Marvell Wants Lumentum. Here’s Why Coherent Could Win.

Marvell’s reported bid for Lumentum is sending shockwaves through the optical networking sector, but the company with the most to gain from this deal may not be either party sitting at the negotiating table.

• Marvell’s reported negotiations to acquire Lumentum could make Coherent one of the most strategically valuable independent optical technology suppliers in AI infrastructure.
• Lumentum’s optical manufacturing capacity is reportedly sold out into 2029, highlighting why established photonics manufacturing assets have become increasingly valuable.
• Nvidia’s $2 billion investment in Coherent provides an additional strategic advantage as semiconductor companies compete to secure optical manufacturing capacity.

Coherent Could Be the Overlooked Winner

Marvell Technology (MRVL | MRVL Price Prediction) is reportedly negotiating to acquire Lumentum Holdings (LITE), focusing investor attention on a potentially transformative transaction in the artificial intelligence infrastructure industry. However, the most interesting investment opportunity may involve a company that is neither the buyer nor the acquisition target: Coherent (COHR).

According to an October 28 Bloomberg report, Marvell is in advanced discussions to acquire Lumentum, a major manufacturer of lasers and optical components used in high-speed data center communications. Although no definitive agreement has been announced, the news sent Lumentum shares sharply higher while Marvell declined in after-hours trading.

Coherent also benefited, rising approximately 3.5% in after-hours trading. That reaction raises an important question: Why would investors bid up Coherent when one of its principal competitors could become part of a larger, vertically integrated semiconductor company?

The answer involves the increasing scarcity of advanced optical manufacturing capacity, the strategic importance of photonics to next-generation AI systems, and the possibility that a Marvell–Lumentum combination would make Coherent’s independent manufacturing capabilities more valuable.

This is not simply a story about another possible semiconductor acquisition. It concerns the growing importance of optical interconnects as AI data centers expand beyond the limits of conventional electrical networking, creating demand for specialized technologies that only a limited number of manufacturers can produce at scale.

Why Marvell Wants Lumentum

Marvell is already an important supplier of semiconductor connectivity technology, including optical digital signal processors, custom silicon, and high-speed networking components. However, manufacturing complete optical communications systems requires additional technologies, including semiconductor lasers, photodetectors, optical modulators, and sophisticated photonic packaging.

Lumentum supplies several of these technologies, including indium phosphide-based optical components essential for high-speed data transmission. Acquiring Lumentum could give Marvell more direct control over important elements of the optical supply chain rather than depending entirely on independent component manufacturers.

The economic rationale becomes particularly compelling when manufacturing capacity is constrained. On October 9, Bloomberg reported that Lumentum’s optical component capacity was effectively sold out through early 2029. Chief Executive Michael Hurlston indicated that the company could not satisfy approximately 70% of anticipated demand for certain products through 2027, while shortages for other products could extend into 2028.

These figures are particularly significant because they suggest the optical infrastructure industry’s immediate limitation is not necessarily demand for products, but the availability of manufacturing capacity capable of producing them.

According to Table 1, Marvell’s proposed acquisition could address several strategic constraints simultaneously, from securing scarce laser production capacity to expanding its participation in the value of complete optical networking systems. Importantly, the same factors that make Lumentum attractive to Marvell could increase the strategic value of Coherent’s manufacturing capabilities and customer relationships.

The most important observation from Table 1 is that the value of an optical technology company increasingly depends on more than its current product sales. Manufacturing capacity, production yields, intellectual property, and customer qualifications have become strategic assets that competitors cannot quickly duplicate.

This distinction helps explain why acquiring an established photonics manufacturer may be preferable to building equivalent capabilities internally, even when the acquisition requires a substantial financial commitment.

Why Optical Manufacturing Capacity Is Becoming Scarce

The growing shortage of advanced optical components reflects fundamental differences between conventional semiconductor manufacturing and specialized photonics production.

Many optical communications devices depend on compound semiconductors such as indium phosphide rather than conventional silicon alone. Indium phosphide supports the generation and detection of light at wavelengths used in high-speed communications, making it important for lasers and photodetectors used in data center networking.

Manufacturing these devices requires specialized epitaxial growth, lithography, etching, metallization, and packaging processes. Production yields can be difficult to optimize, particularly when manufacturers introduce new device architectures or increase operating speeds.

Expanding capacity therefore involves more than purchasing equipment and adding wafer starts. Manufacturers must qualify production processes, improve yields, establish reliable packaging operations, and satisfy demanding customer specifications.

This creates substantial barriers to entry for semiconductor companies seeking to manufacture advanced optical devices internally.

Coherent already operates within this specialized manufacturing environment. Its portfolio includes indium phosphide lasers, optical transceivers, advanced optical materials, and technologies supporting silicon photonics.

The company is also expanding its indium phosphide manufacturing capabilities in Sherman, Texas, where additional production capacity is intended to support demand from next-generation optical networking systems.

For investors, the distinction between acquiring existing capacity and building new facilities is particularly important. Existing manufacturing assets may provide earlier access to production, established customer qualifications, and experienced engineering teams, although additional capacity expansion still requires capital and time.

According to Table 2, the reported capacity constraints at Lumentum illustrate why established photonics manufacturers have become strategically attractive. The table distinguishes reported industry constraints from their potential economic implications for Coherent.

Note: The Lumentum shortage percentages apply to particular product categories and should not be interpreted as industry-wide shortages or directly transferable to Coherent. Coherent’s potential benefits depend on product compatibility, available capacity, and customer qualification.

The significance of these constraints is that additional capital spending does not immediately translate into additional optical component supply. Photonics manufacturing involves specialized materials, process integration, and customer qualification requirements that can delay the introduction of new capacity.

Consequently, existing suppliers may benefit from a period in which demand grows faster than manufacturing capability. Coherent’s opportunity is to translate that demand into higher production volumes, improved utilization, and stronger earnings without sacrificing profitability through excessive expansion spending.

Nvidia’s $2 Billion Investment Changes the Equation

The most compelling reason Coherent could benefit from the proposed Marvell–Lumentum transaction involves Nvidia’s existing strategic relationships.

On March 2, Nvidia (NVDA) announced a $2 billion investment in Coherent as part of a multiyear agreement covering advanced optical technologies, manufacturing capacity, and research and development.

The arrangement also includes multibillion-dollar purchase commitments and future access rights to advanced laser and optical networking products.

Nvidia simultaneously announced a separate $2 billion investment in Lumentum, demonstrating its intention to support multiple optical technology suppliers rather than depend on a single manufacturer.

Later that month, Nvidia announced another $2 billion investment in Marvell, alongside collaboration involving NVLink Fusion and silicon photonics.

These investments are important because they show that Nvidia recognizes optical networking as a critical component of future AI infrastructure. The company is investing directly in suppliers whose manufacturing capabilities could otherwise constrain the deployment of increasingly large accelerator clusters.

A Marvell acquisition of Lumentum would create an unusual industry structure in which Nvidia has financial and commercial relationships with both a vertically integrated semiconductor-optics supplier and a major independent optical manufacturer.

That arrangement could strengthen Coherent’s strategic position.

Nvidia has a clear interest in maintaining access to multiple sources of critical optical components. Depending exclusively on one supplier would expose its AI infrastructure roadmap to manufacturing delays, capacity shortages, and potential commercial conflicts.

Coherent could consequently become an increasingly important independentadvanced networking systems requiring greater bandwidth and lower power consumption

However, Nvidia’s existing investments should not be interpreted as evidence that it intends to acquire Coherent or increase its ownership. Its agreements with Coherent and Lumentum are nonexclusive, and its broader strategy appears designed to expand industry manufacturing capacity rather than consolidate ownership under a single supplier.

Why the AI Networking Transition Favors Photonics

The strategic importance of optical manufacturing is closely related to changes in AI data center architecture.

Modern AI accelerators depend on increasingly complex communication networks connecting GPUs, memory systems, switches, and storage. As AI clusters expand, moving information between processors becomes more challenging because electrical interconnects encounter limitations involving distance, signal loss, bandwidth, and power consumption.

Optical communications offer an alternative by transmitting information using light. This becomes particularly important as data center networks transition toward 800-gigabit and 1.6-terabit optical connections.

Future architectures involving silicon photonics and co-packaged optics could increase the importance of integrating optical technologies more closely with semiconductor systems.

Marvell’s interest in Lumentum is consistent with this transition. Combining optical semiconductor expertise with laser and photonic component manufacturing could help the company develop more integrated connectivity solutions for AI infrastructure customers.

Coherent is already positioned to participate in the same transition through its optical component technologies, transceivers, and specialized manufacturing capabilities.

Its financial performance demonstrates that this opportunity is translating into commercial demand. In the June 2026 quarter, Coherent’s Data Center and Communications revenue reached approximately $1.62 billion, compared with $1.02 billion a year earlier, representing growth of approximately 58.6%.

The significance is not simply the revenue increase, but the growing importance of optical communications within Coherent’s overall business. Data Center and Communications represented approximately 79% of consolidated quarterly revenue, making AI-related connectivity an increasingly important driver of the company’s financial performance.

This growth provides a fundamental justification for investor interest independent of the proposed Marvell acquisition.

Could Broadcom Become Interested in Coherent?

Another potential implication of the Marvell–Lumentum negotiations involves Broadcom, one of Marvell’s most important competitors in AI networking and custom semiconductor technology.

Broadcom (AVGO) supplies networking switches, custom AI accelerators, and high-speed connectivity technologies used by major hyperscalers. Like Marvell, Broadcom has an interest in ensuring that optical communications capabilities keep pace with advances in semiconductor performance.

If Marvell acquires Lumentum, Broadcom could face a competitor with greater direct control over optical component development and manufacturing.

That does not necessarily mean Broadcom would seek to acquire Coherent. Broadcom already has substantial optical networking expertise and established supplier relationships, and acquiring a large photonics manufacturer would involve considerable financial and operational commitments.

Nevertheless, the proposed transaction could encourage Broadcom and other semiconductor companies to evaluate whether additional optical technology partnerships, manufacturing agreements, or strategic investments are necessary.

For Coherent, this creates the possibility of stronger commercial relationships with multiple semiconductor and AI infrastructure companies.

Importantly, an acquisition is not required for Coherent to benefit. Expanded customer commitments, joint development programs, and manufacturing capacity agreements could provide significant economic value while allowing the company to remain independent.

The distinction matters because investors should not base Coherent’s valuation entirely on the possibility of a takeover that may never occur.

The Risks of a Marvell–Lumentum Combination

Although the acquisition could increase Coherent’s strategic importance, it could also create a stronger competitor.

Marvell’s expertise in semiconductor connectivity, combined with Lumentum’s optical manufacturing capabilities, could support more integrated products and potentially improve coordination between chip design and optical component development.

The combined company might also benefit from closer customer relationships and greater control over its technology roadmap.

Coherent would need to compete against those advantages while continuing to expand manufacturing capacity, improve production yields, and develop new optical technologies.

There is also a risk that optical component shortages eventually ease. As manufacturers invest in additional capacity, supply growth could reduce pricing leverage and weaken the scarcity premium currently associated with established photonics assets.

The timing of capacity expansion will therefore be important. Coherent must balance the opportunity to capture strong near-term demand against the possibility of excess capacity later in the investment cycle.

Finally, the proposed Marvell acquisition remains uncertain. No definitive transaction has been announced, and investors should not assume that reported negotiations will necessarily produce an agreement or that any acquisition premium will translate directly into higher valuations for other optical technology companies.

What Investors Should Watch Next

For Coherent investors, the Marvell–Lumentum negotiations provide an opportunity to reassess the strategic importance of the company’s optical manufacturing assets.

The central issue is not whether Coherent becomes the next acquisition target. It is whether the industry is beginning to recognize that access to specialized photonics manufacturing capacity may be as important as ownership of the semiconductor technologies used to process and transmit information.

Lumentum’s reported capacity commitments extending into 2029 demonstrate how difficult it has become to satisfy rapidly expanding demand for advanced optical components. Marvell’s reported interest in acquiring the company suggests that semiconductor manufacturers may increasingly view direct access to optical technology and production capacity as a strategic priority.

Coherent already possesses substantial capabilities in these areas. Its indium phosphide manufacturing expertise, growing data center revenue, and multibillion-dollar relationship with Nvidia provide a foundation for participating in the next phase of AI infrastructure development.

The proposed transaction could also make Coherent more attractive to customers seeking an independent alternative to a vertically integrated semiconductor-optics supplier. That positioning may create opportunities for additional supply agreements, technology partnerships, and manufacturing investments.

The strongest investment case therefore does not depend on takeover speculation. Coherent could benefit from the same manufacturing scarcity and technology requirements that appear to be motivating Marvell’s interest in Lumentum.

For investors looking beyond the companies manufacturing AI accelerators, Coherent represents an increasingly important part of the infrastructure required to connect those accelerators into larger and more capable computing systems. If the Marvell–Lumentum transaction proceeds, Coherent’s independence and established manufacturing capabilities could become even more valuable.

Contact [email protected] for any questions or corrections.

Dr. Robert Castellano has over 40 years of experience analyzing the high-tech industries. He is president of The Information Network (www.theinformationnet.com). He earned a PhD degree in Chemistry from Oxford University (UK). His PhD thesis advisor, John Goodenough, won the Nobel Prize in Chemistry in 2019 for the invention of the Lithium Ion Battery. He writes with George Gilder, novelist, futurist, and economist, and his team for Eagle Financial Publishing.