Thursday, June 24, 2010

Paying for the solar market

I don’t usually venture into solar energy discussions, even though it is also an opto technology. For one thing, it depends a lot on policy decisions and I've been there, done that once before. And there's already plenty written elsewhere. But it's worth pointing out Vinod Khosla’s recent posting on the requirements of investing in solar.

Khosla’s piece is long with detail, but he basically says that startups have to “be competitive with silicon cells at thin film costs or be competitive with III-V cells (well over 20 percent) at silicon costs. Then you have a 50/50 chance of making it. But a billion dollars of capital and billion dollars of debt will be hard to pay off.” A lot of is just basic market sense, and that's exactly the point.
Khosla echoes more or less what we have seen in solar for years. Strategies Unlimited followed the solar industry for decades while it had steady 25+% compound annual growth. (Don’t believe me? Check out the figure below.) Now that solar is finally in the public imagination, overinvestment has become a increasing concern.

Source: Strategies Unlimited and Paula Mints (Navigant Consulting).

I wrote already about the market for lasers needed for making thin-film cells (first here and the sequel here). My point then was that the cycle is amplified because it’s the “second derivative."

I worked on solar cells myself, back in 1978 at Texas Instruments. It's great to see it finally make the big time, and if oil prices go up, it will be even bigger. I'm hoping so. A lot of smart people are working on it. Great things are still to come.

Meanwhile, if you're following solar, read Khosla's piece, and read the comments, too. It makes interesting reading.

Friday, June 4, 2010

Time for customers to pony up

There was news this week that Morgenthaler Ventures is ending its track for funding opto hardware start-up companies, mostly in silicon, but including optical components. This is not good news, to be sure, but maybe it's time again for the systems integrators to finally pony up for components research.

The conventional wisdom here in Silicon Valley is that venture-backed start-up companies form the engine of innovation for industries. The venture capitalists are nice enough to invest piles of money in component research, with the hope that they'll make even bigger piles for their investors, when they sell the start-up to a Cisco or an IBM, or they take it public.

Trouble is, I don't know how many times I've heard the systems integrators complain that they need new opto technology now. Not next year, not next month. Now! And these are the companies that are getting decent profit margins, unlike the components suppliers (don't make me name names, please). Well, if this stuff is so darned vital, the systems vendors should be willing to pay big bucks for it, right?

The VCs aren't investing in optical communication components because they don't see the return in it. If things get bad enough, the integrators will have to take on more risk. If that becomes too expensive, maybe they didn't really need it today, or even tomorrow. My bet is that they do need it, but were happy to let someone else pay for the development.

The wild card is whether some Asian government, such as Korea or China, will fill the gap in funding and gain a permanent advantage in the components market. If you think that the venture financing model is driven by a herd mentality or is too narrowly focused to be effective, then that may well happen. But if you think that, for all of its faults, the VC model is mostly rational and market driven, then it's just China's money getting wasted, to the benefit of the systems vendors.