World markets remain mixed; European firms rebounding

In Europe most laser manufacturers experienced another subdued year in 2004.

LONDON, ENGLAND—In Europe most laser manufacturers experienced another subdued year in 2004. Many companies are still awaiting renewed growth in the telecom market, but others are finding some success in industrial and electronics markets. Although Bookham (Abingdon, England) reported positive growth in the metro market, the company continues its strategy of diversification, "leveraging its core optical competencies across [other] markets." Recently launched nontelecom products from Bookham include optical filters for the life sciences and optical components for projection displays. In addition, the company has developed a range of high-power laser-diode bars for key industrial sectors.

"Our cost-reduction plans announced last quarter are fully on track, and our low-cost manufacturing in China has produced the first significant volume shipments," CEO Giorgio Anania said in October 2004. "We still need to make significant progress but this quarter has brought us a big step forward and we expect continued improvement in the coming quarter."

Meanwhile, former telecom industry giant Marconi (London, England) appears to be making a comeback. In September the company announced that it had completed the full repayment of the $1.2 billion debt that it assumed upon completion of its financial restructuring in May 2003. This debt was originally due for repayment by 2008. Interim half-year results posted the same month show fairly flat sales, but good growth in profitability and a healthy investment in R&D. The company expects just single-digit growth in sales and has a 34% adjusted-gross-margin target based on higher volumes, cost savings, and improved business mix.

BAE Systems, the avionics technology specialist, has opened a £4 million laser centre at its Sensor Systems Division facility in Edinburgh, Scotland. The new 4000 sq. ft. center will produce the laser system in the F-35 Joint Strike Fighter's electro-optical targeting system. A recent contract awarded to BAE by Lockheed Martin means that several thousand lasers will be produced at the Edinburgh site.

A new French research facility was established in July. Thales and Alcatel have joined forces to manage the Alcatel-Thales III-V Lab. It combines the relevant industrial research activities from Alcatel, a research leader in optoelectronic components for telecommunications, and from Thales, a leader in optoelectronic and microelectronic R&D for defense applications. The main objectives of the lab are to develop strategic technologies and anticipate scientific and technical advances and their impact on future. With about 100 researchers, the lab is located on two sites: one in Marcoussis, within Alcatel's French research center, and the other in Palaiseau, on the campus of the Polytechnique institute, where Thales' future research center will be located. The main fields of research are optoelectronic and microelectronic components for optical fiber transmission, GaN-based high-frequency components, high-power transistors and circuits, infrared imaging photodetectors and high-power laser diodes.

Turning to the German laser market, Rofin-Sinar (Hamburg) had a busy year. The company completed its secondary share offering at the end of March, which further improved its strong balance sheet. The company has been spending money on acquisitions, acquiring US firms PRC Laser and Lee Laser for an undisclosed cash sum. Earlier in the year the company acquired 90% of Swedish Optoskand, a manufacturer of high-power, fiber-optic beam delivery systems and components, and increased its stake in German high-power diode laser specialist Dilas Diodenlaser from 15% to 95%. Rofin-Sinar's end-of-year results, reported in November, showed a 25% growth in sales to $322 million and a growth in net income of 112%, from around $15 million in 2003 to $32 million in 2004.

"We are proud to report again an outstanding fourth quarter and record highs in sales and net income for the fiscal year 2004," said Peter Wirth, chairman and CEO. "Nearly all of our growth was organic, as our new acquisitions, PRC and Lee Laser, are only included with their September numbers. Our strong performance in North America and Asia and a strong demand for lasers for various marking and micro applications were the primary drivers of these excellent results."

In the latter part of 2004 Lambda Physik (Goettingen, Germany) appeared to be experiencing a turnaround of sorts, following a drop in sales of 21% at the beginning of 2004. Although revenues were up by 3% in lithography, a significant downturn in the rest of the industrial segment, including the flat-panel-display industry, and drops in scientific and medical applications more than compensated for it. Toward the end of 2004, Lambda Physik reported October year-to-date comparisons showing a growth in sales of 5% over 2003, and a growth in incoming orders of 39%.

Poor performance over the spring and summer led to a dropping of the value of Infineon's Fiber Optics Business Unit (Munich, Germany). Finisar (Sunnyvale CA) had originally agree to acquire the unit for 135 million shares of Finsar common stock, but in October the two companies agreed to a reduced price; Finisar will now issue approximately 110 million shares to Infineon. Following the transaction, Infineon will hold a 33% equity interest in Finisar. In addition, Infineon has agreed to provide financial assistance with respect to the costs of restructuring and integrating the operations of the Fiber Optics Business Unit.

Imaging and displays

Throughout the EU, several smaller optoelectronics companies are showing signs of growth. Intense Photonics (Glasgow, Scotland) announced in February that it had expanded headcount and facilities to handle demands from new markets, namely printing, defense, and telecom. Having increased its staff numbers from 50 in late 2003 to 65, and extended its clean-room facilities by 15%, the company expected this trend to continue. Diode-pumped solid-state laser specialist Elforlight (Daventry, England) has tripled its production capacity by moving into a new facility. Ultra-low-loss optical-switch maker, Polatis (Cambridge, England) has also moved to larger premises and gained some new funding ($9.4 million). Oxxius (Lannion, France) also added more space in May 2004 and received €2.4 million ($3.2 million) in first-round financing from Sofinnova Partners; the company's first product, launched in 2003, is a monolithic continuous-wave 473-nm laser. French nonlinear-crystal specialist Cristal Laser (Messein) has moved into a new production facility; an investment of €2 million ($2.6 million) from the regional government should allow the company to triple its crystal growth capacity.

As in the United States, the display business is also proving fertile for many smaller European companies. Microdisplay developer CRL Opto (Dunfermline, Scotland) was acquired by venture capital firms Amadeus Capital and Doughty Hanson Technology Ventures and given $19 million in funding by its new owners. MicroEmissive Displays (MED; Edinburgh, Scotland), which designs and manufactures low-power microdisplays based on light-emitting polymers announced its intention to float on the Alternative Investment Market of the London Stock Exchange; in May MED received a further investment of U.S. $3 million from venture capital and private investment.

Asian markets

The other major world market for lasers and optoelectronics is, of course, Asia. China's booming economy is expected to expand 8.6% in 2004 and 7.7% in 2005 (GDP), adding to inflationary pressures. As a result, the Chinese government has adopted measures to put a brake on the runaway economic growth, such as forcing banks to increase their reserve requirements. Japan is benefiting from the strength of the Chinese economy and the improving U.S. performance this year. Real GDP growth of 4.1% is forecast in 2004, before Japanese growth weakens to less than 2% in 2005. The Japanese economy relies on exports to China, so even a modest decline in Chinese growth would hurt Japan's outlook.

And while laser manufacturers generally remain nervous about the long-term impact of China on their business, particularly in terms of outsourcing and price erosion, for the most part this region is still a net end-user of lasers and laser systems rather than a producer. Most of the country's investment in laser equipment remains in lower-power marking and cutting systems for localized applications such as textiles. According to David Belforte, editor-in-chief of of Industrial Laser Solutions (ILS), while unit sales of low-power lasers remain strong and the beginning of a substantive market for high-power lasers is apparent, on a revenue basis China lags the other producing, consuming, and exporting nations. Still, Belforte notes that some analysts peg Chinese manufacture of CO2 lasers at more than 10,000 units annually.

—Bridget K. Marx and Kathy Kincade

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