Summary of Optical Market Opportunities Conference Call Industry Overview - The optical market is projected to exceed $65 billion by 2028, growing at a compound annual growth rate (CAGR) of approximately 30% due to increased speed and investment in AI data centers [1][8] - The current optical market is estimated at around $30 billion in 2025, having grown at a CAGR of about 40% over the past four years [3][8] Key Market Insights - Incremental optical opportunities are estimated to create an additional $23 billion in total addressable market (TAM) by 2028 [3][8] - Traditional networks are reaching their limits, necessitating the adoption of new optical technologies [1][3] - Five key markets are identified for increased optical investment: 1. Transition from copper to fiber in scale-up 2. Co-packaged optics (CPO) on-chip 3. CPO on-board 4. Optical circuit switching (OCS) 5. Passive optical for out-of-band management [3][8] Market Dynamics - The transition to optical technologies is expected to be gradual, with significant architectural changes required for implementation [11][12] - The optical transceiver market is projected to be the largest segment, estimated at around $50 billion [10][12] - Current pricing dynamics are uncertain, with potential for price increases due to tightness in the Electro-absorption Modulated Laser (EML) market [10][31] Company Valuations and Recommendations - Current valuations for optical companies are high, with many trading at 30-40 times FY28 estimates [9][26] - Corning Inc (GLW) is viewed as the best long-term opportunity due to its exposure to the copper to fiber transition, while Lumentum Holdings Inc (LITE) is seen as the most cautious investment due to high expectations built into its valuation [9][26] Risks and Unknowns - The biggest unknowns include the pace of CPO adoption and pricing stability in the optical market [10][31] - The transition to new architectures may take longer than anticipated, impacting market growth [30][31] - The potential for pricing to revert to historical declines (10-15% annually) poses a risk to current valuations [31][32] Conclusion - The optical market is poised for significant growth driven by technological advancements and increasing demand from AI data centers - Investors should be cautious of high valuations and the uncertainties surrounding market dynamics and adoption timelines for new technologies

February 23, 2026 05:01 AM GMT Telecom & Networking Equipment Into the Spotlight: Optical Market Opportunities Tiffany.Yeh@morganstanley.com +886 2 7712-3032 Morgan Stanley & Co. LLC Joseph Moore Equity Analyst Joseph.Moore@morganstanley.com +1 212 761-7516 Telecom & Networking Equipment The optical market is set to reach $65bn+ in our '28 base case (~30% CAGR) on the back of increasing speed/investment in AI data centers. As traditional networks reach their limits, new optical technologies are poised for a ...

Summary of Telecom & Networking Equipment Conference Call Industry Overview - The conference call focused on the **Telecom & Networking Equipment** industry in **North America** with a specific emphasis on the **AI trade** and **optical componentry** market [1][3][4]. Key Points 1. Performance Metrics - Networking returns in 2025 were concentrated in AI and optical trades, with a **100% return YTD** for optical [1]. - The overall networking universe returned approximately **55% YTD**, outperforming NASDAQ by about **35%** [3]. - AI names saw a **110% increase** in returns, building on an **85% return** from the previous year [3]. 2. AI Trade and Optical Market - The AI trade has broadened beyond semiconductor names, positively impacting infrastructure, particularly in optical [3]. - Optical components led the AI basket performance with a **155% increase** and **40% estimate revisions** [3]. - The expectation is that the AI trade will continue, especially in optical, through the first half of 2026, but selectivity will be necessary for full-year returns [4]. 3. Investment Recommendations - Upgrades were made for **MSI** to Overweight (OW), with continued OW ratings for **AXON**, **CSCO**, and **ANET** [1][4]. - Companies expected to attract excess returns from the AI trade include **GLW**, **CIEN**, **LITE**, and **COHR** [4]. - Core networking names like **CSCO** and **ANET** are highlighted as attractive opportunities due to Ethernet's growing market share [5][9]. 4. Caution on Pricing and Market Dynamics - There is caution regarding the sustainability of pricing in the optical market due to increased competition and capacity investments [4]. - If capital expenditure (capex) data points continue to be revised positively, expectations for optical names may hold throughout the year [4]. 5. Public Safety Sector - The public safety sector, particularly companies like **AXON** and **MSI**, is viewed as well-positioned for growth due to high public safety budgets and the impact of OBBBA funding [10][60]. - Despite recent underperformance, there is optimism for recovery in public safety names as demand conditions improve [10][11]. 6. Company-Specific Insights - **Cisco (CSCO)** is expected to benefit from a multi-year campus upgrade cycle and increased AI contributions, with a price target raised to **$91** [34][37]. - **AXON** is projected to maintain a durable growth opportunity with a price target of **$713**, reflecting a strong market position in public safety [50][56]. - **MSI** was upgraded to OW with a price target of **$436**, citing reasonable valuation levels and growth drivers in public safety [60][71]. - **Ciena (CIEN)** is experiencing strong demand but is currently trading at a premium, leading to a cautious outlook despite positive near-term demand [72][74]. 7. Risks and Considerations - Risks include potential tariff impacts, macroeconomic uncertainties, and the timing of public safety spending [56][71]. - The optical component market faces challenges from increased competition and supply chain issues, which could affect pricing and margins [95][96]. Conclusion The conference call highlighted a robust outlook for the Telecom & Networking Equipment industry, driven by AI and optical components, while also emphasizing the need for selectivity in investments due to market dynamics and pricing pressures. The public safety sector remains a focal point for growth, with several companies positioned to capitalize on favorable funding and demand conditions.

Summary of Key Points from the Conference Call Industry Overview - The conference attended was the European Conference on Optical Communications (ECOC) held in Copenhagen from September 28 to September 30, 2025, focusing on the Telecom & Networking Equipment industry [3][4]. Core Insights - **Demand for Optical Technologies**: The demand for optical transceivers has more than doubled in the last two years, with significant growth in the Data Center Interconnect (DCI) market, indicating a long runway for demand [4][7]. - **Innovation Focus**: The industry is shifting towards "blank page innovation" to address challenges, moving away from reliance on traditional telco budgets [4][7]. - **Investment in Optical Technologies**: Hyperscalers are willing to invest in optical technologies that enhance data transmission reliability and efficiency while reducing power consumption [4][7]. - **Emerging Technologies**: Key technologies discussed include Optical Circuit Switching (OCS), Co-Packaged Optics (CPO), and thin film lithium niobate (TFLN), with OCS gaining significant traction [7][9]. Company-Specific Insights - **Ciena Corporation (CIEN)**: - CIEN is optimistic about current demand, with over a year of visibility into demand. Their Direct Out-of-Band Management (DCOM) solution, co-developed with Meta, is expected to generate significant revenue [11][12]. - CIEN's valuation is around 22-23x FY26e EPS, reflecting strong positioning in the cloud market [20]. - **Coherent Corp (COHR)**: - COHR has faced supply issues due to an EML shortage but is adjusting build plans to meet increased demand. They are optimistic about future opportunities, particularly with OCS [13]. - The company trades at a discount compared to peers, presenting a potential opportunity if execution improves [13]. - **Lumentum Holdings Inc (LITE)**: - LITE is currently benefiting from OCS adoption, which could significantly impact their valuation positively [9][12]. Market Dynamics - **Pricing Environment**: There is currently no pricing pressure in the optical space, which typically sees annual price declines of 10-15%. The ability to increase prices is noted, but caution is advised if capital expenditure slows [8]. - **Upcoming Events**: The next significant event for the industry is the Open Compute Project (OCP) show scheduled for October 13-15, 2025, which may serve as a catalyst for further developments [8]. Risks and Considerations - **Supply Chain Constraints**: The ability of vendors to meet the high demand is a critical gating item for the industry [7]. - **Technological Adoption**: While OCS shows promise, its adoption may take time due to the complexity of the technology and the need for significant architectural changes [9]. - **Market Volatility**: Potential risks include macroeconomic headwinds, pricing pressures, and the impact of tariffs on gross margins [23][26]. Conclusion - The optical communications industry is experiencing robust demand driven by advancements in AI and data center needs. Companies like CIEN, COHR, and LITE are positioned to benefit from this trend, although they face challenges related to supply chain and technological adoption. The upcoming OCP show may provide further insights and opportunities for growth in this sector.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Telecom & Networking Equipment in North America [1] Core Company Insights Lumentum Holdings Inc (LITE.O) - **Price Target Change**: Increased from $85.00 to $92.00 [2] - **Performance Expectations**: Anticipated a revenue beat of less than 2% and approximately 5% EPS increase for the upcoming quarter [16] - **Growth Drivers**: Recovery in telco and demand from Google and EMLs are expected to contribute positively [10] - **Long-term Targets**: No changes expected to long-term targets; however, upside potential exists due to strong demand in Cloud Light business [10] - **Revenue Estimates**: Expected revenue growth of $1,359 million in 2024, increasing to $2,511 million by 2027 [36] Coherent Corp (COHR.N) - **Price Target Change**: Increased from $92.00 to $97.00 [2] - **Performance Expectations**: Expected revenue beat of 2.5% to 4% and an EPS increase of 8% to 10% for the upcoming quarter [16] - **Growth Drivers**: Strength in datacom and telecom segments expected to drive revenue growth [10] - **Long-term Outlook**: Analyst Day laid out a roadmap, but near-term upside is needed to maintain momentum [10] - **Revenue Estimates**: Expected revenue growth of $5,779 million in 2025, increasing to $6,628 million by 2027 [57] Market Dynamics - **Cloud Capex Revisions**: Positive revisions in cloud capex are driving optimism in optical AI stocks, with expected growth of 54% in 2025 [4] - **Investor Sentiment**: Investors are favoring a pair trade strategy of long LITE and short COHR post-FQ4 prints, reflecting a preference for COHR due to its better positioning [4][7] - **Multiple Expansion**: Current multiples are hovering around one-year averages, indicating limited opportunity for further expansion in the near term [4] Risks and Considerations - **Tariff Impacts**: Tariffs are expected to materially limit earnings and multiple in the near term, particularly affecting gross margins [34][43] - **Market Volatility**: The volatility in end markets and uncertainty around AI spending may cap the multiples for both companies [43][49] - **Operational Challenges**: COHR faces challenges in executing its vision laid out during the Analyst Day, which could limit changes to its margin profile [49] Additional Insights - **Investor Feedback**: Investors are generally optimistic about the recovery in telco and the potential for both companies to outperform in the upcoming quarter [4][10] - **Long-term Growth Opportunities**: Both companies are positioned to benefit from secular growth trends in AI and datacom, although challenges remain in the industrial and consumer electronics markets [49][62] This summary encapsulates the key points discussed in the conference call, focusing on the performance expectations, market dynamics, and potential risks associated with Lumentum Holdings Inc and Coherent Corp.

Investment Rating - The report downgrades Ciena Corporation (CIEN) to Underweight (UW) from Equal-weight (EW) with a price target of $70, down from $73 [6][33] - Corning Inc (GLW) and Coherent Corp (COHR) have their price targets increased to $50 from $44 and $92 from $83 respectively [6][13] - Lumentum Holdings Inc (LITE) price target raised to $85 from $76 [6][13] Core Insights - The optical sector outlook is positive, driven by increasing data speed demands necessitating more fiber and optical transmission, benefiting companies like CIEN, GLW, LITE, and COHR, which have seen an average increase of approximately 80% since early 2024 [3][8] - Despite the positive revenue trajectory, margin health remains a concern, particularly for CIEN, which has limited EPS upside due to its exposure to lower-margin datacom businesses [3][4] - The report highlights that while optical names have experienced significant multiple expansions, earnings revisions have not kept pace, indicating potential risks for further valuation increases [8][18] Summary by Company Ciena Corporation (CIEN) - CIEN's revenue estimates for FY26 have increased by 5% since March 2024, but EPS estimates are down by 9%, primarily due to disappointing gross margins from its pluggables business [25][33] - The downgrade to UW reflects limited potential for positive EPS revisions, with a current P/E multiple of 25x FY26 estimates [4][33] - CIEN's earnings power is projected at approximately $3.33, with a bear case valuation of $26 and a bull case of $98 [33][65] Corning Inc (GLW) - GLW's revenue estimates for FY26 are 11% higher than in March 2024, with EPS estimates up by 23% [52] - The report maintains an Equal-weight rating, with a price target of $50, reflecting a 19x multiple on FY26 earnings [57][79] - GLW's growth is supported by its fiber business, although macroeconomic factors and tariffs pose risks [57][84] Coherent Corp (COHR) - COHR has seen a 100% increase since early 2024, with FY26 revenue estimates 5% higher than in March 2024 and EPS estimates up by 6% [47] - The report maintains an Equal-weight rating with a price target of $92, reflecting a 20x multiple on FY26 earnings [51][96] - COHR's margin recovery is noted, but the report remains cautious due to ongoing tariff uncertainties and market volatility [47][96] Lumentum Holdings Inc (LITE) - LITE's revenue estimates for FY26 are 10% higher than in March 2024, with EPS estimates up by 1% [34] - The report maintains an Equal-weight rating with a price target of $85, reflecting a 21x multiple on FY26 earnings [46][34] - LITE's valuation is considered full at a P/E of approximately 23x, given its historical trading range [37][34]

Core Insights - Ciena Corporation's WaveLogic 6 Extreme (WL6e) technology has been deployed by e& UAE, marking a significant advancement in the Middle East and Africa (MEA) region with ultra-fast 400G connectivity [1] - e& UAE is enhancing its data transmission capacity to 1.6 Tb/s per wavelength, effectively doubling its efficiency while leveraging existing infrastructure [2] - The MEA region is undergoing a digital transformation driven by government policies and increasing demand for cloud services and 5G, positioning e& UAE as a leader in high-speed connectivity [3] Company Developments - Ciena's WL6e is recognized as the industry's first 1.6 Tb/s coherent optic solution, driven by the growing demand for bandwidth due to cloud adoption and AI technology [4] - The WL6e technology is gaining traction, with revenues recognized in Q4 fiscal 2024 from multiple customers, including Verizon and euNetworks [5] - Ciena's WL6e is set to be deployed by Cirion Technologies to enhance digital infrastructure in Latin America, marking the continent's first 1.6 Tb/s single carrier wavelength deployment [6] - Southern Cross Cable Limited has achieved a milestone with Ciena's WL6e, connecting the world's first transpacific 1 Tb/s single-carrier wavelength across a 13,500-kilometer network [7] - Boldyn Networks adopted Ciena's WL6e to enhance its fiber network in New York and New Jersey, offering scalable wavelength services up to 1.6 Tb/s per channel [8] Market Performance - Ciena currently holds a Zacks Rank 3 (Hold), with shares increasing by 33.1% over the past year, compared to a 36.5% growth in the Zacks Fiber Optics industry [9]

Core Viewpoint - Ciena Corporation (NYSE: CIEN) is set to report its Q1 '25 earnings on March 11, and there is anticipation regarding the expected performance and specific metrics to watch for [1]. Company Summary - Ciena Corporation is a long-term investment option, with a focus on a mix of growth, value, and dividend-paying stocks, although there is a tendency to prioritize value investments [1]. Earnings Expectations - The upcoming earnings report is expected to provide insights into Ciena's financial health and operational performance, which will be closely monitored by investors [1].