Thursday, December 16, 2010

What a weak dollar means to photonics

The dollar has been declining steadily again (see figure) but how much difference does it make to lasers and photonics? A lot to any salesperson who is competing in an export business. A falling dollar is like a discount in the price given to the buyer. And it can mean a lot to the value that we analysts assign to markets (such as in our new market estimate). For example, a falling dollar inflates the value in dollars of the production of Japanese blue-violet diode lasers for Blu-Ray players. But it doesn't mean a lot overall, for a lot of reasons. Why is that?

The conventional wisdom is that a falling dollar makes U.S. goods and services cheaper abroad, and foreign goods and services more expensive in the U.S. That is, it makes U.S. goods more competitive, and it deflates U.S. debt owed others as counted in foreign currency.

But many companies don't sell directly to companies abroad. A more complete downstream product may be exported by the customer's customer, but either way, the effect may be minimal--or at least obscure--to the photonics manufacturer.

Second, companies commonly import subcomponents from all over the world. A lower dollar then raises the cost to manufacture, erasing some or all of the advantages when it exports the complete product.

And, a lot of companies manufacture in the destination markets. This can help hedge against changes in currencies, among other things. In the example of Japanese blue-violet diode lasers, it changes the average prices and overall value, in dollars, that we assign to a market. But that can seem rather artificial when most of the Blu-Ray players are assembled in Asia anyway.

More often, the gains and losses from a falling dollar amount mostly to changes in market share: U.S. companies vs. non-U.S. companies, and U.S. importers vs. U.S. exporters.

For an explanation how a falling dollar is unlikely to create many new jobs in the U.S., read this article. It cites the reasons above, and notes that much of U.S. manufacturing is capital intensive, not labor-intensive. And, many manufacturers are small and not likely to ramp up hiring dramatically even if sales do improve.

Just the same, every little bit helps, especially if it means tipping a business from the red to the black or deeper into the black.

Monday, December 6, 2010

The new laser market numbers are out: $6.4 billion in 2010

The fall Laser Focus World survey is done and the estimate for the laser market in 2010 comes out to...(drum roll please)...$6.4 billion. That's a 27% gain over our revised value for 2009, recovering almost to the value in 2008 and not far from the peak in 2007. The strongest gains were in materials processing and communications.

A more complete picture will be presented, along with other market perspectives, at the annual Laser Focus World Marketplace Seminar in San Francisco, the same week as Photonics West.

Nearly every sector saw gains over 2009. But how could they not, considering the first half of 2009 was the worst period of the recession.

Nonetheless, the gains exceeded expectations, especially in the sectors related to electronics manufacturing: semiconductor fab tools, solar cell fab tools, flat panel fab tools, and electronics assembly tools. Let's hear it for smart phones and HDTV! China was also a big factor, buying tools at a time when other regions were more cautious.

And then there is the jobless recovery. Many manufacturers have cash and even credit, but remain wary about the future. Some chose to invest in capital equipment instead of hiring workers. The capital equipment improves the productivity, so it helps in their labor costs too.

It's worth a mention in this blog that historical values were significantly revised in two key sectors: excimer lasers for lithography and diode lasers for optical storage drives. These sectors are not relevant to most followers of the laser market numbers, but restating them does change the overall totals.

For more information, come to the seminar, or buy the complete forecast and segmentation in our market report.