Lumentum
LITE · NasdaqFuller 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.
FY2026, the fiscal year to Jun 27, 2026 · 10-K filed Aug 17, 2026
- Operating margin
- 17.4%
- Net income
- -$6.9B
- Free cash flow
- $300.1M
Largest source of revenue: Systems, 66.5% of the total.
Where Lumentum's money goes
- 01
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.
Why it matters
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.1
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.1
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.1
AnalysisMost 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.
- 02
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.
Why it matters
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.1
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.1
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.1
AnalysisA 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.
- 03
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.
Why it matters
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.1
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.1
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.1
AnalysisLow-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.
- 04
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.
Why it matters
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 FY2024.1
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.1
AnalysisThis 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.
Sources
- 1.Lumentum 10-K for the period to 2026-06-27 (the filing), Aug 17, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $769.9M in FY2013 to $3.0B in FY2026, the operating margin from 0.5% to 17.4%, over 13 years.
- Revenue$3.0B
- Operating income$524.8M
- Operating margin17.4%
- Period
- FY2026
- Revenue
- $3.0B
- Operating income
- $524.8M
- Operating margin
- 17.4%
- Net income
- -$6.9B
- Free cash flow
- $300.1M
Does the profit turn into cash?
FY2026: free cash flow of $300.1M against net income of -$6.9B.
- Operating cash flow$751.4M
- Capital expenditure$451.3M
- Free cash flow$300.1M
- Net income-$6.9B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Segments
Revenue Recognition - Total Net Revenue Attributable to Reportable Segments (Details). The filing restates this breakdown for 3 periods.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Segments
| Systems | $2.0B | 66.5% |
| Components | $1.0B | 33.5% |
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of sales | $1.7B | 55.8% | Source10-K, us-gaap:CostOfGoodsAndServiceExcludingDepreciationDepletionAndAmortization, as reported in the 10-K filed 2026-08-17 |
| Amortization of acquired developed intangibles | $77.6M | 2.6% | Source10-K, us-gaap:CostOfGoodsAndServicesSoldAmortization, as reported in the 10-K filed 2026-08-17 |
| Income (loss) from operations | $524.8M | 17.4% | Source10-K, us-gaap:OperatingIncomeLoss, as reported in the 10-K filed 2026-08-17 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
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.
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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.
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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.
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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.
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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.
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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.
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Customer A 26.6 % 15.4 % 18.9 %
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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.
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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.
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Customer B 15.0 % 16.0 % 11.4 %
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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.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement22 lines, as presented in the 10-K
Cash flow statement57 lines, as presented in the 10-K
Balance sheet32 lines, as presented in the 10-K
About this data
- Source
- Lumentum 10-K, accession 0001628280-26-057358, filed Aug 17, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Lumentum's model up, and what could bend it
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.
The detail
Components brought in $2,005.6 million of $3,014.0 million in net revenue. The filing says laser chip and laser assembly shipments drove most of their growth, for links inside and between data centers and for long-haul networks, with slightly higher laser chip prices as customers moved to faster lane speeds. Systems, the finished modules, switches and industrial lasers, brought in $1,008.4 million, with cloud transceiver volume up at lower average prices.1
The position rests on owned know-how and plants: about 1,000 U.S. and 900 foreign patents with 670 applications pending, R&D spending of $356.5 million, 11.8% of revenue, and its own wafer fabs and assembly sites in the United States, Thailand, China, the United Kingdom, Slovenia and Japan.1
AnalysisThe chip is the scarcer input, with fewer qualified makers than the finished module, which helps explain why chip prices edged up while transceiver prices fell. Supplying the chip lets the company take part in demand it does not win at the module level.
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.
The detail
The filing says that since network equipment makers normalized inventory, demand from AI and cloud customers has grown and now outpaces current supply, requiring decisions on supply allocation. The company is investing in capacity internally and with contract manufacturers, and began the first shipments of optical circuit switches during the year.1
AnalysisA sold-out supplier chooses its customers, terms and product priorities. The advantage lasts as long as capacity stays tighter than orders, which is the same condition that keeps the factories full and the margin high.
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 detail
Customer A took 26.6% of net revenue against 15.4% a year earlier; Customer B took 15.0% against 16.0%. The filing says many customers buy without volume or long-term purchase commitments and can cut, cancel or delay orders at short notice, and that some customers may develop and produce competing products for their own use.1
AnalysisConcentration rose with growth, so the margin gains depend on a few buyers' data center plans. A cut by one large customer would arrive as lower factory utilization, the same lever that lifted this year's margin.
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.
The detail
The filing says that through FY2024 customers delayed shipments and worked down inventory, and margins suffered because the company could not fully recover costs such as underutilized manufacturing capacity. It also warns that AI demand is new and changing fast, hard to forecast, and that costs incurred ahead of demand that does not arrive would hurt margins.1
Commitments have grown with the build-out. Capital spending was $451.3 million against $231.0 million a year earlier, and the filing notes that some purchase commitments with contract manufacturers cannot be cancelled and that unused allocated capacity can bring charges.1
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.
The detail
Lumentum stopped all shipments to Huawei, historically its largest networking customer in China, says it may never recover that demand, and is responding to subpoenas from the Bureau of Industry and Security and the Department of Justice about that business. China's export controls on rare earth metals and critical minerals, including indium, gallium and germanium, have affected availability and price.1
Many materials come from a limited number of often small suppliers, some of them sole sources, most without long-term agreements. Its own plants and contract manufacturers sit largely in Asia, and the filing names tariffs between the U.S. and China and Thailand as a cost the company may not be able to pass on.1
Sources
- 1.Lumentum 10-K for the period to 2026-06-27 (the filing), Aug 17, 2026, read Nov 2, 2026
Lumentum, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Lumentum's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the 41.7% gross margin depends on from here
Which conditions keep the factories full, what a slower AI build-out would do to the factory lever, and how the remaining convertible notes could still move reported earnings.
- How much rides on the largest customers
How a rising share for one buyer changes the risk in the revenue line, and which signals in the filing show whether orders and allocation are holding.
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Have a question about Lumentum?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Lumentum's gross margin gain came from fuller factories rather than product mix?
- Why did Lumentum report a $6,935.1 million net loss in a year its income from operations was $524.8 million?
- What would happen to Lumentum's margins if its largest customer, at 26.6% of revenue, cut orders?
Business Lens describes Lumentum from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.