Manufacturing trends in Asia reflect national priorities
Markets vary across countries, sometimes dramatically, based on labor costs, skill base, and government support.
The applications for optoelectronics in Asia are similar to those in other regions of the world and can be found primarily in the research, telecommunications, semiconductor, and biomedical/biotech markets. Optoelectronics technologies are growing strongly in the defense and aerospace markets in the United States, while this remains a relatively small segment in Asia with a few exceptions.
The telecommunications and semiconductor markets are facing a global downturn that is felt strongly in Asia, but there is renewed interest and growth for optoelectronics in other areas. Currently, the SARS health alert is having a noticeable effect on the high-tech sector in China, Taiwan, and Southeast Asia with the temporary shutdown of some factories and other negative effects on productivity, but this is to be expected until the crisis passes.
FIGURE 1. Passive-optoelectronic-device assembly lines in Asia combine inexpensive labor to keep capital investments low and low-level automation to maximize yields and product consistency.
In many Asian countries, including China, Singapore, Taiwan, and India, government policy has been to fund the bulk of optoelectronics research. In the last few years, most of this funding has been directed toward development of optical components and network systems because of the global boom in telecommunications. However, the deep downturn in the telecommunications market has resulted in a change in policy and most of today's funding is being diverted into other areas of optoelectronics research such as nanomaterials, new display technologies, and biotechnology.
Over the last decade, many U.S. and European companies have been steadily moving manufacturing to Asia. While this trend is far advanced in the semiconductor market, the pace of this move has slowed considerably in the optical-component market—well behind forecasted projections—simply because the telecommunications market continues to remain severely depressed. In the pursuit of lower costs, many companies are now moving their factories from Japan, Korea, Taiwan, and Singapore into countries that have even lower labor costs, such as China, Malaysia, and Thailand.
China particularly has an edge in this area because of the large number of engineers trained in optoelectronics available at lower salaries than their counterparts elsewhere. In fact, there is increasing uneasiness in several Asian countries with a highly developed manufacturing infrastructure about their ability to compete with China in the long run. In contrast, India has been unable to take advantage of its English-educated technical workforce and attract significant foreign investment in optoelectronics manufacturing.
FIGURE 2. Laser-diode assembly yield improvements realized through automated die placement justify the capital investment for cost-of-ownership models even when today's small production volumes are considered.
Considerable consolidation continues among telecom optical-component manufacturers in Asia, much like what is happening in the United States and Europe, where the number of players continues to shrink dramatically. Market leaders such as JDS Uniphase, Oplink, and Agilent are in the process of consolidating almost all their optical-component manufacturing at factories in China and Singapore. The continuing adoption of fiber-to-the-home (FTTH) and ADSL technologies in Japan seems to be fueling some business for active-component companies making laser diodes, photodiodes, and transceivers in Taiwan and Korea.
Chinese component companies seem to be concentrating primarily on the domestic market, although they are able to compete much better globally in the area of passive components where manufacturing techniques need to be much less automated. The performance and price requirements of China's network systems vendors are low enough that component manufacturers in other Asian countries are finding it extremely hard to compete. Except in Japan and Korea, most other component companies in Asia seem to be concentrating currently on low-speed (<1-GHz) applications that require less investment in capital equipment. It should be noted that the network-system customers for most Asian optical-component manufacturers are primarily companies in Asia.
Japan is still recovering from a protracted recession, and therefore, the optoelectronics market is fairly flat. However, there are some bright spots such as the increased level of funding in the area of nuclear-fusion research. Japan has embarked on a major project in this area, similar to the National Ignition Facility (NIF) project at Lawrence Livermore National Laboratory (Livermore, CA). In addition, the loss of telecom transmission-laser manufacturers in the United States and Europe during the last two years has strengthened the market position of major Japanese manufacturers such as Mitsubishi, Oki, and Fujitsu.
In Korea, the optoelectronics-research market seems to be expanding this year, helped by increased government funding. Also, tremendous activity is taking place in technologies related to liquid-crystal display (LCD) and organic display by Korean companies like Samsung and LG Phillips. In contrast, Taiwan seems to be having a tough year for optoelectronics because of the continued malaise in both the semiconductor and telecom markets.
As in other areas, optoelectronics in China appears to be growing the fastest of any of the Asian countries. While the government continues to invest heavily in defense and aerospace technologies, which fuels laser-related research at the top laboratories, the telecommunications sector is also comparatively healthier than in other parts of the world. Optics manufacturers in the Shanghai region continue to strengthen their position in applications where high precision is not a requirement.
China is actively repatriating skilled engineers back from developed countries and Chinese engineers are leaving Silicon Valley to return to China. Many technical experts and upper management in optoelectronics companies in China are engineers who worked for many years in the United States.
Support in small markets
In Singapore, the government provides almost all of the funding for research in optoelectronics. Some believe there will be a 10% to 20% cut in this budget this year, with those funds now going to other industry sectors. However, other parts of Southeast Asia such as Malaysia and Thailand continue to show growth in optoelectronics.
The small optoelectronics market in India seems to be growing rapidly as the Indian government funds more research. While there are a few local network-systems vendors, there are a limited number of telecom-component companies in the private sector. As a result, the Indian government is trying to incubate new technologies at leading research centers, which can then be commercialized by private companies—a strategy similar to that followed by China a few years ago.
Optoelectronics manufacturing sites in countries such as Japan, Korea, Taiwan, and Singapore, resemble similar factories in the United States and Europe, with a high degree of automation and high-precision assembly and test. Currently, the trend is for lower-precision manufacturing to move to less-automated factories in China and other parts of Southeast Asia. Over the next decade, high-precision manufacturing will increasingly migrate to these countries as the level of optoelectronics manufacturing know-how increases—the preponderance of highly skilled engineers available at a lower cost is a key competitive edge that will fuel growth in these countries in the long term.
MANJIT DANIEL is director of international sales and DAVID ROSSI is director of corporate marketing at Newport, 1791 Deere Ave., Irvine, CA 92606; e-mail: firstname.lastname@example.org.