August 14, 2006, Nashua, NH--"So far, so good" seems to be the consensus around the laser business at mid-year, due in large part to the continued uptrend in microelectronics and semiconductor manufacturing. Fab capacity utilization is extremely high, customer confidence appears to be up, venture capital investment in photonics is on the rise, and a number of emerging markets are poised to become new revenue sources.
"The first half of 2006 probably showed more resiliency than a lot of people gave it credit for," said John Ambroseo, president and CEO of Coherent (Santa Clara, CA). "At the end of last year, there were lots of predictions that the first half of '06 would be quiet and that the second half would see expansion in the semiconductor market. But we have seen bookings and revenue increases that are better than was predicted six to nine months ago."
In particular, microelectronics is currently the primary driver for this growth. Ambroseo noted that there has been a lot more activity on the back end than on the front end, and that applications surrounding printed circuit boards and chip packaging have been "hot." The push for greater device functionality is also pushing the memory market¿such as memory cards for digital cameras--to adopt more advanced processing capabilities, he added. Another good indicator of how well the microelectronics business is doing is fab capacity utilization, according to Bruce Hueners, president of Palomar Technologies (Carlsbad, CA).
"Capacity utilization in the microelectronics industry (which includes optoelectronics) is at an all-time high," he said. "The typical guidepost was that 80% of production capacity meant a factory was fully utilized and it was time to add capacity. (Now) capacity utilization has gone up to 95%, with equipment uptimes at 98%-99%."
In addition, growth in the semiconductor business generally bodes well for the optoelectronics business. The latest SEMI figures indicate that semiconductor capital equipment spending is expected to be around $39 billion in 2006. Perhaps even more important is the general consensus that the cyclicality of the semiconductor business has evened out somewhat, which means the industry is seeing more stable and consistent growth over longer periods of time. As a result, several optoelectronics companies say the first six months of 2006 have been very healthy.
Excimer-laser manufacturer Cymer (San Diego, CA)¿which maintains an 80% share of the worldwide market for lasers used in semiconductor manufacturing--announced that Q2 net income rose to just over $22.6 million, a 10% increase over net income for Q1 2006. The health of the semiconductor market is also boosting sales at Coherent, Newport, New Focus, and JDSU (Milpitas, CA), as is a slow turnaround in the telecom market. For example, JDSU saw Optical Communications net revenue grow 16% compared to the previous quarter and 25% compared to the same quarter a year ago.
"In our high-power laser market consisting of 980 nm telecom pump diodes for erbium-doped fiber amplifiers and fiber-laser pump diodes, telecom is the more exciting story," said Toby Strite, manager of High Power Laser Marketing at JDSU. "The telecom market awoke with a roar in the quarter ending June 30, with shipments increasing >30% over the previous quarter."
The materials processing market is also doing better than expected, according to David Belforte, editor-in-chief of Industrial Laser Solutions. Ambroseo concurred, saying that Coherent saw record bookings for materials processing in the June quarter and doesn't anticipate the seasonal "trough" that historically has occurred in this market during the summer.
"We were looking at 5%-8% growth in January, but now I think it is going to be higher," Belforte said. In particular, the marking/engraving market is having a very good year, with double-digit growth so far, he added.
Fiber lasers continue to garner much attention, although views are mixed as to the broadscale market potential at this point. In the industrial sector, the bulk of the sales are not into new markets but into markets previously served by solid-state lasers. However, SPI (Southampton, England) says it has seen 100% product growth and 175% contract revenue growth in the past 12 months and expects this trend to continue into 2007 and beyond, according to Stuart Woods of SPI.
Diode-laser sales are being fueled by the medical and defense markets, according to Paul Rudy, senior VP of marketing and sales at Quintessence Photonics Corporation (QPC; Sylmar, CA). Enabled by ongoing advances in spatial and spectral brightness due to the incorporation of non-absorbing mirrors and gratings within the internal structure of its diode-laser products, QPC continues to experience "substantial" sales growth, Rudy said.
Looking ahead, Steve Eglash of Worldview Technology Partners (Palo Alto, CA) says the venture-capital community is showing increased enthusiasm and interest in several segments of the photonics industry. Of particular interest, he noted, are:
--sources for displays, illumination, biotech, and semiconductor applications
--displays
--photovoltaics/power and energy
--video eyewear
--sensors
--detectors
--communications
--fiber lasers
"In 2005, venture-capital investment in photonics was up about 17% compared to 2004," Eglash said. "That trend has continued in the first half of '06 and may have even accelerated."
Ed. Note: A more comprehensive version of this story appeared in the August 1, 2006 issue of Optoelectronics Report www.optoelectronicsreport.com.