# How Lumentum makes money

CXProWealth Business Lens · Lumentum (LITE) · FY2026

Read from the 10-K for the period 2025-06-29 to 2026-06-27, filed 2026-08-17 with the SEC (accession 0001628280-26-057358): https://www.sec.gov/Archives/edgar/data/1633978/000162828026057358/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $3.0B (+83.2% on the year)
- Operating income: $524.8M (operating margin 17.4%)
- Net income: -$6.9B (net margin -230.1%)
- Gross margin: 41.7%
- Free cash flow: $300.1M (10.0% of revenue)
- Cash conversion (operating cash flow / net income): -0.11x
- Capital expenditure: 15.0% of revenue

## Where the money goes (FY2026)

- Components → Net revenue: $1.0B
- Systems → Net revenue: $2.0B
- Net revenue → Cost of sales: $1.7B
- Net revenue → Amortization of acquired developed intangibles: $77.6M
- Net revenue → Gross profit: $1.3B
- Gross profit → Total operating expenses: $731.1M
- Total operating expenses → Selling, general and administrative: $363.2M
- Total operating expenses → Research and development: $356.5M
- Total operating expenses → Restructuring and related charges: $11.4M
- Gross profit → Income (loss) from operations: $524.8M
- Income (loss) from operations → Total other (expense) income, net: $524.8M
- Total other (expense) income, net → Loss on debt extinguishment: $7.8B
- Total other (expense) income, net → Interest expense: $21.8M
- Escrow settlement → Total other (expense) income, net: $27.5M
- Other income, net → Total other (expense) income, net: $53.3M
- Net loss → Total other (expense) income, net: $6.9B
- Income tax (benefit) provision → Total other (expense) income, net: $237.7M

## Where the revenue comes from

### Segments (Revenue Recognition - Total Net Revenue Attributable to Reportable Segments (Details))

| Member | Value | Share |
|---|---:|---:|
| Systems | $2.0B | 66.5% |
| Components | $1.0B | 33.5% |

The members sum to total revenue.

## Income statement, as filed

| Line | FY2026 | Of revenue |
|---|---:|---:|
| Net revenue | $3.0B | 100% |
| Cost of sales | $1.7B | 55.8% |
| Amortization of acquired developed intangibles | $77.6M | 2.6% |
| **Gross profit** | $1.3B | 41.7% |
| Research and development | $356.5M | 11.8% |
| Selling, general and administrative | $363.2M | 12.1% |
| Restructuring and related charges | $11.4M | 0.4% |
| Gain on sale of facility | ($0) | 0.0% |
| **Total operating expenses** | $731.1M | 24.3% |
| **Income (loss) from operations** | $524.8M | 17.4% |
| Loss on debt extinguishment | -$7.8B | 257.4% |
| Escrow settlement | $27.5M | 0.9% |
| Interest expense | ($21.8M) | 0.7% |
| Other income, net | $53.3M | 1.8% |
| **Total other (expense) income, net** | -$7.7B | 255.4% |
| **Loss before income taxes** | -$7.2B | 238.0% |
| Income tax (benefit) provision | -$237.7M | 7.9% |
| **Net (loss) income** | -$6.9B | 230.1% |
| Basic (in dollars per share) | -$93 | 0.0% |
| Diluted (in dollars per share) | -$93 | 0.0% |
| Basic (in shares) | 74,600,000 |  |
| Diluted (in shares) | 74,600,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2013 | $769.9M | $3.9M | $6.5M | $54.9M | $31.9M | $23.0M |
| FY2014 | $817.9M | $8.7M | $10.7M | $62.8M | $64.2M | -$1.4M |
| FY2015 | $837.1M | -$23.4M | -$3.4M | $9.4M | $53.7M | -$44.3M |
| FY2016 | $903.0M | $11.5M | $9.3M | $86.6M | $82.0M | $4.6M |
| FY2017 | $1.0B | $47.6M | -$102.5M | $85.0M | $138.1M | -$53.1M |
| FY2018 | $1.2B | $139.9M | $248.1M | $247.5M | $93.2M | $154.3M |
| FY2019 | $1.6B | -$21.6M | -$36.4M | $330.1M | $166.0M | $164.1M |
| FY2020 | $1.7B | $204.1M | $135.5M | $524.3M | $86.0M | $438.3M |
| FY2021 | $1.7B | $527.0M | $397.3M | $738.7M | $84.8M | $653.9M |
| FY2022 | $1.7B | $303.3M | $198.9M | $459.3M | $91.2M | $368.1M |
| FY2023 | $1.8B | -$115.7M | -$131.6M | $179.8M | $128.5M | $51.3M |
| FY2024 | $1.4B | -$434.0M | -$546.5M | $24.7M | $133.0M | -$108.3M |
| FY2025 | $1.6B | -$180.1M | $25.9M | $126.3M | $231.0M | -$104.7M |
| FY2026 | $3.0B | $524.8M | -$6.9B | $751.4M | $451.3M | $300.1M |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +83.2% (year before +21.0%): accelerating
- Operating income: -191.4% (year before —): too short a history to read
- Net income: -26,876.4% (year before +95.3%): slowing
- Free cash flow: -186.6% (year before —): too short a history to read

## Operating figures stated in the filing

- Full-time employees: 13,757 employees (as of 2026-06-27). "As of June 27, 2026, we employed approximately 13,757 full-time employees, including approximately 11,916 employees in manufacturing, 1,085 employees in R&D and 756 employees in SG&A." (Item 1. BUSINESS)
- Employees in manufacturing: 11,916 employees (as of 2026-06-27). "As of June 27, 2026, we employed approximately 13,757 full-time employees, including approximately 11,916 employees in manufacturing, 1,085 employees in R&D and 756 employees in SG&A." (Item 1. BUSINESS)
- Employees in R&D: 1,085 employees (as of 2026-06-27). "As of June 27, 2026, we employed approximately 13,757 full-time employees, including approximately 11,916 employees in manufacturing, 1,085 employees in R&D and 756 employees in SG&A." (Item 1. BUSINESS)
- Employees in SG&A: 756 employees (as of 2026-06-27). "As of June 27, 2026, we employed approximately 13,757 full-time employees, including approximately 11,916 employees in manufacturing, 1,085 employees in R&D and 756 employees in SG&A." (Item 1. BUSINESS)
- Largest end customer (Customer A), share of net revenue: 26.6% (as of 2026-06-27). "Customer A 26.6 % 15.4 % 18.9 %" (Item 1. BUSINESS)
- Largest end customer (Customer A), share of net revenue: 15.4% (as of 2025-06-28). "Customer A 26.6 % 15.4 % 18.9 %" (Item 1. BUSINESS)
- Second end customer (Customer B), share of net revenue: 15.0% (as of 2026-06-27). "Customer B 15.0 % 16.0 % 11.4 %" (Item 1. BUSINESS)
- Second end customer (Customer B), share of net revenue: 16.0% (as of 2025-06-28). "Customer B 15.0 % 16.0 % 11.4 %" (Item 1. BUSINESS)
- Net revenue shipped outside the United States: 79.2% (as of 2026-06-27). "During fiscal years 2026, 2025 and 2024, net revenue from customers outside the United States based on the geographic region and country where our product is initially shipped to represented 79.2%, 81.0% and 73.8% of net revenue, respectively." (Item 1. BUSINESS)
- Net revenue shipped outside the United States: 81.0% (as of 2025-06-28). "During fiscal years 2026, 2025 and 2024, net revenue from customers outside the United States based on the geographic region and country where our product is initially shipped to represented 79.2%, 81.0% and 73.8% of net revenue, respectively." (Item 1. BUSINESS)
- U.S. patents owned: 1,000 patents (as of 2026-06-27). "As of June 27, 2026, we owned approximately 1,000 U.S. patents and 900 foreign patents with expiration dates through 2046 and had approximately 670 patent applications pending throughout the world." (Item 1. BUSINESS)
- Foreign patents owned: 900 patents (as of 2026-06-27). "As of June 27, 2026, we owned approximately 1,000 U.S. patents and 900 foreign patents with expiration dates through 2046 and had approximately 670 patent applications pending throughout the world." (Item 1. BUSINESS)
- Patent applications pending: 670 applications (as of 2026-06-27). "As of June 27, 2026, we owned approximately 1,000 U.S. patents and 900 foreign patents with expiration dates through 2046 and had approximately 670 patent applications pending throughout the world." (Item 1. BUSINESS)
- Employees represented by collective bargaining agreements or unions: 1.0% (as of 2026-06-27). "Of the 13,757 employees, approximately 1% are represented by two national collective bargaining agreements with local chapters in Slovenia and two labor unions in China." (Item 1. BUSINESS)

## Key insights

### Fuller factories lifted gross margin to 41.7% from 28.0%

Cost of sales fell to 55.8% of revenue from 67.0%, which the filing credits mainly to higher utilization of the company's own factories.

Gross profit was $1,255.9 million on net revenue of $3,014.0 million, against $459.9 million on $1,645.0 million a year earlier. The filing attributes most of the gain to lower manufacturing costs as a share of revenue, "primarily due to higher internal factory utilization", a smaller part to a shift toward higher-margin products, and the rest to lower amortization of acquired intangibles, which fell to $77.6 million from $82.2 million. _(from the filing)_
The margin climbed through the year. Quarterly gross profit rose from $181.5 million on $533.8 million of revenue in the first quarter to $240.1 million, then $357.0 million, then $477.3 million on $1,006.3 million in the fourth, when it reached 47.4% of revenue. _(from the filing)_
The same lever ran the other way two years earlier. In FY2024 gross profit was $251.5 million on $1,359.2 million of revenue, 18.5%, when, by the filing's account, customers worked down inventory and the company could not fully recover the cost of underused plants. The full-year 41.7% is still below FY2022, when gross profit was $788.6 million on $1,712.6 million of revenue; the fourth quarter of FY2026, at 47.4%, went above that level. _(from the filing)_
Most of the workforce is on the factory floor, so the cost base is largely plant and people that do not shrink with volume. That is why swings in revenue show up magnified in gross margin, in both directions, and why price alone explains little of this year's gain. _(analysis)_

### The final quarter earned over half the year's operating profit

Fourth-quarter income from operations was $279.3 million on 33.4% of annual revenue, so the full-year 17.4% margin blends a weak start with a strong close.

Quarterly revenue rose each quarter, from $533.8 million in the first quarter to $665.5 million, $808.4 million and $1,006.3 million. Income from operations rose faster: $6.7 million, then $64.3 million, $174.5 million and $279.3 million. The fourth quarter, derived from the annual total less the first three quarters, turned 27.8% of revenue into operating income, against a loss of $8.4 million on $480.7 million of revenue a year earlier. _(from the filing)_
Operating costs explain the widening gap. For the year, total operating expenses rose 14.2% to $731.1 million while revenue rose 83.2%, so they fell to 24.3% of revenue from 38.9%. R&D rose to $356.5 million from $303.9 million and SG&A to $363.2 million from $348.2 million; the filing says much of the increase was cash incentive pay tied to higher revenue and profit, after a mostly equity-based plan the year before. _(from the filing)_
Full-year income from operations of $524.8 million was close to FY2021's $527.0 million, but on $3,014.0 million of revenue against $1,742.8 million. The FY2021 operating margin was 30.2%, against 17.4% for FY2026 as a whole and 27.8% in its fourth quarter. _(from the filing)_
A single quarter is a short base. The fourth quarter combines the fullest factories of the year with the latest prices and product mix, so it describes where the business stood at year end rather than a settled level. The filing itself expects gross and operating margins to vary with demand, mix and price competition. _(analysis)_

### Convertible note exchanges, not operations, produced the $6,935.1 million net loss

The $7,756.6 million loss on debt extinguishment dwarfed $524.8 million of income from operations, while cash from operations reached $751.4 million.

In the fourth quarter Lumentum issued common stock to holders of several series of its convertible notes in privately negotiated exchanges. With its share price far above the notes' conversion prices, the conversion value above principal was booked as a $7,756.6 million loss on debt extinguishment, 257.4% of revenue. _(from the filing)_
That loss turned $524.8 million of income from operations into a loss before income taxes of $7,172.8 million and, after a tax benefit of $237.7 million, a net loss of $6,935.1 million, or $92.96 per share, against net income of $25.9 million a year earlier. Diluted shares rose to 74.6 million from 69.6 million. _(from the filing)_
The cash cost of the notes had been small: interest expense was $21.8 million, 0.7% of revenue, against $22.2 million a year earlier. The filing reports that all outstanding notes remained convertible at holders' option after year end, with principal settled in cash and any value above principal in cash, shares or both, at the company's election. _(from the filing)_
Low-coupon convertibles were cheap in cash and became costly in ownership as the business recovered. This year net income is a poor guide to operations; income from operations and cash from operations are closer to it. Until the remaining notes are settled, further early conversions at a high share price could bring more accounting losses, more dilution or more cash use. _(analysis)_

### Capital spending nearly doubled and still fit inside operating cash

Capital spending of $451.3 million was 60.1% of cash from operations; a year earlier, $231.0 million of spending exceeded operating cash of $126.3 million.

Capital spending rose to $451.3 million, 15.0% of revenue, from $231.0 million. Cash from operations rose to $751.4 million from $126.3 million, so free cash flow turned to $300.1 million, 10.0% of revenue, from negative $104.7 million in FY2025 and negative $108.3 million in FY2024. _(from the filing)_
The filing ties the spending to demand: AI and cloud demand "is outpacing our current supply which has required us to make decisions on supply allocation." The company is adding capacity both internally and with contract manufacturers, and during the year acquired a manufacturing facility in Greensboro, North Carolina. _(from the filing)_
This year the build-out was covered by the cash the fuller factories produced. The company also raised capital through new convertible notes and preferred stock, which the filing reports separately in financing. The balance holds while plants run full; the same capacity becomes a fixed cost to carry if orders slow. _(analysis)_

### Competitive edge

- **It sells the laser chip inside other makers' modules** Components, mostly laser chips and assemblies built into other companies' products, were 66.5% of net revenue, and some of those buyers are also competitors.
- **Demand ahead of supply lets Lumentum allocate its output** The filing says AI and cloud demand is outpacing supply and requires allocation decisions, giving the company a say over which orders ship first.

### What to watch

- **One customer now takes 26.6% of revenue** Customer A rose to 26.6% of net revenue from 15.4%, and most customers buy on purchase orders without volume or long-term commitments.
- **The factory lever cuts both ways** In FY2024, with customers working down inventory, revenue of $1,359.2 million produced an operating loss of $434.0 million, 31.9% of revenue.
- **Trade rules reach both its customers and its materials** With 79.2% of net revenue shipped outside the United States, tariffs, export controls and China's limits on critical minerals touch both sales and supply.

## Investor view

**Fuller factories lifted Lumentum's gross margin to 41.7%, while a convertible note exchange turned the year into a net loss**

### How it makes money

Lumentum makes lasers and optical parts that move data as light. It sells two kinds of product. Components are building blocks other companies put into their own equipment: laser chips, laser sub-assemblies, line subsystems and wavelength management systems. Systems are finished products: optical transceiver modules, optical circuit switches and industrial lasers. In FY2026 Components brought in $2,005.6 million and Systems $1,008.4 million of $3,014.0 million in net revenue. _(from the filing)_
The buyers are cloud data center operators, AI infrastructure providers and network equipment makers, with industrial laser and consumer electronics customers alongside. Two end customers carry much of the business: Customer A was 26.6% of net revenue and Customer B 15.0%. Most product ships abroad, 79.2% of net revenue by first shipping location, often to contract manufacturers' factories rather than to the customer's headquarters. The filing notes that some competitors are also customers. _(from the filing)_
Lumentum makes much of what it sells in its own wafer fabs and assembly and test sites in the United States, Thailand, China, the United Kingdom, Slovenia and Japan, and uses contract manufacturers mainly in Thailand, Taiwan, Malaysia and the Philippines. Of 13,757 full-time employees, 11,916 work in manufacturing, 1,085 in R&D and 756 in SG&A. Revenue is recognized when product ships, and the filing calls backlog a poor guide because many orders ship in the quarter they arrive. _(from the filing)_
The economics rest on owning the hardest part of an optical link, the laser chip, and the plant that makes it. A fab costs about the same to run half empty as full, so profit depends less on price than on how much volume passes through it. The company also sells the finished module, which captures more of each link but at prices the filing says are falling. The business is a bet on running a fixed, specialized factory base close to full. _(analysis)_

### What shifted

Net revenue rose to $3,014.0 million from $1,645.0 million, and both product lines grew. In Components, the filing credits shipments of laser chips and laser assemblies for links inside and between data centers and for long-haul networks, plus slightly higher laser chip prices as customers moved to faster lane speeds. In Systems, cloud transceiver volume rose at lower average prices, and the first optical circuit switches shipped. Customer A rose to 26.6% of net revenue from 15.4%. _(from the filing)_
Cost of sales fell to 55.8% of revenue from 67.0%. The filing attributes most of the gross margin gain to lower manufacturing costs as a share of revenue, "primarily due to higher internal factory utilization", a smaller part to a mix shift toward higher-margin products, and the rest to lower amortization of acquired intangibles, which fell to $77.6 million from $82.2 million. _(from the filing)_
Operating costs grew far more slowly than sales. Total operating expenses rose 14.2% to $731.1 million: R&D to $356.5 million from $303.9 million, SG&A to $363.2 million from $348.2 million. The filing says much of the increase was cash incentive pay tied to higher revenue and profit, after a mostly equity-based plan the year before. Operating expenses fell to 24.3% of revenue from 38.9%. _(from the filing)_
In the fourth quarter Lumentum exchanged several series of convertible notes for common stock. With its share price far above the notes' conversion prices, the conversion value above principal was booked as a $7,756.6 million loss on debt extinguishment. That turned $524.8 million of income from operations into a net loss of $6,935.1 million, or $92.96 per share. The loss used no cash: cash from operations was $751.4 million. _(from the filing)_
The year accelerated into its close. Fourth-quarter revenue was $1,006.3 million against $480.7 million a year earlier. Fourth-quarter gross profit was $477.3 million, 47.4% of revenue, above the 41.7% for the full year, and income from operations was $279.3 million, 27.8% of revenue, against a loss of $8.4 million in the same quarter a year before. _(from the filing)_

### Risks in the filing

Customers: a small number of buyers account for a large share of sales, most without volume or long-term purchase commitments, and they can cut, cancel or delay orders at short notice. The filing says AI demand is new and evolving fast, so its timing and size are hard to forecast, and costs incurred ahead of demand that does not arrive would hurt margins. _(from the filing)_
Supply and trade: many materials come from a limited number of often small suppliers, some of them sole sources, and most without long-term agreements. China's export controls on rare earth metals and critical minerals, including indium, gallium and germanium, have already affected availability and price. Tariffs and trade restrictions, including between the U.S. and China and Thailand, could raise costs that the company may not pass on. _(from the filing)_
Export controls: Lumentum stopped all shipments to Huawei, historically its largest networking customer in China, and says it may never recover that demand. It received subpoenas from the Bureau of Industry and Security and the Department of Justice about its past Huawei business and is cooperating. Further restrictions could extend to other customers. _(from the filing)_
Capacity and competition: the company may fail to scale supply when demand exceeds forecasts, losing share to competitors, or may overbuild and carry underused plants and non-cancellable purchase commitments. Manufacturing is complex and yields have at times fallen short. Optical communications products are commoditizing, with Asia-based entrants adding price pressure, and the convertible notes carry dilution risk for shareholders. _(from the filing)_
Two of these risks are already visible in the year's numbers rather than hypothetical. Concentration rose, with the largest customer taking a much larger share of revenue than a year earlier. The capacity bet is under way, with capital spending far above the prior year. The pricing pressure the filing describes shows up too, in the lower average prices on cloud transceivers. _(analysis)_

## Founder view: mechanisms

### Full factories carry the margin

A wafer fab and its test lines are mostly fixed cost: clean rooms, equipment depreciation, process engineers. Each extra wafer adds little cost, so gross margin moves with how full the plant runs, far more than with price. Because Lumentum makes its own laser chips, it holds this lever in both directions: losses when volume falls, steep gains when it fills. _(analysis)_

### Own the scarce part inside everyone's product

Lumentum sells the laser chips that go inside other makers' transceivers, competitors included, and also sells finished transceivers of its own. Supplying the scarce input to the whole market means it earns on the build-out whichever module wins, while its own modules capture more value per link. The chip, with few qualified makers, holds price better than the module, which faces more rivals. _(analysis)_

### Sell out, then fund capacity from the cash

When demand outruns supply, the seller decides who gets product. That supports price, lets the company choose customers and terms, and a full plant throws off the cash that pays for the next one. The trade-off is timing: capacity is committed when demand looks strongest, and the plant arrives after the commitment cannot be undone. _(analysis)_

### Cheap convertible debt gets expensive when it works

Convertible notes pay a low coupon because holders get the right to swap into shares. If the share price rises far above the conversion price, the company pays mostly in dilution, and an early exchange books the value above principal as an accounting loss. The cash cost was small; the ownership cost arrived with success. _(analysis)_

## Member research

Signed-in members read, on the page: what Lumentum's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Lumentum 10-K for the period to 2026-06-27: https://www.sec.gov/Archives/edgar/data/1633978/000162828026057358/ (2026-08-17)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02