2004 exceeds expectations thanks in part to increased activity in Asia and rebounding North American sales
When we began collecting data for this year’s economic review we knew the report tone would be optimistic because, from the beginning of the second half of 2003, generally good news was filtering into our files.
The climate in North America had turned sunny, even though the United States, the dominant supplier and user of industrial lasers, was fighting terrorism and in the early days of a presidential election process. Orders from key industries, such as the fabricated metal products sector, were up in December of 2003, placing prospects of strong first-half 2004 deliveries in a good light.
News of building strength in non-traditional markets in Europe suggested that orders from Eastern Europe and smaller EU countries would offset lethargy in Germany.
Asian sales showed no signs of slowing down and this market sector remained strong even though South Korea went into an economic slump. Offsetting this unexpected decline was an equally unexpected rise in activity in Japan. China remained a fast-growing market; in fact, some were concerned that an overheated economy would precipitate some form of government intervention.
As the year 2004 progressed it became clear that global business in the industrial laser sector would be good, so we adjusted our 2004 forecast accordingly; 4% in units and 12% in revenues. So when you refer to Table 1, note that the percent change over 2003 numbers reflects this adjustment.
As we closed the year, 2004 expectations had turned into reality and the industry-generated numbers showed a 16% increase in units shipped and a 10% increase in revenues.
What precipitated this substantial growth? The simple answer is that activity in Asia was higher than expected, led by a spike in unit sales in China, surprisingly strong unit and revenue growth in Japan, and strong export sales from Taiwan and South Korea. The more complex answer is that North American sales rebounded in the laser metal cutting market and low-power CO2 lasers had a banner year in units sold but a moderate increase in revenues. Europe, with a less-than-ebullient German market, actually experienced a growth year thanks to increased sales for countries in Eastern Europe, compounded with strong sales in the smaller EU countries and a turnaround in Italy and Scandinavia.
It appears that global markets, which had been marching in lock step for the past three years, were now returning to the more normal pattern where ups in one region were offset by downs in others. So, for example, market stagnation in Germany is now balanced by increased sales in Turkey, Czech Republic, Hungary, etc. enabling annual sales for 2004 to be on the positive side. The market in China, when measured in units sold, makes this region a factor in global sales, but when revenues are the gauge the impact is lessened. ILS estimates unit sales of low-power CO2 and solid-state lasers at more than 4000 units with a system value, as reported by the official record keeper, of >$100 million.To begin the global sales analysis refer to Table 1 where we report a 16% increase in estimated unit sales for 2004, a number that is driven mostly by the strong market for low-power CO2 and solid-state lasers that are used primarily for marking and engraving applications, which make up more than 55% of the units shipped. Marking/engraving installations for 2004 increased 17% over 2003 and are expected to increase by 8% in 2005. China represents a significant portion (32%) of these sales. For the year, sales in all categories were up, to one degree or another, reflecting a return to health in most of the world’s industrialized countries. In 2004, sales of high-power (<1 kW) CW Nd:YAG lasers decreased compared to the previous year as the German auto industry completed major installations and orders for the next generation of system for new body-in-white designs was slated for 2005. However, strength in the world’s metal fabricating industries boosted sales of high-power (>4 kW) CO2 lasers.
Laser revenues for 2004 increased by 10% over 2003 but not at the same pace as unit sales because of the increasingly strong competition at the low power levels for both CO2 and solid-state lasers. Because these are the lasers used in marking/engraving applications and because more than 30% of these are sold in China for low-cost marking systems applications, the total revenues for marking/engraving lasers, which represent 11% of total laser revenues, were up only 8%. We expect this situation will remain through 2005. Also the aforementioned decrease in very high-power solid-state laser sales resulted in a modest 5% increase in laser revenues. On the other hand, increased sales of high-power (>4 kW) CO2 lasers for metal cutting system integration pushed up the revenue by 14%. In general, market pressures are forcing down the $/W selling price of most lasers, even diode-pumped solid-state units.
Table 3 is most important from an industry activity standpoint and also the most difficult to prepare, because many system integrators do not break out laser system sales, which may be only a portion of their total reported annual sales. Consequently we must rely on selected published data, industry reports, and/or anecdotal information to arrive at a number. We chose a conservative approach in presenting the numbers and have done so for all the years this report has been published, so we are consistent from year to year.
For 2004 we estimate laser system sales approaching $3.7 billion. ILS does not count laser systems used in photolithography in this report, a number which would likely take the total of industrial laser systems over the $4 billion level and which would make it consistent with another widely quoted European report. This ILS policy has been in place since the inception of these reports, so it remains consistent.
The most significant growth in system sales revenues (35%) came from the CO2 sector led by the higher selling price of high-power sheet metal cutters and the immense number (>12,000) of low-power CO2 units sold. We expect this number will be a more modest 13% in 2005. Solid-state laser systems revenues were reduced by the limited number of high selling price, high-power units sold in 2004 to a modest 2%, and we expect a repeat in 2005 as orders for new high-power units will occur late in the year. As we look at the global manufacturing economy we see few areas of concern that could significantly affect laser systems sales, so we are optimistic about growth prospects.
Now let’s take a closer look at the markets. Figure 1 represents world shares, by laser producing regions, of units shipped and revenues received. To the best of our knowledge, makers of industrial lasers are located in three producing regions; North America (essentially the United States), Europe (basically Germany, Switzerland, and the United Kingdom), and Asia (mostly Japan and China). In 2004, regional shares, of units shipped, changed slightly from 2003 with North America gaining because of it’s dominance in the manufacture of low-power CO2 lasers. A qualifying note about CO2 laser production in China: ILS does not count replacement tubes in the reported data. Even though we are aware of thousands of tubes that are sold as replacements each year we choose to count only the original laser sold for integration into a system. The fact is that some CO2 laser tubes used in markers are replaced three times a year. With a value of less than $200 per unit, the total annual market for these units is only about $1.25 million.
Because of reduced selling prices for low-power CO2 lasers, brought on by increasing competition in China, North America slips to second place in total laser revenues. And the extension of this is that 2004 laser revenues in China, a number that is difficult to pin down, are expected to increase only slightly. Revenues for European laser suppliers increased and might have been even larger had the market for high-power CW Nd:YAG lasers remained as strong as previous years. The decrease in laser revenues in Asia, compared to 2003, was not as steep thanks to larger-than-expected revenues for Japan, which is enjoying a resurgence of sales in the high-power end of the market.
Digging deeper, in Figure 2, we see the impact of the U.S. leadership position in supplying low-power CO2 lasers. Synrad, Coherent Inc., and Universal Laser so dominate this sector that they account for an estimated 80% of unit sales. As a consequence, North America increases market share by 3% over 2003. A small reduction in market shares for Asia and Europe is more a factor of U.S. dominance than any actual reduction in sales by suppliers in those regions.
Slight changes in market shares for solid-state laser sales are negligible. In the case of European sales a 1% decrease can be attributed to reduced sales of high-power Nd:YAG units. Although the market share remained stable in China, unit sales increased. The same holds true for Japan. However the Asian share did not change due to increased total volumes.
When we consider the revenue stream, Figure 3, the picture changes dramatically. Because European companies produce at least two-thirds of the high-power (>1kW) CO2 lasers sold, this region becomes the major revenue producer. Even so, the European position dropped by 6% due mainly to increased sales of low-power CO2 lasers for marking/engraving applications in North America and China and a strong sales year for Japanese high-power units.
Changes in the solid-state laser revenue stream mirrored those of the CO2 sector. Fast growing markets for marking/engraving in North America and Asia led to increased revenue shares in those regions at the expense of Europe. The beginnings of a return to prosperity in the semiconductor industry were apparent in the increased orders for frequency-shifted solid-state lasers.
We should point out that industry suppliers acknowledge strong market pressure to reduce the average dollar-per-watt selling prices for all lasers. We have not reflected this in the Table 2 figures because we believe these decreases are offset by increased higher-power laser sales. In the case of system integrators, such as TRUMPF, Mitsubishi, Bystronic, Universal Laser, and others who build their own lasers, we use list prices for equivalent products as a guide. And we do not estimate OEM discounts, preferring to use list prices. Because we have always used these practices, our long-term analysis is valid.
The previous figures dealt with source of production information; now we turn to installations. Figure 4 represents the world shares ILS believes is a fair representation of the distribution of industrial laser systems worldwide. The picture for 2004 resembles that for 2003 except that the increase of units installed in China ups the Asian percentage by a point, the slow economic recovery in the United States decreases the North American share by a point, and the European share increases two points as sales into Eastern Europe and the new EU countries have increased.
The most dramatic shift in worldwide industrial laser applications (see Figure 5) is the increase in marking systems sold. For 2004, marking is the largest application, now representing more than one-third of all units installed. Adding engraving to marking means that almost half the industrial laser systems installed are used for these applications. As a consequence, cutting drops to second with about 20% of units installed, and welding and microprocessing rank fourth at 12%.
Before readers show concern for the shift in cutting, remember that Figure 5 is segmentation by units installed. If you were to look at revenues, cutting systems, at a conservative $1.6 billion total far outweighs marking, which is estimated to be about $400 million, and engraving at about $40 million. Metal cutting remains half of all industrial laser systems revenues, so it is obvious why ILS focuses on this sector to check the health of the industry economy.
Figure 6 shows the distribution of the approximately 3000 sheet metal cutting systems installed in 2004. Slower growth sales in Germany were offset by increased sales in new EU countries as well as rapid growth in Eastern Europe such that Europe only slid two points in units installed. Japan showing strength in the laser cutting segment and expanding sales in China led to a three-point increase in Asia installations. And the U.S. showed a recovery in fabricating that lead to a two-point gain in North American installations. Capital equipment sales are expected to grow significantly in 2005. The market in China, which has just begun to accelerate, will likely become a major growth factor in the coming year.
ILS always looks beyond the industry-generated numbers to ascertain which applications are subject to change. For example, because of the importance of laser marking we continually check for signs of technology change that could impact growth rates. New security standards, consumer demand for product traceability, industry coding requirements, and warranty considerations are on the rise, factors that will continue to drive the marking business at double-digit growth for at least the next two years. The advent of higher laser power has opened new market opportunities in metal cutting, moving lasers into market sectors long dominated by flame and plasma cutting.
Welding, a laser application that remains constant in terms of percentage of annual sales, may be in for a boost as suppliers begin to push laser technology for joining sheet metals (see p. 28). For several years ILS has predicted that only the auto industry has common joining needs that could be met by lasers, to create a measurable increase in annual sales. Along comes sheet metal joining to perhaps be a nearer-term driving force for welding growth.
Industrial lasers have enjoyed a 35-year growth record as new applications developed to boost annual sales. With few exceptions we have yet to see erosion of the laser’s position being made by other technologies. So as the decade reaches the halfway point ILS feels secure in stating that nominal 10% growth in the coming years is quite feasible.