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.

Big money for photonics in data centers

The best news that photonics people could hear came last week at OFC when Cisco announced that it was buying Lightwire for $271million in cash. Lightwire is a start-up making integrated photonics, and Cisco is interested in it for making interconnects in data centers, among other things. I try not to get intoxicated with financial ups and downs that ultimately benefit only a few investors (if that),and I'm not fond of buzzwords like "integrated photonics," but this is good news for anyone with a similar technology.


It makes sense that Cisco needs the expertise developed in Lightwire. Companies have spent millions on this; for Cisco to do it itself would take millions more and years of delays. Meanwhile, its competitors--Huawei for one--are encroaching on Cisco's market with technology of its own. Cisco can't rely on the merchant market for everything.


The data center bottleneck is particularly important. I attended four discussions on the topic, including the OIDA workshop to develop a roadmap (where I was a moderator and am writing the report). The challenge is for the industry to develop new architectures and inexpensive components that can address the many-to-many interconnects necessary in modern data centers, such as those of Google and Facebook. Traditional data centers are not a challenge: a conventional switching hierarchy can store and retrieve data, and that scales predictably. The new data centers don't scale as well.


Both Google and Facebook made the rounds at OFC, and both claim that the technology is available today, it just has to be commercialized. They say there needs to be a whole new sector of components that don't need to meet Telcordia and NEBS standards. It just has to be good enough for the controlled data center environment. Oh, and make it really really cheap, thank you.


The one problem I have will all of this is that the net margins for Google and Facebook are about 25% or so. That's net profit, not gross. The optical components suppliers' net margins are a few percent to negative. So how about giving some of that nice margin back to the components suppliers? Especially as many suppliers don't see the return on this new segment justifying the risk.


That's why Cisco's acquisition is such good news. It's a return for the start-up's investors, but it also means that Cisco is willing to fork over some real money for components.


The OIDA roadmap report on data center interconnects will be coming out sometime in the coming weeks. Look for it at the OIDA web site or here.

Good news and not-so-good news in LEDs

There was good news and some not-so-good news at our 13th SIL event in February. First the good news: it was another record year for LEDs, and for that matter, for the Strategies in Light event. As my colleague, Ella Shum, reported: sales totaled $12.5 billion in 2011, thanks to growth in all major segments except backlights.

The not-so-good news is that growth will continue through 2012 but the market will be tepid for a few years beyond that, ending in 2016 in about the same place, the way things are going. This is because LED suppliers are so successful in reducing the selling price while improving the performance. Growth in sales is countered by reduction in the LED count (per product) and falling prices, making a double whammy. This is good for increasing penetration of LEDs into lighting and other applications, but it’s hard on suppliers’ profits. In fact, it was a bloodbath, in Ella's words, due to overcapacity.

Looking at this another way, the LED business is maturing. It still has a long way to go with lighting, of course, and even backlights. But the business is now of such a size that it is starting to behave like DRAMs, to use a cliché. Penetration into new applications is not enough to guarantee LED industry growth through the coming lull. From now on, LED sales will be highly dependent on the fortunes of the end-product markets for backlights, just as DRAM sales are highly dependent on personal computer sales.

To improve margins and market share, LED suppliers will have to stay ahead in scale and performance. LED lighting, in particular, will require larger volumes and high performance devices. Suppliers that can manufacture well in volume (improving yield and tightening binning, for example) will fare well. The suppliers that cannot may be relegated to older segments that don’t require the performance that lighting does. Or they may simply get squeezed out of the market.

On photonics executives, complexity, and margins

Last month's Photonics West went well again. People were in a good mood, including the executives at SPIE’s forum, where I moderated. One topic was “managing complexity.” It sounds like a buzzword, until you think about it.

Take Coherent. It has to manage different kinds of lasers (excimer, CO2, solid-state, diode), selling to different end-user sectors (semiconductors, medical, university research, etc.), in different regions and through different types of sales channels. Edmund Optics is another example. It’s catalog has 26,000 optics and is available in 10 languages. Just managing that complexity is a task. While there are advantages to scale, it also can create some inefficiencies, compared to a small company with a single product and a few customers.


There can be great advantages to complexity. Clayton Christiansen, the Harvard business guru (he coined “disruptive technologies”), says that the margin in the supply chain goes to where there is the greatest complexity. Google, Apple, and Cisco all manage a lot of the complexity that is in their supply chain. Suppliers of standardized components do not. When specifications are standardized, the customers play the suppliers against each other, and the margin gets razor thin.


Low margin complexity. Sadly, the kind of complexity that our panelists (from Coherent, Edmund Optics, Hamamatsu, IDEX, Jenoptik, Newport, and Trumpf) have to manage is not the high-margin kind. That’s because the customers don’t want to pay to manage that complexity. It’s simply what the suppliers have to do as large companies. In fact, to the extent that the larger suppliers are just federations of smaller business units, a company like Coherent competes with small companies too.


So there you go: larger photonics companies have advantages with their brands and scale efficiencies, but what seemed to be on these executives’ minds was managing the complexity of it all, when they don't get to charge margins for it.


Feb 14, 2012

2011 is a record year for laser sales

Here's some good news as we weather the winter storms: 2011 was a record year for the laser industry, finishing over $7 billion for the first time ever. That's coming off the deep recession in 2009 and a remarkable recovery in 2010. The previous record was in 2007, just before the recession. This is just out in our new market report on the worldwide laser market.

Who would have thought? I fully admit, it surprised me, as it did my colleague David Belforte of Industrial Laser Solutions magazine. I expected the recovery to track the recovery in employment. After all, lasers go largely into capital equipment, often to make even bigger capital equipment. When you are short of cash, you cut back on capital spending and payroll, at the least.

In fact, companies did buy capital equipment. There are the usual reasons, but particularly improving productivity and competitiveness. For example, the auto industry, which was so badly hit by the recession, spent heavily on retooling. Another big factor was China, which has been spending heavily on equipment. Growth in sales of smartphones and tablet computers helped. And some segments just keep rolling along, like biomedical instruments, military, and R&D lasers.

As a result, companies improved productivity, earnings are up, and even dividends have been good. What they didn't do as much was to hire workers back. Everyone is working harder. But even so, manufacturing has improved more than, say, service industries.

I'm expecting that 2012 will be flat with 2011. The global economy is cooling. The laser industry is soft too, but the fundamentals are good. I'm expecting that things will turn around in a quarter or two, and 2012 will end up being a wash.

Longer term, the industry is on track to exceed $9 billion by 2015, and that's only around 7% compounded annual growth from this year. But it's remarkable enough for a market of its type. And anyway, it's still a record!

By the way, the numbers are reviewed in the January issues of Laser Focus World and Industrial Laser Solutions, and in more detail in the Laser Focus Marketplace Seminar at Photonics West. But the gritty detail (units, prices, revenues by type and segment)--more than you could ever want--is in the market report.

Is the U.S. wired Internet infrastructure weak? Revisited.

It’s time to weigh in on a pet peeve of mine. The topic is the state of high-speed Internet in the U.S., in a December 4 essay in the New York Times. My peeve is that once again the U.S. wireline infrastructure is portrayed as somehow way behind, whereas a reasonable analysis presents a very different picture. For a large country, the U.S. actually has a very strong and affordable infrastructure.

It’s the author has a point. There is a digital divide in the U.S. and in the world. It’s increasingly important to treat broadband access as a necessary service for all citizens. National averages overlook that large groups people are left out.

The problem is how the point gets twisted along the way. The way the author explains it is like fingernails on a blackboard to me. I've complained in this blog before (here and here) and I can't let this one go too.

For example, the U.S. is portrayed as 12^th in the OECD economies. That's per capita. Iceland is number 5. It has 110,000 people. You get the idea. The OECD aggregates across the whole U.S., while smaller countries will almost certainly show up in the wings of the distribution. We should compare tiny Iceland with, say, a successful regional provider in the U.S., not the entire U.S. In fact, larger countries like Germany and France are passing us up. That is important. Let's say it.

The author points out that even Portugal and Russia are upgrading to optical fiber. That’s because their infrastructures were so bad in the first place. The U.S. is rewiring with fiber, but it’s a big country, DSL is working pretty well, and someone has to pay for upgrading to fiber. A too-rapid deployment would recreate something on the scale of the Telecom Bubble of the late 1990s. We know how that turned out.

Broadband is also portrayed as a monopoly, yet residential users can choose from the wireline provider, cable provider, and even wireless providers. Competition is good, but we’ve come a long way.

The author says the providers should sell access to their networks to competitors, to reduce prices. But the problem is that everyone wants the high-end customers. There’s a reason that underserved neighborhoods are underserved. There’s less profit there.

Having worked in telecom policy in Washington, it is an ongoing process to improve broadband access to underserved groups. It’s messy, because there is the FCC and Congress, 50 state regulators, municipal governments, and the courts. And it’s “inside baseball”; pretty boring stuff if you’re not a lawyer.

The author is right, we should be striving for broader broadband access.I guess it’s just something about how she said it.

The Top 10 laser suppliers: some tight races but a good year for all

Now that 2011 is coming to a close we can estimate who are the leading laser suppliers for the year. Once again it looks like Trumpf and Coherent are neck and neck for Number 1, with over $800 million each. Rofin and Cymer are in a close race for 3rd and 4th places, with nearly $600 million each.  IPG will roll in 5th, but this year with over $450 million in fiber laser sales. IPG's 2011 revenues would have put it at #1 as recently as 2009.

These players are familiar names. Cymer dropped out of the short list in the recession, but is back again. The order changes depending on the exposure of companies to different sectors. Trumpf and Rofin are highly exposed to heavy manufacturing, while Coherent is more diversified. Cymer is basically a one-product company.

I can't really know how the year will end up, of course. But three quarters are finished, and so far it looks like the fourth quarter is behaving as expected. Only the floods in Thailand have created surprises, but that's confined to telecom components, hard drive manufacturers, and the like.

I also can't really know what Trumpf is up to. And a lot of revenues for a company like Rofin-Sinar are really system sales, revenues that would not be counted if it were a company like Trumpf or Newport.

And then there are the telecom transceiver manufacturers. Finisar, JDS Uniphase, Oclaro, and others are all very strong in that segment, and Finisar is closing in on $800 million itself. With the companies above, and a couple others, that rounds out a list of the top 10.

It's also interesting that the Top 10 make up over 50% of all laser sales worldwide.

But I don't want to give too much away. There will be more on 2011 and 2012 at January's Laser Focus World Marketplace Seminar and our upcoming market report.

Is U.S. manufacturing growing or shrinking?

Here’s a little known fact: U.S. manufacturing has actually been growing as an economic output in the U.S. for at least 60 years. Here’s another: China is now the largest manufacturing nation. So there you are: U.S. manufacturing has been growing, but China is now #1.

If you don’t believe me, here are two charts, published in the New York Times (Sept. 11, 2011). The chart on the right shows overall output, growing steadily over decades with only brief setbacks. Whether the trend will continue upward, or represents the end of an era, depends on whether you’re an optimist or a pessimist.

We’re used to hearing that U.S. manufacturing is declining, but the chart on the left shows that it’s only declining as a share of overall economic output. Other sectors are simply growing more quickly. The U.S. is producing more output in information-intensive industries (such as finance) and less in labor-intensive industries (such as manufacturing). Even the manufacturing tends to be more information-intensive. The U.S. is strong in things like jet engines and pharmaceuticals, whereas for sneakers you think of Asia.

There are issues, to be sure. Most importantly, growth in output does not necessarily mean growth in jobs, and a country needs jobs for its people. Also, China’s manufacturing output is growing much faster than the U.S. Much of that was done by making the pie bigger, but some was done by taking share from other countries. The gains in share are not just in sneakers, but in things like laptop computers (Lenovo) and telecom switches (Huawei).

This is obviously a complex topic--just ask anyone at your next cocktail party or Occupy Wall Street event. And to be precise, manufacturing output did decline during the down years of recessions, when the whole economy slowed.

Just the same, it might cheer some of you as we enter the winter to know that U.S. manufacturing has been growing for nearly all of the last 60 years, and more.

Kodak exits opto and ends an era

It seems like the end of an era: Kodak is selling its CCD operations and its image sensor patents. It had been making CCDs since 1975, one of the early companies to make them, but waited until 1989 to sell them externally. Kodak had a number of firsts, including the first megapixel sensor, in 1986.

Then CMOS image sensors took off.CMOS sensors were conceived early on, but the lithography was too poor at the time. Omnivision and others brought it to life in the 1990s. Kodak tried several times to break into that product line, but it never worked out. Kodak teamed with Motorola in 1997 on CMOS image sensors. In 2004 it acquired National Semiconductor’s CMOS image sensor operation, for about $10 million in cash. Kodak even had deals with IBM and TSMC to manufacture the sensors, and some clever technology. But it wasn't enough.  

In our 1997 market report, we estimated that Kodak was the leading producer of image sensors outside of Japan, with $38 million in sales and under 6% market share. By the time of our 2009 market report, the image sensor market had grown 10X, but Kodak’s sales were stuck for years at about $80 million. Then in April it sold hundreds of patents and patent applications to Omnivision, for $65 million. And now it’s selling the CCD facility and its 200 employees to  Platinum Equity, a private equity firm.

In a way, kicking out the CCD business has little in common with the rest of Kodak’s problems. The operation being sold still makes high performance CCDs for high-end professional and scientific applications--some of it is really amazing stuff. And over the years a lot of companies have handed off their image sensor operations. For example, Pixel Devices International was sold to Agilent, which became Avago, who sold the image sensor operation to Micron, which spun it off as Aptina. And of course, Kodak is still huge into imaging, and that's photonics too.

It’s just the business getting older, but Kodak had been a classic example of a U.S. company deep into optoelectronics--that is, the actual making of the chips. No more.

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.

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.

More on the fiscal year effect

I got several questions about my chart a couple weeks ago that showed two different curves for the laser market depending on when you count your fiscal year. I'm taking some space here to explain it a little better.  The chart is below, and shows the quarterly results of representative laser suppliers aggregated over two different 12-months cycles: January to December and the same data for July to June.

The first question is: why does it matter? For one thing, if your company reports revenues on a year from--say--July 1 to June 30, your results will look very different than your competitor that reports from January 1 to December 31. Every company I know of reports their quarterly numbers quarter-over-quarter and year-over-year, of course. For what that's worth, that quarterly information becomes a common denominator. But the quarterly nuances are lost in the annual reports.

For example, TRUMPF had a rousing year ending June 30, with about 50% growth measured in both dollars or euros. That's fantastic, but keep in mind that TRUMPF doesn't report quarterly numbers. It doesn't have to report numbers at all, since it's a private company. The very good fiscal year followed two years of declines. Most companies reporting on calendar years only had one down year: 2009. So, TRUMPF looked like it was doing worse than everybody for two years, and now it looks like it outperformed. In fact, it's about the same--it just reports on different calendar.

The other question is: how can it make that much difference? In this recession, the four worst quarters all fell in 2009. So any company reporting on the calendar year saw a really bad 2009 and only upward results after that. TRUMPF simply split the bad quarters, spreading the bad quarters over two fiscal years.

There is one more nuance to this. People are most familiar and emotional about the metrics that they know best, not necessarily the ones that I have to use. For example, salespeople often speak of orders and pricing for sales that haven't happened yet, since that is where they are working with their customers. But those orders and pricing may be unrepresentative of orders earlier this year.

Another example is that people rejoice over recent good news and panic over recent bad news--even if it is stripped of its context. Part of my job is to put the context back.

The Next Cool Things in lasers--in cars

Just when you think you’ve thought of everything, there appears a new application for lasers in cars, this one from BMW: laser headlights. An application like this could mean millions of high-power diode lasers per year, which is a lot for that technology, and would amounts to the “Next Big Thing” if it catches on.

BMW says that the diode lasers would be more efficient than LED headlights, offering greater overall brightness. LED headlights are just now penetrating models made by Audi, Cadillac, Mitsubishi, and Toyota. The laser output has to be converted through use of a phosphor, of course, as it is with LED headlights. Laser sources could also allow for more refined projection onto the road.

Ten years to one million cars? BMW plans to introduce the laser headlights in a small number of vehicles in 2014. That’s 3 years away. My model for the introduction of features in cars suggests that 7 years after that the feature might reach 1 million cars, if it’s popular or required in some way. (That's because they first appear in luxury models, as options, and spread, which takes time.) In 10 years that might amount to sales of 2 million headlights (both sides) of, say, 10W each. Take your pick what the price should be. Be forewarned that carmakers are big, steady customers when you can get them, with long product cycles, but they are notoriously hard on their suppliers.

Laser spark plugs. For years there has been talk of laser spark plugs, another intriguing application. Using lasers to ignite internal combustion can enable a more uniform, greener, more stable combustion. With all the talk about hybrid cars and electric cars, going to a newfangled technology like laser spark plugs sounds expensive and, well, still half-baked. But imagine the market: millions of cars with lasers that never used them before. And after all, the conventional spark plug was patented by Robert Bosch and Nikola Tesla. Isn’t it time to improve on it?

The most recent buzz on this was in 2009, when Ford announced a collaboration with GSI and the University of Liverpool called LASIIC (Laser Ignition for IC Engines). More recently, work at Toyota and elsewhere was presented at CLEO 2011. 

It's cool stuff, but considering that it's years from introduction as a product, if ever, and adding 10 years to that, we have a good 15-20 years before laser spak plugs could be a million-unit phenomenon.

Mid-Year Laser Market Update--2011 is a new peak

I just aggregated numbers from the public companies making and buying lasers, slicing and dicing for acquisitions and all that and guess what? The final 2010 numbers beat the previous peak of 2008, and 2011 is almost certain to beat that. The market would have to drop by 1/3 for Q3 and Q4 to go downward from 2010.

Moreover, 2011 may amount to a 5-year CAGR of about 6%, which isn't bad for a $7 billion industry. Depending on where you start counting, that's a growth rate a bit above overall economic growth. So in that way, 2011 is looking pretty good. In the figure below, you can see that it was a V-shaped recession, with only one down year.

It depends where you start your fiscal year. You get a very different look if you group the quarters by fiscal years from July-June, instead of calendar years of January-December. The figure below shows what you get in the shifted calendar. The market looks like it's just recovering in 2011 after a U-shaped two-year recession. And what growth in the last 12 months! About 40% over the previous 12.

The last figure shows the aggregated company data by quarter. Here it is clear that it was V-shaped at that scale.

This is company data, not the full market. I emphasize that this is just public data, and heavily weighted toward industrial lasers and telecom components. The missing revenues are heavily in medical lasers, R&D, instruments, and optical storage.

Summer read: Euro report on photonics

Looking for some good summer reading last week at the beach in Santa Barbara, I read through the final report on the economic impact of photonics in Europe. Okay, I did no such thing, but being a recovering policy wonk in Washington DC, I did look through. Here's the lowdown for those of you who won't read it themselves.

First, the motivation and impact of the report. The fundamental motive was to justify to the European Commission its own spending on photonics projects. The many EC agencies fight for money just like everyone else, and the interest in the report actually came from the Commission, but working with Photonics21. It so happens that it benefits the photonics community too, by putting a stake in the ground. And one thing it is, is thorough. It will be hard for someone to prove it wrong.

The impact: 10% of the economy, or is it 100%? The researchers did some nice work, looking at the impact of photonics on jobs and national product. One major finding is that photonics technologies impact about 10% of the European economy, generated by a Euro photonics market of nearly 60 billion euros (21% of the world market) and employing 290,000 people.

I can't help but note here that an enabling technology like photonics can be said to underpin the entire economy in one way or the other. Who doesn't use a display or long-haul fiber optics somewhere in their work? It's like clean water or electricity, the value is so fundamental. But that claim, while true, becomes immediately useless and the report came up with a more useful number.

There is a lot in the report about leverage and improving competitiveness. For example, advances in LEDs and solar cells will have a large impact on Europe at many levels, from photonics jobs to national energy policies. When you work everything out, the most leverage is not necessarily where you might think it is. And there is also a lot on improving European competitiveness, like trying to narrow the Valley of Death of commercialization, help small businesses, stuff like that.

My view is that the real value of photonics to Europe is in high-value systems, not so much the components. The report notes that Europe has gaps in volume manufacturing in such key photonics products as displays and image sensors. I may be wrong, but this seems to be a particularly European lament. Not that American companies aren't crying about manufacturing moving to China, but it's not seen here as an existential problem for the photonics industry. After all, Apple is beating the pants off competitors and keeping the margin. Yet, it assembles its products in Asia. As do many photonics companies.

Europe's real strength in photonics, as in the U.S., comes from using photonics in high value applications, like laser-based machine tools, ophthalmic diagnostic and treatment systems, military systems, advanced sensors, telecom and datacom systems, and semiconductor lithography. These all require very deep knowledge of photonics, but many times use components sourced from other countries (sometimes through a subsidiary).

This is a very deep topic, one that I will return to in a future post. For one thing, it raises a question: when companies are global and commoditized, who captures the value of photonics? Stockholders? Customers? The report looks at two: job-holders and the regional economy.

LED drivers--a $2 billion photonics market

With all of us opto folks going gaga over the $10+ billion LED market, stop and consider that the LED driver IC market is a sweet $2 billion, and growing at 12% compounded annually. And I'm going to say it: drivers is a photonics market too.

OK, I said it. Electronics is photonics too. I'm stretching things a bit, since the suppliers of LED driver ICs are companies like Texas Instruments, Maxim, Analog Devices, and Macroblock who don't know or care about photons. They do know a lot about hand-crafted analog circuit designs and specialty fab processes that enable circuits tolerant to high-voltages--the kind that drive long LED strings in display backlights.

But good LED design optimizes the entire circuit for efficiency, reliability, LED uniformity, and many other specs. We call the circuit--minus the LEDs themselves--the driver. It may include zero, one, or multiple ICs for the purpose.

Opto people, like myself, tend to think that there is nothing interesting in the system apart from the quantum mechanics of electron-hole recombination and fancy MOCVD epitaxial growth.  But when product designers take the electronics for granted, system performance is notoriously terrible, and that's bad for the whole LED industry. Likewise, electronics designers tend to take the LED for granted, but LEDs are requiring surprisingly novel and sophisticated circuits.  The only way to achieve widespread LED lighting is if electronics designers innovate enough to meet cost and performance goals.  Fortunately, there are those out there who can. Look for example at companies like Exclara, iWatt, Luxera, and Lynk Labs, to name a few.

The boundary between electronics and photonics is also fuzzy for lightwave transceivers. The laser and detector in a transceiver are typically very cheap, so much of the value is in the electronics: driver and receiver, clock recovery, and so on inside the module, not to mention all the higher level routing and control elsewhere on the board.

In imaging, it is even more dramatic. The detector array is sophisticated, but the image processing electronics takes it further, correcting optical limitations and even adjusting focus after the fact. The point is not that the electronics helps the optics, but that optical science actually resides in the electronics, often on the same chip as the sensor array.

I'll get back to the LED driver market again, but for now, remember: Electronics can be photonics too.

Munich Part 2--Consolidation?

A question that comes up at every big industry event is, when is the laser industry going to consolidate? It came up in my conversations at Laser Munich last week, and it came up in the CEO Roundtable (for a full video, click here). This time, I posed the question to the CEOs: is there really an argument for consolidation, or is it just code for "let's get these lifestyle companies out of our way so my big company can keep growing."

Their answers were interesting, and were supported in many other discussions I had last week.

Stuart Schoenmann of CVI Melles Griot made the argument that consolidation across products produces economies of scale that can enable things you cannot do with smaller companies. Larger scale frees up management to make more optimal and strategic choices, whether it is where it is putting its R & D money or whether to outsource or not.

Ulrich Simon of Carl Zeiss Microimaging argued for consolidation in the vertical direction to own core technologies,: providing advantages that cannot be gained in a more stratified supply chain. Trumpf has often made that argument.IPG has gone that route, too.

David Marks of Qioptiq acknowleged that the industry needs to continue to support small companies, in part for the innovation that they bring. As much as start-ups must seem like spoilers,VCs have funded a lot of innovation that never paid them a penny in return, and the people and IP often wind up in the big companies. There is a lot less of that nowadays, but it still happens.

John Ambroseo of Coherent closed with a rousing argument that the real competition is not other laser companies, but all the other technologies out there--mechanical drills and shears, other medical treatments, other types of sensors. Without consolidation, the laser industry spends inefficiently on redundant R&D, distracting the industry from bigger opportunities.

I've always maintained that consolidation means different things to different people. To me, consolidation is only meaningful in specific market segments. It's when a few competitors have most of the market share. (Consolidation is the process. Concentration is the result.) This can happen when companies consolidate internally, by exiting product lines, but it's often hard to know this from outside. The laser industry is highly fragmented into hundreds of niches. It turns a big laser company into what I call a "confederation of business units. They do gain advantages in scale, to be sure, but it is also more complex to manage. It's hard to manage such big, sprawling companies. It's also hard to grow when you are already a big dog.

Not mentioned was that some segments seem to favor consolidation more than others. This leads into another topic that came up at Laser Munich: is it too late for a company trying to make it big in fiber lasers? I'll address that in a later post.

For other thoughts on consolidation, see:
Fragmentation depends on your point of view
Consolidation, Part 2--Is Oclaro consolidation or redistribution?
Consolidation in the laser market, Part 1--How much is there?

Tom Hausken
Strategies Unlimited
thausken@strategies-u.com
http://www.strategies-u.com/

Laser Munich Part 1--German mood lifts all

You can tell that Germany is doing well these days just from going to Laser Munich. And not just Germany. Everyone from Coherent, IPG, and JDSU are all smiles these days. In fact, everyone I met at Laser Munich this week was in a great mood.Of course, it helps that the beer starts flowing in the booths at 5:00 sharp. Even better!

The German economy didn't fare as poorly in the financial crisis as other major countries, and it recovered better and more quickly.German unemployment is now the lowest since reunification 20 years ago. This recovery has lifted German companies, most notably Trumpf and Rofin-Sinar, but many others too.(Read about it from David Belforte, here.)Laser sales are back to 2008 levels.The good cheer came out in the CEO Roundtable: what did photonics companies do right that they fared so well in the recession?

My standard answers are:
1.China.
2.Semiconductors and electronics (think iPads and smartphones)
3.The jobless recovery--buying new laser systems instead of hiring workers.
4.Did I mention China?
5.Oh and yes, this time photonics companies reacted quickly.

These factors affect some companies more than others,but enough is happening that it gets spread around. That said, there was the usual grumbling that there are too many competitors. More on that in a later post.

The Munich venue is great, but what if it were somewhere else? Stuart Schoenmann of CVI Melles Griot kept it real in the CEO Roundtable when he gave his respects to Japan.The Japanese economy was hit with not one, but two crises: first the financial crisis and now the tsunami/nuclear crisis.The latter didn't take much production out of service, but it did upset the supply chain. Moreover, the Japanese stock market has never recovered to the peak of 1990, not even close.And that was 21 years ago.

And it's not just Japan that has been hit. I don't know about you, but every company I know was cut to the bone.More on that in a later post too.

But that's somewhere else. Here, it felt like a "normal" show. No fads. No gossip. Just a good mood and good beer.

Tom Hausken
thausken@strategies-u.com
http://www.strategies-u.com/

A big optics/vision opportunity: service robots

Looking for a new opportunity in optics and vision systems?   Check out this new  market report on vision for service robots from my colleagues at Vision Systems Design.  This is a market set to take off.  To give you an idea, with industrial robot unit sales in the tens of thousands per year, service robots could potentially sell in the millions.

Most robots today are not the futuristic kind we remember from the Jetsons or the somewhat creepy Actroid kind commercialized in Japan..  An industrial robots today is basically just factory automation with an articulating arm that makes it seem like a robot. 

A service robot is more like the more futuristic version--mobile, uncontained, and diverse--but not trying to act human, like some insecure, fawning android.  More precisely, it operates semi- or fully-autonomously to perform service functions, excluding manufacturing.  An industrial robot can be a service robot too, if it meets this definition. 

Examples of service robots include: UAVs, explosive or hazard disposal, automating cow milking, driver assistance, inspection and maintenance of hard-to-reach places, medical rehabilitation, surgery, and scientific exploration.  The UAV is the biggest market opportunity, becuase of the sophistication involved.  There are many smaller, fast growing segments.

This is a big deal for photonics because most service robots requrie machine vision of some kind.  This means the use of structured light (like what is used in the Microsoft Kinect), time-of-flight (like what is used in virtual keyboards), LIDAR, and so forth.  This has to be fused with other technologies, like GPS, radar, sonar, and inertial guidance.  For more sophisticated robots, simultaneous localization and mapping (SLAM) is critical to build maps of unknown environments or to update maps within known environments, while at the same time keeping track of the current location of the robot.

The technology is still emerging and remains to be worked out.  That means lots of hardware and software, and pretty deep stuff.  Imagine that the system doesn't necessarily need to "see" things the way we do--it just has to get the information it needs from its sensors.

For more information on the report, click here.

Webcast on Mid-IR laser market

Come see our webcast on the market for lasers operating in the mid-infrared range.  Well, actually only my part is about the market.  The other part will be presented by the esteemed Jeff Hecht about mid-IR laser technologies and trends.  The webcast is Wednesday, April 20, and archived for those who are away on Spring vacation.

The figure below shows our market forecast for all mid-IR lasers under 1 kilowatt.  I qualified it a bit because big honking kilowatt CO2 lasers comprise a large part of the market.    I should also say here that we defined the range for our market report from about 1.8 microns to about 15 microns. 

The growth in the figure comes partly from the recovery from the recession, and partly from new growth in military and sensing applications.  The new growth is the result of a fortunate convergence of new demands (e.g., for environmental monitoring) and new technology solutions (e.g., GaSb diode lasers, quantum cascade lasers, and new fiber and solid-state lasers). 

By the way, we counted over 50 companies making mid-IR lasers of some kind, and most of them are headquartered in North America.  None has a significant market share across multiple segments.

The webcast will be produced thanks to the sponsors, ILX Lightwave and IPG Photonics.