The Loup Frontier Tech Index tracks the performance of publicly-traded companies that influence the future of technology including AI, robotics, autonomous vehicles, computer perception, and virtual and augmented reality. We will be publishing periodic pieces, to highlight specific companies in the index and their impact on frontier tech.
Augmented reality will change the way we interact with the real world. One of the core technologies behind augmented reality is the vertical-cavity-surface-emitting-laser (VCSEL) array, which enables 3D sensing in smartphones and other wearables. Lumentum (LITE) is the world’s leading VCSEL supplier. Given the company’s leadership with key augmented reality players, we are upbeat about their long-term outlook.
Lumentum’s largest VCSEL customer is Apple. Lumentum supplies Apple with ~75% of the company’s VCSELs, which is a key component going into the technology within the notch on the face of the iPhone X, Xs, Xs Max, and Xr. Today, 3D sensing is limited to the face of the smartphone. We believe, in order to create truly compelling AR experiences, VCSELs need to be put on the world-facing (back) side of the phone. While we are hopeful world-facing VCSELs will be integrated into Apple’s 2019 new iPhones, we are expecting this to be a key feature in 2020. Until then, we expect all new iPhones and some iPads to incorporate this technology, resulting in a material revenue catalyst for Lumentum. In FY18, VCSEL revenues accounted for 30% of Lumentum’s total revenues or $382M. We expect that part of the business to grow to $420M in FY19.
Over the past 18 months and for the next year, Lumentum’s VCSEL business will primarily be driven by Apple. However, in recent quarters, Lumentum has received design wins from key Android players, which we expect to start materializing in 2019. Given Lumentum’s leadership with Apple and traction with new Android players, we anticipate their VCSEL business to continue to grow at a healthy clip for the next several years. Also, due to demand outpacing supply for VCSELs, we see the opportunity for margins to remain stable resulting in strong earnings growth over this time period.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.