Thursday, December 31, 2009
If you don’t know what it is, OCT is a great imaging technology. OCT systems use advanced optics to construct micron-scale cross-sectional and 3D images in real time. The technique is non-invasive and can be used in vivo, such as to examine the inside of the human eye. The business is now entering a new phase, beyond ophthalmology to new specialties, such as looking inside arteries for cardiology. Each of these applications has the potential to be as big or bigger than the sales today in ophthalmology.
OCT may sound arcane, especially if you have to pronounce its full name. But this is big stuff, with equipment sales now in the hundreds of millions of dollars per year. Much of the activity has been driven by a shift in the technology from time-domain systems to faster Fourier-domain systems, which are also not as limited by patent protection.
Carl Zeiss Meditec no longer holds the majority of market share, even as its own revenue has grown. At least 21 other companies are developing and/or marketing OCT systems in 8 medical specialties, as well as in R&D and industrial applications. Many more companies supply the sources, detectors, and related components that enable OCT systems and applications.
Oh, and did I mention? Our market report is the only comprehensive report on the topic, a follow-on to an earlier report, also sponsored by PennWell. Kudos to our good friend, Greg Smolka.
Companies doing better than average were few, but the military and biomedical sectors stand out. For example, the OCT equipment market grew in 2009, as reported in our new market study.
Other than those sectors, as a rule, the larger the capital equipment, the worse that sector did in 2009. So sales of diode lasers for CD and DVD players didn’t do well, but sales of welding equipment for making cars and trucks was particularly difficult. And, companies with fiscal years that ended last September saw even sharper declines in annual sales than, say, those on a July to June schedule.
There were surprisingly few changes among the list of suppliers in 2009, including announcements from Oclaro and from Sumitomo. Most consolidation was internal to suppliers in the form of layoffs or securing market share within niches. Much more significant are the mergers and changes at the customer level, whether it is Ciena buying Nortel’s optical operation or GM’s spin-offs and plant closures.
There’s much more to the numbers. They are based on the annual Laser Focus World market survey, to be presented at the Lasers & Photonics Marketplace Seminar in San Francisco on January 25.
I’ve done that in this figure. The first thing to notice is that the cumulative generating capacity—the top curve and what the power companies think about—goes up all through the forecast.
The next thing you notice is that the new module shipments—that’s the middle curve—takes a dip in 2009. This isn’t too surprising, given the recession, tight credit, and low oil prices. The dip isn’t too big and it’s in record territory again by 2011.
But what is really interesting is the bottom curve. That’s the new factory capacity that’s needed to make the modules each year. This correlates directly to lasers sold for making cells. That curve actually goes to zero, even negative, for a couple of years. And even in the recovery it only hangs around the 2008 level through 2013. In other words, the laser sales will not rocket upwards like the module sales through 2013.
Of course, there are some problems with this simple chart. The new factory capacity (laser sales) probably don’t go negative. That would mean companies were taking equipment out of commission. While I have heard of this happening in 2009, it’s not widespread. Companies want to be ready for the recovery. And, there are always new suppliers, and old suppliers expanding and upgrading equipment. That raises sales above zero.
On the other hand, there is also inventory in the supply chain and used equipment for sale. That pushes the recovery further into the future.
To a first approximation, the chart is a good model, and a good example of what I call the "second derivative paradox." At least it’s better than looking at the other two curves and assuming something similar.
January 13, 2010
Wednesday, December 16, 2009
The Bain analyst, Darrell Rigby, has data to show that market share changes the most in the chaos of the downturn. It's not surprising: at best, the downturn changes the game. At worst, it brings out all the weaknesses in a company.
Since they start out with the most market share, the biggest companies have the most to lose. They have deeper pockets, but they also have inherent inefficiencies that come with any large organization. These are the inefficiencies of running a global sales network, of running operations across many end-user sectors, across multiple technologies, and so on. There's a cost to doing all that.
Companies with the next generation products may not be doing well now, but they will seize market share coming out of the recovery. This favors fiber lasers, LED lighting, and new imaging tools like OCT and optical molecular imaging.
But let's admit it: luck also plays a huge part. We deal in macro trends at Strategies Unlimited. But it's my view that, at the micro scale, a lot of business is just dumb luck. Companies are simply in the right place at the right time.
That may feel insulting to the many hard-working engineers and sales staff who nurture relationships, often over years, to bring a product to market. When things go well, it's natural to give credit to all that hard work. But looking at it from a statistical point of view, some will get the new business and some won't. Many of those who lost the business also worked hard, and even did the right things, but the business simply went elsewhere.
Thursday, November 19, 2009
Other traps. Of course we would all like to live in the "growing" scenario. The trouble is, strong positive exponential growth doesn't last indefinitely, no matter what they say. And that's not even considering some ups and downs along the way, like this year. A slight shift in the solar panel shipments wreaks total havoc for equipment shipments.
Modest growth, but better than none. Well, we've updated some numbers and in this recession, it really does look like there will be growth in the spring. Actually, it's happening right now in many segments, just modestly. In fact, the issue isn't whether there will be growth, but how much. We're talking growth around 10% for the most part, which is pretty modest on a quarterly basis. Stronger growth in sectors like semiconductor fab tools and telecom network equipment.
Forecasting is harder than it looks. You might think that predicting growth in 2010 is about as simple-minded as the character's observations in the film. Far from it. I cringe at so-called futurists who paint dramatic pictures of the future, without giving some near-term due dates or without working through some fairly obvious contradictions. Likewise for cheerleaders who think that the recession can be just wished away. (See one of my blog entries in April about this form of Coueism, here.)
Quarterly trends help. Our forecast is based on quarterly trends among key suppliers and customers in leading product sectors. With visibility within the supply chain barely better than at the beginning of this recession, every segment must be evaluated carefully with respect to what's possible. A strong comeback in telecom systems next year? Quite possible. A strong comeback in heavy manufacturing? Not likely at all. Modest growth? Possibly. (See for example comments from Fabtech from my colleague, David Belforte.)
Some context. To add some context, it now looks as if the stock market bottomed in March 2009, the GDP bottomed this fall, net employment will start increasing in 2010, and outstanding home foreclosures will start declining in 2011. You can't point to one thing and say "that's when the economy turned around." It's more complicated than that.
We will leak out more details as it firms up. Stay tuned. And remember, "there will be growth in the spring."
Tuesday, November 17, 2009
Why it matters. A rising stock market is a sign that investors think that earnings (that is, profits) will rise over coming years. It also makes all those pesky owners happy so that layoffs will stop and staff can breathe easier. And sometimes the employee is one of those owners (or has an option to become one). So, a rising stock price is usually good news, provided you remember that it is a secondary market, something of a beauty contest. Not being a Wall Street financial analyst type, I generally stay away from following stock prices, but sometimes it's illuminating.
High fliers. One of the stars right now is Cree, the LED supplier. Its stock price has tripled from its low, and is well above its 2008 peak. Aixtron is even better, at about 6X above its low, and double its 2008 peak. Cymer has doubled to recover to its 2007 level. I think it's safe to say these stocks are ahead of the overall market average, although it depends on where you start counting.
Holding their own. Others are holding their own against the NASDAQ average. Omnivision is up about 3-4X from its low, more or less in its earlier territory. Coherent has approximately doubled, getting closer to its usual territory. FLIR hasn't reached its all-time peak, but it's back to some of its 2008 level. IPG is getting there.
In the dog house. Some companies seem to be in a long U-shaped recession, well below the overall stock market. Rofin is deep into manufacturing, where the stock market doesn't expect good earnings for a while. Telecom system vendors like Alcatel-Lucent, Ciena, and Infinera are also well below the NASDAQ average for the period. Especially Infinera.
What about P/E ratios? High prices are nice, but what about the P/E ratio? That would say something about the kind of stock bargains that are out there. Here the news isn't so good. High-flying Cree is at 94 today. Cymer is near 300, Rofin at 75. But this is hardly fair, since these companies actually have positive earnings even now, and while many others don't. More down-to-earth, by the way, is FLIR, at a P/E ratio of 20.
I couldn't post the Yahoo graphs into this blog, but you can run the charts yourself here.
Monday, November 16, 2009
Many public photonics companies have seen great stock returns. The stock market looks at future earnings--that is, profits--regardless of jobs or where the jobs are. A rising market says that investors think the future is good, and it's good for employee stock options and so forth. Some photonics stocks have shot way up, well beyond the average. LED companies in particular. Even those that haven't are seeing a bounce off the bottom, suggesting that it won't get worse. Stay tuned to this blog for more on this.
Small photonics companies span the spectrum. The stock market doesn't say anything about small businesses, but there are far more small, private photonics companies than public ones. I love these companies because many are much more profitable than their more visible brethren. For example, think of suppliers for military contracts, medical systems, and so forth. But, small businesses have very little wiggle room in a recession like this. California public radio explained it well in a piece today, using the example of a maker of tortilla-making equipment that sells for up to $3 million. It has gone from 55 employees to 9, and still has problems getting credit a year into the crisis.
Large capital equipment to make large capital equipment is hit hardest. The radio piece highlights a point I've been making, that the recession will be especially long for companies that make large capital equipment, and especially large capital equipment that makes large capital equipment. So for example, the market for welding systems for making cars is likely to be slow for another year or two, while the LED market will jump ahead next year.
Use economic indicators with caution. Use economic indicators with caution. One tool for forecasting is to look at economic indicators. Of course, they are complicated, but they can be very useful. But you do need to understand some of the limitations of the indicators, though. For example, Joe Webb points out in his blog article for the print industry how leading indicators often get it wrong. The blog piece is appropriately titled, "Beware the Cheerleaders."
Even as we all bask in the news that the economy grew last quarter, economists are working to correct errors that likely overstate the value of GDP growth. When goods and services are moved offshore, the total value may be counted in the current accounts, but it may not be allocated correctly to specific industries. It's as if you compare two companies that manufacture in China: one outsources it while the other operates it itself. The productivity of the former would look better than the latter if you don't count the outsourced labor.
A similar issue arises when you look at the trade deficit but not the entire current accounts, or for that matter, capital accounts. So what if iPhones are made in China? China adds only a few percent of the value, Japan adds much more, but the U.S. captures as much as 50% of the retail value. Yet, it looks as if it is imported from China so the other contributions are lost in our trade statistics. It should wash out in China's numbers, but not all of it will wash out in the U.S. numbers. But that is part of a very large topic, better saved for another time.
Thursday, October 22, 2009
Monday, September 28, 2009
My point in the earlier post was basically that small populations will fill out a wider distribution than the larger groups of which they are members. Small populations will fill the wings of the distribution, as well as the center. So, don't compare Andorra or Iceland FTTH data to that of the U.S. Compare the data to Palo Alto. Or rural Alaska. But not to the U.S.
Moreover, many countries have more centralized telecom policies than in the U.S., where policymaking is fragmented among states, municipalities, and multiple branches of the federal government. There are lots of rural coops in the U.S. with advanced telecom infrastructures that rival Andorra. And many that are way behind. But you don't know that from aggregated data.
Former colleague and optical fiber analyst extraordinaire Richard Mack noted a couple things that suggest that the U.S. is not behind, but arguably among the leaders in broadband infrastructure.
First, he says, figures of merit that look at broadband lines per population don't consider that a lot of broadband comes through the workplace in shared links other than FTTH or DSL. When a recent report redefined the figure of merit to include all types of use and other factors, the U.S. actually comes out on top.
The figures of merit also don't consider what is being done with the broadband. The U.S. is arguably the leader in innovation in applications like YouTube and Facebook, not to mention more substantive computing applications. This has to count for something. Such innovations aren't coming out of Andorra or Iceland (although tiny Estonia is home to the headquarters of Skype, thanks to the flattening effect of telecom).
I contributed to a Congressional study many years ago that pointed out that investment in telecom infrastructure has been shown to correlate strongly to economic development in poor areas. At some point, however, there are diminishing returns. So, contrary to cheerleading that "the global race for FTTH is on," economies should invest in the broadband (and not necessarily always FTTH) that it needs at that time. Too much investment and you have a bubble. Too little and you miss opportunities.
The point is this: when you see someone spinning FTTH or broadband data, ask hard questions about what it really says.
Monday, September 21, 2009
Friday, September 18, 2009
Gerard Mourou, from Europe’s ultrafast ELI project, led off by describing how we are entering a new era in high peak power lasers. The 1960s began the Coulombic epoch, where lasers could excite atoms to higher energy states, but still bound to the atoms. The 1990s saw the Relativistic epoch, where lasers can excite particles to relativistic levels. He said that we are about to enter the Nonlinear QED epoch, where lasers may examine the vacuum itself by scattering off of the virtual particles generated in the vacuum (which is essentially the “ether” of yore).
Such new lasers offer an alternative to giant particle accelerators. An accelerator uses a “momentum paradigm,” meaning that it imparts high momentum to particles and then observes them in a small volume. An extreme ultrafast laser operates in an “amplitude paradigm,” said Mourou. It is good for low mass particles, perhaps even dark energy, by observing them with low momentum in a larger volume.
At another extreme, the National Ignition Facility (NIF) at Livermore, California, will be the most energetic laser system in the world when it is fully operational. In fact, each of the parallel solid-state lasers of the facility is the largest in the world. All 198 of them are combined and focused to a target the size of a peppercorn inside a can the size of a pencil eraser. The overall system takes up a building that covers three football fields.
The NIF has three missions. One, to help understand the aging nuclear weapons arsenal. Second, to advance the study of fundamental physics. And third, it offers a path to clean fusion energy, with the aim of following up with a dedicated steady-state fusion reactor. Such a prototype reactor, and the many that might one day follow, would use oodles of diodes for pumping solid-state lasers, a potential killer app not lost on many diode suppliers (and one that I will comment on in a later blog piece).
A point that came out was the many years these grand projects can take to launch. In two of the projects here, it took 10 to 14 years to win funding, and another 4 to 10 years for construction. It adds up to 18 to 20 years from concept to completion.
Mourou noted that the laser has seen no boundaries, only horizons. If all goes well, these grand projects will do far more than just break performance records.
Tuesday, September 8, 2009
The council announced that the top 10 countries with more than 10% penetration are: Sweden, Norway, Slovenia, Andorra, Denmark, Iceland, Lithuania, the Netherlands, Slovakia, and Finland. Note that the top country, Sweden, only has about 9 million people. Andorra has about 84,000.
Other lists of this type have put countries like Singapore, South Korea, and Iceland at the top of lists of countries with high broadband or FTTH penetration. In the next breath, a policy wonk somewhere will claim that this shows that the U.S. is falling behind these up-and-coming countries. For example, here's a policy report from 2006 doing just that. The U.S. trends toward the OECD average over time as smaller countries fill out the bell curve, but that's ignored. Rather, it's spun as a call for action.
What is never pointed out is that large populations--like the U.S. or the European Union--comprise a set of smaller, more diverse populations. A grade school student knows that, no matter how you define it, the average over the total is somewhere in the middle. Some of the smaller constituents have to end up in the wings. In the U.S., progressive rural coops and wealthier communities can lead the country in fiber penetration, while many tribal lands are far behind even in basic phone service.
Moreover, any student of politics knows that countries like Sweden, Singapore, and South Korea are more inclined to adopt centralized public policies than the U.S. In the U.S., the Administration, Congress, FCC, the courts, each of 50 states, and even municipalities make telecom policy. Some of the municipalities are like Andorra, to be sure, but the overall patchwork is far from centralized, thanks to things like the Bill of Rights and the general Wild West temperament of U.S. public policy.
Policies encouraging substantial investment in FTTH may be a great thing for the U.S. I'm of the view that it's a lot more complicated than that. But whatever your view, please don't say that the U.S. is falling behind because tiny Andorra has greater penetration than the U.S.
Thursday, September 3, 2009
In our new HB-LED market report, we are forecasting the worldwide market to decline 3.7% in 2009 from $5.1 billion in 2008 due to the declining sales in the end-user markets, mainly mobile phone handsets and automotive. But we project growth to resume in 2010 on the assumption that the worldwide economy will be recovering by then.
Thursday, August 27, 2009
Image sensors have a long history, dating back to fax machines and video cameras, but the recent steep run is largely thanks to the cameraphone. The cameraphone provided a convergence of factors that drove revenues to steep double-digit levels: a simultaneous swelling of handset sales worldwide, growing adoption of cameras in handsets, and rapid migration toward greater pixel counts in those cameras.
Now handset sales are taking a breather, dropping an expected 10% in unit sales this year. Other segments are also seeing declines, of course, and unit prices for the image sensors are relentlessly competitive.
The figure shows the long steep ride on a log scale, from our new report. The log scale makes it easy to see the change in growth rate (a chart with a linear scale is in our press release). What's remarkable, perhaps, is that the market decline this year won't be more severe than it is already.
Tuesday, August 25, 2009
Contrary to what you might think, the lighting market has never been completely static. There is a wide range of options for light sources, electronic drivers, and fixture designs, and they continue to evolve. But the sockets themselves are slow to change, since they involve network effects, a form of chicken-and-egg problem. That’s where the drop-in substitute comes in. LED replacement bulb are selling today as substitutes for certain high-value applications.
What high-value applications? That’s where the unique feature comes in. LED bulbs can’t compete with compact fluorescent bulbs for general ambient lighting. But for directional lighting, LED bulbs are superior for controllability, dimmability, and a choice of color temperatures.
Why not use the existing technology? The government mandate requires that all bulbs achieve a certain efficacy over a coming phase-in period. While this doesn’t ban incandescent bulbs outright, it does price ordinary incandescent bulbs above more efficient CFL and LED bulbs. A perfect convergence.
By the way, the terminology in this area can be confusing. The figure shows how the LED replacement bulbs fit into conventional fixtures to complete a luminaire. The eventual goal is to migrate to complete designs where the LEDs are integrated into the luminaire from the get go. (See our market report on LED luminaires.)
Friday, July 31, 2009
Here are the phases:
· Rollout of lasers for a new application
· The early peak in sales
· Saturation of the installed base
· Early wearout and upgrades
· A second “baby boomlet” as replacements for wearouts peak
If you don’t account for the early peak effect, you can overestimate laser sales by assuming that sales continue at peak levels, year after year. The news of new applications have surprisingly wide reach and long tails, feeding the perception that sales are higher than they really are, especially if the application is really cool, like stent cutting.
What keeps the market going is that there are new applications launched on a regular basis that smoothes out the overall growth in the market. But, sales any particular company can be very choppy. And, the mix of products grows more diverse with every new application in the market.
A laser salesperson will recognize the early peak effect, but it gets lost when you look at overall market numbers. It’s not hard to explain to the old-timers in the business, but it doesn’t have a ready label, as far as I know. I couldn’t come up with a better name for it, so for now it’s the “early peak effect.” If you want to call it the “Hausken effect,” that’s fine with me, too.
Wednesday, July 15, 2009
In contrast, Semicon is underground at Moscone North and South. It was cheerful enough, considering the downturn and the lack of windows, but the party was at the solar show. And judging from the signup map for next year, the North and South Halls will be even emptier. In fact, Photonics West is now clearly bigger than Semicon West--at least in exhibitors and floor space, and maybe attendees too. (Rumors that Semicon will be squeezed into the South Hall turned out to be false. They are putting all the wafer processing booths in the South Hall. The North Hall will have everything else.)
To be fair, no one was expecting Semicon West to be much of a party this year. After all, SEMI just announced that tool sales will drop 50% this year to the unspeakable low of $14 billion. (It was $43 billion in 2007.) But it's notable who is showing there nowadays, or rather who isn't. Semicon is a tool show, but Applied Materials, KLA Tencor, LAM Research, ASML, and many other major toolmakers don't have conventional booths anymore. For example, Applied and KLA only had meeting rooms at Semicon, while they showed their solar tools across the street at InterSolar.
Semicon West is now really about the gadgets that the major vendors attach to their systems, the materials they use, and R&D lab equipment. This means that there are suppliers for everything from microscopes and instruments to encoders and bearings. It's a good show for this kind of product development and lab stuff, and some of the specialty tools that are used in North America.
But this year, even that was down. In lasers, Cymer, Gigaphoton, Coherent, and JDS Uniphase--each one catering to the semiconductor industry--all didn't show. The laser companies that I saw were Deep Photonics, Eolite, DPSS Lasers, Innolas, Jenoptik, Quantronix, and Rofin-Baasel. IPG and Newport showed their lasers at InterSolar.
SEMICON is still the biggest fab tool show of the year for North America, and a very important one. One instrument vendor told me that even in a year like this they expected to get some sales from leads at SEMICON. New tool development still goes on. But it's a shadow of its glory days, about 15 to 20 years ago. The SEMICON shows in Asia are much weightier on the big tool side. And that makes sense, since as much as 75% of the world market for semi tools is in Asia, according to SEMI.
And, the industry has grown so big that there are other, more specialized shows to choose from. Like, for examplek, the lithography people like the SPIE Advanced Lithography meeting held in San Jose. There are meetings like this for every sort of nuance you can think of.
Photonics West is also a gadget show aimed at product developers and lab workers, like Semicon, but it spans more industries, particularly healthier ones, like biomedical and security. And it has a cross-cutting technical conference too. (And don't forget the Laser Focus World Marketplace Seminar, collocated with Photonics West every year!)
I think it's a sign of the times. Solar is in. Photonic gadgets are in. Semi tool gadgets are still in. But the days of the big tool show in North America may be over.
Monday, July 13, 2009
Friday, July 10, 2009
One of my favorite characters in the wine industry is Fred Franzia, famous for his Charles Shaw wine, better known as Two Buck Chuck. He's the guy that Napa Valley loves to hate, and he loves that they do. He boldly claimed several years ago that the Australian wine business would one day crash because they were planting too many grapes and financing with debt. At some point the world market would go through one of its inevitable cycles, prices would fall, and they wouldn’t be able to meet their fixed costs.
Sound familiar? A recent article cites some other familiar factors: relatively high labor costs, an unfavorable exchange rate, and over-association with a single, lower-end brand.
All of this has been said at one time or another about photonics companies. Especially the part about overplanting. Who in photonics doesn't dream of starting a company developing high end cool stuff, ramp quickly, and make a ridiculously prosperous exit. It's happened enough to prove that it can. However, the reality is that it usually takes years to build up the business, and a lot of it is about as glamorous as pulling weeds.
In the wine industry, you don’t start by selling high end wines to collectors. You start by selling bulk grapes. Maybe you can begin making your own wine, or at least contract it out. Then maybe you do some bottling and run a small tasting room on the side. Eventually you may be able to get out of the low-end grapes altogether, except to sell off overstock. That’s if a downturn doesn’t force you to sell out to a large corporation.
I hate to say it, but the photonics business could learn a lot from Fred Franzia. I hate to say it because Franzia is on a crusade to take away the pretense in wine, while many people are obvioulsy willing to pay top dollar for pretense. And in photonics, too, not only is there is a place for suppliers of low volume, specialty products, but I'm hope that everyone can enjoy the highest margins possible.
You can learn everything you need to know from Fred Franzia in this colorful interview in 2007.
Thursday, June 25, 2009
It’s not quite so simple as that, however. For one thing, LED replacement lamps are too expensive today for widespread use, so they are relegated today to special applications, such as hard-to-reach places. Manufacturers have yet to realize economies of scale. In the meantime, compact fluorescent lamps (CFLs) are more prominent. Also, customers have to be educated to think in terms of cost of ownership, rather than the initial price. Even the government regulations aren’t set in stone, given the big change that it entails.
What's so great about LEDs? LED lamps are directional and can be adapted to fit different lamp profiles not possible with other light sources. They come in all possible shades of white, last for a long time, can be dimmed and controlled easily. And unlike CFLs, LED lamps contain no mercury.
The LED is in many ways the ideal lighting technology, but actually developing that market is still surprisingly challenging. That's why the new energy regulations will prove so pivotal for the LED business.
Oh, and in case you missed the hint earlier, we do have a new market report on this topic.
Tuesday, June 23, 2009
Here’s how it works. Newport’s laser group, Spectra-Physics, got its diode business in 1992 when it acquired OptoPower, located in Tucson, Arizona. For years there was an industry-held view that the diode-pumped laser makers needed to control the diode pump technology so vital to the solid-state lasers. Today, the big laser companies like Coherent, TRUMPF, Rofin-Sinar, and IPG Photonics all pretty much make all their own diodes.
Fabs, though, are very expensive operations, costing as much as $30 million or more per year, depending on what you're counting. A classic way to make that work is to get volume through the fab--increase the capacity utilization. But with well over a dozen competitors and a slow market, that's hard to do, and everyone knows it. Spectra's diode operation has certainly seen better days, now that its assembly operations have moved to China and sales are soft for everyone.
Meanwhile, Bookham (now Oclaro) has two gold-plated fabs, a GaAs fab in Zurich and an InP fab in Caswell, UK. By shutting down the Spectra diode fab in Tucson and making the diodes in its own fab, Bookham can get much better returns out of its capital. The new volume could even be low margin chips, as long as it helps keep the lights on. Moreover, even Bookham's competitors regard Bookham's R&D highly. And Oclaro is hoping that it can be *the* independent diode supplier to the solid-state laser makers.
It all sounds good, but competitors are quick to take pot shots at the deal.
For its part, Coherent is keen on keeping its diode manufacturing in-house, in part because it also makes its OPSL gain chips in its fab with its high power diodes. Thus, while Spectra's fab may no longer be as integral to its overall laser business, Coherent's fab is. And the other big laser companies (Trumpf, Rofin, and IPG) are all quite religious about controlling the supply of key components and keeping their fabs in-house.
Others suggested that Newport gets a solid business from New Focus (albeit one that is reportedly losing money at the moment), while Bookham-Oclaro could very easily fumble the diode business it's taking over.
This is all true, although I would add that at least it plays to a larger strategy for Oclaro. Oclaro shows that it has a plan for its diode business. That's better than no plan.
One thing that everyone agrees on is that the New Focus operation fits better with Newport, even though it's reported to be losing money. And it’s something of a completed circle for New Focus, since one of the founders (in 1990) was Milton Chang, already then a former CEO of Newport.
As for the remaining competitors, one less high-power diode fab has to be viewed as a good thing. Of course, Bookham/Oclaro aims to get most of the benefit from that, which is to say that it makes it all the harder for the least competitive suppliers—it tips the scales against them.
Finally, you have to wonder what this says about the state of the industry when a major deal amounts to a barter, with almost no cash or stock involved. Of course, all deals are swaps of some kind, but bartering is considered the most primitive form of trade--a pre-monetary transaction that happens in primitive societies and war zones. The value of the diode laser business is evidently so low that a monetary or stock transaction these days is out of the question, and perhaps only a trade of this kind can go forward.
The number of exhibitors at Laser Munich last week was almost exactly the same as in 2007, but spread out in four halls instead of three. Considering the laser industry is in its deepest trough ever, people were in a great mood.
One factor would be that there is now a general feeling that the industry, and the economy at large, has more or less hit bottom. One comment that sums it up is that now “there are finally more new orders than cancellations.” It’s kind of like how you feel when you stop beating your head against the wall.
The bright colors may have helped too. Trumpf was touting the Blue Laser, which I was told referred to blue sky, earth as seen from space, earth-friendly, and something about cozying up to Mercedes. Its new-ish acquisition, SPI Lasers, featured its redENERGY and redPOWER lasers--really more infrared than red, but close enough. Coherent, meanwhile, went yellow and featured a more industrial look, evoking images of robots, Caterpillar tractors, and guys with hardhats.
The best coverage of the show, including video coverage, is by Industrial Laser Solutions magazine (look for articles in the June 15 to 19 timeframe). But, since everyone seemed to ask, "What's new at the show"? here's my general take.
Fiber lasers were once again the big thing at Laser Munich. At Munich 2007 we saw several early fiber laser products from players who had been on the sidelines, most notably Trumpf, Rofin, and GSI. This year those companies stepped up their fiber laser offerings. In addition, Coherent showed a fiber laser prototype based on bar pumping that will be out next year. Newport quietly relaunched a 100W CW fiber laser for industrial applications. nLight featured its fiber laser products from its OptoTools acquisition. And even LASAG, well known for its lamp-pumped YAG lasers but not wanting to be identified only as such, had a fiber laser in its booth.
Never one to be outdone, IPG showed a 10 kW single mode fiber laser. Even 3 kW was remarkable just a couple years ago, now they are at 10 kW. Its main application is for military customers developing directed energy weapons, a good business for IPG these days.
Direct diode lasers also had some buzz. For the most part, there were the usual players, Laserline being a leader, but acceptance is growing for processes like brazing and welding. Trumpf was the most notable new player. Lumics was able to boast about its "three digit" unit order for 200+ W fiber-coupled diode systems--a nice win in a tough economy.
Overall, the booth traffic may have been on the light side, but I wonder if Laser Munich may steal some market share from competing events. Even with companies tight on travel budgets, everyone still wants to be at Laser Munich, to be part of the family reunion.
Friday, June 5, 2009
There was a session in the PhAST Market Forum on mid-IR environmental monitoring. There was a plenary presentation by Federico Capasso, now a professor at Harvard, on quantum cascade lasers. Daylight Solutions, Hamamatsu, Alpes Lasers, Maxion Technologies , and AdTech Optics are some of the companies that make quantum cascade lasers or products built around them. There were also companies showing 2 micron fiber lasers, such as Advalue Photonics, IPG Photonics, and Photonics Industries. And there are usual established players that make OPOs and the pumps to drive them, companies that feature coatings, and so on. Some of the companies have even been hiring through the downturn. MIRTHE, the NSF Center on Mid-Infrared Technologies for Health and the Environment headquartered at Princeton, had a booth at CLEO showing off some applications.
Of course, there were also lots of other great new products and conference presentations. Laser Focus World magazine does a great job covering those topics, I'll leave that to them.
The turnout at CLEO wasn't too bad, considering we are going through the biggest economic downturn in decades. Sure, companies cut back in booth size and attendees, but CLEO attendance was only in the lower end of the range of recent years, not drastically different.
CLEO really addresses scientific and R&D applications--you see lots of ultrafast lasers and fancy instrumentation. The markets for those applications are as close to flat as any today. Which is to say, really good.
Friday, May 22, 2009
Here are two companies that are pretty good proxies for the sales in those two markets: FLIR and Cognex. Both are heavily focused on imaging, but for different markets. The figure shows their revenues since 2006. I didn't adjust for some some minor acquisitions that each of them made, but it doesn't seem to matter much.
The new report from our SU analysts Bob Steele and Hank Rodeen updates our earlier reports, addressing both the devices and the substrates used for shorter-wavelength LEDs, blue lasers, and widebandgap electronics. The substrates are mainly sapphire or SiC, with the GaN grown on top, although there are a number of variations and alternatives to get the GaN layer. The substrates have been mainly 2-in in diameter, but are quickly moving to 3- and 4-inch diameters.
The rapid migration stops there, however, in part because of the difficulty to work with GaN but also the manufacturing costs involved in the specific devices fabricated in GaN. In widebandgap electronics, for example, Cree points out that the substrate technology will be ready before the volumes will be. And the electronic devices are relatively large, but not large and pricey enough to merit the jump to larger substrates.
And as for bulk GaN substrates--well--they are simply too difficult to grow and expensive to use for the time being. Inexpensive bulk GaN would be ideal for devices based on GaN, but nature provides alternatives today that are good enough at a lot less cost, and still getting cheaper. Without that volume, bulk GaN remains perpetually behind, or at least far enough behind to be unimportant to our 5-year forecast.
Tuesday, May 12, 2009
Vrinda Bhandarkar, our LED lighting market expert, notes that it takes events like this to create the interest, and then the lighting designers can start specifying products they want. These designers write the specs for big projects, like commercial buildings and such. Those projects help to drive LED volumes up and prices down enough to reach even wider markets.
And for once, the standards won't be holding the market back. Finalized last year were the standards on solid-state lighting definitions (IES RP-16 (a)), photometric testing (IES LM-79), lumen depreciation testing (IES LM-80), and chromaticity (ANSI C78.377).
If you want more detail on Lightfair, see the great coverage in the daily articles in LEDs Magazine.
Oh, and I'll make a shameless plug here for Vrinda's most recent market reports: LED replacement lamps (2009), LED Lighting Fixtures (2009), and HB-LEDs for Lighting (2008). The replacement lamp report is just coming out--we'll comment on that soon.
Tuesday, May 5, 2009
If you dig around, the stories are there. In April, Powerlase got a chunk of money for its business in lasers. In March, One-Chip Photonics received nearly $20 million that was promised to them for meeting a milestone in photonic integrated circuits. In January, nLight got about $11 million for its business in lasers and laser components. In December, Pixim received $13 million in funding for its business in image sensors for security cameras. In November, Raydiance got $20 million for its work in ultrafast lasers. The biomedical sector continues to do particularly well. Recently three bio-optics startups received a total of $38 million in financing: AOptix Technologies, BiOptix Diagnostics, and LensX Lasers (putting an x in your company name is evidently the new fashion). And there are more.
The companies are quick to boast that they are still a good investment, but there is always more to the story, to be sure. For one thing, companies don't disclose the terms of the deals. And some have asked me, if they are doing so well, why do they need the money?
But the investors are putting what money they have into the companies they believe in the most. That's worth noticing.
By the way, if you want to read some interesting comments from a VC's perspective, see Larry Marshall's VC View blog at the Laser Focus World web site. For example, here's "What VC's actually do in a down market."
Wednesday, April 29, 2009
Bookham and Avanex don't have greatly overlapping product lines. And the new management claims it will continue manufacturing parts the way it has been. That is, it will keep the Bookham fabs and its Shenzhen facility but will also keep using Fabrinet as Avanex did.
The company points out that now they have a wider range of products to compete against bigger competitors, like JDS Uniphase and Finisar. I've never fully believed the one-stop-shop argument though. Of course, Cisco and any other customer would like to reduce its list of suppliers. But the customers also want suppliers to be competitive, and they want the best products they can find, provided that the supplier is qualified. Grouping products into one company doesn't necessarily make Oclaro more competitive in those products.
There will certainly be some synergies gained from consolidating various functions, such as procurement and corporate overhead. The figure shows Oclaro's vision of the gains it can make in gross margin from the merger. One of the bigger synergies would be the use of the Bookham fabs to supply chips for Avanex products. This is a change in market share, shifting sales from the former suppliers (such as JDS Uniphase) to Oclaro, possibly improving Oclaro's factory utilization. It might also steal some margin from contract manufacturers.
That may turn out real good for Oclaro, although it doesn't necessarily constitute consolidation if it just spreads market share more evenly among some of the bigger players. Without knowing how it plays out product by product, it could actually increase competition and reduce consolidation in some segments.
Oclaro's CEO Alain Couder notes that the company also gets to spread Bookham's credit line over a new balance sheet that is low in debt and with a nice chunk of cash. That's never a bad thing, for Oclaro. And despite claims to the contrary, the management may make more moves once the excitement has died down. Anything that tips the scales dramatically in Oclaro's favor would essentially increase consolidation, even if the number of suppliers is nominally the same.
This may turn out real good for Oclaro. But I wouldn't call it industry-scale consolidation. Not yet.
Tuesday, April 21, 2009
At the least, this is an indication that inventories are now worked out of the supply chain. But, it's interesting that a lot of the news comes from one place: Taiwan.
Dominique Numakura of DKN Research Group notes several reasons for Taiwan's thaw in his recent newsletter. First, it's based on two successful products that are emerging now, just as the recession hurts sales for just about everything else. Those products are the netbook computer and the smart phone. Another reason is that spillover of demand from mainland China's stimulus package has driven up demand for large screen TVs supplied from Taiwan. Numakura also suggests that Taiwan has a more urgent and proactive approach to the downturn, more aggressively seeking out opportunities than Japanese and American counterparts that take a more reactionary approach.
It helps to note too that the semiconductor downturn dates all the way to 2007 already, so improvement is well overdue.
Any thawing will be good news for anyone making optoelectronic chips for common appliances: things like image sensors, displays, LEDs, etc.
There is still plenty of bad news coming out every day. For example, iSuppli doesn't buy the hype about a memory chip recovery, arguing that the supply will still exceed the growth in demand. And for the most part, the demand for fab tools and other manufacturing equipment remains frozen solid. But the chip demand has to improve before anything else can.
Tuesday, April 7, 2009
The application I have in mind is for SiC or GaN devices for power management devices in hybrid and electric vehicles. Their use in these vehicles is not news, but it's easy to overlook the transformation that this technology can help bring to the auto industry.
Widebandgap devices can run hotter, switch faster, and are more efficient that equivalent devices based on silicon. They are more expensive too, but efficiency is very important in the power circuits in hybrid vehicles, and anyway, the price is coming down as volume increases. SiC devices are currently the market favorite, but GaN may be able to play here too.
What is really exciting is how the electric vehicle can truly transform our definition of a car. Once you eliminate the engine, transmission, and drive train, you can do many things very differently. (See, for example, this interview in Tech-On! with Yukitsugu Hirota, from the R&D Center of Calsonic Kansei.
It reminds me of the history of the electric motor, in the 1800s. The first thing that innovators did was to replace water wheels with large motors, driving everything off of a single, long shaft. This is what they knew how to do, since they were used to water wheels, not motors. Then they began to break up the workload into smaller pieces, each driven by its own motor. This process took time--about 30 years, in fact.
It's not difficult to see the same thing happening to the auto industry. Internal combustion engines won't go away, and electric golf carts are nothing new. But the auto industry will transform over the next few decades to a different type of vehicle, and it will need devices based on SiC and GaN.
The short answer is that it is way too soon to tell. The high-profile airborne laser program has been a dream for decades, but it has been too ambitious for its own good. In December 2007, a U.S. Defense Science Advisory Board task force recommended that military agencies look for smaller, more practical applications for laser weapon projects, rather than for giant, megawatt-class applications that take a longer time to prove in. This favors solid-state and fiber lasers for tactical operations over chemical lasers and other exotic technologies.
There are dozens of military programs that involve lasers, even high-power lasers. Some are futuristic, like the airborne laser, and some have been in use for years, such as rangefinders.
Moreover, Gate's dramatic changes to the budget have to be approved by Congress, and that won't be easy. Members will fight hard to save jobs in their home districts.
By the way, it's interesting to see the trend in U.S. military spending. The figure shows spending by fiscal year, including supplemental funding. Military spending by the U.S. and other countries is likely near a peak, with tighter spending as early as this year.
Figure source: U.S. Congressional Research Service and Defense News research, as reported in Defense News, October 13, 2008.
Wednesday, April 1, 2009
We work in an industry that is mostly driven by capital equipment purchases. Big purchases have to be financed. You can think of it this way: the customers borrow money to buy the equipment, and pay it off with the revenues they will get in the future. Even if they use cash to buy the equipment, they could have used the cash for something else (like generating interest itself), so they have to cover that opportunity cost.
In times like these, the customers are no dummies--their confidence in the future has dropped enough that they delay buying new capital equipment. Think about it: are you looking for a new car right now? Or are you thinking of a used car, or maybe keeping the one you have a little longer? Is that fear?
No, fear is too strong a word. It connotes panic. From my discussions with customers, at the financial level, they aren't in a panic. They aren't reacting out of emotion. They have a reasoned, albeit cautious, approach. But all these microdecisions add up, and that hurts suppliers.
What will bring back the confidence to buy new capital equipment? Inexpensive and available credit helps. Rising demand in the end-user markets helps, such as that stimulated by government spending. New product innovation helps, by motivating industrial customers to replace inefficient equipment with new equipment. Finally, understanding how the customer thinks--and the customers' customers--helps.
Fear does indeed drive speculative markets like the stock market. Fear and greed. But not capital equipment purchases.
Friday, March 27, 2009
Tuesday, March 24, 2009
In other words, the days of a nearly unbroken string of growth for both fiber lasers and industrial lasers is over. For the next several years the business will be much more cyclic, like the capital equipment market that it is. We still expect the envelope of the laser market to expand over time, but the swings of the cycles will be much more apparent.
By the way, this forecast only reports on industrial lasers that could be available to fiber lasers. It excludes most diode lasers, and also big excimer lasers for lithography. So, it's best to compare the numbers only to our previous reports.
In fact, if you have questions, send me an email (email@example.com) and I'll try to explain how we came up with the numbers.
Thursday, March 19, 2009
It's bad enough that the demand for components is sharply down as a result of the recession. Cutting prices only makes it worse. It's not like a company can brag about having market share if they lose money on every product going out the door. And in most of the opto market, high prices aren't holding back--the worldwide recession is to blame for that.
This is what has happened for years to several companies in telecom components. Some were selling below their cost. Consistently. And it spoiled the market for everybody.
I have to admit that I would be the first to argue that, in the end, the market forces ultimately prevail. That is, if there are enough competitors and the situation is desperate enough, suppliers will cut and run to get any business at all. Asking suppliers to remain calm and rational is not likely to make a difference.
And if fact, since last fall I've heard of discounts of as deep as 30% and 50% on standard prices. And then there's the used equipment market. What's a supplier to do when it is competing against its own products on the gray (used equipment) market?
Just the same, I hope that suppliers can look longer term and stick to a sustainable business strategy. It's going to be a long, cold recession and companies will be better off if they huddle together for warmth than if they wander off alone.