Lumentum Goes From $1 Billion Spinoff to $115 Billion Takeover

(Bloomberg) -- In 2015, executives at the Silicon Valley hardware firm known then as JDSU spun off a division making optical components and commercial lasers, believing the unit would be better off chasing growth opportunities on its own.

When Lumentum Holdings Inc. began trading later that year, it had a roughly $1 billion market value and was reporting quarterly adjusted net income of about $15.3 million. A decade later, the company is generating more than $1 billion of sales in a single quarter, saw $461.1 million of adjusted profits last quarter and is now on track to become one of the largest tech takeovers of all time: On Monday, Marvell Technology Inc. agreed to an all-stock purchase that values Lumentum at $115 billion.

The allure of Lumentum has always been its lasers. Telecom firms have for years relied the San Jose, California-based company for lasers, modules and switches to move data over fiber-optic cables across long distances. With the unprecedented expansion of data centers worldwide to power advanced AI systems, Lumentum's technology has taken on a greater purpose: moving massive amounts of data across chips and servers at incredibly high speeds.

Such demand from AI data centers is now so strong that some of Lumentum's components are "completely sold out" through early 2029, Chief Executive Officer Michael Hurlston said in a Bloomberg interview last month. Customers were already starting to lock in orders for 2030, Hurlston said at the time.

There was only one clear way of jumping Lumentum's line: buy the entire company. As analysts at Wolfe Research put it on Monday, the main rationale for Marvell's historic takeover of Lumentum is "vertical integration" in a now "famously tight" laser market.

Bringing Lumentum's capabilities in-house also stands to turn Marvell into an even more formidable rival against Broadcom Inc., which makes its own laser components. Optical interconnects represent almost half of Marvell's revenue targets for the fiscal year 2031, Wolfe Research wrote, so "making sure they have a secure supply of the industry's highest performance lasers would provide a competitive advantage."

Even so, Marvell shares declined as much as 14% to $168.82 on Monday, and Lumentum was down as much as 19% to $685 in New York, reflecting broader investor concerns about a potential AI bubble. Analysts are also questioning the cost-cutting potential between the two businesses' operations. The anticipated 2028 timeframe for completing the tie-up also suggests gaining clearance won't be easy.