Providing Semiconductor Business Insights and Initiatives
About Us
Deep Thinking Consulting LLC is an independent business consulting company specialized in semiconductor industry. It is established to provide semiconductor valuable insights and strategic initiatives to business owners and managers, to reduce the unknowns and uncertainties that the clients face in their journey of growth, so that they will make well informed and best possible decisions to navigate in the increasingly challenging market environment. Our services include business development strategy, market and supply chain analysis, capital investment strategy and evaluation, wafer cost analysis and pricing strategy, and M&A valuation.
​
Founder of the company, Greg has more than 25 years of working experience in semiconductor industry, built up from Engineering to Finance then to Business Strategy, through various engineering and management roles at Lucent, IBM, and TSMC. Greg has obtained two Masters degrees in engineering, from USTB and Lehigh University respectively, and a MBA degree from Stern Business School at NYU.
​
Our Mission
To provide semiconductor market insights and trusted services to help clients succeed.
​
Our Vision
To become a recognized business partner in the semiconductor industry.
​
Our Values
Relentless Learning
Extensive knowledge and expertise in semiconductor field are one of our core competencies. We maintain and develop our competencies through relentless learning. Stay diligent, avoid complacency.
Creative and Strategic Thinking
Being able to think strategically and creatively is another core competency. We can better understand the world by thinking from different perspectives and embracing new ideas. Be open-minded, avoid rigid thinking.
Passion for Excellence
Client Trust
We are passionate about making positive impacts and generating values to our clients. We give our best to serve every client' needs. Deliver highest quality, avoid mediocity.
Client trust is the foundation of our existence. We strive to build a trusted long-term relationship with every client. Be reliable, be candid.
Our Services
We are committed to provide market insights and strategic initiatives to business owners and managers, to reduce the unknowns and uncertainties for our clients so that they are in a better position to make critical decisions to grow their business, either organically or inorganically.
Our services include business development strategy, supply chain analysis, capital investment strategy and return analysis, wafer cost analysis and pricing strategy, and M&A valuation.
Contact us for your needs.
Growth initiatives, new market development, market competitive analysis, risks and opportunities
Target market landscape, from raw wafers to final devices supply chain analysis
Investment strategies, business assumption validation, evaluation metrics, return analysis
Unbiased and independent valuation, acquisition analysis, synergy analysis, valuation modeling
8" and 12" wafer fabrication cost estimations, cost reduction, pricing strategy
US-China Trade Update
Since it started in 2018, US-China trade war has been going on for over 6 years, across two US administrations. With 2024 presidential election fast approaching, it may be helpful to look into the trade data in order to find out the actual impacts of US-China trade war, and to picture what may happen under the next US administration.
Key Findings:
​
1. US-China trade war, along with other factors, such as COVID, has caused significant impacts to US imports from China, and less impacts to US Exports to China.
2. During the Trump administration, US imports from China declined from $558 billion in 2018 to $449 billion in 2020, down 20%.
3. During the first two years of Biden administration, US imports from China increased to record high, $564 billion in 2022, then declined to $448 billion in 2023, down 21%, which is a record decline rate in history.
4. China’s share of US total imports declined almost continuously, from 18% in 2018 to 12% in 2023. It further declined to 11% in the first 2 quarters of 2024. China’s share decline mainly occurred in capital goods and consumer goods except foods and automotive. US imports from other countries, especially other Asia countries, Mexico, and Canada, have increased significantly since the trade war.
5. US overall trade deficit had reached record high in 2022, about US$1 trillion. It came down to $785 billion in 2023.
6. US trade deficit with China declined from $378 billion in 2018 to $252 billion in 2023. China’s share of US trade deficit declined from 65% in 2018 to 32% in 2023.
​
​10/2024​
​
FED Monetary Policy and Balance Sheet Update
​
With US being the largest economy and US dollar the main currency in the world, US Fed monetary policy and its balance sheet are of immense importance to the world economy. Directly or indirectly, the changes of Fed monetary policy and balance sheet may impact every business’s balance sheet and normal people’s daily life. It is crucial to understand those changes.
Fed balance sheet has experienced vast changes in the recent decades. Since 2008/11 till 2022/3, to counter the damages caused by 2008 financial crisis and COIVD-19, Fed had conducted 4 rounds of QEs, in order to stabilize the financial systems and stimulate the economic growth. During this QE period, Fed purchased vast amount of Treasury securities and MBS. As a result, Fed total asset jumped from less than $1 trillion to over $9 trillion, increasing $8 trillion, 8 times of pre-QE level. Among this $8 trillion increase, Reserve balance increased about $4 trillion. In early 2022, the federal funds rate target range was 0 to 1/4 percent.
Since 2022/3, Fed decided to raise the target range for the federal funds rate, aiming to bring inflation back to its 2 percent objective in the long run. From 2022/3 to 2023/7, Fed raised the FFR target range 11 times, making it 5-1/4 to 5-1/2 percent. This target range was maintained unchanged for the following year. During this period, Feb balance sheet was shrinking gradually.
On 9/18/2024, Fed decided to decrease FFR target range by 1/2 percent. On 11/7/2024, Fed decided to decrease another 1/4 percent, less aggressive than the last time.
In the meantime, Fed balance sheet continues to shrink gradually in the recent months, despite the decrease in FFR target range. As of the week ended 11/6/2024, total asset is $7 trillion, about $2 trillion less than the peak level after QE4, due to Fed reducing the holding of US Treasury securities and MBS. On the liability side, reserve balance decreased about half trillion; reverse repurchase agreement decreased about $1.5 trillion. The currency in circulation is higher than before. Looking ahead, Fed may make further reduction in the FFR target range. The currency in circulation will likely continue to increase.
​
11/2024
WFE Vendors' Tougher Challenges Ahead
On December 2, 2024, US BIS announced another package of rules designed to further impair China's capability to produce advanced-node semiconductors that can be used in the next generation of advanced weapon systems and in AI and advanced computing, which have significant military applications.
​
This is the third time that BIS released updated rules on this subject, since it published an interim final rule (IFR) to restrict China’s ability to both purchase and manufacture certain high-end semiconductors critical for military applications in October 2022. The prior two updates were released in October 2023 and April 2024. Two rule updates in 2024 emphasizes BIS's determination to strengthen the export controls and close any loopholes. How these latest updates will impact the WFE vendors exactly is to be seen. Nevertheless, they will face tougher challenges to grow their business in China in 2025 and beyond.
​
Currently, Top 4 WFE companies all have big shares of revenue coming from China--in 2023, Applied materials 27%, ASML 26%, Lam 34%, and TEL 44%. 2024 may see less impacts, but 2025 will likely be quite different, especially consider the revenue pull-ins from China in the recent years.
​
12/2024
​
Taiwan Stock Market Capitalization: 2024 Result and 2025 Outlook
Despite of the complex global economic and geopolitical environments, Taiwan stock market capitalization enjoyed the strongest growth in recent years, reaching NT$74.7 trillion in 2024, up 31% YoY, higher than 28% in 2023. Two consecutive strong growths in 2023 and 2024 came after a decline of 21% in 2022.
The drivers behind the comparable strong growths in 2023 and 2024 are different. While the growth in 2023 could be contributed to the increases in two areas -- one is the foreign portfolio investment, the other ETF, the growth in 2024 was mainly driven by the increase in ETF alone. Unlike in 2023, the foreign investors on TWSE had a net-sell of NT$584 billion in 2024. Luckily, this decline in foreign investment was more than offset by the stunning growth in ETF, which increased over NT$2 trillion in 2024.
​
This difference in growth drivers does not mean that the foreign investment does not matter to TWSE. In fact, the truth is the quite opposite. Foreign investors hold over 44% of Taiwan stock market capital in 2024. Changes in foreign investment will directly impact the total market. We can see the impact clearly by zooming into the monthly TWSE market capitalization dynamics. TWSE market cap declined in 3 months in 2024 – April, July, and November. During those months, foreign investment in TWSE also declined.
Synchronized with the monthly movement of TWSE market capitalization, cumulative net inward-remittance from offshore foreign investors also declined in April, July, and November. Overall, it increased US$37 billion in 2024, reaching US$283 billion in total.
Looking forward, will TWSE market cap continue to grow in 2025? The answer to this question will depend on two factors – 1. whether ETF will continue to grow strongly, 2. how the foreign investors will behave. Considering the stunning increases in ETF during 2023 and 2024, it will be difficult to have similar growth in ETF in 2025. If so, how the foreign investors behave will be extremely crucial to TWSE. Will they pull out some capital and flow it elsewhere?
​
1/2025
Gold Prices: Now, and Then
Gold price reached all time high on 2/23/2025, over US$2940 per ounce. This is stunning, considering that the gold price was once US$35 per ounce for a long time, until 1971 when Bretton Woods system collapsed after Nixon ended the US dollar’s convertibility to gold.
Since then, the gold price in US$ started its long journey of rising. This rising can be roughly divided into 4 major rising periods, 1973-1980, 2000-2011, 2016-2020, and the most recent, 2022 to now 2025. Among which, the recent price rise is the most rapid and significant, price going up from US$1695 per oz to US$2940 per oz in short 2 years and 4 months.
Following each rising period is the period of price decline and stabilization. The longest price decline and stabilization period is from 1980 till 2000. Overall, the price rising period is longer and stronger than the price decline and stabling period. As a result, the gold price in US$ went up 84 times in the past 54 years.
The gold prices in other major currencies in the world, such as EURO, CNY, JPY, GBP, RUB, follow the similar pattern as in the US dollar, with some, such as EURO, CNY, fitting more closely than others, JPY and RUB. This may show that other currencies are somewhat fixed to the US dollar at adjustable exchange rates. The gold prices in other currencies could be the derivatives from the gold price in US dollar.
What is driving the gold price to skyrocket? The simple answer is the supply and demand on gold, or in contrast, the supply and demand on US$. When people need more gold than the dollar, the gold price will go up. When the dollar supply is more than the gold, the gold price will go up. Ultimately, the confidence on the dollar may be presented in the gold price.
​
After 2 years of rapid rising in gold price, the period of price decline and stabilization may come next, sooner or later. Will that mark the end of the journey of gold price rising? Probably not.
​
2/2025
Financial Performance of Synopsys and Cadence
As Top 2 leading companies in the EDA market, Synopsys and Cadence both have obtained strong growth in the past few years. Synopsis revenue has grown from US$4.2B/2020 to $6.1B/2024, with CAGR 13.6%. Considering Synopsys divested its entire Software Integrity segment in 2022, the adjusted CAGR for its continuing business is 16.5%. Cadence revenue from US$2.7B/2020 to $4.6B/2024, CAGR 14.7%.
Synopsys gross margin has improved from 78%/2020 to 80%/2024. Its OP margin also has improved from 17%/2020 to 22%/2024, driven by the % reduction in general and administrative expenses. Its R&D expenses have been maintained at around 34% and 35%. Its net margin is up from 17%/2020 to 23%/2024.
In contrast, Cadence gross margin has declined from 89%/2020 to 86%/2024. However, its OP margin has improved from 24%/2020 to 29%/2024, driven by the % reduction in both R&D and General & administrative. R&D expenses reduced from 39%/2020 to 33%/2024. Net margin is slightly up, from 22%/2020 to 23%/2024.
Synopsys net cash provided by operating activities has grown from US$991 million/2020 to US$1407 million/2024, up 42%. Cadence net cash provided by operating activities is up from US$904 million/2020 to US$1260 million/2024, up 39%.
Synopsys total asset has grown from US$8B/2020 to US$13B/2024, total debt up from US$3.1B to US$4B. Its debt asset ratio has declined from 39%/2020 to 31%/2024. Cadence total asset has grown from US$4B/2020 to US$9B/2024, total debt up from US$1.5B to US$4.3B/2024. In 2024, Cadence increased its long-term debt from US$300 million to US$2.5B. Its debt asset ratio is up from 37%/2020 to 48%/2024. Cadence carries higher degree of leverage than Synopsys.
Synopsys current ratio has increased from 1.29/2020 to 2.44/2024. Cadence current ratio also increased from 1.86/2020 to 2.93/2024. However, the drivers for the increase are different for each company. Candence used long term debt to increase its cash; Synopsys divested its software integrity segment to increase the cash.
Both companies have significant sales from China market, their second largest region after US. Synopsys’ China sales increased from US$420 million/2020 to US$990 million/2024, market shares over its total sales up from 11%/2020 to 16%/2024. Cadence’s China sales increased from US$407 million/2020 to US$573 million/2024, market shares over its total sales declined from 15%/2020 to 12%/2024.
​
4/2025
EMS Market Update
Despite of the economic disruption caused by a series of unprecedent events since 2020, including COVID lockdowns, US-China trade war, and Russia-Ukraine war, Electronics Manufacturing Services (EMS) industry, the largest subsectors within global manufacturing, has grown strongly in the past 5 years, in term of total market size. EMS market size was around US$ 450 billion in 2020. By 2024, EMS market has reached over US$540 billion, up 20% from 2020.
The sales quantity of each key electronics, however, has not grown. In fact, global smartphone sales declined 2%, from 1.26 billion units in 2020 to 1.24 billion units in 2024. Global PC unit sales declined 6%, from 275 million units in 2020 to 258 million units in 2024. Global tablet sales declined 11%, from 159 million units in 2020 to 141 million units in 2024. Sever sales also declined 6%, from 12.8 million in 2020 to 12 million in 2024.
With quantity decline, the revenue growth was driven by higher average unit price, as a result of higher adoption of 5G, AI, and EV technology. 5G smartphone penetration rate has reached over 66% in 2024. AI technology adoption has been proliferating from smartphone to server market. AI servers have been driving rapid growth in recent years. EV sales have grown from 3 million units in 2020 to over 17 million in 2024.
EMS Companies that have caught 5G, AI and EV growth momentum have enjoyed strong growth in the past few years. Foxconn, the largest EMS company in the world which has over 40% of total market share, has enjoyed 28% sales growth from 2020 to 2024, mainly driven by its growth in AI server and networking sales. Similarly, Quanta sales are up 29%, and Wistron up 24%. On the other hand, Pegatron sales declined 20%, due to its lack of AI and EV growth momentum, and declining sales in traditional 3C. The strong growth in Foxconn, Quanta, and Wistron has all come from US region, overriding their sales decline in China region.
Since 2020, leading EMS companies have reduced their manufacturing dependence in China region, diversifying manufacturing to other regions, such as India, Mexico, and Vietnam. They have pursued this diversification in two ways -- one is to add the new manufacturing assets in other regions, without reducing the existing manufacturing assets in China; the other way is to remove the existing assets in China to other regions.
Foxconn’s non-current assets have increased about NT$200 billion from 2020 to 2024, the majority of this increase occurred in India, Vietnam, Mexico, and US. Even though its non-current asset in China also increased, its China asset ratio has declined from 65% in 2020 to 49% in 2024. In contrast, Pegatron has reduced its non-current asset in China significantly, from NT$61 billion in 2020 to NT$17 billion in 2024. Its China asset ratio dropped from 66% in 2020 to 17% in 2024.
Productivity has also improved significantly at the leading EMS companies during the past few years. While Foxconn’s revenue has grown 28%, from NT$5.4 trillion to NT$6.9 trillion, its total number of employees has declined 28%, from 878429 in 2020 to 633167 in 2024. Similarly, while Quanta’s revenue has grown 29%, its employee number has declined 27%. This productivity improvement is driven by the continuous adoption of automation in manufacturing.
Moving into 2025, leading EMS companies continue to show strong growth in the first half of 2025. Especially, Quanta grew 74%, Wilstron up 87%, Foxconn up 20%, vs the first half of 2024.
Looking forward, 5G, AI, and EV will continue to drive the revenue growth in EMS industry. Diversification and automation will continue to be the key operation strategy for EMS companies. Those who can catch the growth momentum and execute the strategy well will continue to thrive. Those who can not will struggle, and may eventually be washed away by the waves.
​
9/2025
QCOM and MTK Financials and Market Update
QCOM and MediaTek are the Top 2 IC design houses in mobile, the largest technology platform in the world. Both companies have delivered strong revenue growth from 2020 to 2024. QCOM revenue increased from $23.5 billion to $39 billion, CAGR 66%; MTK revenue up from NT$322.1 billion to NT$530.6, CAGR 65%.
Historically, QCOM has higher profitability than MTK, as it focuses more on flagship devices. However, the profitability gap between two companies has been narrowed in the past few years. MTK improved its gross margin from 44% in 2020 to 50% in 2024, while QCOM gross margin declined from 61% in 2020 to 56% in 2024. Their gross margin gap narrowed from 17 ppt in 2020 to only 6 ppt in 2024.
Their net margin gap also narrowed from 9 ppt in 2020 to 6 ppt in 2024. MTK Net margin improved from 13% in 2020 to 20% in 2024. QCOM net margin improved from 22% in 2020 to 26% in 2024.
Their ROA gap narrowed from 7 ppt in 2020 to only 3 ppt in 2024. MTK ROA increased from 8% in 2020 to 15% in 2024, while QCOM ROA increased from 15% in 2020 to 18% in 2024.
Similar to profitability, QCOM’s efficiency, measured by Total Asset Turnover, is traditionally higher than MTK’s. Both companies had improved and peaked their efficiency 2022, with QCOM/0.98 and MTK/0.86. However, QCOM’s efficiency declined dramatically in 2023 and 2024, due to lower net income and higher total assets. As a result, in 2024, for the first time, MTK’s efficiency is higher than QCOM’s.
QCOM’s challenge in 2023 and 2024 mainly came from the revenue decline in its handsets segment, the largest segment in the company. Compared with the peak in 2022, its sales in both US and China declined in 2024, with US sales more on its flagship devices and China sales more on its mid to low end devices. To increase its sales in China, QCOM promoted the sales of its mid to low end products. The lower product mixes impacted negatively its overall profitability and efficiency.
Besides the fierce competition among the IC design houses, both QCOM and MTK are continuing to face the bigger threat from their own customers who are driving for in-house design capability. Xiaomi is the latest addition on that list. Xiaomi is No.1 customer to MTK, and No.2 customer to QCOM. On May 2025, Xiaomi launched a full in-house mobile SoC family, XRing O1, marking the beginning of a new era. While it will be unlikely that Xiaomi switches to 100% in-house SoC in 2025, it will be interesting to see how fast it will ramp up its in-house chips. Regardless, QCOM and MTK will face the impact as time goes on.
​
10/2025
ASE vs Amkor, OSAT Profitable Growth since 2020
ASE and Amkor are the Top 2 players in OSAT industry. At the end of 2025, ASE has total 105947 employees, and Amkor has 30800. While Amkor is focusing on packaging and testing business only, ASE has also EMS business, contributing 40% of its total sales. Comparing the sizes of packaging and testing business, ASE packaging and testing sales is US$12.1b in 2025, about x1.8 times of Amkor’s US$6.7b.
Both companies basically operate under the same 3 strategies: technology development, capacity expansion, and relationship/partnership enhancement. ASE has an additional strategy, which is to leverage its presence in EMS. We will compare how they execute in term of profitable growth in the past 5 years, which should also shed some light to the whole OSAT industry.
Since 2020, ASE packaging and testing business grew from NT$265.9b to NT$380b in 2025, CAGR 8.6%. In term of US dollar, it grew from US$9b/2020 to US$12.1b/2025, CAGR 6.8%. The difference in CAGR is caused by the change in exchange rates. NT dollar depreciated from 29.5 in 2020 to 31.4 in 2025. Similarly, Amkor packaging and testing business grew from US$5b in 2020 to US$6.7b in 2025, CAGR 6.6%.
Both companies grew with the similar rates in US dollar term, 6.8% vs 6.6%, over the past 5 years. ASE’s packaging and testing business is about x1.8 of Amkor’s in 2025, which has not changed much from x1.78 in 2020.
Unlike similar growth rates, their gross margins presented a different story. ASE packaging and testing gross margin grew from 22% in 2020 to 23.8% in 2025, up 1.8%. Amkor gross margin declined from 17.8% in 2020 to 14% in 2025, down 4%. Amkor’s decline in gross margins can contribute to the following 3 main factors.
First is its strong increasing in CapEx during 2021 and 2022. Amkor increased its CapEx 41% in 2021 and 16% in 2022 yoy. The CapEx increases had helped Amkor expand its capacity and generate more sales in 2021 and 2022. Its sales reached record high US$7b in 2022. On the other hand, it also increased its depreciation cost significantly for the following years. What’s worse, its sales declined in 2023 and 2024, due to the downturn of global economy, leading to lower facility utilization rates. While the company cut the headcount during 2023 and 2024, the depreciation cost remains high to drag the gross margins down.
Second is its exposure in Automotive. Amkor has about 20% of total sales in Automotive market, which should have higher gross margin than other markets. During its growth in 2021 and 2022, sales in Automotive and the corporate gross margin all grew. During the downturn, Automotive sales declined, so did its gross margins.
The third is the limit of its pricing power. Amkor is gradually shifting its product mix to more advanced products. The ratio of advanced products increased from 71% in 2020 to 83% in 2025. However, this increase in advanced products did not bring higher gross margin, despite all the cost increase associated with the advanced products. This clearly shows the limits of its pricing power.
The limits of pricing power occur to ASE as well. Like Amkor, ASE is also pushing towards to more advanced products. Its LEAP (leading edge advanced packaging) sales ratio grew rapidly, from 6% in 2024 to 13% in 2025, but its gross margins of packaging and testing business only changed slightly, 22.9% in 2024 and 23.8% in 2025, still below its prior peak of 28.7% in 2022.
From the performance of ASE and Amkor in recent years, we may derive that the OSAT industry had strong growth in 2021 and 2022, experienced the downturn in 2023 and 2024, and started to grow again in 2025. 2026 will likely be another year of growth for OSAT industry. Despite the growth in sales and their drives to advanced products, the OSAT players will still face challenges to increase their gross margins in 2026, due to high depreciation costs and limits of pricing power in supply chain.
​
2026/1
Broadcom vs NVIDIA, a fight in CPO Ethernet Switch Market
In 2021, Broadcom introduced its first generation of CPO product line-- Tomahawk 4 – Humboldt. This marked the productization of a new technology innovation and the birth of a new market with huge potential, as CPO-enabled switches are expected to enable high bandwidth, low latency, and low cost better than prior copper and plugged optics technologies.
Building on Humboldt, Broadcom moved on and launched its Gen 2 CPO product-- Tomahawk 5 Bailly in 2024, which became the industry’s first volume-production CPO solution, delivering the industry first 51.2Tb/s switching capacity. During these years, Broadcom was the only player in town in CPO switches market.
In March 2025, NVIDIA strongly entered the CPO market with its announcement of Spectrum-X Photonic Ethernet and Quantum-X Photonics InfiniBand platforms. Spectrum-X Photonics switches are designed to deliver 100Tb/s and 400Tb/s total bandwidth. Its InfiniBand CPO (Quantum-X) is expected to ship in 2H2025, while Spectrum-X is expected to ship in 2H2026.
Broadcom responded quickly. In June 2025, Broadcom announced that it is now shipping Tomahawk 6 switch series, delivering the world first 102.4 Tb/s of switching capacity in a single chip.
The competition is heated, while the market size is still small, mainly due to engineering complexities, early development, and industry adoption pace. In 2025, total market size of CPO ethernet switches was estimated at over US$120 million, mainly from Broadcom Tomahawk-x, with the rest from NVIDIA Quantum-X.
The CPO market is expected to grow rapidly in the coming years, with over 40% CAGR, reaching about US$4B by 2034. By integrating optics directly beside switch ASICs or AI accelerators, CPO will dramatically improve bandwidth density, power efficiency, signal integrity and scalability.
As of 2026, Broadcom and NVIDIA are the only two players in CPO switch market. Broadcom has its Gen3 CPO Tomahawk 6 Davisson, and NVIDIA has its Gen2 CPO Spectrum 6. Both products can reach bandwidth of 102.4Tb/s, both with similar I/O configurations, and both built on similar supply chain. Their ASIC chips are all built by TSMC N3 technology; key optical components suppliers include Coherent and Lumentum; product packaging is done with TSMC COUPE and OSAT players.
One key difference may lay on Network operating system. NVIDIA offers two options on NOS: NVIDIA Cumulus Linus and Pure SONiC through NVIDIA, both tied closely to the company. Broadcom offers 3 options: Enterprise SONiC distribution by Broadcom, Community SONiC, and Vendor-specific NOS, which provide more flexibility.
Who will be the winner of CPO market in 2026, NV or Broadcom? As the market forerunner, Broadcom has gained more experience in designing and engineering CPO products, and it also offers flexible NOS options to the customers. On the other hand, NVIDIA has the advantage to leverage its whole AI clusters to sale its CPO products. Consider the growth of AI markets and its crucial position in AI, NVIDIA will gain market share in 2026, and will likely take over Broadcom as the leader in CPO market.
​
2026/2
Coherent vs Lumentum, Financial Performance and Market Trends
“Everything is light”. While everyone may interpret Nikola Tesla’s phrase differently, whether in scientifical or philosophical spheres, we all agree that nothing travels faster than light. In the commercial markets that chases speed, light will be the ultimate choice.
Coherent and Lumentum are two leading US companies primarily working with light. They are among the list of companies that benefit most from the current AI rising wave and Data Center interconnection scale-up and scale-out, where everything is about speed. They are different in business scope and size. Coherent has broader business scope, covering from materials, components, subsystems, and systems. Lumentum is more an optical components and subsystems provider. However, they compete in major common products, such as optical transceivers, optical circuit switches, and lasers, in the same markets.
Over the past 5 years, two companies had drastically different experience in their financial performances.
From FY 2021 to FY2025, Lumentum net revenue declined 6%, down from US$1.7b in 2021 to $1.6b in 2025. This decline occurred even after it completed 3 acquisitions- NeoPhotonics and IPG Photonics’ telecom transmission product lines in 2022 and Cloud Light Technology in 2023. Its gross margin also declined from 44.9% in 2021 to 28% in 2025, down 17 ppt. On the other hand, Coherent net revenue grew 87%, up from US$3.1b to $5.8b in 2025. Its gross margin declined slightly, from 37.9% in 2021 to 35.2% in 2025, down less than 3 ppt.
Lumentum’s business declines were driven by two main factors. The first factor is Apple’s business shift. Apple was Lumentum’s No1. Customer in 2021, representing over 30% of total revenue, as Lumentum was the dominant supplier of VCSELs for Apple’s Face ID system. Starting from 2023, Apple started to shift orders to Sony and Coherent, to reduce the dependence on Lumentum. Sony’s ToF VCSEL solution integrated the VCSEL and driver IC into a single package, providing lower power consumption and better sensing performance. The second factor is the loss of Huawei business. Huawei once was Lumentum’s No 2 customer, contributing over 10% of revenue in 2021, and also providing higher margin. However, due to US sanctions, Lumentum no longer shipped any product to Haiwei.
In contrast, Coherent did not suffer what Lumentum suffered. It has broader customer base, and did not suffer from US sanctions. Its China sales was US$680 millions in 2025, the same as in 2021.
After suffering the decline of Apple’s VCSEL business, Lumentum shifted its strategic focus toward cloud and networking, AI data center optics, and telecom infrastructure. This shift has started to deliver the fruits recently. Its total sales in 2025 grew 21%, yoy. This growth momentum continues in 2026. Its sales of first 3 quarters of FY2026 grew 72% YoY, from US$1.2 to $2b; gross profit was also up 160%, from US$300 millions to $778.6 millions. Ciena and Google are now the top 2 customers of Lumentum, contributing 16% and 15.4% in 2025.
Looking forward, 3 major market trends will drive the competition between Coherent and Lumentum. First, the optical transceivers will shift from 800G to 1.6T. Second, Optical Circuit Switches (OCS) will gradually replace electronic switching in AI clusters. Third, Co-packaged Optics (CPO) adoption will continue to increase. Lumentum is leading in EML lasers, which is the key component of 1.6T transceivers. It is also an early leader in CPO and OCS. We expect to see strong growth from Lumentum in the coming years.
​
2026/3