Thursday, December 31, 2009

New report: OCT has a good 2009

How good is the OCT equipment market these days? It grew in 2009, despite the recession, and that's in units, not just exchange rate adjustments. That’s how good it is. What’s more, we’re expecting 20% compound growth through 2014. This is from our latest OCT market report, now officially released.

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.

The 2009 laser numbers are in

The numbers are in, and the laser market dropped to $5.3 billion in 2009, a 24% decline from the record high of $7.0 billion achieved in 2008. While sales will remain sluggish in many sectors, overall revenues are already on the rise on a quarterly basis, with 11% growth expected in 2010.

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.

The capex derivative & solar--Part 2

In a previous post, I discussed how steep upward growth for a market doesn’t necessarily mean steep upward growth all along the supply chain. In fact, solar cell manufacturing is an example where sales can go wildly negative even as the power generators see upward growth. In the original post, I considered three different scenarios that made my point very nicely. But what happens when we plug in some numbers that may be more or less what we expect the solar market to be?

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

On using the downturn and dumb luck

It's become a cliche that companies can use downturns to their advantage. Now there's an analyst from Bain & Co. who actually has the data. As he says in a piece on NPR this morning, it's like companies use the curve in a car race to gain advantage against stronger competitors, while using the straightaway to hold it.

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.