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.

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.

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.

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.

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/

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.

Mind the export regulations and help LEOMA change them

It may be a flat economy, but export regulations still matter. Rocky Mountain Instrument and BAE Systems both found out the hard way last year. And meanwhile, the trade group LEOMA is pushing the U.S. government toward more relaxed regulations.

First, what happened to RMI--Rocky Mountain Instrument? In 2008 it had over $15 million in revenues and 150 employees (here's a photo for proof). But it was raided in 2007 for ITAR violations, filed for bankruptcy in 2009, and in June of last year, the Colorado-based company was slapped with a $1 million criminal fine. It pleaded guilty to selling ITAR-controlled prisms and data to such places as China, Russia, Turkey, and South Korea without a State Department license.

At the time of the raid, RMI waved off the accusations. Something about a disgruntled employee and that the investigation didn't involve RMI Lasers but rather a supplier. But RMI pleaded guilty in a plea deal in June. It's said that RMI cooperated throughout the investigation, and its web site is now very explicit about export regulations.

RMI certainly isn't alone. A recent violation by none other than BAE Systems led to a $400 million criminal fine. And in fact an article in Military and Aerospace Electronics points out some common mistakes that can get companies into some nasty trouble, such as:

* Misclassifying or changing classifications in the ITAR list
* Improper access to IT files for ITAR products
* Lack of licensing for non-citizens working on ITAR products
* Monitoring only hardware, while not complying on services as well

Entirely apart from this, the trade group LEOMA is working to steer the Commerce Department toward more reasonable restrictions. The administration wants to "build higher fences around fewer items" using a tiered system. The thing is, its proposed tiers include a lot of lasers that are already made and sold outside of the U.S. LEOMA wants to be sure that U.S. companies don't face unnecessary barriers to doing business for run-of-the-mill commercial applications.

It's tedious but important stuff. LEOMA is asking for support in its effort. Please contact Breck Hitz at breck@leoma.com to contribute.

The Decade's 5 Best Market Trends in Photonics

Well, it'over: the decade-that-could-not-be-named (2001-2010). Time for a list of the Decade's 5 Best Market Trends in Photonics:

The triumph of flat displays. Remember the see-through iMacs? Don't CRTs look soooo 20th century now? And how about the touch screens for smart phones? They don't just make a nicer phone. They transform how we live. This is #1 because of the sheer size of the display industry, and its impact on everything else.

Cellphone cameras relaunch the image sensor market. The first cameraphone showed up in 2000, in Japan. There are now over 1 billion mobile phone handsets shipped every year, and most have cameras. That volume drives lots of other applications. And the quality! Again, transformative, and billions in new photonics revenue.

The Green Revolution: LEDs and solar. High-brightness LEDs are all about taking an old technology and improving the brightness to do some new things--a marketing VP's dream. This decade saw LEDs in mobile phones and TV backlights, but the talk now is about LED lighting taking over the world. And how about that solar market! Many investors have lost money in solar companies, but they keep coming. Somehow, we all want to be part of it. (I was too, back that was back in the 1970s.)

Molecular imaging and all other thing biophotonic. The average person on the street doesn't know it, but photonics is making a huge impact in biomedicine, from diagnostics to therapy. Optical molecular imaging is my favorite because of the promise it brings in finally solving some difficult and costly medical challenges. But there is also mid-IR spectroscopy, ultrafast surgery, OCT, and many more.

IPG and the fiber laser. Several companies had fiber laser products in the 1990s, but IPG Photonics gets credit for making it a big name in materials processing today, and the 5th largest maker of non-diode lasers. Ha! No one is laughing now. The fiber laser is one of the laser types you would design if you could pick only one, and if you had the materials you have today. The diode laser is the other.

There you have it. Next time if I get to it, the Decade's 5 Un-Trends in Photonics.

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.

Microsoft Kinect is a win for lasers and imaging

Bravo to Microsoft this week for launching a new market segment for lasers! The company finally launched the Kinect, a laser-based accessory that allows Xbox360 players to use their body as a remote control--gesture recognition. The lasers illuminate a field and an imaging system interprets it for the game console.

The reviews so far indicate that Microsoft is on to something here. It is a step up from the Nintendo Wii remote controller and way beyond the Sony PlayStation Eye, neither of which used laser projection to create the image. The main complaints so far seem to be that the Kinect is understandably a little clunky yet, and it doesn't work well in crowded spaces, like dorm rooms.

The system needs single-mode lasers to get a strong enough return signal to do the processing. But, they have to operate in the near-infrared to be invisible and at low enough average power to be eye safe. Kinect uses a structured light technique, which is to say that it interprets the distortion in an image created by the object. When the object moves, the field is distored accordingly.

The project was born as Project Natal, from two Israeli companies, Prime Sense and 3DV Systems. Microsoft bought 3DV in 2009, and this week it bought Canesta. Canesta is known for its laser-based 3D imaging system based on the time-of-flight technique. It works much like radar to recreate a 3D form. Years ago Canesta used the technique to read finger strokes on a virtual keyboard. It worked, and although I prefer an actual keyboard for touch typing, it may be useful as an alternative to touchscreens. The product is sold through a joint venture called Celluon, created in 2004.

The Kinect technique is less expensive than the Canesta approach. Maybe Microsoft has other plans for Canesta. Or it wants Canesta's expertise in imaging. Or maybe it wants to keep it away from competitors.

Any way you look at it this is all good news for lasers and imaging engineers. It's the beginning of a new market segment.

How the jobless recovery helps lasers

Several laser segments have recovered surprisingly well in this recession. This is after my warnings over the last two years that capital equipment markets take it especially hard in a recession. So what gives? Who needs new capital equipment when factories are running at lower capacity?

Enter the jobless recovery. Plant managers are talking about buying more efficient tools that operate more efficiently. In good times, this means buying a new tool to do more with the same staff. In recessions, this means buying a new tool to do more with less. Lasers play a role because they are used in big machine tools like sheet metal cutters.

Companies have cash. They are using it to buy back stock, buy capital equipment, and increase their reserves. What they're not doing is hiring workers.

There's a lot more to it than just the jobless recovery. There's the turnaround of the electronics industry after a two year slide. There's China. There are segments that are less sensitive to recessions. And so on.

But the jobless recovery explains why so much of the laser market is recovering as well as it is.

Our new report: the time for mid-IR lasers has finally come

The time for mid-infrared lasers has finally come. Never mind that CO2 and certain mid-IR solid-state lasers have been around for years. But change is coming, with new solutions, new applications, and new companies.

We finally completed our masterwork on the subject, our market report on mid-IR lasers. We found that the new applications should grow 30% per year in coming years. What's exciting is that some new military applications are helping to develop new technologies while other applications in sensing can get some traction. And, there are new solutions in quantum cascade and interband cascade lasers, GaSb diode lasers and OPSLs, fiber lasers, solid-state lasers, and compact OPOs. Not to mention help from other innovations, like QEPAs, uncooled focal plane arrays, and hollow-core optical fibers.

Altogether, we counted over 50 companies selling lasers or OPOs and OPAs in the mid-IR range. Over half are headquartered in North America.

Of course it's not easy. Some applications are very challenging, and unraveling the technologies and the applications is messy. Not to brag, but we did a nice job in the report to unravel it all for you.

There's more going on with mid-IR market information. We worked with Robert Thornton of Ubiquilight in his survey of mid-IR laser needs. Please do the survey.

And, there will be a panel discussing the mid-IR market at the Laser Focus World Marketplace Seminar in January. To make it a little more direct, we're calling it "Quantum Cascade Lasers for Mid-IR Applications: Pro vs. Con." We will have Tim Day (Daylight Solutions), Robert Afzal (Lockheed Martin), Ken Kaufmann (Hamamatsu Photonics), Lars Hildebrandt (nanoplus), and me. The agenda will up shortly, if it isn't already. We hope to see you there.

What went wrong with GSI?

What’s going to happen to GSI? GSI announced in May that it would emerge from restructuring this summer. We got some interest this summer from investors checking out the laser market. One can imagine that some pieces of GSI will get traded. There will be news soon enough. As one of my smarter bosses used to say, “it will all become obvious” in due time.

The other question is, what went wrong? First, it got slammed in the downturn in the semiconductor and manufacturing sectors. Semiconductors turned down in 2007 and didn’t stop until last year. GSI is heavy into the semiconductor tool business, and it got hit hard. Equipment sales dropped as much as 90% or more from the peak. The rest of manufacturing turned down in 2008 with the recession. That business was hit with a 50% drop in equipment sales, plus or minus. That's brutal.

Second, GSI is really well positioned in lamp-pumped solid-state lasers, and it has a wide range of other laser and system products in many nice niches. But lamp-pumped lasers have been in a decline for several years while fiber lasers are on the rise. Lamp-pumped lasers won’t disappear, but it’s just not the place to be these days.

Finally, we’ve heard comments about certain decisions made by management along the way, particularly regarding the whole restatement thing. The gist of these comments is that the process was badly mishandled. It certainly made a bad situation worse, and it’s relevant enough. But, you expect Wall Street types to point that out first. They look at financial statements for a living.

To me, I take the macro, long-view perspective. The downturn came at great cost to companies and to the people who work in them. Some got caught out in the storm. Let’s hope that things work out for the best from here.

The brightest x-ray source in the Universe

What do you do with an aging linear accelerator? You use it to make an ultrafast free-electron hard x-ray laser, that’s what. And that laser is now the brightest x-ray source in the universe (so far as we know) and the only hard x-ray laser in the world. Where? At the SLAC National Accelerator Laboratory. At Stanford. It’s a national lab. Nice place, too.

Government labs love acronyms of acronyms, so the laser is called the Linac Coherent Light Source, or LCLS. Last month I was able to tour the new laser facility with the local IEEE Photonics Society chapter. It brought back flashbacks of grad school, but without the poverty. It’s a plush lab. For you laser geeks, here are some stats:

Pulse energy ~ 1 mJ
Pulse duration 5 to 200 fs
Peak power 10 GW
Average power 1 W
Repetition rate 120 Hz
Wavelength 0.1 to 10 nm
Electrical power bill per month: $ 1,000,000
Temperature control in beam delivery system: 0.01 degrees
Laser design: Self-amplified spontaneous emission (ASE)

The laser doesn’t sound that impressive, until you consider the infrastructure to build it. About 3 km of accelerator and beam delivery. A massive electrical bill to run the magnets and the air conditioning. A tunnel underground to keep the temperature stable (they used the same company to dig it that digs wine cellers in Napa Valley). The experiments are all done by remote control, just to ensure radiation safety. Not that they need to, with all the shielding and massive ground wires everywhere.

There is a great animation video that shows how it works, here. The electrons are accelerated to relativistic energies, then run through the free-electron laser, creating coherent hard x-rays. The rest is beam delivery. So, it’s just like your benchtop custom-built laser, but on a cosmic scale.

And what do they want to do with it? For one, it’s like a very fast x-ray camera that exists nowhere else on earth. It’s so fast, it can take diffraction images of crystals before the materials degrade from the x-rays. It can do pump-probe experiments on atoms and nuclei. It can reproduce the harsh environments in the universe by imparting a lot of energy into a very small volume. The SLAC SCLS aims a stream of x-rays at a small spot size, creating a huge intensity. (The new Livermore NIF laser also creates x-rays at the target, but they go in all directions. The NIF laser produces higher energy pulses, for fusion reaction.)

You can drive over the accelerator on Interstate 280, just near Sand Hill Road, near Stanford’s radio telescope and open cattle range. But you can’t just drive onto the SLAC national lab campus. There’s a guard. And anyway, the laser and beam delivery is all underground.

The numbers are in: $8.8B by 2014

We've finalized the 2010 edition of our laser report, and it's official: a 25% decline in the market for 2009, but still among the top 6 years in terms of revenue. And, everything from here is up, with about 9% growth to $8.8 billion in 2014. Some of you saw the draft in March, after the Q4 numbers came in. Here is the chart:

Fiber lasers are doing well, under the circumstances. Our estimate for fiber lasers came out a little higher than many people expected, including us. We recorded a decline of only 5% overall, to $280 million. IPG took a big hit in 2009, returning to its 2007 level. This is because it is strong in kilowatt fiber lasers. (Other kilowatt laser companies were hit even worse, like Rofin-Sinar and TRUMPF, for the same reason.)

But there are several smaller fiber laser suppliers that are selling into various applications from Europe to China. Two very promising sectors are medical systems and military projects. True, one could exclude some of those military projects from a count of the market, but it shows up as revenue to companies so we include them.

No shopping sprees. Another surprise is that, so far, there haven't been as many acquisitions as one might expect. This is partly due to the tight credit and the uncertainty that weighed on the market last year. There has been consolidation of other kinds, just not the kind of shopping spree that sometimes accompanies downturns.

More coverage. This year, we extended the coverage of the laser market report to include every major market, beyond fiber lasers, beyond even industrial lasers. It now has everything that the annual Laser Focus survey covers, but with the most updated data, forecasts to 2014, and 300 pages of detail not provided in the January issue of the magazine or the January seminar. (Disclaimer: our numbers also continue to differ in some key places from the LFW numbers due to differences in segmentation.)

IPG makes moves

IPG seemed to make a vertical move into machine tools this week, with its announcement that it acquired Cosytronic. Well, it turns out that it’s not exactly a vertical move. In fact, it’s a pretty narrow acquisition, but an interesting one. Where does this put IPG on the longer term roadmap?

IPG has done well so far in kilowatt lasers, selling mainly to systems integrators for metal welding. But the huge majority of welders use good old-fashioned electrical welders, not laser welders.

IPG aims to change that. Cosytronic has 20-some years of experience in resistance welding, from the “Welding Valley” in Germany. It has a tool that can make seam welds with a laser head that swaps with the head of a resistance spot welder. The aim here isn’t to take on resistance spot welders. The aim is to increase the pie for laser welding. For IPG, it’s about the application, not making systems per se.

I should mention that IPG's main competitor, TRUMPF, aims to do the same thing, of course. But TRUMPF has a machine tool business and lots of internal expertise. IPG is working on that.

It’s a very different story in sheet metal cutting, by the way. That is the grand prize in materials processing. But, several big tool vendors make their own CO2 resonators for their tools, or have loyal relationships with independent suppliers of resonators, mainly Rofin and Fanuc. It’s hard for a new player to break in with a new type of laser. Nonetheless, IPG is making progress there too. IPG plans to continue to work with the systems integrators to gain share in that segment, rather that to make a vertical move.

This is IPG's 2nd acquisition in 2010, by the way. It acquired little-known Photonics Innovations, of Alabama, in January. That acquisition is also narrowly strategic, aiming at materials and the mid-IR range.

3 countries make 87% of all lasers. Wow!

Bet you didn't know this: about 87% of all laser revenues attribute to companies headquartered in only three countries: the U.S., Japan, and Germany. Wow! Who'd have guessed?

Don't believe me? Consider that about 1/2 of all laser revenues are for diode lasers for communications and optical storage. These are mostly made by Japanese companies, some U.S., some Taiwan, and a few others.

Then, consider that several big laser makers hail from Germany and Japan: TRUMPF, Rofin-Sinar, FANUC, Gigaphoton, and Mitsubishi. Germany is also home to many smaller laser makers, like Jenoptik, Toptica, and (despite the name) Menlo Systems. The U.S. is the official home to many familiar names: Coherent, GSI (including Synrad, Quantronix, and Continuum), Newport, IPG, Cymer, JDS Uniphase, Oclaro, and many, many smaller companies.


I'm counting revenues here, not units. A lot of commodity lasers are made in Taiwan, or even China, for laser pointers and such things. Oh, and of course, I'm talking just the laser, not the system or end-use.

True, the assembly may be anywhere from Russia to China, but the companies are headquartered in only a few countries. This means that at least a large part of the revenues (including the profits) flow back through headquarters. (More on that in a later post.) Oh, and of course I'm talking just the laser, not the system or end-use.

For the record, this all came about from a question I got from Breck Hitz, the Executive Director of the Lasers and Electro-Optics Manufacturers Association, LEOMA, who is trying to advance laser standards at the ISO.