Monday, October 17, 2011

Those lousy laser company margins

Ever really looked at the margins earned by laser companies? And then looked at margins for companies like Cisco or Google? It's enough to make you weep.

Industrial laser company margins are modest but steady. The net profit margins for the industrial laser companies aren't too bad. Since 2006, gross margins on annual sales for Coherent, IPG Photonics, Newport, and Rofin are mainly in the 40-50% range. Operating margins range from single digits to 30-some percent. The net profit margins are mostly single digits to low teens (Coherent, Newport, and Rofin), while IPG is running lately at about 23%. Trumpf, which sells much more in machine tools than it does merchant lasers, used to have about 9-10% net profit margin, but suffered in the downturn and has recovered in the last fiscal year to 6.7%.

All in all, that's decent It's the telecom component suppliers that are really hurting.

Telecom supplier margins been mostly underwater until only recently. For Finisar, JDS Uniphase, Oclaro, and Opnext, the gross margins are lower, but it's the operating margins and net profit margins that are in the tank. Like, pretty much negative values for annual revenues since 2006. There's some improvement in the last year or so, with positive operating and net profit margins.

Now I know that these numbers are fraught with "yes, buts." These companies are generating cash flow, but their official, GAAP, unadulterated income statements show losses. And a company like JDSU is in multiple businesses. I'm lumping everything together.

Meanwhile, the customers reap the benefits. Now look at the customers. Cisco has gross margins in the 60% range, and net profit margins around 15-20%. That's net. EMC's net margin is running 12% this year. Juniper is 13%. The carriers aren't doing too badly either. AT&T is consistently in the teens and Verizon is in the single digits. And get this: Google's net margin is a running a whopping 27%!

So we know who is getting the margins. It's not the components companies. Nor is it Alcatel-Lucent or Ciena, who have had consistently negative margins too. It's the router and storage companies like Cisco and EMC, and the equipment users like Google and AT&T.

The component suppliers may finally be in positive territory for good. I hope so. It's not right that the customers get margins while the components companies don't.

Friday, October 7, 2011

The $12.3B LED market: TVs today, lighting coming fast

Our new report on the LED market is out, and here's the scoop: LED revenues are on track to peak at $16.2 billion in 2014, thanks to sales into TV backlights. It will briefly dip as that segment saturates and prices erode, then lighting will pull it back up again.

Early applications in high-brightness LEDs were in vehicles, traffic signals, and signs, in the 1990s. Then in the 2000s, LEDs replaced cold-cathode fluorescent lamps (CCFLs) in mobile appliances, such as mobile phones. As that segment satruated and prices declined, LEDs replaced CCFLs for larger screen TVs. It was just in time. The overall LED market more than doubled from 2009 to 2010, to $11.2 billion. It should reach $12.3 billion in 2011.

Meanwhile, LEDs are already being used in lighting, but mostly in niche applications like architectural lighting and so forth. But growth going forward will be at 33%. The first big wave will be for replacement bulbs. These are now in Safeway stores for less than $10, but for that price you don't get much. A bulb that gives off the equivalent of a 60W incandescent would be more interesting, at that price. Then adoption could really take off.

Another wave will come with commercial and industrial luminaires. Luminaires are fixed light sources, with the LEDs built in (you have the replacement bulbs for the standard fixtures). There are already some sales of commercial-industrial luminaires, but when the business case is more compelling, that will take off. By business case I mean the life cycle cost, including labor to replace it.

Yet another wave will be in residential luminaires. Strong adoption there takes even longer, since individual homeowners don't strictly rationalize their lighting life cycle costs and anyway, the labor to replace bulbs is free. So, the old fixtures stay in place for a long time.

But I digress--the new report actually talks about all the segments, high-power and low-power LEDs, different wavelengths, different regions, prices, market share--all that good stuff. Oh, and if you are interested in the markets for the electronic drivers, GaN material, lighting, and other topics, we have reports on them too.