The continued growth within lasers and photonics have resulted in a $105 billion market, growing at 10%—making it an exciting market whether operating or investing (see figure). But for manufacturers, the most important thing is whether you integrate or not—and how hungry you are, explains Nick Santhanam of the Fernweh Group during his talk at LPMS 2022.
When looking beyond the immediate market, “[photonics] is enabling roughly $1.3 trillion of system markets,” he says. “Where for every dollar of photonics and lasers going in, there’s nine other dollars enabling or benefiting someone else, what we call the lasers, photonics-enabled system. If you look the laser devices growing at 10%, photonics components are growing at 10%, and systems are growing 8%.”
When thinking about lasers and photonics, it’s an amazing industry that is as widespread as it can be. It’s almost like a ball of yarn—you start pulling wanting to go further. There are a lot of cases and a lot of industries today, where technology is evolving like crazy. But applications are probably in early stages. “Look at quantum, where the technology is evolving towards application, but politely nobody really cares if your technology evolves, or your application evolves,” he says. “It’s actually about building a better device.”
Age of integration
“What you saw yesterday is not what you’re going to see tomorrow,” he says. According to Santhanam, the last 20 years represented wave one easily referred to as the component era. “I’m just going to build a great mousetrap, give it to you, and disappear,” he says. “I make a laser without caring about the end market. I don’t need to understand the markets. That’s done very well, and it’s why you see $105 billion market and a CAGR of 13% over the last 10 years.”
The next phase will be fundamentally different where companies need to understand the end market application, the end customer application. “You cannot be thinking about just building a product. There is going to be an end customer need and that’s what is going to differentiate the winners. It’s integrated photonics,” he says. “Vertical integration is going to matter, not from a cost point of view, but from a revenue point of view. If I’m able to integrate laser with a filter with a sensor, with a software solution for a particular application solving a turnkey for a customer, you want to make money.”
According to Santhanam, there is an entire trend of mega trends, which means the photonics community has an array of opportunities to drive more innovation. “None of that is surprising. Commoditization is going to continue. People are going to reward innovation,” he says. “You're all going to see vertical integration. Silicon photonics has always been waiting and you are going to start seeing more miniaturization.”
Santhanam then expanded on the prediction that vertical integration is coming. “It’s not only coming, it’s here to stay. The folks who win and make money are going to be the ones who are looking at innovation, not in a horizontal way—but orthogonal ways,” he says. “With orthogonal, you can use any angle you have to drive innovation. If you need a vertical approach for products, you already see this in a lot of the ultrafast laser companies, sensors and filters. OEM markets are going to turn to photonic systems rather than components, and the line between whether you’re a component supplier or a device integrator will blur.”
“I love photonics, but what gets me even more excited is that in the next decade, we’re going to be seeing a lot more money flowing, a lot more talent flowing, and a lot more innovation flowing,” he says. “The next 10 years is going to make the last 10 years pale, which is good for us. The brighter future is yet to come.”
Santhanam ended his talk by fielding a handful of questions, many of which asked for insights when comparing the photonics community to the semiconductor industry. One example: What’s the biggest challenge to enabling the integrated photonics market to move along the trajectory of the semiconductor industry?
“One is the technology, but it’s not insurmountable. While there’s a need for integrator tools, the challenge is more on the business side,” he says. “The industry is full of component guys—and companies have grown that way. It’s more a business model mindset of putting it together. Why can’t you put it together? When you make 45% margin on a component, but you need some different talent to develop the products with the end-to-end view.”
