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Lumentum Holdings Inc (NASDAQ:LITE) Bloodies Apple Supply Chain With New Guidance

Lumentum Holdings Inc (NASDAQ:LITE) lowered second quarter guidance significantly this morning.

That’s perhaps the most well-known fact right now in the stock market when it comes to “top news this week”. In short, it didn’t fly under the radar. More specifically, the reason this news from this relatively small Milpitas company made such waves in the tech sector is this very straightforward statement: “We recently received a request from one of our largest Industrial and Consumer customers for laser diodes for 3D sensing to materially reduce shipments to them during our fiscal second quarter for previously placed orders that were originally scheduled for delivery during the quarter.”

Lumentum Holdings Inc (NASDAQ:LITE) frames itself as a company that manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa.

More importantly, 30% of the company’s business comes from one customer: Apple, Inc. (AAPL). In other words, this guidance was a warning shot about how reliable AAPL’s guidance was 10 days ago when the company told us how it thought its earnings might go in Q4.

Further to the point, as we discussed in our recent piece on the evolution of AAPL going forward – moving away from the device strategy and into the cloud services space (where the company could find much, much higher margins and price-sales multiples) – this could shift expectations about the larger device cycle and reduce expectations far wider than just AAPL and LITE.

Lumentum is the primary supplier for vertical-cavity surface-emitting lasers (VCSELs), which enable 3D sensing (Face ID) technology in the iPhone.

Lumentum’s warning jives with what the Nikkei reported one week ago — namely, that Apple had recently cut orders for the iPhone XR and increased orders for the iPhone 8 and 8 Plus. The iPhone XR is Apple’s newest lower-cost offering that incorporates Face ID technology while the iPhone 8/8+ are last year’s cheaper models, and they lack the 3D sensing/Face ID capability.

Recall that Apple offered soft guidance for the holiday quarter on November 1 while announcing that it will no longer disclose product shipment disclosures going forward. Apple is using higher priced iPhones to drive growth in a saturated smartphone market in which the replacement cycle is getting longer. One analyst suggested that Apple’s December quarter guidance implied that unit shipments will be down 5-10% year/year.

Lumentum’s warning comes less than two weeks after the company reported first-quarter results and offered guidance for the second quarter.


Top Down

Lumentum Holdings Inc (NASDAQ:LITE) frames itself as a company that manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa.

The company operates through two segments, Optical Communications and Commercial Lasers. The Optical Communications segment offers components, modules, and subsystems that enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables.

It offers tunable transponders, transceivers, and transmitter modules; tunable lasers, receivers, and modulators; transport products, such as reconfigurable optical add/drop multiplexers, amplifiers, and optical channel monitors, as well as components, including 980nm, multi-mode, and Raman pumps; and switches, attenuators, photodetectors, gain flattening filters, isolators, wavelength-division multiplexing filters, arrayed waveguide gratings, multiplex/de-multiplexers, and integrated passive modules.

This segment also provides Super Transport Blade, which integrates optical transport functions into a single-slot blade; optical transceivers for fiber channel and Ethernet applications; integrated fiber optic transceivers; vertical-cavity surface-emitting lasers; distributed feedback and electro-absorption modulated lasers; and laser illumination sources for 3D sensing systems.

It serves customers in telecommunications, data communications, and consumer and industrial markets. The Commercial Lasers segment offers diode-pumped solid-state, fiber, diode, direct-diode, and gas lasers for use in original equipment manufacturer applications. It serves customers in markets and applications, such as sheet metal processing, general manufacturing, biotechnology, graphics and imaging, and remote sensing, as well as in precision machining, such as drilling in printed circuit boards, wafer singulation, glass cutting, and solar cell scribing.

Lumentum Holdings Inc (NASDAQ:LITE) managed to rope in revenues totaling $354.1M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 45.6%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($734.3M against $213.9M).

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