Robert C. Pini
Slumping Asian economies notwithstanding, 1999 looks good, according to business leaders at photonics companies around the world. New applications markets, exciting technology breakthroughs and continuing industry consolidation should combine to leave photonics perched for a brilliant entrance to what futurists are calling the "Photonics Century."
While each specific area of photonics -- optics, lasers, imaging and fiber optics -- certainly has its own market drivers, the industry's leaders told us that a few market trends are affecting the industry as a whole:
A few industry-watchers noted, however, that for every consolidation there are also several start-ups, carrying new technologies from university, corporate and government labs into the commercial world. For some firms, technical and marketing alliances are an alternative to consolidation, and the concept is growing as photonics companies try to gain expertise and experience with specific market segments.
- Miniaturization is driving industrial customers to increase purchases of high-resolution imaging, micromachining and related photonic products. "A growing business in any technical field is dealing with smaller structures and higher resolution," said Karl Spanner, managing director of Physik Instrumente GmbH & Co. High growth is expected in medical manufacturing, as photonics becomes the only tool that can meet and verify manufacturers' specifications.
- The worldwide boom in telecommunications continues to stimulate investment and spur innovation in lasers and optical fiber components.
- Weak Asian currencies have all but closed those markets to foreign photonic products. The poor economy also has sharply reduced Japanese domestic sales, but Japanese export-oriented companies are still growing, though more slowly.
- Consolidation continues, with competitors finding common ground for business dealings and big fish eating small fish.
Lasers: Innovation expands markets
While the laser marketplace certainly grew in 1998, growth was slower than predicted, according to laser company executives. Telecommunications and research markets thrived, but other expected "hot spots" failed to materialize.
"I don't think it met people's expectations in materials processing, printing and medical applications," said Pat Edsell, president of Spectra-Physics Inc.
Growth in 1999 should occur because of improvements in all-solid-state, sealed CO2 and other new laser technologies, the experts averred. Factors in increasing the laser's penetration of new applications include improvements in price/performance ratios, reductions in laser size and improvements in lifetime and reliability.
Consolidation will continue to be a factor in the marketplace. J. Donald Hill, CEO of Excel Technology Inc., said the mergers of 1998, including Excel with Synrad Inc. and General Scanning Inc. with Lumonics Inc., were a sign of things to come.
"Five years from now, the industry will have consolidated quite a bit more," he predicted. Consolidation, he added, will leave "a number of industry players that can be more proactive and less reactive" than firms today, giving them significantly more product development muscle and better knowledge of potential markets.
Market-related acquisitions (as opposed to technology-related ones) were an interesting business trend in 1998, and experts expect it to continue in 1999. Examples include Uniphase Corp.'s telecommunications (but not necessarily laser) acquisitions and SDL Inc.'s acquisition of an industrial customer, Mr. Laser Inc.
Imaging: As goes electronics ...
Spurred by improvements in cost/performance ratios of equipment, the number of applications for machine vision systems continues to grow.
For many imaging companies, that was small comfort in a year marred by twin troubles: sagging sales in semiconductor and electronics manufacturing, and the economic crisis in Asia. Stock market volatility in the second half of last year has many firms wondering what 1999 will bring.
Imaging experts reported that the medical market, a haven in 1998, should continue to be strong in 1999, as will scientific research and microscopy markets.
By all accounts, sales in traditional machine vision equipment markets should begin to pick up by the second half of the year as electronics and semiconductor industries come out of their slumps.
Mergers will continue in imaging, as with other technology segments, the experts agreed, and they will follow the pattern of 1998 consolidation: competitors finding common ground.
Two key 1998 imaging mergers were Roper Inc.'s summer acquisition of camera manufacturers Princeton Instruments Inc. and Photometrics Ltd., and board manufacturer Coreco Inc.'s more recent acquisition of its competitor, Dipix Technologies Inc. The result in each case was the creation of a single company with a wider product line, not the disappearance of competitive technologies from the marketplace.
Key technologies to watch will be complementary metal oxide semiconductor imagers; charge-coupled devices with high dynamic range and sensitivity; host-based computer machine vision; improvements in image processing hardware and software; and the blossoming of the IEEE 1394 ("FireWire") bus.
Optics: Classic technology endures
The last several years have produced several new optics technologies, but the optics industry continues to make its revenues largely on classical optics, a trend that is expected to continue in 1999.
"For every exotic application, there are 50 simple ones," said Ken Moore, president of Focus Software Inc. "Classical optics is doing well, including centered optical systems and lens design."
Industry-watchers said the Asian economy affected optics, especially manufacturers strongly tied to imaging. While the imaging companies predicted a third-quarter turnaround in sales, optics manufacturers were divided about when that turnaround would trickle down to the component level.
Consolidation has not greatly affected the optics industry in the past year, and in fact the trend appears to be toward building alliances but remaining separate. Lightpath Technologies Inc. and Rodenstock Prazisionsoptik GmbH are examples of optics companies that sought technology and marketing alliances with specific customers or competitors to help develop new technologies and markets. Experts see this type of money-saving alliance continuing into 1999.
Markets that will be important in 1999 include digital imaging, especially consumer and scientific; and high-power laser optics -- if the laser industry's predictions about industrial applications come true.
Optical fiber: Telecom rules
You'd be hard-pressed to find an unhappy optical fiber company executive these days, except maybe from a company whose products are outside the realm of telecommunications. Telecom fiber-related companies had a great year in 1998 and expect more of the same this year.
No one here is complaining about slumps, but the Asian economic crisis and subsequent devaluation have increased price pressure on components. As fiber networks grow and new equipment emerges from the lab, the all-optical network moves closer to the home. Components are a chief part of this advance. Companies that make high-speed routers, optical cross connects and dense wavelength division multiplexing equipment are this year's superstars.
Experts note that the fierce pace of innovation drives consolidation: If you don't have the technology and experience, buy it. Uniphase is the poster child for this philosophy, buying up fiber-related component technologies to broaden its telecommunications product line. Analysts expect Lucent Technologies to join Uniphase soon in the dictionary definition of "acquisitive," having been prevented until recently (under the terms of its organization) from going shopping.
The less optimistic part of the fiber story is the slow sales in nontelecommunications fiber-related products. Aside from some successes in medical laser power delivery, this arena has largely been stagnant or even depressed. While some fiber- sensing applications are poised to jump from laboratory to real world, "specialty optical fiber" manufacturers are still waiting for their so-called "killer app."