and about 30 per cent of demand for certain others through 2028, Hurlston said, according to a second Yahoo Finance report, which said he was speaking to Bloomberg Television. "We are really trying to catch up, add capacity as fast as we can, but we are very, very far behind what customers want," he said.

The date keeps moving. In March, Hurlston said on television: "We're sold out really until the end of 2027. We see no end in sight," 24/7 Wall St reported at the time. Six months ago he had indicated that the company's capacity would be fully committed by 2028, according to Bloomberg. By our count, the horizon has moved out by about a year in about seven months, while the company has been adding capacity.

It is adding a lot. Lumentum has increased production at its factory in the Tokyo area twelvefold over the past two years, the company said, and plans to invest at least $350m in that site and a neighbouring facility. It has also added capacity at its plant in Caswell, England, and a fabrication facility in Greensboro, North Carolina. Some of the bill is being shared. The large cloud computing companies have agreed to take on part of the capital expenditure risk, according to Yahoo Finance's account. "These hyperscalers are willing to put money behind it," Hurlston said.

The constraint is time. Building new production capacity takes three to five years for companies like Lumentum, according to Bloomberg. The second Yahoo Finance report put the time for new laser capacity at about three years, and said significant supply from the new facilities may not arrive until 2029 or 2030. Lumentum supplies indium phosphide devices used in high-speed cloud computing and data transmission. Its expertise traces back to its 2018 acquisition of Oclaro, which had taken on Hitachi's optical research legacy, and the company says its Sagamihara facility is one of the world's most advanced indium phosphide production sites. On 2 March Lumentum announced that Nvidia was investing $2bn in it, and Coherent announced a separate $2bn investment from Nvidia the same day.

Hurlston also said that widening the product range will require an acquisition. "I think probably in the next year, we'd like to add additional capability to what we currently have," he said, according to Bloomberg.

The shortage could get worse. If the US goes ahead with a reported ban on new Chinese optical transceiver models, Lumentum and Coherent would not be able to fill the gap left by Chinese manufacturers such as Innolight, Counterpoint Research said, according to Bloomberg. Komposite reported in September that the FCC's final equipment rule left the optical modules alone, for the time being.

Investors took the comments as good news for the whole group. Lumentum shares rose 3.8 per cent in premarket trading on Friday, the second Yahoo Finance report said. In an article published before the New York open, 24/7 Wall St put them at $1,117.71, up 7 per cent, with Applied Optoelectronics also up 7 per cent and Coherent 5 per cent, against a 0.36 per cent rise for the SPDR S&P 500 ETF. The optical stocks had slipped on profit-taking before Hurlston spoke, according to 24/7 Wall St. For the companies building AI data centres, the same remarks mean something else: the parts that link their processors are spoken for years ahead, and the wait is getting longer, not shorter.