As the year ends and the stock markets take some wild rides, I’ve been hoping to get a sense of the current state of the laser markets. There has been solid GDP growth worldwide (IMF estimates 3.7%, and the same in 2019), inflation is modest, and unemployment is low. And yet there are many concerns about the long U.S. bull market coming to an end, a softening European economy along with the unknown consequences of Brexit, and growth in China slowing while debt is high. And, of course, there is a rising sense of nationalism and barriers to international trade.
I asked Allen Nogee, who heads Laser Markets Research (Phoenix, AZ) and presents his findings at the Lasers & Photonics Marketplace Seminar, what he thought. He helped me look for some of the patterns impacting the laser markets and showed me a chart tracking the stock prices of three of the biggest laser makers in the U.S.: Coherent, IPG Photonics, and MKS Instruments. Their stock prices—not revenues—from July 2016 to January 2018 rose 200–400%, far faster than NASDAQ and looking very much like a bubble. Prices have since fallen back to closer to the average.
In truth, 2017 was a fantastic year for laser sales. Worldwide sales of all lasers rose approximately 18% that year to over $12 billion, and the industrial laser sector boomed the most. Through Q2 of 2018, the total reported revenue of 20 laser-related companies that Allen tracks has been above their 10.4% CAGR since 2006. So, he was comfortable saying that 2018, although “mixed,” should be fairly good with overall laser revenue growth in the 5–8% range.
However, he pointed out that tracking market data by calendar year is not only complicated by the fact that companies report on the basis of varying fiscal years, but there is also the impact of global economic and political trends that may not neatly correspond with calendar years. So, why the bubble from July 2016 to January 2018? Possibly the anticipation of tariffs in 2016, followed by the actual announcements beginning in January 2018. Or not, since Allen got a lot of pushback when positing this straightforward explanation.
My point is that the impact and anticipated impact of many crosscurrents are making for a very uncertain time. How will the trade war actually play out between the U.S. and China? Will it severely impact sales by U.S. laser manufacturers since China is such a large consumer of high-power lasers? What about the sales of optics and other precision components from China to U.S. companies—what will be the impact on the supply chain? Small photonics companies are already starting to feel some shortages.
Longer term of course, there’s the question of whether China’s quest for self-sufficiency in high technology, combined with U.S. tariffs, will permanently serve to wean China off importing lasers and other precision equipment from the West.
The investment climate in the U.S. and Europe is also changing, with startups and small companies relying much more on private equity and much less on public offerings. Throw in the fact that one of the largest sources of equity investment funds, China, is pulling back and is under greatly increased scrutiny by the Committee on Foreign Investment in the U.S. (CFIUS) and European regulators, and then you have another layer of uncertainty.
So, for now, the question of how the laser markets fared in 2018 will have to remain open.