Lumentum, the optical module giant: Able to sell out all production capacity for the next three years in just two quarters.

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The demand for optical interconnection brought by AI data centers is pushing upstream production capacity to its limits. Lumentum, the global leader in optoelectronic devices, stated that large American tech companies are accelerating their procurement of optical components, and the company may sell out its entire production capacity up to 2028 within the next two quarters.

According to Bloomberg, Lumentum CEO Michael Hurlston said in an interview in Tokyo on Friday that the capital expenditure scale of US hyperscale cloud companies is "huge and shows no signs of slowing down," and the company is "increasingly unable to keep pace with demand. In just two quarters, we may sell out all our capacity through 2028."

This statement pushes the company's previous disclosure of "sold out at least until the end of 2027" even further into the future, and reinforces market expectations for the resilience of demand for AI data center construction, even as the Iran war disrupts the oil market and impacts the global economy.

The market reacted quickly. The company’s stock price rose as much as 7.6% in US pre-market trading, and its remarks boosted competitor Coherent as well. Last month, both companies received $2 billion investments from Nvidia, with Nvidia also securing procurement agreements and related rights for advanced laser components.

Orders booked through 2028, even twelvefold capacity expansion can't meet demand

Hurlston’s latest assessment centers on the "locking in" of order visibility. He said the company’s concept of "sold out" refers to non-cancellable agreements, making the extension of the order coverage period directly meaningful for revenue certainty.

In his view, this AI-driven cycle cannot last forever, but has some sustainability for "at least five years." For investors, this statement shifts market attention from short-term fluctuations to longer-term supply-demand gaps and delivery capability.

To keep up with demand, Lumentum has increased the capacity of key factories in the Tokyo metropolitan area to twelve times the original in the past two years.

The company plans to invest at least $100 million in this base and neighboring facilities, and Hurlston stated that the investment "could rise to $250 million."

He emphasized that the industry bottleneck is moving upstream to the optoelectronic device segment, and pressure comes from customers’ frequent inquiries about delivery schedules, including "how much can be produced this quarter, next quarter, and the quarter after."

Japanese supply chain is key: Offshoring is unfeasible, seeking new factory sites

Lumentum’s Sagamihara factory is called one of the world’s most advanced indium phosphide device production bases, able to provide stable and high-quality output.

However, space for new equipment in Sagamihara and the neighboring Takao plant area is limited. The company is looking for new sites in Japan for expansion, targeting old, convertible electronics manufacturing facilities to shorten the lead time for new capacity.

He also said that moving production out of Japan is not feasible, since indium phosphide manufacturing requires precise control over variables like temperature, humidity, mixing speed, and water quality, and the surrounding materials and process supplier network is vital.

The company has signed a seven-year arrangement with a Japanese supplier, which Hurlston called "very critical."

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