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Sunday, May 26, 2024

Lumentum Acquires Cloud Light for Data Center Growth

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Acquisition expected to be immediately accretive to non-GAAP earnings per share and more than double Lumentum’s cloud intra-data center infrastructure revenue in the 12 months following the transaction close

Lumentum Holdings Inc. and Cloud Light Technology Limited announced that they have entered into a definitive agreement under which Lumentum will acquire Cloud Light with a transaction value of approximately $750 million, subject to certain adjustments. At closing, transaction consideration will be paid in cash and the assumption and substitution of outstanding unvested Cloud Light options. The transaction has been unanimously approved by the Boards of Directors of both companies and by Cloud Light’s shareholders.

The acquisition of Cloud Light is expected to accelerate Lumentum’s push into the fastest-growing segments of the multibillion-dollar opportunity for optical modules used in cloud computing data center infrastructure. Cloud Light has a demonstrated track record of developing and manufacturing the highest-speed connectivity solutions at the leading edge of new and rapidly growing technology transitions. Nearly all of Cloud Light’s more than $200M revenue in the last 12 months was derived from 400G or higher speed transceiver sales. Over half of Cloud Light’s optical transceiver revenue was derived from 800G modules in the most recent quarter.

With this acquisition, Lumentum will be well-positioned to serve the growing needs of cloud and networking customers, particularly those focused on optimizing their data center infrastructure for the demands of AI/ML. Lumentum will be able to deliver immediate customer value with a more comprehensive product and technology portfolio, enabling customers to more effectively manage the escalating compute and interconnect requirements of AI workloads. The combination also brings best-in-class design and assembly, test, and packaging capabilities together with Lumentum’s global scale and customer reach.

“With Cloud Light, we are making a strategic investment to significantly expand our opportunities in the cloud data center and networking infrastructure space,” said Lumentum president and CEO Alan Lowe. “Cloud Light provides us with the highest speed transceiver solutions at scale and complements our advanced component capabilities. This results in a broad product and technology portfolio that addresses a wide range of cloud operator needs.”

“We are confident that this transaction will deliver substantial, long-term value to our stockholders, with immediate earnings accretion and accelerated revenue growth. We look forward to welcoming Cloud Light’s very talented team to Lumentum,” concluded Mr. Lowe.

“Today’s announcement is a pivotal milestone in the history of Cloud Light, and a testament to the hard work and dedication of our employees,” said Dr. Dennis Tong, Cloud Light Founder and CEO. “We founded the company with a vision that our deep expertise in high-volume precision manufacturing would result in a superior value proposition for cloud data center customers. Having worked closely with the technology teams within leading cloud operators, we believe we can build upon our success to date and further accelerate cloud data center growth by combining Lumentum’s advanced photonic integration and transmission technologies with our highly automated packaging and manufacturing processes. We look forward to joining the Lumentum team and beginning an exciting new chapter.”

Compelling Strategic and Financial Benefits

  • Captures AI inflection with expanded intra-data center opportunity: The highly complementary combination squarely positions Lumentum as a leader in providing photonics to cloud operators, enabling more than a five-fold expansion in the company’s served opportunity inside of data centers. With the advent of generative AI, cloud network needs for 400G and higher speed optical transceivers have accelerated rapidly, with the opportunity for these intra-data center products anticipated to grow at a 30% CAGR and exceed $10B by 2028. Cloud Light provides the highest speed optical transceiver products to leading hyperscale cloud customers, with even higher-speed solutions well along in their development, complementing Lumentum’s existing portfolio of laser transmitters and other integrated components for data center transceivers.
  • Better equipped to address future customer roadmaps: AI models are driving an exponential increase in compute requirements, where performance is now doubling every 3 to 4 months, compared to the historical doubling every two years according to Moore’s Law. Scaling workloads even higher is limited by existing network and interconnect bottlenecks. With the addition of Cloud Light, Lumentum better addresses these challenges – both now and into the future – by combining advanced optical interconnect technologies based on chip-scale photonic integration, together with highly automated packaging and manufacturing technologies.
  • More strategic partner to cloud and AI infrastructure customers: With Cloud Light, Lumentum can more effectively address the growing and diverse needs of cloud operator and AI infrastructure providers. This includes providing next-generation optical connectivity and optical switching within data centers, as well as coherent pluggable modules and optical line system components for data center interconnect applications. With Lumentum’s vertical integration capabilities in components and diversity in its global manufacturing footprint, customers can benefit from improved security of supply and superior technology and cost roadmaps.
  • Amplifies edge and metro networking opportunities: Cloud Light’s proven capabilities in low-cost product development and high-volume manufacturing are relevant not only for cloud data center and data center interconnect solutions, but also for network edge applications, including those served by direct detect and coherent tunable DWDM transceivers. A broader set of networking customers will benefit from the added advanced packaging technologies and manufacturing capabilities offered by this combination.
  • Immediately accretive to Lumentum’s earnings and accelerates Lumentum growth: The transaction is expected to be immediately accretive to Lumentum’s non-GAAP earnings per share and is expected to more than double Lumentum’s cloud data center infrastructure revenue in the 12-month period following the transaction close. In the last twelve months, over 90 percent of Cloud Light’s revenue was derived from 400G and higher speed products, and in their most recent quarter, over half of Cloud Light’s optical transceiver revenue was derived from 800G transceiver products.

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