Thursday, June 25, 2009

LED replacement lamps: new regulations and 100+% growth

Most people are not aware that new energy regulations in Europe and the U.S. will progressively ban incandescent lamps from the market, creating a huge market opportunity for LED replacement lamps just as they improve in performance and price. Our new market report anticipates growth rates in this product of over 100% per year for the next several years, thanks to the new regulations, continuing declines in prices, and the unique features that only LEDs provide. That’s great news for LED makers, who see the lighting market as the ultimate application for LEDs.

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

The Newport-Oclaro swap--Tipping the scales, a return to bartering

Ever since the announcement that Newport will give its diode business and $3 million in cash to Oclaro in exchange for its New Focus operation, opinions have been all over the map: from Newport is crazy to give up its internal diode business, to Newport got the better deal. The bottom line? I think it will tip the scales against the least competitive players.

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.

Laser Munich--Bottoming out, fiber lasers, and a family reunion fueled by beer

Who can be gloomy at a show where the beer starts flowing before noon and booth parties start before closing? If booth traffic is slow, at least the halls are bright and cheery and everyone is there. It’s the closest thing to a family reunion in the laser business, and it only happens once every two years.

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

CLEO 2009--The year of mid-IR

To name one thing that stands out at an industry event may do an injustice to the many others, but mid-infrared is my pick for CLEO 2009. This is a product category that really seems to be gaining traction. From a market perspective, it has a lot going for it: many new and exciting potential applications, and many new technology solutions. Of course, application development takes time, but there are both near-term and long-term apps. A nice place to be these days.

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.