Marvell is rumoured to be in advanced talks to acquire optics and laser vendor Lumentum in a deal expected to value the company in excess of $80 billion. 

“As AI data centre networking shifts from copper to co-packaged optics (CPO), Marvell its hedging its bets by buying the laser – the key component that survives the transition and which it does not have.” 

- Gareth Owen, Associate Director, Counterpoint Research

Reasons for the Acquisition

  • Hedge against CPO – as optics moves right next to the XPU or switch ASIC, it mostly eliminates the need for Marvell’s DSP chips. Marvell’s long-term strategic plan is based on developing a strong presence in AI networking interconnect market. Acquiring Lumentum would give it a stake in every type of optical link, including ones without DSPs.
  • Indium Phosphide (InP) fabs – Lumentum’s fabs are the core of its value. Around two-thirds of revenue is derived from lasers and the chips themselves. In fact, the lasers are the scarcest part of the optical link. However, the market for InP lasers is highly concentrated. Between them, Lumentum and rival Coherent hold the majority of the world’s InP capacity. Lumentum has five InP fabs: in Japan, San Jose and North Carolina in the US and the UK - and all are expanding capacity. However, increasing capacity is not easy and it takes many years to build a new InP fab.
    Marvell designs chips but does not own InP lasers. It already buys lasers from Lumentum. Owning the fabs would give Marvell guaranteed access and control of a sold-out resource that its competitors, and also Nvidia, depend upon.
  • Complementing Marvell’s products - Marvell has deep expertise on the electrical/silicon side: custom XPU, DSPs, EICs, etc. Lumentum would provide CW and EML lasers for pluggables, NPO/CPO optics as well as Optical Circuit Switching (OCS), a technology attracting renewed interest from hyperscalers.
  • Expanding its photonics strategy - Marvell bought photonics startup Celestial AI in January this year for $5.5 billion (providing revenue milestones are hit). Lumentum would be a much larger acquisition but essentially still adhering to the same business plan strategy. It would bring to Marvell merchant laser supply plus the coherent and datacom transceiver modules - components that hyperscalers buy in large volumes.


Analyst Viewpoint

An acquisition of this size will no doubt draw close regulatory attention as it impacts a strategically important supply chain. However, if the deal goes through, it would make Marvell one of the few companies covering both the silicon and the optical sides of AI networking. And owning its own laser supplies would enable it to integrate its data center networking portfolio and simplify its supply chain. It would also make Marvell a major source of lasers for Nvidia, which earlier this year invested $2 billion in Lumentum.

Very importantly, it would make Marvell a vertically-integrated electrical/optics supplier and strengthen its competitive position against Broadcom, Coherent as well as the Chinese suppliers that dominate global optical module shipments. As Marvell is the leading DSP provider to 800G/1.6T module vendors, however, some of these vendors might pivot to alternative sources such as Broadcom or Credo.