Lumentum Holdings Inc. (0JVV.L)

Copy and Paste from SeekingAlpha:

Note the main reason that LITE is acquiring NPTN is that their own coherent module developments were failing. Among other things, LITE’s product management went with the NEL DSP for 400 ZR/ZR+ instead of the IPHI DSP that NPTN used. Thus it was easier to buy NPTN to participate in the pluggable optics market vs. a renewed development from scratch. People associated with the failed LITE efforts have left the company….
Me again:
They are doubling down on Data Center which I think is growing faster than any other part of the laser market. I think 3D sensing will be big also. But not in the way I thought. It’s going to be used in virtual headsets among other things. The phone business flattened out. I think 2023 will be a huge year. They will start saving on synergies because of the NPTN merger. Automotive and Lidar and hopefully VR might take off then also. This so reminds of the OCLR merger. OCLR was bought out at a cheap price also. They were profitable unlike NPTN but realized the only way to compete was being part of a much larger company. NPTN has greatly increased their revenues but not profitability. They are also to concentrated in just several companies. OCLR had the same problem. The concentration and lack of profitability will go away after the merger eventually.

I am thinking now that the NPTN transaction was more important than I thought. I think it’s going to have an immediate impact on Lite. They probably will hit the ground running as soon as the transaction closes. The structure of the integration has probably been figured out already. Lite already loaned them 30 million dollars so they are intimately familiar with the company. OCLR made an instant impact albeit they had slightly more revenue and were profitable already. However, NPTN’s revenues have basically doubled in a little over one year. 900 million for NPTN is a good deal for them and Lite. There will be synergies of course just like OCLR. Just not as much because NPTN is a smaller company than OCLR was. I feel there is nothing left to buy after this transaction closes. The only small company left that I can think of is AAOI which is all legacy and know one will touch them. They are running out of cash also. LITE got OCLR’s cash which was significant at the time. That’s not going to be the case with NPTN. OCLR had very high margins that produced a lot of cash. They just had trouble growing as a stand alone company. NPTN’s revenues have grown significantly since Lite made that buyout offer. The 30 million dollar loan had something to do with that for sure. However, they are getting a bigger company than they paid for.

Here are a few ideas not related to point & figure charts that I think we can all agree on:

1) Analysts have very little credibility
2) Much of the movement of an individual stock price is driven by the movement of the overall market and the sector
3) It helps to think more market neutral than fall in love with a bullish or bearish narrative
4) Thinking about ideas like I listed in my previous post helps frame the problem of how you should be positioned in an individual stock. I don't know the answers but I do know the questions I'd be asking management during the conference call.

It would be great to get some good discussion going prior to the conference call next week.

Just read their August earnings transcript here:
My takeaways are the company is the leader in their various markets, especially 3D sensing where they are by far the largest vendor with the highest quality and the ONLY company able to scale with no quality issues. They are growing strongly in 5G and data center and currently have a $150M backlog which will take at least 3 quarters to meet because new orders keep coming in. Margins are improving and with the new Iphone coming soon with world-facing 3D sensing camera, both sales/margins should remain strong going forward. Company has net cash position with no debt due in the next few years, which gives them flexibility.
Unlike competitors, they are having to add capacity to keep up with strong demand. They have been investing heavily in R&D, which will allow them to release great new tech and expect to maintain the lead in their data/vcsel chips for foreseeable future. Even with the COVID-related headwinds and Huawei ban, their sales/eps/margins are still growing nicely.