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.