Marvell agreed on Monday to acquire Lumentum through a all-stock transaction, with a transaction valuation of approximately $115 billion.

According to the terms of the transaction, each share of Lumentum held by Lumentum shareholders will be convertible into 4.5 shares of Marvell. The two companies stated that the transaction is valued at approximately $115 billion, equivalent to $1,132 per share, which represents a 23.9% premium over the closing price of Lumentum on October 28th; the market had not yet reflected this transaction before news of the merger between the parties emerged. Upon completion of the merger, Marvell, the CEO of Marvell, will take charge of the merged company, while Michael Hurlston, the CEO of Lumentum, will join the board of directors of Marvell.

Both companies refer to this transaction as a case of "extreme collaborative design." According to them, the DSP of Marvell, which involves the exchange of chips and silicon photonics technology, will be developed in collaboration with Lumentum's indium phosphide (InP) lasers, transceivers, and optical path switches (OCS). The two companies claim that after the merger, the total target market size will be 550 billion US dollars, and they expect to reduce costs by over 1 billion US dollars annually.

On Monday, the stock prices of both companies fell. Stifel pointed out in a research report that since Bloomberg reported on the merger negotiations between the two parties, the stock price of Marvell has declined. This means that based on the price at noon on Monday, the offer is worth approximately $824 per share of Lumentum, totaling about $84 billion.

This means that a chip company is acquiring a laser factory, and at this time, lasers are one of the most scarce components in the infrastructure construction of AI. Stifel Analyst Tore Svanberg wrote after a teleconference on Monday that the company's management “clearly stated that the tight supply of lasers is not the reason for this transaction, but rather a byproduct of their belief that the scale-up optical demand has already arrived.” In any case, Marvell will acquire what Lumentum calls the world's largest indium phosphide wafer manufacturing plant.

In the terminology of the AI network field, scale-across refers to the connection of data centers, scale-out refers to the connection between AI and pod (i.e., a group of GPU clusters that form a single machine through interconnection), while scale-up refers to the accelerators within a single pod. As optical interconnections become closer to the chips through near-packaged optics and co-packaged optics (NPO and CPO), Murphy and Hurlston believe that lasers, drivers, and DSP must be designed in coordination, and customers will also wish to obtain pre-verified optical engines from a single supplier.

The performance of Lumentum added some momentum to this argument. The company announced that its revenue for the first fiscal quarter of the 2026 fiscal year was $1.26 billion, a year-on-year increase of 136.5%, and it secured a second important NPO / CPO project, backed by procurement commitments worth over $5 billion.

Of course, there are also certain customer conflicts involved. Lumentum sells lasers to module manufacturers, who are also buyers of Marvell DSP; in addition, if Marvell possesses the transceiver product line of Lumentum, it will also compete with these customers. Management stated that the module business will account for less than 10% of the combined revenue after the merger. Furthermore, Nvidia has invested $2 billion in each of these two companies this year, therefore it holds shares in both parties to this transaction.

For telecom buyers, the checkout lines may become even longer. Omdia indicates that orders for transmission equipment have begun to exceed supply capacity. According to data from Omdia, a sister company of Light Reading, in the past four quarters up to June, the data communications market accounted for 74% of the $39.5 billion optical components market, while the telecom market accounted for only 22%. Omdia pointed out in its October briefing that suppliers with longer product catalogs are facing “greater resource prioritization pressures,” and shifting resources from telecom to data communications has become quite common nowadays. The related DSP and 800ZR businesses of Marvell give them reason to continue to maintain their layout in the transmission optics business.

Not everyone agrees with the single supplier model. Ciena has been advocating for a multi-source protocol with Open CPX, proposing open and interoperable CPO and NPO solutions to counter the single supplier design. Mingyang Lyu, a senior chief analyst at Omdia, writes that so far, the weakness of this approach lies in "its ability to attract only those AI infrastructure builders who control large capital expenditure budgets."

The author of this article is Phil Harvey, and the source is Light Reading.