2010 Annual Economic Review and Forecast

David A. Belforte

In 2009, the industrial laser market was in disarray. It was still feeling the impact of the 2008/2009 global economic recession that had hit this market fast and hard with few, if any, products and services suppliers spared. Horror stories of sales telephones that never rang and e-mail messages that went unopened were common. And as the monwths passed, these stories only worsened as the major markets in North America, Europe, and Asia remained dried up, especially in the capital goods sectors.

By mid-year 2009, as governmental agencies around the world gambled their economic futures on massive stimulus actions, it became clear that any financial turnaround was not in the cards. Drastic actions by laser and systems suppliers to stem off complete shut-downs of the companies became a common occurrence. Even the very strongest of the global companies were forced into shorter hours and for some, for the first time ever, employee reductions.

Some good news in 2010

Then, in 2010, hardly noticed at first, good news began to drift out at shows and conferences. Here and there, small, narrowly focused product suppliers began to receive orders from the semiconductor, alternate energy, aerospace, automotive, and medical devices markets. And stories began to be heard about a hyper-active market – China – placing quantities of orders as that government's stimulus package seemed to activate quickly to produce positive results long before the others. Score one point for a non-capitalist government.

At ILS, we too began to hear about buyers placing significant orders, and the first half reports of several pubic companies turned positive as revenues turned upward. As the third quarter closed, it was common to hear about record sales being made, many of them attributed to the activity in Asia, specifically China, and others from the aforementioned industry sectors that seemed to be defying recessionary pressures.

The laser industry waited for the other shoe to drop as the dreaded phrase, double-dip recession, took hold. Month-by-month, suppliers waited for the news to turn bad, which it did not. Business news was positive across the board in all the producing nations. Oh, there was still hurt in certain markets; in the U.S., the job shop industry continued to suffer, and quarter by quarter news of bankruptcies grew. The market for big ticket items such as laser sheet metal cutting systems dragged as a large inventory of quality and like-new machines attracted the buyers.

As the last months of 2010 passed, good news appeared in most every company's stockholder reports. Except for the nagging problem in fabricated sheet metal, business was not only good; in some companies, it was great. Quarterly increases in the strong double digits were common, and some companies even reported sales increases up to 40% and more.

It was time to bury the threat of a double-dip recession and to get back to normal by rehiring staff and extending work hours. Low inventories were hampering some markets, but otherwise the companies that ILS tracks were all in the black. At the end of the last reporting period before the end of the calendar year, we could only find red figures for six of the 35 companies we track, and all but one of these was in the red because of the quarter they reported. In these companies, the guidance for the coming quarter was a return to the black. At one company, Trumpf, double-digit growth was expected.

As we commenced our company-by-company analysis for this report, it quickly became clear that a stronger than expected market for solid state and fiber lasers was going to boost estimated numbers by more than 20%. This was enough to offset a lethargic high-power CO₂ market to the point where projections for 2011 have the industry fully recovered to 2008 levels, about a year ahead of our prediction at the start of 2010.

Fish hook recovery

In 2010, first and foremost, let's look at the curve that, to this writer, was almost like Hawthorne's Scarlet Letter "A". After 40 years of continuous growth, save for one minor dip in the early 1990s, the 2009 number drop of more than 30% produced the beginning of a crevice that suggested that recovery to the 2008 edge was many years away. For a year that infamous curve has appeared globally, precipitating wide discussions with this writer about the magnitude of the drop and queries as to the long term health of the industrial laser market – hence the Letter A reference. However, led by solid-state and fiber laser sales, the curve in FIGURE 1 now looks more like a fish hook, and recovery to the norm seems only a year away. Surprisingly, the CAGR at the end of 2008 was 19.63%, and after the drastic recession, it only dropped to 17.99% at the end of 2010.

TABLE 1, a four year summary, puts into perspective the rapid recovery the industry is making from the record-setting recession. This very positive table is not meant to diminish the pain and suffering the recession brought to most of the companies that make up the industrial laser community, but it does suggest that industrial laser markets are diverse, diverse enough to withstand the second most serious recession in US history. It is safe to say that if company forecasts hold, the rise to pre-recession revenue levels will be a year earlier than expected.

Revenues by laser type

Now digging into the numbers that make up the 2010 Annual Economic Review and Forecast, TABLE 2 details the current situation for industrial laser revenues by laser type. ILS tracks these lasers and correlates data in our database with published reports from the 35 public companies we follow. As is our practice, we first revisit 2009 data because when reported in January we are missing some final quarter reports, relying on guidance numbers to get a yearly value. When those last quarter reports appear early in the new year, we adjust the published ILS data accordingly. Generally, these adjustments are minor. The 2010 revenue numbers are, for the preceding reason, an estimate, and the 2011 values are also all backed by company guidance statements.

After a disastrous 2009, the industry rebounded dramatically, led by solid-state and fiber lasers sales into the semiconductor, solar power, medical device, display, LED, aerospace, and automotive industries. Strong double-digit growth – with these lasers accounting for 41% of the increase – served to offset a slow recovery in the high-power CO₂ sector. Even though CO₂ lasers show a 18% increase in revenues, it comes after a 40% decline in 2009 revenues, so this sector has more catching up to do to reach pre-recession levels. The "Other" category composed of diode and excimer lasers returned to the solid growth numbers experienced before the recession.

An overall 21% growth in industrial laser revenues coming on the heels of a 30% loss in 2009 revenues is gratifying especially as the 2011 forecast also projects good double-digit growth. If there is one overarching message as a takeaway from TABLE 2, it is the strong role that solid-state and fiber laser played in setting the table for an industry recovery to pre-recession levels.

TABLE 3 is an extension of TABLE 2 and shows the integration of these lasers into material processing systems. As has been our practice for years, we use a set of formulas to calculate system sales based on laser selling price numbers because the systems are sold by a group of companies that do not break out laser system sales for reporting purposes. For that reason, we tend to be conservative with our estimates, preferring to uses trend line data rather than hard numbers.

After the shambles of the 2009 markets, which showed a 20% decrease, it was with great relief that the industry rebounded 20% in industrial laser revenues in 2010. Fiber laser powered sheet metal cutters perked up sales in a market sector that had been lethargic most of the year, however, not enough to make up for the loss of revenues from metal cutting lasers, which previously were the major contributor to total system revenues (over 40%). In 2010, the strength of solid-state and fiber laser powered systems perked up the market by 43%. Projections for 2011 show a repeat of the 2010 numbers.

FIGURE 2, laser revenues by application, compares 2010 results to those of 2009. In 2010, 54% of all lasers sold were used for metal processing and of these 65% were employed in metal cutting, another reason why metal cutting is such an important market sector. TABLE 4 shows that revenues for metal processing lasers totaled over $1 billion in 2010, with CO₂ laser representing about 68% of this (FIGURE 3). Fiber lasers continue to show the highest growth rate in revenues at 35%.

Microprocessing markets

Commencing in early 2009, in response to pent-up buying demands by the semiconductor industry, sales of lasers into this market sector began to rise, leading to the beginnings of what turned out to be a rousing market expansion in 2010 when total revenues grew by 59%. As shown in TABLE 5, all laser segments experienced extremely strong growth, even though this growth came after these same segments experienced a 32% decline in 2009.

In this market sector, China, Korea, and Taiwan, and to some degree others in the AsIan markets, were the drivers in a buying frenzy for lasers used in microprocessing that included laser scribing, cutting, and drilling. The insatiable demands for hand-held communications equipment with their increasingly more complex displays drove up orders for lasers that perform these tasks. Continuing demands from manufacturers of flat panel displays, LED/OLED processing, microvia drilling, and other micro applications kept system builders running at full output.

An example of the microprocessing market sector strength is printed circuit board (PCB) microvia drilling. In 2010, PCB suppliers in Taiwan, Japan, and other producing regions expected to install more than 600 laser drilling systems in response to a more than 40% increase in shipments of mobile telephones. And in 2011, with smartphone growth expected to more than double, these same producers were expecting to install another 700 laser microvia drillers.

Continuing strength in this and other semiconductor and microprocessing sectors such as solar power and medical device manufacturing leads us to believe that a 23% increase in revenues can occur in 2011, led by solid-state and fiber laser sales, which can represent 60% of the revenues in the market sector (FIGURE 4).

Marking and engraving

For the first time in a decade, revenues for lasers used in marking and engraving declined in 2009 by 12%. As shown in TABLE 6, recovery in 2010 was rapid as sales rebounded by 21% with a return to the solid double-digit growth that this market sector has experienced for years. The major contributor to this growth at 37%, fiber lasers, showed the continued penetration of this technology into the solid-state marking market (FIGURE 5).

Other applications

The ubiquitous "Other" category includes all those applications that don't fit those above such as laser assist manufacturing (rapid manufacturing), heat treating, desktop manufacturing, and lasers used for photolithography. This Other market sector experienced a 20% decline in 2009, and in 2010, as shown in TABLE 7, grew 30% as fiber lasers expanded their application base, growing 100%. This industrial laser market sector is home to many of the "developing" applications that are expected to form the basis for sustained technology growth in the coming years. For 2011, the Other laser revenue category is forecast to grow 21% (FIGURE 6).

Installation locations

In FIGURE 7, we show where all the industrial laser systems are installed. For the past few years, Asia has been growing in importance, thanks mainly to activity in China. In 2010, the market in China, abetted by activity in Taiwan and Korea, was the prime force in growing the total market for industrial lasers. As a result, the Asian market represented 47% of the total, and East Asia (China, Taiwan, and Korea) at 32% equaled the European market share, a reversal of past numbers, made ironic as the shipments to China are credited with turning around a lethargic recession recovery in Germany. This situation did not appeal to some German government officials, one of whom suggested at the LASYS meeting in June that German manufacturers should perhaps concentrate on making the goods that Chinese companies were buying lasers to make, instead of exporting these lasers. One can only assume that he was making an attempt at some humor.

Meanwhile, there are concerns that the Chinese government might rein in some of the funds that are stimulating the overheated economic growth. Recalling how quickly this government's stimulus money flowed in late 2009 and early 2010, we think exporters of the lasers needed could experience a downturn in 2011.

The two markets that together make up about a third of the total market, the US and Japan, are currently mired in extremely slow economic growth. The US is beginning to mirror the stagnant economy in Japan, so prospects for a more important contribution to growth in 2011 seem ephemeral. In Europe, where Central and Eastern European markets were in the past three years a counter to slower growth in Western Europe, continuation of this is not assured.

As a consequence, ILS has modified its growth projections for 2011, and we are looking to modest low double-digit growth, below the 40-year CAGR level of 18%.

Laser sheet metal cutting

Laser sheet metal cutting is the single largest system revenue producer and as such vagaries in the market always produce rapid repercussions. Not to lay the blame for the recession on this market sector, but the sudden and precipitous decline in 2009 unit sales produced 73% of the revenue lost from 2008 sales, so it is easy to see why ILS tracks this market sector. FIGURE 8 – a 20-year history of industrial laser systems sales compared to unit sales of laser sheet metal cutters – shows how closely the latter tracks the former.

The market for these laser cutters in North America (FIGURE 9) is not a good gauge of global sales as this market has been on a downward trend since 2006, and the recession seems to have expedited the trend change. Even so, laser cutter sales in North America still represent about a third of industrial laser system revenues in this market.

The new year

Looking ahead to 2011, we continue to be impressed by the strength of the solid-state and fiber laser segments, which are expected to be 43% of the total industrial laser revenues and 36% of the systems revenues. In 2011, solid-state lasers at $450 million will come close to the $480-million high water mark of 2004, a period when fiber laser sales ate into the solid-state markets, namely for laser marking. In that same period, solid-state lasers lost 6% of their market while fiber lasers grew more than 400% to $290 million.

We conservatively expect CO₂ revenues to be in the $900 million range and possibly higher. The selling price for high power lasers will stabilize after several years of deep discounts when suppliers coped with the recession and the competition of the recovery period. A factor that we identified in the September/October 2010 issue, the impact of high-power fiber lasers on this market sector, remains to be seen. Proponents of fiber laser metal cutting are comfortable with sales doubling in 2011 and perhaps 2012. Most of this growth will come from new installations, where the product is thin gauge stainless steel. At the 4 mm thickness level where CO₂ lasers regain the edge with jobshops wanting to serve a wide range of cutting requests, these lasers hold market share.

By our count there are now at least 25 companies offering fiber laser sheet metal cutters. Many of these also offer CO₂ laser cutters as their main product, so any loss of business to fiber lasers may be negated by keeping the sale in-house.

As shown in TABLES 2-7, for 2011 we project lasers to grow at 16% and systems by 14%. Fiber and CO₂ laser will enjoy double-digit growth in metal processing, and all lasers except CO₂ will see strong double-digit growth in semiconductor and microprocessing applications. Solid-state and fiber lasers will gain at double-digit levels for marking/engraving, and all lasers will experience good double-digit growth in the Other category.

By the end of 2011, the industrial laser sector will be back to 2008 levels, a year ahead of the forecast we made at this time last year. The market sectors driving the growth are those that are expected to remain strong except for a predicted slowing in the semiconductor sector, which should be offset by growth in the fabricated metal products area.

David A. Belforte is the editor-in-chief of Industrial Laser Solutions for Manufacturing. He can be reached at [email protected]

The story behind excimer lasers

The question occasionally asked is why ILS does not account for the sales of excimer laser-based systems used in photolithography applications. This billion dollar market is indeed an industrial laser market, and an important one. We actually do track one of the two major suppliers to this market, Cymer, using its quarterly reports to measure overall market conditions.

Several years ago, we decided that laser lithography, unlike laser graphics (printing), another large market we do not follow, is indeed a laser material processing application but, in our view, a very special one that does not easily fit into comparisons of the other material processing applications.

Lasers for lithography is a billion dollar market, dominated by two suppliers: Cymer from the US and Gigaphotonics from Japan. Together they sell about 250 multi-million dollar systems annually. Thus, we wouldn't be disturbed to add another billion dollars to industrial laser system sales except we still see this sector as "different" than those markets we cover. Consequently, we still follow this market as it is a key part of the semiconductor industry, but we cannot build a convincing argument to count it in the markets we cover.

Table 1. Four year summary industrial laser revenues ($ million)

Table 2. Global industrial laser revenues ($ million)

Table 3. Global industrial laser systems revenues ($ million)

Table 4. Lasers for metal processing ($ million)

Table 5. Lasers for semiconductor and microprocessing ($ million)

Table 6. Lasers for marking/engraving ($ million)

Table 7. Lasers for other applications ($ million)