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Coherent Points to Growth in Defense, MicroLEDs as Company Starts Fiscal Year 2021
SANTA CLARA, Calif., Nov. 11, 2020 — Coherent Inc. will acquire EOT, a maker of optical isolators and fiber components, supporting initiatives and applications in the domestic directed energy market. Coherent President and CEO Andy Mattes made the announcement on the company’s quarterly earnings call Nov. 10. Coherent closed its fiscal year at the end of the most recent quarter, on Oct. 3.
Mattes, who added that he expects recent awards to Coherent’s defense business to boost company and defense segment revenue, particularly in 2022 and 2023, said that the move will help fortify an increasingly secure U.S.-based supply chain for defense and directed energy offerings that customers are demanding.
“The megatrend that is driving this opportunity in aerospace and defense is related to asymmetrical threats from relatively cheap drones, drone swarms, and the potential to counter other threats such as mortars, where there are no current defensive solutions,” Mattes said. In more than a decade of working on technology in that area, he said, only in the last year has the company delivered technology that has reached successful prototypical demonstration levels in relevant/operational environments, in accordance with the Department of Defense’s Technology Readiness Levels guidelines, which consist of nine distinct levels.
“Several U.S. programs are slated to progress to Technology Readiness Level eight, meaning full system qualification and, hence, higher volumes in the next three to five years, with deployment beyond that timeline,” Mattes said.
OEM Components and Instrumentation, Scientific, Rebound
The company, which segments its business into units, further reported double-digit sequential percentage increases for the quarter in three of those four areas: OEM Components and Instrumentation, Scientific and Government Programs, and Materials Processing. In line with internal estimates, the OEM Components and Instrumentation and Scientific businesses were the fastest of the two segments to return to levels resembling those that the company posted prior to the COVID-19 pandemic. Research labs and non-COVID-related hospital use drove a sequential increase in clinical testing and laser-related medical procedures, Mattes said.
R&D centers, including universities and other medical centers that have now reopened or are reopening, also contributed to that growth, as well as to growth in Coherent’s Scientific business, said Mark Miller, senior analyst with the Benchmark Group.
Coherent, in addition to a double-digit percentage increase in orders to its OEM Components and Instrumentation business, specifically reported what Mattes cited as a “rebound” in flow cytometry.
“Demand, as reported by several of the flow cytometry industry leaders, is back up to some 90% of pre-COVID levels, although still constrained due to reduced hospital utilization, lab testing, and research lab openings,” Mattes said. “Customers halted their medical consumables production for a time in Q3 and have now started to replenish inventories as hospital utilization improved.”
Sustained Success in MicroLED Display Sales
In microelectronics and, specifically, flat panel displays, the company expects revenue stemming from Apple’s adoption of flexible OLED displays for its iPhone 12 lineup, as well as other companies’ choice of foldable models, to continue to push a positive trend for OLEDs both in China and around the world. In that area, Miller said, the company reported it has received multiple orders from multiple customers.
“Plus, they’re getting orders from microLEDS which is a new area that’s still a couple years away,” he said.
With microLEDs, Coherent reported quarterly increases in both related bookings and investment; those bookings especially, Miller said, significantly boost both the company’s China business (which did ultimately grow year over year) as well as continued momentum in the segment.
“Our microLED customer base includes almost all current OLED & LCD manufacturers, as well as many well-known microLED specific startups and display industry integrators,” Mattes said. “We are uniquely positioned with multiple UV solutions for four separate microLED processes: ELA for high-performance/low power consumption backplanes, laser lift-off for customers using sapphire carriers, laser transfer, and laser repair.”
In application, microLED displays reduce electrical consumption (improving battery life) and can deliver increased levels of brightness relative to OLED displays. Coherent aims to develop the laser-based systems needed for the mass production of microLEDs.
Speaking on both OLED and microLED displays, Mattes said, “We see a coexistence of the two technologies in the years to come, with flexible OLED remaining the dominant choice for mobile in the long term and microLED becoming the new entrant in high-end TV, where brightness is a key advantage, and devices where battery size is at a premium, such as watches, or future smart glasses.
“We believe we are well positioned to remain the laser solutions display industry leader for all display technologies.”
Core Products and Business
Mattes said Coherent has, to date, received more orders for CO2 lasers in the first third of the current quarter than in all of the period ending Oct. 3, 2020. The revenue those orders generate will be important to consider through a lens that accounts for how and when companies process large-scale laser and laser components orders.
“Lasers [and laser equipment] typically have a longer sales cycle,” Miller said, with regards to other product offerings, such as instruments. “You don’t get an order and usually ship it same-quarter.”
With orders in materials processing increasing by double digits from the previous quarter, and reported improvements in the number of medical device manufacturing orders for marking, cutting, and welding applications, Miller said the company is well positioned to continue streamlining and, where necessary, consolidating its portfolio.
Mattes told analysts in the question-and-answer component of the earnings call that he expects the company to return margin levels (gross, non-GAAP) to or over 40% by the end of 2021’s fourth quarter, or the end of the 2021 calendar year. Mattes noted the flexibility in the statement, though he did outline specific, executive-level changes. In highlighting the company’s investment in defense, Mattes announced that the management-level reporting of all aerospace and defense-related sites is moving under a single senior vice president reporting directly to the company’s chief operating officer.
“Going forward, we will be focusing our efforts on four end markets: microelectronics, which yesterday captures the three subcategories of display, semi, and API; instrumentation, which captures the three subcategories of bio-instrumentation, therapeutics, and research; precision manufacturing, which captures nonmicroelectronics/noncommodity kilowatt fiber industrial applications; and aerospace and defense,” Mattes said.
“We will explore opportunities to move up the tech stack and offer, wherever possible, subsystems to our customers that will enable them to go to market faster. By doing so, we believe we can more than double our addressable market over the next two to three years.”
*A previous titling of this article represented and pointed to an inaccuracy in the text. This article has been updated for accuracy.
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