Military photonics up, machine vision down

The military and security market is one of the few that's faring reasonably well these days. Compare that to machine vision, which is being hit hard with all the other capital equipment markets right now.

Here are two companies that are pretty good proxies for the sales in those two markets: FLIR and Cognex. Both are heavily focused on imaging, but for different markets. The figure shows their revenues since 2006. I didn't adjust for some some minor acquisitions that each of them made, but it doesn't seem to matter much.

FLIR's sales are hardly off it's steady upward climb. Its internal sales are much more complicated. Its government sales and commercial vision sales were up, year over year, for military and security applications. Thermography was down due to falling demand and exchange rates.

Compare that to Cognex, which specializes in machine vision and automation. One would hope that machine vision is one of those markets that may still defy the recession somewhat, particularly from customers looking to improve costs during hard times. But alas, machine vision equipment is capital equipment too, and customers are trying hard to keep capital spending low for now.

If the rest of the year were flat for each company, FLIR's year would end up 1% over 2008 and Cognex's year will be 30% under 2008. That's right in line with our view of their respective markets. The military sector is still going strong, but is at or near a long-term peak. We expect the manufacturing sector to be down about 30% in 2009, but sales will be better in 2010.

A bad Q1 for lasers, but not worse than expected

Half full or half empty? My read of Q1 photonics company earnings reports is that the last quarter is not worse than expected, we are at the bottom. With Q1 out of the way, now it's time to look forward.

The figure below charts some selected laser companies up through Q1, all adjusted for acquistions and so forth. If the rest of the year holds at the Q1 level, 2009 will be 30% below 2008. That's not nice, but it's about what we expected before we heard all those quarterly reports (see for example our press release for our industrial laser report), so at least it's not worse.

The next big milestone will be to see if Q2 holds at or above the Q1 level for key companies. There is already a lot of talk that we are at bottom in the recession, including sectors important to lasers, such as semiconductor equipment order data out of both North America and Japan. But we're likely to bounce along the bottom for most of 2009, to be sure.

Note that I'm referring here to revenues. Net profit, cash flow, stock prices, and various ratios are important to running the company and keeping everyone happy. In fact, revenues can turn around even as profits and head counts continue to decline. That can happen for a variety of reasons, but gaining back just some of the lost revenues would bring a lot of relief.

Substrates for GaN devices: growing in more ways than one

Our new market on substrates for GaN-based devices is now available. Our take on that market? That's one market segment that's growing, and we don't mean growing just crystals. We forecast merchant substrate sales growing from $280 million in 2008 to $470 million in 2013. But, native GaN has a ways to go, and 6-inch substrates are a long way off.

The new report from our SU analysts Bob Steele and Hank Rodeen updates our earlier reports, addressing both the devices and the substrates used for shorter-wavelength LEDs, blue lasers, and widebandgap electronics. The substrates are mainly sapphire or SiC, with the GaN grown on top, although there are a number of variations and alternatives to get the GaN layer. The substrates have been mainly 2-in in diameter, but are quickly moving to 3- and 4-inch diameters.

The rapid migration stops there, however, in part because of the difficulty to work with GaN but also the manufacturing costs involved in the specific devices fabricated in GaN. In widebandgap electronics, for example, Cree points out that the substrate technology will be ready before the volumes will be. And the electronic devices are relatively large, but not large and pricey enough to merit the jump to larger substrates.

And as for bulk GaN substrates--well--they are simply too difficult to grow and expensive to use for the time being. Inexpensive bulk GaN would be ideal for devices based on GaN, but nature provides alternatives today that are good enough at a lot less cost, and still getting cheaper. Without that volume, bulk GaN remains perpetually behind, or at least far enough behind to be unimportant to our 5-year forecast.

The tipping point: Lightfair becomes LED Fair

My colleagues got back from Lightfair in New York last week raving about the big shift to LED products at this year's show. This is important because a first, critical step for LED lighting is to generate interest among lighting designers. And this was the year that exhibitors at Lightfair decided that they need to show off their LED products to get noticed.

Vrinda Bhandarkar, our LED lighting market expert, notes that it takes events like this to create the interest, and then the lighting designers can start specifying products they want. These designers write the specs for big projects, like commercial buildings and such. Those projects help to drive LED volumes up and prices down enough to reach even wider markets.

And for once, the standards won't be holding the market back. Finalized last year were the standards on solid-state lighting definitions (IES RP-16 (a)), photometric testing (IES LM-79), lumen depreciation testing (IES LM-80), and chromaticity (ANSI C78.377).

If you want more detail on Lightfair, see the great coverage in the daily articles in LEDs Magazine.

Oh, and I'll make a shameless plug here for Vrinda's most recent market reports: LED replacement lamps (2009), LED Lighting Fixtures (2009), and HB-LEDs for Lighting (2008). The replacement lamp report is just coming out--we'll comment on that soon.

Some thawed spots in small company financing

The venture finance folks have been saying that money for start-ups is tight, and especially hard for brand new ventures. So it's heartening to hear about companies getting any kind of funding in a time like this. Maybe the financing hasn't thawed, but it's not completely frozen either.

If you dig around, the stories are there. In April, Powerlase got a chunk of money for its business in lasers. In March, One-Chip Photonics received nearly $20 million that was promised to them for meeting a milestone in photonic integrated circuits. In January, nLight got about $11 million for its business in lasers and laser components. In December, Pixim received $13 million in funding for its business in image sensors for security cameras. In November, Raydiance got $20 million for its work in ultrafast lasers. The biomedical sector continues to do particularly well. Recently three bio-optics startups received a total of $38 million in financing: AOptix Technologies, BiOptix Diagnostics, and LensX Lasers (putting an x in your company name is evidently the new fashion). And there are more.

The companies are quick to boast that they are still a good investment, but there is always more to the story, to be sure. For one thing, companies don't disclose the terms of the deals. And some have asked me, if they are doing so well, why do they need the money?

But the investors are putting what money they have into the companies they believe in the most. That's worth noticing.

By the way, if you want to read some interesting comments from a VC's perspective, see Larry Marshall's VC View blog at the Laser Focus World web site. For example, here's "What VC's actually do in a down market."

A new photonics application long overdue

I've been hearing for years that there's a big future for breathalysers and saliva testers. It's a huge medical opportunity that the field has only begun to explore. So the new TB Breathalyser from Rapid Biosensor Systems (RBS) is just the thing I've been waiting for.

The medical diagnostics field is one in great need for improvement. Tests are slow, expensive, and often inaccurate. A classic example is the 100 year old Mantoux test for tuberculosis. After a few days, if the test produces swelling greater than so many millimeters, it's a positive. Less, and it's a negative. It was satisfactory a century ago when TB was rampant. Today though, the false positives can exceed the true positives. And, the results vary with all sorts of factors.

I know all this because I was a false positive about 15 years ago. I did some research and found out that the test is almost worthless, and one of my doctors later admitted so much to me. But they still preferred to rely on it, maybe just because it was the "standard" test.

RBS has a breakthrough that could bring TB testing to the 21st century with its breathalyser. It basically uses a diode laser and fluorescence to make a determination within minutes. And, it's selective against other factors.

Source: RBS

It's not often that I get energized about a new product. After all, there are lots of trade press articles and conference presentations for that. And I tend to think that there are not really many new things under the sun. But I'll make an exception for the RBS breathalyser.

Oh, and by the way: I am not connected, financially or otherwise, to RBS.