Thursday, April 19, 2012

The 1% in photonics who make 60% of revenues

Been hearing about the 1% lately? Try this one: about 1% of photonics companies make about 60% of the revenues. Wow. This is a finding we obtained in a recent study completed for SPIE on the global photonics industry.

The study counted revenues from all types of photonics suppliers, from massive $26B display module suppliers to niche suppliers of sensors and optics. The 1% value also includes intermediate products (such as materials and subcomponents), equipment used to manufacture the products (such as MOCVD machines), foundries and contract manufacturers, and what we call adjunct products—those that are dedicated to the photonic product, such as drivers, chillers, image processing chips, etc.

The display sector certainly skews the numbers, but what’s interesting is that the lopsided revenues are found in just about every sector I looked at. For example, for years I’ve found that the top 10 non-telecom laser suppliers receive about 75% of the revenues, while the other 100 or 200 receive the other 25%.

It’s not hard to see why. There are about 100 small companies making a few million dollars for every Coherent ($740M) or Hamamatsu Photonics ($1.3B). And why not? It turns out there is a place for all those niche suppliers. Coherent can’t be bothered to go after most of that business—it doesn’t offer enough opportunity. And a lot of those little suppliers are in that intermediate or adjunct market: selling odds and ends that support the bigger market.

It’s important to understand that none of this says anything about profits. One might think that it simply scales with revenues, or perhaps better than that, since large companies can enjoy some economies. But the solar cell companies are all losing money right now, so that alone blows up the numbers.

It’s been my observation that small companies are often much more profitable than the large ones, but that’s a blog for another day.