Behind the 100 billion dollar “whale” Lumentum (LITE.US) by MRVL.US (MRVL.US): the laser market is “extremely tight”

The Zhitong Finance App learned that chipmaker Maywell Technology (MRVL.US) announced on Monday that it will acquire data center laser manufacturer Lumentum Holdings (LITE.US) in an all-stock transaction of about 115 billion US dollars. If successfully completed, it will be one of the largest technology mergers and acquisitions in history. Behind the deal, AI data center demand for high-speed optical interconnection and laser supply continues to heat up.

From a $1 billion division spin-off to a $115 billion merger and acquisition target

Lumentum's predecessor was an optical components and commercial laser division of Silicon Valley hardware company JDSU. In 2015, JDSU management split the division, believing it would be better for it to pursue growth opportunities independently. When Lumentum began trading that year, it had a market capitalization of about $1 billion and quarterly adjusted net profit of about $15.3 million.

Ten years later, Lumentum's sales in a single quarter have exceeded 1 billion US dollars, adjusted profit reached 461.1 million US dollars in the previous quarter, and became the target of Mewell Technology's 100 billion dollar acquisition.

Lumentum's core products are lasers. For years, telecommunications companies have relied on the San Jose, California-based company to supply lasers, modules, and switches to transfer data over long distance fiber-optic cables. As data centers around the world expand massively as AI systems, Lumentum technology is being used to transfer massive amounts of data between chips and servers at extremely high speeds.

The supply of lasers is tight, and some components are “completely sold out” until early 2029

The most immediate background to this deal is the strong demand for optical devices in AI data centers. Lumentum CEO Michael Hurlston said earlier that some components will still be “completely sold out” by the beginning of 2029, and customers have begun to lock in orders for 2030.

In this case, if you want to bypass queues to get supplies, the most direct way is to buy the entire company. Wolfe Research stated after the announcement of the deal that the main logic behind Maywell Technology's acquisition of Lumentum was to achieve vertical integration in the current “extremely tight” laser market. Incorporating Lumentum's capabilities in-house will also help Maywell Technology take a better position in competition with Broadcom (Broadcom), as Broadcom itself also produces laser components.

Wolfe Research also mentioned that optical interconnection accounts for almost half of Mewell Technology's fiscal year 2031 revenue target, and ensuring a stable supply of high-performance lasers will form a competitive advantage. For Maywell Technology, buying Lumentum is tantamount to locking in supply at the key link of AI data center optical interconnection, rather than simply waiting for external suppliers to expand production.

The rise of silicon photonics: copper interconnect approaches the limit, optical interconnect accelerates applications

Lumentum has received attention and is related to the rise of silicon photonics technology. Traditional interconnects use copper to transfer data through electronic pulses, which are still cheap and fast over short distances. However, AI systems need to transfer more and more data between chips and servers, and copper is approaching its limit in carrying information efficiently.

The laser itself consumes no less electricity, but integrating the optics more tightly into silicon can reduce costs and reduce the need for expensive equipment. As copper interconnections hit bottlenecks and the cost of optical technology falls, the additional costs associated with using optical solutions are becoming more acceptable. As the world's largest supplier of AI chips, Nvidia has been promoting the use of optical connections between components. The more efficient the data transmission, the higher the value of its chips and server systems.

A major obstacle to the popularity of optical interconnects is still that their construction costs are far higher than copper interconnects. To strengthen the supply chain, accelerate manufacturing, and achieve silicon photonics economies of scale, Nvidia invested $2 billion in Maywell Technology and Lumentum this year. Lumentum is also actively looking for locations to expand production. Hurlston previously said that the company was looking for old electronic facilities that could be remodeled, considering purchasing Japanese facilities and considering subsidies to expand production capacity; at the time, he also said that the company might need to consider acquisitions to achieve growth.

The market reaction was not positive

Although the trading logic was recognized by analysts, the market reaction was not positive. After the deal was announced, Maywell Technology's stock price once fell 14% to $168.82, while Lumentum fell 19% to $685. This reflects investors' concerns about a potential AI bubble, while analysts are also questioning the two companies' cost-cutting space after merging their businesses. The deal is expected to close in 2028, and this timeline also means regulatory approvals will not be easy.