NASHUA, NH-“So far, so good” seems to be the consensus around the laser business at mid-year, due in large part to the continued uptrend in microelectronics and semiconductor manufacturing. Fab capacity utilization is extremely high, customer confidence appears to be up, venture capital investment in photonics is on the rise, and a number of emerging markets appear poised to become new revenue sources. Even so, given that semiconductor manufacturing as a whole is more dependent than ever before on consumer electronics-a trend the laser/optoelectronics business increasingly parallels-there are concerns about how much longer the good news can be sustained.
“The first half of 2006 probably showed more resiliency than a lot of people gave it credit for,” said John Ambroseo, president and CEO of Coherent (Santa Clara, CA). “At the end of last year, there were lots of predictions that the first half of ’06 would be quiet and that the second half would see expansion in the semiconductor market. But we have seen bookings and revenue increases that are better than was predicted six to nine months ago.”
In particular, he and several other industry executives credit the microelectronics business with being the primary driver for the growth in sales. Ambroseo noted that there has been a lot more activity on the back end than on the front end, and that applications surrounding printed circuit boards and chip packaging have been “hot.”
“The types of consumer electronic devices going out these days, such as the 3.5 G cell phone, are much more densely packed with functionality, which leads to more complex architectures, and this is where laser processes really shine,” he said. The push for greater device functionality is also pushing the memory market-such as memory cards for digital cameras-to adopt more advanced processing capabilities, he added.
Another good indicator of how well the microelectronics business is doing is fab capacity utilization, according to Bruce Hueners, president of Palomar Technologies (Carlsbad, CA).
“Capacity utilization in the microelectronics industry (which includes optoelectronics) is at an all-time high,” he said. “The typical guidepost was that 80% of production capacity meant a factory was fully utilized and it was time to add capacity. But since 2000/2001 and the downturn, customers worldwide have become very conservative, adding shifts until you can’t add anymore. So capacity utilization has gone up to 95%, with equipment uptimes at 98%-99%.”
Unfortunately, investment in capital equipment by the microelectronics industry is driven by cash flow and confidence, not by capacity, he added. And although earnings and cash flows are up, which means confidence is as well, there needs to be “reasonable and sustainable” confidence going forward.
“We are seeing things loosening up and companies coming out of the anxiety closet,” Hueners said. “But they are still focused more on asset allocation.”
Even so, growth in the semiconductor sector bodes well for the optoelectronics business. As noted in the July 15 issue of Optoelectronics Report, the latest SEMI figures indicate that semiconductor capital equipment spending is expected to be around $39 billion in 2006. Perhaps even more important is the general consensus that the cyclicality of the semiconductor business has evened out somewhat, which means the industry is seeing more stable and consistent growth over longer periods of time. As a result, several optoelectronics companies say the first six months of 2006 have been very healthy.
On the heels of their phenomenal Q1 revenue statement that net income increased 283% for Q1 2006 (period ending March 31) compared to Q1 2005, excimer-laser manufacturer Cymer (San Diego, CA)-which maintains an 80% share of the worldwide market for lasers used in semiconductor manufacturing-announced that Q2 net income rose to just over $22.6 million (a 10% increase over net income for Q1 2006) and a more moderate but still very healthy year-over-year increase of 105% compared to Q2 2005. The health of the semiconductor market is also boosting sales at Coherent, Newport, New Focus, and JDSU (Milpitas, CA).
“The first half of ‘06 has gone extremely well,” said Ken Ibbs, director of marketing at JDSU. “The thing we are all benefiting from right now is continued stable growth of the semiconductor business. This is the third year of growth in that business, and that trend seems to be continuing for rest of the year and into ‘07.”
JDSU is also benefiting from a turnaround in the telecom market. Despite seasonal declines in their Communications Test and Measurement net revenue for the quarter ended March 31, 2006, JDSU saw Optical Communications net revenue grow 16% compared to the previous quarter and 25% compared to the same quarter a year ago.
“In our high-power laser market consisting of 980 nm telecom pump diodes for erbium-doped fiber amplifiers (EDFAs) and fiber-laser pump diodes, telecom is the more exciting story,” said Toby Strite, manager of High Power Laser Marketing at JDSU. “The telecom market awoke with a roar in the quarter ending June 30, with shipments increasing >30% over the previous quarter.” Strite said the demand is broad-based (long haul, metro, and FTTx) with the mix of shipments shifting strongly to Asia-specifically China-as domestic Chinese EDFA assemblers gain market share at Tier1 OEMs.
The materials processing market is also doing better than expected, according to David Belforte, editor-in-chief of Industrial Laser Solutions. Ambroseo concurred, saying that Coherent saw record bookings for materials processing in the June quarter and doesn’t anticipate the seasonal “trough” that historically has occurred in this market during the summer.
“We are seeing solid but not spectacular growth,” Belforte said. “We were looking at 5%-8% growth in January, but now I think it is going to be higher.” In particular, the marking/engraving market is having a very good year, with double-digit growth so far, he added.
Fiber lasers continue to garner much attention, although views are mixed as to the broadscale market potential at this point. In the industrial sector, the bulk of the sales are not into new markets but into markets previously served by solid-state lasers. However, SPI (Southampton, England) says it has seen 100% product growth and 175% contract revenue growth in the past 12 months and expects this trend to continue into 2007 and beyond, according to Stuart Woods of SPI. The company is still focused on the microelectronics and marking markets but is also expanding into the medical arena.
“We are spending a lot of time looking at new applications that are not being touched yet by fiber lasers, and this is where a lot of our new accounts are coming from,” Woods said. “So these numbers can reflect the actual growth of this market.”
Although fiber-laser pump revenues are <10% of its telecom pump revenues, JDSU pays attention to the accelerating compound annual growth rates of the fiber-laser pump market compared to the telecom pump market. “It seems everyone is working on fiber lasers, but only IPG (Oxford, MA) and SPI are shipping in volume,” Strite said. “IPG is about ten times bigger than SPI and SPI is ten times bigger than all the rest of the guys-it’s not yet a healthy market. What is needed are a few viable second sources to IPG, then fiber laser growth will really hit its stride as single-source fear diminishes.”
Diode-laser sales are being fueled by the medical and defense markets, according to Paul Rudy, senior VP of marketing and sales at Quintessence Photonics Corporation (QPC; Sylmar, CA). Enabled by ongoing advances in spatial and spectral brightness due to the incorporation of non-absorbing mirrors and gratings within the internal structure of its diode-laser products, QPC continues to experience “substantial” sales growth, Rudy said. The high brightness of their diode lasers enables the replacement of conventional Nd:YAG lasers in medical (vein and skin treatments, hair removal) and defense applications (direct target illumination). QPC is also seeing healthy growth for its 808 nm and 980 nm pump lasers for fiber amplifiers and diode-pumped solid-state (DPSS) lasers.
Official revenue figures just announced for QPC show that expected revenue in the next 12 months from new contracts received in Q2 2006 is $2.3 million. Based on backlog, the revenue for calendar year 2006 is expected to increase by two to three times over the revenue for calendar year 2005, which totaled $1.07 million.
Looking ahead, Steve Eglash of Worldview Technology Partners (Palo Alto, CA) says the venture-capital community is showing increased enthusiasm and interest in several segments of the photonics industry:
-sources (lasers, LEDs, etc.) for displays, illumination, biotech, and semiconductor applications
-displays
-photovoltaics/power and energy
-video eyewear
-sensors
-detectors
-communications
-fiber lasers
“In 2005, venture-capital investment in photonics was up about 17% compared to 2004,” Eglash said. “That trend has continued in the first half of ’06 and may have even accelerated.”
Some manufacturers are still a bit cautious, however, especially with revenues being so closely tied to consumer spending and the effects of various macro-economic factors such as the price of gasoline and the war in the Middle East. While Cymer remains bullish on the growing demand for deep-UV lithography, Cymer CEO Bob Akins noted that, “Over the past few weeks, investor sentiment in the semiconductor sector has obviously become cautious, based in part on concerns over whether or not consumers will continue to spend.”
Hueners said he believes the current growth period will begin dropping off in 2008-assuming there are no major exogenous shocks to the world economy.
“We consumers are fickle,” he said. “The device manufacturers we deal with have to get products out very quickly, and the amount of time the products stay in the consumer market is much shorter than in industrial or defense. From a planning horizon viewpoint, in the consumer market it is hard to look out even 12 months, whereas in aerospace you can look out five years.” -Kathy Kincade, Gail Overton