Optics and Photonics Market Outlook: Modest Optimism
OIDA is modestly optimistic for the outlook for optics and photonics for late 2018 and 2019, despite some divergent signs. Optics and photonics revenues have been relatively healthy up to now in 2018, and the overall economic conditions remain more or less in place. Some stock prices have trended downward, however, suggesting that investors are pessimistic about future profits for those companies.
We examine here examples from the machine tool market. While it's hard to generalize among the many companies in that sector, sales among benchmark companies have been relatively healthy. The figure illustrates sales for Kuka (robotic machinery), ASML (lithography equipment), and the combined sales of three major companies in the laser and machine tool optics business (Coherent, IPG Photonics, and II-VI), each converted to dollars and relative to sales in early 2013.
Source: OIDA (2018) from company filings.
Stock prices tell a different story, however, with some falling as much as 63% from peaks earlier this year. Does this mean tougher times ahead for optics and photonics? Not necessarily. Stocks are forward-looking, but focused on profits, and each company has a unique profit story. For example, ASML sells equipment exclusively to semiconductor manufacturers, which are currently in a strong capital spending cycle, and ASML has near-total market share, yet its stock price is off over 20% from the peak. U.S. companies competing in China against domestic suppliers will face more headwinds than U.S. companies selling mainly to U.S. customers. That said, even Han's Laser's stock price is off 50% from its peak in June. Investors perceive that a period of healthy profits is ending in the face of rising costs, interest rates, and new tariffs.
Kuka shows the most dramatic rise and fall, peaking at €255 on 24 October 2017, as shown in the figure. Kuka was acquired by the Chinese company Medea in January 2017, and its future of selling robots into China has long-term promise. Its stock price soared later that year, as exuberant traders bid up the small fraction (5.5%) of the stock shares available for trading. Weak earnings in late 2017 popped the bubble, with the price eventually settling below the share price of €115 that Midea paid earlier in the year. Sales last quarter were nonetheless near an all-time high.
Source: OIDA (2018) from Yahoo Finance.
The IMF forecasts flat global economic growth next year of 3.7%, with slowing growth in the major economies, including the U.S. and China. Growth is better than recession, but companies may face stiffer competition and higher costs than in the recent past. Stay tuned for further updates in the OIDA newsletter and OIDA Market Update.
About One-Third of iPhone BOM is Optics & Photonics
A report from the Chinese brokerage firm GF Securities estimates that about 1/3 of the bill of materials (BOM) in advanced phones is optics-based. It also estimates that the BOM makes up about 40-42% of the selling price in recent iPhone models. This means that about 14% of the overall selling price of recent iPhone models goes to the optics and photonics BOM. About 44% to 49% of the price is Apple's contribution margin—its costs and profit. The channel margin is about 7-8%, and about 3-4% goes to other costs, such as warranties and taxes paid in the supply chain.
High-end smartphone BOM (2018). Source: GF Securities and IHS, from GF Securities report.
The firm expects flat growth in smartphone unit shipments in 2019 as the product saturates in most developed markets and technology innovation decelerates. It expects a mild recovery in 2020 as 5G technology rolls out. Manufacturers will continue to look for innovation, including with the optical components.
Samsung Galaxy A9 quad-camera smartphone. Source: Samsung.
The BOM is split between the display and cameras, with each becoming more sophisticated. Smartphones may have an OLED or liquid crystal display, with an LED backlight or optical fingerprint sensor. Samsung will soon begin production of foldable phones using AMOLED displays. Smartphones will soon include tri- and quad-cam rear-facing cameras, some with resolutions up to 48 megapixels, along with a front camera and a 3D imager based on VCSELs. The quad-cam design shown here expands the optical options to include a 24MP main camera, and wide-angle, telephoto, and depth cameras. Sony and Samsung Electronics lead in image sensors. Largan Precision and Sunny lead in lenses, each with over US$1 billion in revenues and shipments of 1-2 billion lenses per year. Largan boasts enviable gross and net margins of 69% and 45%, respectively.
The report, "Great China Smartphone Supply Chain", is available here from GF Securities (Hong Kong) Brokerage Limited.
Update on the U.S. National Photonics Initiative
The National Photonics Initiative (NPI) continues to make progress advocating in the U.S. for expanded research and investment in the areas of quantum information science and technology (QIST) and photonics. From the White House to Rochester, New York to the Nobel Prize Committee in Sweden, the potential and promise of QIST and photonics have been widely recognized over the past three months.
The National Quantum Initiative (NQI) Act was approved unanimously in the House of Representatives on 13 September. The legislation remains under consideration in the U.S. Senate, specifically the Committee on Energy and Natural Resources, which held a hearing on quantum technology on 25 September. You can view the hearing in full here.
The White House Office of Science and Technology Policy held a Quantum Initiative Summit on 24 September at which it unveiled the National Strategic Overview for Quantum Information Science. A summary of the event can be read here. At the event, the Department of Energy announced $218 million in funding for 85 research awards in Quantum Information Science. Additionally, the National Science Foundation announced $31 million in funding for fundamental quantum research. NPI was represented at the event by NPI Chairman Ed White and NQI Founding Stakeholder Chris Monroe.
White House Quantum Initiative Summit. Photo Courtesy of Erik Jacobs, OSTP
The NPI also invited attendees at the OSA Laser Congress this month and CLEO 2018 to discuss a path forward for U.S. leadership in petawatt lasers. This ongoing discussion follows the release of the 2017 National Academy of Sciences report, "Opportunities in Intense Ultrafast Lasers: Reaching for the Brightest Light." The sessions discuss community efforts to organize and set out a strategic path, identifying technical areas and future laser sources that need attention. In a related move, on 30 October, the U.S. Department of Energy Fusion Energy Sciences (FES) program announced funding for a new research network called LaserNetUS, whose members encompass nine U.S. institutions operating high-intensity, ultrafast lasers.
The NPI Steering Committee also recently welcomed three new members, Jennifer Barton, Amy Eskilson and Prem Kumar. Questions? Contact David Lang, OSA Senior Director of Government Relations.
Welcome New OIDA Member
Invitation to C-Level OIDA Executive Forum at OFC on 4 March
The program for OIDA Executive Forum, held in conjunction with OFC on 4 March, is now online. At this year's Fireside Chat you'll hear from leaders like Basil Alwan, Nokia, Andreas Bechtolsheim, Arista Networks, Bill Gartner, Cisco Systems, Inc., and Richard Jin, Huawei. They will provide their unique perspectives on a broad range of industry issues including:
- View of market fundamentals in 2019 and over the next 3 years
- Growth drivers by product, customer segment and geographies
- The growing role and contribution of non-traditional customers
- Is growth in this industry cyclical or secular?
- Implications of architectural shifts such as open line systems and pluggable optics integrated into packet platforms
- Balancing investment in innovation with profitability and monetizing the innovation delivered
- Industry Consolidation
There will be four panel presentations this year and a Keynote Presentation by Buddy Bayer from Windstream.
Attend OIDA Executive Forum and take part in a unique discussion on the future of optical networking and communications that will help you grow your business and make informed strategic decisions. Network with more than 200 industry leaders as they discuss and debate technological advances and business opportunities.
OIDA Members will receive a special discount and can bring a colleague for free. Registration will open later this month. Not able to attend the entire event? OIDA members are invited to join us for the evening Networking Reception for Executive Forum Attendees and OIDA Members from 17:30 - 19:00 after the day's programming has ended.
New 1-Day OIDA Immersion Workshop on Manufacturing and Building the Supply Chain for Integrated Photonics
3 March at OFC in San Diego, CA, USA
This workshop will review and address the key challenges associated with manufacturing integrated photonic components. Invited speakers will discuss critical aspects of the ecosystem, providing insights on the current manufacturing challenges and what is being done to address them. Learn about new opportunities. Network with the top experts in the field. Program and registration information will be available later this month. Special discounts are available to OIDA members. Learn more.
Unique Career Opportunity — OSA Congressional Science Policy Fellowships
Combine your interest in policy with your science background. Apply for the 2019-2020 OSA Congressional Science Policy Fellowships. Congressional Fellows spend one year on Capitol Hill working as legislative assistants on the staff of a member of U.S. Congress or a Congressional Committee. Applicants must have a Ph.D. by the start of the fellowship, 1 September 2019, to be eligible. Mid- and late-career applicants are also encouraged to apply. In addition to being a great opportunity for young professionals, it is also an ideal way to spend an academic sabbatical or leave of absence from a company. Deadline to apply is 4 January 2019. To learn more about eligibility and application requirements, visit the Congressional Fellowship webpage.
Call for Nominations — 2019 Advocate of Optics Recognition
Do you know a public official who has been a champion for optics? Tell us about them. Each year, OSA's Advocate of Optics Recognition commends an outstanding public official who demonstrates leadership in support of the advancement of the science of light. The Public Policy Council is soliciting nominations from OSA members and will select a candidate based on their commitment to science and science policy, level of familiarity with optics and photonics, level of interaction with OSA or OSA members in the past year, and record of consistent support of science, optics, and photonics. The most recent recipient of the recognition was Carol Monaghan, a UK Member of Parliament from Scotland. To see a list of past recipients, visit the Advocate of Optics webpage. If you would like to submit a nomination, please email your recommendation to Brandy Dillingham at firstname.lastname@example.org and include the nominee's name, professional title, affiliation, country, and a brief description of why the person is being nominated. The deadline for submitting recommendations for the 2019 Advocate of Optics is 16 November 2018.
The Bernard J. Couillaud Prize
One early-career member of The Optical Society (OSA) demonstrating a meaningful and positive impact on the science and application of ultrafast lasers will receive a merit-based award which includes a US$ 20,500 stipend and US$ 5,000 in travel expenses. Bernard J. Couillaud PhD, (1944-2017) the former President and CEO of Coherent and later Chairman of the Board, is honored for a lifetime of dedication and achievements in physics, lasers, and photonics. Deadline: 8 March 2019.
Women in Optical Communications: Scholarship and Travel Grants
The Women in Optical Communications Scholarship recognizes outstanding women graduate students studying optical communications and networking. Three US$ 3,000 scholarships are available. Winners receive up to US$ 2,000 in travel expenses, housing and registration fees for OFC. Need-based travel grants are available for women who are currently graduate students, working as post-docs, or in the first 1-5 years of their career. These grants are intended to help cover travel costs to OFC. Deadline: 20 December 2018.
2019 OSA Fellow Class Announced
The OSA Board of Directors is pleased to announce that 98 members have been elected as 2019 OSA Fellows.
Fellows are members who have served the Society and our community with distinction. They are elected based on several factors, including specific scientific, engineering, educational and technological contributions, technical or industry leadership as well as service to OSA and the global optics community. Please join us in congratulating the 2019 Fellows.
In Memoriam: Berthold Leibinger, 1930-2018
Berthold Leibinger, former CEO of TRUMPF, passed away on 16 October 2018 at the age of 87. Leibinger served as the managing director of TRUMF for 40 years and under his leadership, the company become one of the world's leading machine manufacturers. Leibinger was recognized as a pioneer in the field of industrial laser development and application.
Leibinger served as an apprentice both in his uncle's factory where he worked on surgical instruments, and then at TRUMPF as a mechanic. He studied mechanical engineering at Stuttgart University of Technology. In 1958, he moved to the United States and worked as a development engineer at Cincinnati Milling in Wilmington. Leibinger became TRUMPF's managing director in 1965 and used the proceeds from his patents and inventions to acquire a significant stake in TRUMPF.
It was Leibinger's decision to use laser technology for materials processing applications that transformed TRUMPF from a machine maker to a pioneer in industrial laser applications. TRUMPF launched its first combination punch laser machine in 1979 and experienced tremendous growth over the next thirty years to become one of the world's largest laser companies. For fiscal year 2017/2018, TRUMPF employed 13,400 employees worldwide and reported sales of €3.6 billion.
Leibinger's influence went beyond his leadership of TRUMPF, as he also served on the boards of major international companies such as BASF, BMW, and Deutsche Bank. It was through the Berthold Leibinger Stiftung charitable foundation that Leibinger established the Innovationspreis, which honors scientists and developers who make advancements in the field of laser technology, and the Zukunftspreis, which recognizes outstanding milestones in research concerning the application or generation of laser light.
Leibinger was a member of The Optical Society was a valued partner within the industrial laser community, and received numerous recognitions throughout his career. OSA and the scientific community mourns the loss of Berthold Leibinger. TRUMPF is a member of OIDA. For OSA's full press release, see here.
What's the Secret to Finding the Perfect Candidate or Job?
There are lots of job boards out there, but WorkInOptics focuses on YOUR industry. It's the most effective and efficient way to find the top quality job or candidate you are looking for. OSA Industry Development Associates member companies get 20 free job postings! Learn more and join other OIDA members who have found new hires on WiO. "Optonicus has connected with highly qualified candidates with strong skill sets through the Work-in-Optics website, and we look forward to connecting with future team members as our business grows" Tom Tumolillo, Jr., COO of Optonicus.
Invitation to Join the Optics and Photonics Industry LinkedIn Group
Join 3,000+ of your colleagues in our Optics & Photonics Industry Network LinkedIn Group. This one-of-a-kind Forum for Industry lets you participate in discussions about cutting-edge issues. Extend your professional network. Exchange information about problems, ideas and solutions. Collaborate with experts in your field. Now is the perfect time to build a relationship with fellow optics and photonics professionals!
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OIDA (OSA Industry Development Associates) Council
Thank you to the volunteers who oversee the programs and services available to the Industry Community.
• Claudio Mazzali,
Corning, Inc., Chair
• Alex Fong,
TruTag Technologies, Inc.,
• John Dexheimer,
• Amy Eskilson,
• Christoph Harder,
Harder and Partner
• Fred Leonberger,
• Inge Kabert,
• Martin Seifert
• Debbie Wilson,