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Update on the Industrial Photonics Market
Last month's Optica Market Report is part of a series that provides an update on the market for machine tools, in which we include machine vision and industrial instrumentation. The good news is that this sector has weathered the pandemic without falling into a deep recession and is now poised for growth. Part of the reason was that purchases slowed even before the pandemic, which reset machine tool sales to a lower base level.
The figure below shows estimated machine tool consumption (for all types of metalworking machine tools) for the top six countries, according to Gardner Intelligence. It illustrates how the installed base of machine tools in China has expanded for two decades as the country become a major manufacturing nation. New purchases have slowed but still are at a level far greater than any other country. (The installed base continued expanding, but at a slower rate.)
Source: Gardner Intelligence (April 2021).
Gardner also says that China is relying more on domestic machine tool production for its machine tool purchases. In 2015, the Chinese government announced its Made in China 2025 policy to increase domestic manufacturing and reduce the country's reliance on foreign technologies.
The following years also saw rising trade tensions between the U.S. and Chinese governments drive companies to consider relocating their factories. In 2020 the pandemic emerged and threatened to send the machine tool sector into a deep recession.
Capital equipment industries like machine tools are vulnerable to economic cycles because customers—such as auto and electronics manufacturers—delay or cancel purchases of new manufacturing tools in recessions to conserve cash. The cycle is typically deeper for the toolmakers than for the end-product manufacturers due to a kind of "bullwhip effect." It helps if toolmakers (and the laser and optics companies that supply to them) are diversified across many customers and end-product markets. That is the case for industrial laser companies such as II-VI and IPG Photonics. However, an economy-wide recession—such as that triggered by the pandemic—can sink every end-product market at once.
Gardner also notes that global purchases have been in a downward trend since 2011, contracting 20% in 2020. And yet, the revenues of companies that Optica tracks in its indices, including the industrial laser suppliers, saw only modest declines by comparison.
The figure below shows Optica's indices of several machine tool segments, based on the revenues of selected companies in each segment. Each index is normalized to Q1 2018, showing flat to slowing sales as early as 2018, and hitting bottom in the first half of 2020 when the pandemic sent the world into lockdown. At this writing, it appears that 2021 will end up ahead of previous years. This is a pleasant surprise from the expectations just 20 months ago.
Source: Optica (2021), based on selected company revenues.
Semiconductor fabrication tools are an exception, with strong growth through the pandemic punctuated only by the lockdowns in early 2020. (The semiconductor sector is represented in the figure by ASML, which has a near-monopoly on microlithography equipment.) New fabs take years to bring online, and the silicon electronics industry must continue to invest in new tools for future production, regardless of short-term economic cycles. Meanwhile, companies like Texas Instruments have lead times that extend into early 2023, which increases the urgency to ship new fab tools to foundries.
Last month's Optica Market Report examined metal cutting and robotic tools. Upcoming reports will examine other machine tool segments. Look for the email announcements that go to Optica corporate members or go here to see the recent reports.
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Foreign Acquisitions of European Photonics Companies—Good or Bad?
The optics and photonics industry is global, where the conventional wisdom is that fair global competition is good in the long run. Capital crosses borders too, and there is no shortage of it—in fact, there is more available capital than ever. But it doesn’t necessarily flow to the right places.
And that’s where foreign investment and acquisitions come in. Are they good or bad? While companies want to compete in foreign markets, they aren't eager to invite competition into their local markets. International mergers and acquisitions can create exits for investors, but a loss of control and possibly a loss of jobs. How should the European photonics industry view these cross-border investments? Can European photonics companies become the ones acquiring other companies, rather than the ones getting acquired? This was part of a discussion at panel hosted by Optical Corporate Membership at the OptecBB Photonics Days Berlin Brandenburg (watch here).
Source: Bill Whitehead, Cartoon Stock
The panelists said that acquisitions cut both ways: they can be good when there are no other opportunities for a small company to grow. However, acquisitions may remove products from the market as the new owner leans into the more profitable business units. Foreign owners can move operations abroad, eliminating local jobs and weakening the community's ecosystem.
The panel discussed "dual shoring" as an option for companies that have complementary strengths. In June, for example, U.S.-based Honeywell announced that its quantum computing unit would form a new company with U.K.-based Cambridge Quantum Computing (CQC), with a new name and majority ownership by Honeywell. The CQC operations will remain in the U.K.
It can go the other way too. Consider Quantum Brilliance, an Australian startup using synthetic diamond in room-temperature quantum computing hardware. The technology was developed in Australia and Stuttgart University. This year, the company began describing itself as an Australian-German enterprise. It opened an office in Stuttgart and declared it to be its official headquarters.
Deals with Chinese investors invite the most scrutiny from government regulators. In February 2021, the assembly/test equipment vendor ficonTEC announced a "structured investment agreement" with the Chinese company RoboTechnik Intelligent Technology. ficonTEC already had an operation in China, and German regulators approved the deal.
In July, Netherlands-based semiconductor supplier Nexperia acquired the U.K.-based foundry service, Newport Wafer Fab. Nexperia was a customer and shareholder in the foundry. For the U.K., it means a foreign acquisition of a wafer fab, one that is based in Europe but owned by the Chinese electronics assembly firm Wingtech Technologies. The deal was approved, but raised concerns all the way to Prime Minister Boris Johnson. One U.S. firm reported that its relationship with the foundry abruptly ended with the sale (here).
What happens to the stock price when there is an acquisition? The Chinese company Midea Group made news in 2017 when it gained majority ownership of KUKA, a German vendor of robotic tools. The acquisition generated concerns that Germany might lose a valuable asset to its economy, but the deal was not blocked by regulators. Exuberant traders bid up the small fraction of KUKA's stock shares available for trading on expectations of strong sales to China. Weak earnings in late 2017 popped the bubble, sending the stock below the €115 price that Midea paid earlier in the year. Meanwhile, KUKA remains in Germany, refuting some of the concerns at the time. This year KUKA's share price is trending up again (see orange line in the figure below).
Stock prices of KUKA and Aixtron on the Frankfurt exchange. Source: Optica (2021).
Compare that to another German company, Aixtron, which assembles equipment that grows epitaxy on semiconductor wafers. An attempted acquisition by a Chinese investment fund was thwarted by the Obama Administration in 2016 based on U.S security reasons. Following this, Aixtron's stock price actually improved. And this year Aixtron has achieved its highest stock price in a decade (shown in the figure in blue, multiplied by five). While we can’t know what would have happened with a different owner, it suggests that the company continues to be valuable without the foreign acquisition.
(The figure also illustrates the cyclic nature of Aixtron's business, with strong stock prices around the Telecom Bubble of the early 2000s, again ten years later with the growth of high-brightness LED manufacturing. And then recently the growth seen another ten years after that.)
Panelists noted that there are many barriers to the free flow of capital and growing businesses: some are deliberate (such as national policies) while others are not (such as stifling bureaucracies and cultural hesitancy).
They said can be easy to start a company in Europe, but often difficult to get it to the next level. In Silicon Valley, there are affordable services that are difficult to find in Europe. The panel also discussed the cultural issue of getting past the “fear of failure” mindset.
But one panelist said that it is easier to start and grow a company today than it was 20 years ago. In Berlin, in particular, there is a change in mindset in the last ten years. There are new generations entering the workforce and running businesses.
To see Optica's panel discussion, click here. For more on the OptecBB Photonics Days Berlin Brandenburg 2021 event, click here.
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Remembering Valentin Gapontsev, 1939-2021
Optica and the photonics community mourns the loss of Valentin Gapontsev, who died 22 October at the age of 82 (here).
Valentin's accomplishments were many, but we remember him as someone who many once viewed as an unlikely person to lead the commercialization of fiber lasers, establish and lead IPG Photonics to become a billion-dollar business employing over 6,000 worldwide, and become a self-made billionaire. He did all this, and some of the naysayers came to work for IPG.
Think of it:
Gapontsev was born in pre-WWII Soviet-era Russia and became known as a pioneer in laser physics. He founded IPG Photonics in 1990 in Moscow with no experience in Western markets and yet was later admired for his business acumen that led to the commercialization of the fiber laser industry.
The company repeatedly broke records for output power and efficiency, and grew market share against established vendors of CO2 and solid-state lasers in a notoriously conservative machine tool industry. (Thanks also to wise hiring choices, such as the memorable and persuasive head of sales Bill Shiner, who died last year at 79, here.)
By boldly choosing to vertically integrate IPG, the company became the largest manufacturer of high-power diode lasers by making essentially one device when some competitors had thousands of diode offerings.
Valentin was known to bring a colorful enthusiasm to industry events, emphatically advocating for the company's products on the show floor and which outperformed what research scientists were talking about in conference sessions. And yet he was often understated in company earnings calls and personal interactions.
Capable in both engineering and business into his 80s, he was CEO until April of this year.(For more on his life, see here.)
Gapontsev was a celebrated Optica member due to his many years of service to the society and the field of optics and photonics. He recognized the value of investing in the scientific community and IPG has been a premier sponsor of Optica conferences and educational outreach programs.
Valentin Gapontsev brought many gifts to our industry. We will miss him.
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Welcome New Optica Corporate Members
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Spotlight—Women in Industry
Jessica DeGroote Nelson, Ph.D.
Director of Technology and Strategy, Optimax Systems, Inc.
Spotlight — Women in Industry is a monthly article highlighting emerging and seasoned female Optica Corporate Members in which we ask both professional and personal questions. This month features Jessica DeGroote Nelson, Director of Technology and Strategy, Optimax Systems, Inc.. If you would like to be featured in this section, please email industry@optica.org for more information.
- What currently excites you most about working in the optics and photonics industry?
I love how quickly the industry is evolving! Innovation cycles are accelerating and we are seeing really cool research moving from the lab to commercialization at amazing speeds. Optics and photonics is enabling innovations in every technological field from biomedical applications, defense, communication to space. From an optics manufacturing perspective, take freeform optics for example. Just a few years ago designers were asking "I see the advantages of using freeforms for off-axis systems, but can you actually make them?" to now freeforms are being designed into systems and delivered every week enabling more compact and off-axis optical designs. It is really exciting to be a part of the continuous evolution.
- What career advice would you give to your younger self?
It is ok to reinvent yourself. I recently overheard someone tell a group of students "don’t be afraid to reinvent yourself every 5 years." I think this is excellent advice as life should be all about following your passions and your dreams, and it is ok if those dreams change over time!
- What is a hobby or passion of yours?
I love optics, and especially optical materials, fabrication and testing technologies. I enjoy seeing how advances in these fields can help enable new science. However, optics is only one of my passions. My family is my true passion, I have a wonderful husband and soon to be 5-year old daughter. We love crafting, golfing, playing dress up and of course doing science experiments together!
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New Market Update Webinar: What to Expect for the Optics and Photonics Market in 2022
Tom Hausken, Senior Science Advisor, Optica
This free webinar on 09 December will review where the optics and photonics industry is today, and where we can expect it to go in 2022.
The optics and photonics industry has fared surprisingly well through the pandemic, despite the scope of the global tragedy and the human scale. But as we near the end of the second year, how is the industry doing and what can we expect for 2022? What do the supply chain disruptions that are widely reported mean for our industry? Are the constraints leading to higher prices or are they curtailing production and demand, leading to lower prices? What are the market segments that show the most promise in 2022, and which are more vulnerable?
Bring your questions to this live online event. Learn more and register today.
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Optica Diversity & Inclusion Advocacy Recognition Winners Announced
For the first time, one of the winners of the 2021 Optica Diversity & Inclusion Advocacy Recognition includes a company, Fujitsu Network Communications, USA. Fujitsu joins the Institute of Photonic Sciences (ICFO), Spain to honor their steadfast commitment and achievements that proactively work to create a more diverse, equitable and inclusive optics and photonics community. Watch a video highlighting their work and learn more here.
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Volunteers Giving Back
The last two years have been tragic for millions of families, from those fighting COVID to families coping with the loss of loved ones and jobs, and to children who lost valuable time with teachers and peers in classrooms. At the end of 2021 we will take some time to reflect and appreciate what we have and how to give back.
We were struck by an article in the Cisco company blog by Eve Griliches. Eve has volunteered with Optica in numerous committees and speaking roles, and many of you may know her from her service in the optics and photonics community. In the article she talks about giving back to kids from less privileged circumstances. It's worth a read.
Eve Griliches with two Fresh Air kids. Source: Cisco blog here.
As this year ends, we want to thank Eve and all of you who give back to your communities. The needs and the rewards are many.
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It's a Wrap! 6th Annual Optica Funding Accelerator Speed Meetings Focused on SBIR/STTR Funding
Optica is committed to fostering the development and commercialization of new optics and photonics technologies that will expand the industry's product pipeline, and to offering Optica Corporate Members the opportunity to get the funding they need. We brought companies with less than 500 employees together with top U.S. federal agencies for one-on-one virtual meetings and presentations on 18 November. Companies had the opportunity to discuss their innovations and business model with this exclusive audience, and got an insider perspective on what specific agencies are looking to fund. The event helped government agencies better understand what our Industry can offer and how optics and photonics technologies can help them meet their goals.
Thank you to the participating agencies: Air Force/AFRL, DOE, NOAA, NSF, Navy/NRL, Chemical and Biological Defense (CBD) and NASA. Thank you to the companies that attended including: GAMDAN Optics, Fundamental Optical Solutions and Aliro Quantum.
If your company is interested in learning more about Optica Industry SBIR/STTR events, please reach out to: Optica Corporate Membership.
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Member Benefit: Plan Your 2022 Strategy with New Industry Reports Available to Corporate Members
Industry leaders worldwide are planning their strategy for 2022 and beyond. A winning strategy is driven by intelligence. Optica Corporate Members have exclusive—and complimentary—access to Optica Market Update reports. Have you downloaded our newest industry report?
Read the latest Market Update for exclusive information on:
- Machine tool market overview and optics and photonics segment summary
- Metal cutting tools market and company revenues
- Industrial robotic tools market and company revenues
Stay on top of the latest optics and photonics market insights, news, roadmaps and research. Read our reports today and get the information you need to make better business decisions faster.
Other reports include:
Optica Market Update reports are available to all employees of Optica Corporate Member companies who selected the Market Intelligence benefit category. We encourage you to browse the Industry Reports page on the Optica Publishing Group site to see everything available to you.
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New Digital Programming Available Live and On-Demand
What are your optics and photonics interests? Our digital library has something for everyone. Optica management and Optica Corporate Members have produced a series of webinars and virtual Technology Showcases that are available at no charge. Our curated playlists feature global thought leaders, optics and photonics pioneers and industry icons, offering actionable advice, information and inspiration.
Upcoming live December events include:
We encourage you to browse our growing list of upcoming events and view on-demand recordings as they become available.
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Showcase Your Company’s Useful Techniques: Submit to Applied Optics' Engineering and Laboratory Notes
Applied Optics (AO) publishes Engineering and Laboratory Notes (E&L Notes)—brief, concise articles that share useful laboratory techniques and practical engineering approaches in the applied optics field. Topics range from design and analysis, to fabrication and integration, alignment, testing, and calibration of optical systems. E&L Notes offers a unique way to publish useful techniques from your engineering notebook in Applied Optics. Read more about E&L Notes and suitable topics for submission and learn about how to submit your contribution.
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Invitation to Join the Optica Industry Network LinkedIn Group
Join 4,800+ of your colleagues in our Optica 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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Questions or Suggestions about Optica Corporate Member Benefits?
We are committed to ensuring the value of your Optica corporate membership, so please email Optica corporate membership if you have any suggestions for new programs or comments on your membership.
Forward this message to your colleagues.
Not yet a member? Learn more about the benefits of membership.
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Optica Corporate Engagement Council
Thank you to the volunteers who oversee the programs and services available to the Industry Community.
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Simin Cai
Go!Foton, Chair
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Amy Eskilson
Inrad Optics, Chair-Elect
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Aleksandra Boskovic
Corning Inc.
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Turan Erdogan
Plymouth Grating Laboratory, Inc.
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Cedric F. Lam
Google
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Anjul Loiacono
ColdQuanta
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Rick Plympton
Optimax Systems, Inc.
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Thomas Rettich
TRUMPF
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Debbie Wilson
Lumentum
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