A fast-rising market for fiber lasers is changing the industrial laser landscape
David A. Belforte
As the cover of this issue suggests there has been a dramatic shift in balance for industrial lasers used in materials processing applications. Fiber lasers, described in this month’s Technology Report by Samson and Held (page 23), have broken out of the solid-state laser category, where they have resided for the past few years, and have assumed their own identity in this annual report.
Reading and understanding this year’s review will require a little more patience from those who have used ILS data to track the industrial laser market over the years because of the major change we are making in how we account for sales and revenues.
Before you go charging off after reviewing the Table 2 breakdowns, we present for your edification, in Table 1, a summary of the three-year period 2004-2006 as we see it. This should ease any concerns about the health, strength, and future of industrial lasers.
Year in review
A very good 2005-double-digit growth-is expected to be followed by a more typical 2006 (single-digit growth). Simply put, 2005 exceeded ILS expectations due, according to industry suppliers, to a pent-up buying demand in certain countries aided by more innovative investment credit policies that, in the case of the U.S., finally showed results in 2005.
A capsule look at 2005 shows that sales in North America, predominantly the United States with significant contributions by Mexico, registered a nominal low single-digit growth, held back primarily by lethargy in the microelectronic and semiconductor market segments. Strength in metal cutting, welding, and marking offset the lowered results in microelectronics.
Germany, representing about 46 percent of European sales, continued to be a drag on sales because of German government policies, although there was a miniscule growth led by laser cutter sales. Expected strength in Eastern Europe, now about 25 percent of this market, offset modest growth rates in Western Europe and the U.K. Add in small, but significant, sales in Turkey and the picture for Europe overall was not bad.
Asia, as has become the norm, showed very strong growth, but the main driving force came from, of all places, Japan where that country’s domestic manufacturing economy showed its first strength in more than 10 years. China continued to show double-digit growth in unit sales but the translation to revenues was less impressive because the average unit prices for the lasers and systems being sold remains low compared to international averages. Other Asian countries such as India, Thailand, Taiwan, and Korea had their ups and downs in 2005 but still contributed to positive overall growth in the region.
In the ROW (rest of world) category, which includes Australia, South America, and South Africa, sales growth was low, but for these countries quite high. These are territories of interest to laser product suppliers because they offer the possibility of strong sales for the coming years.
A look at the numbers
Now to the numbers: Tables 2-5 are similar to those used in the past with the exception of the 2005 fiber laser breakout from the 2004 solid-state numbers. Overall units produced (see Table 2) in 2005 grew by 12 percent over 2004 units with much of the growth stemming from increased fiber laser demand, spurred by Japanese sales of markers. Because a significant amount of fiber laser sales are gained at the expense of solid-state, mainly lamp-pumped Nd:YAG lasers, production in this product sector showed a slight decrease of 2 percent. Continuing strong demand for low-power sealed-off CO2 lasers, pushed by extremely low-priced units manufactured in China, grew 10 percent, while the high-power flowing gas units grew at a modest 3 percent. Taken together CO2 laser units grew by 8 percent. Other lasers, which include direct diode and excimer lasers, experienced an increased demand to 12 percent growth with each type contributing equally. For 2005 total units produced increase by 12 percent.
Table 3, laser revenues, shows the effect on selling prices by new competitors in growing markets. Because of severe competition in the low-power end of the CO2 market, selling prices continue to drop making it difficult for established manufacturers in the United States to maintain profit margins. As a consequence, as these suppliers battled in the market, overall revenues only increased by 8 percent. In the high-power end of this product sector, because of the increased production of 5- and 6kW units, revenues increased 6 percent. Overall CO2 laser revenues increased by 6 percent.
Solid-state laser revenues, feeling the pressure of increased competition in China and the loss of sales to fiber lasers, showed an 8 percent decrease. Fiber lasers, on the other hand, experienced a 65 percent revenue growth, even though unit selling prices dropped. And in the Other laser category, unit selling prices experienced some downward pricing pressure, holding revenue growth to 2 percent. For 2005 total laser revenues increased by 6 percent.
Table 4, systems sales revenues, presents data developed mainly from anecdotal information because many of the systems manufacturers do not break out laser sales from their overall product lines. ILS has developed a set of formulas that have been used for years, with some fine tuning, which allows us to sustain the trend lines for the past 17 years. We have always taken the conservative route in presenting these data, therefore our reporting has been consistent in that regard also. Because ILS does not report revenues from excimer laser units sold for lithography, our number is typically about $250 million below that reported in other market analyses.
With that caveat, systems revenues for 2005 were strong, reflecting the increased selling price of units that are more automated, flexible, and productive. It has been an axiom of the industrial lasers business that pricing pressure, except in recessionary periods, is on the laser not on the system. So we have become accustomed to higher revenue growth rates for systems over the past few years. And 2005 was not different. Higher-cost, higher-powered laser metal cutters drove revenues for CO2 laser systems up by 14 percent over 2004.
Revenues for solid-state laser systems increased by 18 percent, again due to system enhancements that make these units more attractive to users. Fiber laser system revenues increased by 170 percent, reflecting the significant growth in systems sales of lasers for marking and the developing market for high-power units for welding. Diode and excimer lasers in the other category followed the same trend lines. Overall systems revenues grew by 16 percent in 2005.
The picture for 2006
Other than the continued penetration of fiber lasers into the lamp-pumped and eventually diode-pumped solid-state laser market sectors and the continuing price pressure in the low-power CO2 laser markets, we expect 2006 will be a growth year but at rates significantly below that of 2005. Industry sources tell ILS that they are budgeting for a rather flat 2006, brought about not by a drop in interest in laser processing but as a result of the unexpected strength of the 2005 market, which many believe can not be sustained in 2006. Industry projections for 2006 show units produced to grow by 4 percent, revenues of these units to grow an equal percentage, and systems revenues to increase by 8 percent.
Figures 1-6 present the details behind the numbers in Tables 2-4. This year, in a departure from past reports, we are using bar graph charts because this format allows for inclusion of fiber lasers in the analysis.
A breakdown, in terms of units and revenues, of 2005 worldwide production of all industrial lasers is shown in Figure 1. Industrial laser production is concentrated in three geographic areas; North America, Europe, and Asia. As has been the case for several years, the dominance of the United States as a supplier of low-cost CO2 lasers positions North American companies as the largest makers of this product. However, North American companies lost some share (4 percent) to European companies who gained 3 percent. We have noted in the past that ILS numbers do not include the replacement CO2 tube business, which is so active in China.
On a revenue basis, strong pricing pressures caused the revenue shares to drop 1 percent from last year in Europe and 2 percent in China, with North America picking up the difference. The past two years have seen this issue becoming of more concern. Although confined to the low-power laser market specifically, consequently not causing a seismic shift in revenue numbers, it is of great concern to the suppliers of laser products in this category.
Figures 2 and 3 provide a look behind the totals in Figure 1. Production of CO2 lasers (Figure 2) remains distinctly American, although this applies mainly to the low-power end of this sector. There are only two high-power CO2 laser manufacturers in the United States, PRC and TRUMPF, both domestic subsidiaries of German-based companies. The 9 percent shift in output from North America is split as a 7 percent gain in Asia (primarily a return to growth in high-power laser production in Japan) and 2 percent in Europe (where solid growth in the high-power market was recorded).
Solid-state laser production showed some changes caused primarily by flat sales of lasers for microprocessing in North America and the impact of fiber lasers’ penetration into marking markets held previously by lamp-pumped Nd:YAG lasers. Fiber laser production, with two of the three major producers being located in the United States, positions North America as the dominant supplier. And Europe, home to the major suppliers of diode and excimer lasers, holds the major share of the Other laser production.
The picture changes dramatically in Figure 3, laser revenues, where, except for fiber lasers, Europe is the major revenue generating and receiving area because of the presence of three of the major suppliers of high-power CO2 lasers and it is home to several major producers of solid-state, diode, and excimer lasers. Revenues by the suppliers of low-power CO2 lasers in the United States were down because of competition and the sales dollars for high-power lasers limited by the small number of units produced to Japan and Europe.
The location of several suppliers of high-power solid-state lasers in Europe-TRUMPF, Rofin Sinar, Lasag, GSI Lumonics-practically assures that this region will hold the dominant position. Last year ILS included fiber laser sales in solid-state revenues, with the blessing of the suppliers, so the North American slip of 3 percent is easily explained by the shift of fiber lasers to their own category. Fiber laser revenues are influenced by the presence of two large suppliers in the United States, a situation that will increase in 2006 as sales of these products ramp up.
Trying to assess the world segmentation of laser system sales is difficult because we do not have access to any believable import/export data and the companies shipping these products choose, for the most part, not to disclose export destinations. So ILS relies on anecdotal information, reports for trade associations, and information presented in the annual reports of public reporting companies. So readers are cautioned that Figure 4 data is subject to various interpretations...
The major change in Figure 4 is the division of Europe into two markets Eastern and Western, thanks to a report by Optec Consulting. Combined, these 2005 markets equal what we reported last year. North America dropped shares more because of growth in China and Japan than for any reason save that of a soft market in microprocessing. This year we have separated Japan from the Asian market, in this Figure, because of the strong growth that country showed this past year. Taken together, at 36 percent this market sector is the most popular destination for industrial laser systems.
Worldwide applications, as shown in Figure 5, are still dominated by the sales of marking/engraving systems, with a 45 percent share, down about 3 percent from 2004. Before you place too much emphasis on this number keep in mind that revenues for these systems places them only at about 15 percent of total systems revenues. Cutting with 24 percent of the units installed represents more than 40 percent of the revenues for all laser systems. Welding slipped a little in 2005, due in no small part to the dramatic slowdown in solid-state system installations for auto body-in-white applications in 2005. This should change in 2006 as new platforms develop and with the additional substantial sales of remote laser welding in the automotive market where we look for strong growth. Meanwhile, continued strong welding sales into the medical/dental instrument and jewelry market sectors support the growth of low-power solid-state and eventually fiber laser sales. All signs point to resurgence of activity in the semiconductor industry, so we expect microprocessing applications will increase this year.
Because metal cutting represents the largest revenue-producing applications, ILS tracks this market closely as a measure of the health of the entire industrial laser market in general (see Figure 6). Because of the unexpected turnaround in Japan’s economic fortunes, we have separated sales for the Asian market this year. Japan and Europe were about equal in installations in 2005, but the big news is the importance of Asia (including Japan) as a key market for laser metal cutters at 42 percent of the total installed.
Overall 2005 was a good, better-than-expected, year of growth for industrial laser sales. Setting aside minor disruptions such as fiber laser penetration into solid-state markets, growth was impressive across the board. In making the ILS projections for 2006 we have again taken a conservative view based more on comments heard from a number of leading suppliers of products to this industry, who have budgeted for zero growth in 2006-not because of concerns with the laser market but more in response to the larger-than-expected growth in 2005. Should the cards play out differently, as was the case in 2005, this year could see systems sales crack the $5 billion level.
Details of this Annual Economic Review are presented at PennWell’s Lasers & Photonics Marketplace Seminar (www.marketplaceseminar.com), held this month in conjunction with Photonics West in San Jose.