Most of the public information on the telecom market comes from the perspective of the financial press, and the news is dominated by the large, dedicated telecom companies such as JDS Uniphase (San Jose, CA), Nortel (Paignton, England) and Corning (Corning, NY). These large companies have become well-known to many people who are not exposed to any other aspect of optics. Another perspective, which is often overlooked, is that of the numerous relatively small optics companies. While these smaller companies also participate in the telecom market to varying degrees, they continue to maintain traditional optics as their core businesses. The concerns of these smaller companies range from day-to-day factors such as the availability of non-telecom optical components to long-term issues, such as alternative business models and sustainable industry growth rates.
Some optics companies have experienced increased sales of non-telecom optical components, a result of customers turning to them when their former optics suppliers have gone totally into telecom. Debbie Hunt, vice president of sales and marketing at Rocky Mountain Instruments (Lafayette, CO) estimates that inquiries have jumped by about 25%, and TecOptics (Merrick, NY) estimates an increase in new business on the order of 10% to 15%, which company president Warren Gutheil expects to increase further. "Over the last year we've been establishing ourselves as a quality supplier with these customers," he said. "It has been a nice little growth and we will be happy to take more." Bob Soales, vice president and sales manager at CVI Laser (Albuquerque, NM), said he couldn't identify a specific increase in their heavily OEM oriented business due to this trend, but several customers have mentioned the increasing difficulty of purchasing non-telecom optics (see "Complex issues affect optics supply and other resources").
So far, Rocky Mountain Instruments has stuck with its traditional optics business and hasn't taken the telecom plunge. TecOptics, on the other hand, has exhibited at a couple of Optical Fiber Communication conferences and expects to begin selling products in quantity toward the second half of this year. Its focus is primarily on leveraging the company's current areas of expertise in interferometric optics and Fabry Perot etalons into a profitable fiberoptic niche by adding capabilities for mass-production on the micro scale.
"We will never be able to make a million optics a year," Gutheil said. "We don't want to go to that sort of market. We're looking for lower quantities, let's say 1000 to 10,000. We think we will do pretty well with that, and the rest of our growth will come from picking up the more standard optics from people who no longer want to do it because they are making millions of micro-optics."
Another company, II-VI (Saxonburg, PA) headed into the telecom market last year by miniaturizing its technology in precision optics to perform very high precision microfabrication, thin-film coating, microassembly and micrometrology, according to company president Carl Johnson. Microwave plates are among his company's most successful products, he said. In order to get started in telecom without diminishing service to existing customers, II-VI started a separate telecom group in Tarpon Springs, FL, under their VLOC division.
"In summary, our strategy was to add on this capability rather than to have it supplant something we were doing," said Johnson. The company had $3 million in sales in the first year against a projected sales goal of $4 million, and the telecom group grew in size from four to 50 people. Considering that achievement took place in a slack telecom market, Johnson summed up his company's telecom growth as "good."
Precision Optical (Costa Mesa, CA) extended manufacturing capabilities for its prisms last year to meet a projected telecom demand that would, if it had materialized, have increased its business volume by about 20% or 30%, according to company President Rod Randolph.
"The requirement for components is down," said Randolph. "Even though there was a big push to produce prototypes, it has gone away."
While the projected telecom revenue that did not materialize is significant, Randolph points out that telecom represents just one potential business portion of a diversified business that spreads across medical, space and military applications. And Randolph expects the telecom demand to return. "The requirements for bandwidth and more information on the Internet are there. It's just going to take a little while," he said.
During the last 15 months, CVI Laser has invested more in expanding capacity than it has in the previous 10 years, according to Jim Higdon, company president. The expansion was actually focused on increasing production capacity in Korea for non-telecom optics, and to support the development of a separate telecom unit within the company. Growth rates climbed into the 50% range last year, but have since fallen off. The drop wasn't totally unexpected by Higdon, who had spent almost three decades in the semiconductor industry before moving into laser optics.
"I started out in the semiconductor business with Texas instruments almost 30 years ago," he said. "I think there have been seven cycles of boom and slowdown, and boom and slowdown since I started in that business." The current down cycle in telecom seems to be occurring simultaneously with a down cycle in semiconductors, which makes it "painful," Higdon said. But as an OEM supplier diversified over semiconductor, DWDM, laser materials industries, and a catalogue business, CVI hasn't placed all of its eggs in any one basket.
"Things are not horrible," Higdon said. "The market has slowed down but it hasn't completely collapsed. So we still need to push ahead, and I still think that we may see overall growth this year but it sure isn't going to be 50% again."
Back when 50% growth factors were common, managers at CVI still tempered their growth plans with a hefty "hype" factor, Higdon said, which remains an important survival strategy for most of the companies in the optics industry.
"The majority of the companies that are making basic optics are still small private companies. And capital is very dear to us," he said. "We're not like public companies that last year could get money very easily and this year can't get any money. As a result, we have to be very selective about what market niches we really chase hard."
Higdon expressed concern over the effects on the overall market of the well-financed public companies that "have focused on some segments of the optics market but have ignored other segments that include some of the basic building blocks."
So while 50% telecom growth rates may be attractive to financial markets, Higdon estimates that, for the overall optics industry, as well as for semiconductors, healthy, sustainable growth rates would actually fall in the 15% to 18% range. "If the market grows at 50% a year, we're going to run out of capacity for some of the basic things fairly quickly," he said. "If the market grows at 15% or 18%, I think that the smaller companies can keep up with that."