The Long View of the Laser Market from OIDA Executive Forum at the OSA Laser Congress
The keynote speaker for the OIDA Executive Forum at OSA's Laser Congress sees diminishing gains in such laser applications as communications and microlithography, but much richer opportunities in the use of lasers in manufacturing. This was one of the long-term views discussed at the forum, held 8 November 2018 in Boston. The keynote, David Townes, is co-founder of investment firm Needham & Co. and worked with many clients in our industry over the years.
One of the most fundamental human activities is finding efficient energy sources, first as food and later for heat, light, manufacturing, and other uses. Today the cost of energy is largely factored into the overall life cycle cost of products. Many technologies advance largely through improvements in energy efficiency that lead to cost effectiveness, but reach a practical limit where further improvements become uneconomical. Successful examples of such advances in energy efficiency include diesel combustion engines, container shipping, and soon perhaps, LED lighting. Townes believes that the use of lasers in machine tools remains a large market opportunity, by bringing manufacturers substantial cost savings through more widespread use of laser welding and other processes. He cited automobile manufacturing as an example, which was also a focus discussed later in the program.
Moderator Tom Hausken (OIDA) presented data collected from issues of Laser Focus World magazine dating to 1968 that indicates the market growth has been about 14% compounded annually over five decades, which is about 6.5% per year more than the global economic growth rate, including inflation, over the period. Today, it is growing about 1% faster than the global economy.
Source: OIDA (2018), from Laser Focus World magazine data.
Panelists Linda Smith (president of Ceres Technology Advisors) and Conard Holton (editor at large at Laser Focus World magazine) discussed the current state of the laser market and company acquisitions. Some of the market growth recently may have led to accelerated orders in anticipation of the imposition of tariffs, but it is still too soon to tell. Company valuations also had strong growth starting in 2016, but some substantial losses in value in 2018. (See also last month's OIDA newsletter.) Not all companies have been able to capture these gains in valuations at the time of their sale, however. Smaller optics and photonics are perceived to have a smaller return on investment (ROI), and typically are valued accordingly.
Townes noted that it is less attractive to operate as a public company today than in the past, which is poor for the health of the financial market. Only about 20% of startup companies exit to become publicly traded companies today, and there are fewer public companies overall, compared to about 80% of exits going public in the 1990s. Linda Smith pointed out, however, that most optics and photonics companies are small and well-suited for private equity investors. There are hundreds of smaller private equity firms, and they are not looking for "home runs" the way venture capital does. The equity firms can make money "with singles and doubles." She also noted that the big deals are largely sealed in the U.S., but much of the private equity is invested in Chinese companies.
About the Tighter Rules on Foreign Ownership of Companies
In October, the U.S. government issued new rules regarding the review of transactions to foreign ownership of U.S. companies, responding to bipartisan calls for a U.S. response to foreign mercantilist trade policy for many years (for example, see here). The new rules may have a costly regulatory impact on U.S. optics and photonics companies, particularly those seeking capital or transfers of ownership.
The new regulations arise from the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA, see here), which Congress passed by a widely bipartisan vote and President Trump signed in August. The act authorizes the Committee on Foreign Investment in the United States (CFIUS) to conduct pilot programs to expand and implement new provisions in the legislation. On 10 October 2018, the U.S. Treasury Department issued temporary regulations that would expand the scope of transactions subject to review by CFIUS (see here). Included in the expansion were NAICS codes related to optics and photonics, as well as systems that include optics and photonics components and the fact that the scrutiny was expanded to all countries globally and not a select few. For example, it included Optical Instrument and Lens Manufacturing (333314) and Semiconductor and Related Device Manufacturing (333242), see here.
More restrictive rules would have the effect of reviewing, slowing, or rejecting funding by foreign investors and/or sales of ownership to foreign owners, by expanding the number of companies subject to review and raising the threshold needed to pass approval. At the OIDA Laser Congress Executive Forum, Linda Smith (CERES Technology Advisors) said that CFIUS review adds substantial paperwork, delays, and risk to transactions. More broadly, the tighter scrutiny can slow the movement of capital, or even divert it from U.S. companies to opportunities elsewhere. This can affect company valuations and exit opportunities for investors, in a cascading chain of effects.
Advocates for a response to mercantilism from China and elsewhere say that tighter scrutiny is necessary in the face of mercantilist policies and a gradual loss of the U.S. manufacturing base and intellectual property to other countries. Protection of a U.S. photonics manufacturing ecosystem was also the justification for the NNMI funding that was awarded to the AIM Photonics Institute in 2015. Speaking about tariffs and foreign ownership at the OIDA Executive Forum, David Townes (Needham & Co.) said that "first you have to shake things up," as opposed to changing policy incrementally.
In summary, FIRRMA greatly alters the landscape for inbound foreign investment transactions. OIDA cautions that any company involved in international mergers and acquisitions, private equity, fund formation, or U.S. real estate transactions should become familiar with FIRRMA and the new procedures surrounding CFIUS that this new interim rule creates.
Dr. Greg Quarles represents OSA/OIDA and the optics and photonics community on the U.S. Commerce Department Sensors and Instrumentation Technical Advisory Committee (SITAC), and OIDA is monitoring this development. For questions, please contact Greg Quarles at firstname.lastname@example.org.
The Dramatic Growth of the Optical Communication Components Market
This month's OIDA Market Update will include this chart from Ovum illustrating the strong growth in the market for optical components for communications since 2003. The chart shows the component revenues in U.S. dollars by quarter (right axis), and converted to an annual rate based on the previous four quarters (left axis).
Source: Ovum (2018).
In 2003, the industry sold around US$ 2 billion of optical communication components. By 2007, just four years later, the market had doubled, passing US$ 4 billion. It took another nine years for it to double again, passing US$ 8 billion. The market has been strong throughout the period, with a major dip in 2009, which was a global economic correction well beyond just the communications sector. The more recent decline, which starts in Q1 2017, is due to burning off excess inventory by Chinese customers, along with a slowdown in equipment deployment in China.
The nine-year compounded annual growth from 2009 to 2017 was 9%, outpacing both sales of service provider switching and routing systems (4.1% during the same period) and optical networking systems (0.6%). This is due in part to component vendors' more direct access to some end users, such as Internet content providers. Construction of new data centers and 5G deployment efforts will help sustain the growth going forward.
For more details, see the upcoming OIDA Market Update report, available to OIDA members.
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Member Benefit: Plan Your 2019 Strategy with Industry Reports Available to OIDA Members
Industry leaders worldwide are planning their strategy for 2019 and beyond. A winning strategy is driven by intelligence. OIDA Members have exclusive access to OIDA Market Update reports. Have you downloaded our newest industry reports?
Reports cover areas such as:
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- Next-generation optical networking
- Drug-discovery market opportunities
- International brain research efforts and funding
- Integrated photonics
- And More!
All OSA Industry Development Associates members have free access to all reports. We encourage you to browse the Publication Library to see everything available to you.
Program Announced for OIDA Workshop on Manufacturing and Building the Supply Chain for Integrated Photonics
3 March at OFC in San Diego, CA, USA
Attend this workshop and get a deep look at the key challenges associated with manufacturing integrated photonic components. Invited speakers will discuss critical aspects of the ecosystem, providing insights on the current manufacturing challenges and what is being done to address them. Panel sessions will provide a unique opportunity for speakers and the audience to propose and review ways to strengthen collaborations across the ecosystem and to build a more effective manufacturing supply chain. The workshop is especially suited to those interested in providing integrated photonic manufacturing services and to the users of these services. Learn about new opportunities. Network with the top experts in the field. Attend the panel sessions, breakfast, lunch, poster display, and special evening networking event.
Register by 4 February to take advantage of special savings for OIDA members. Corporate sponsorships are available for this workshop. Contact Sakshi Sethi at email@example.com or by phone at +1.202.416.1474 for details on corporate sponsorships.
Meet the OIDA Executive Forum Planning Committee and View This Year's Program
4 March at OFC in San Diego, CA, USA
This esteemed group of executives have helped shape a fantastic program for this year's OIDA Executive Forum at OFC on 4 March.
Attend and hear from Keynote speaker Buddy Bayer, Windstream, and luminaries from Google, Huawei, Cisco, Arista Networks, Nokia, Finisar, Intel, Verizon, Tencent, CableLabs, China Telecom and more.
View the program and register by 4 February to take advantage of your OIDA Member discount and free registration.
Raise Your Company's Profile in Front of a C-Level Audience. Sponsor OIDA Executive Forum!
OIDA Executive Forum attracts over 200 senior-level attendees that influence the Industry. These decision makers in the optical networking and communications ecosystem will convene on 4 March to discuss the latest trends that will dominate the business landscape in 2019. Corporate Sponsors can promote their brands in front of an audience of global business leaders — before the OFC Trade Show doors open! Sponsorships offer different levels of exposure and include registration passes to the event. For detailed information on sponsorship levels and pricing, please contact Sakshi Sethi at firstname.lastname@example.org or by phone at +1.202.416.1474.
PR Planning for OFC
The OFC PR Team is here to support you and your organization! Please take a moment to register your organization's PR and/or marketing contact to receive the OFC PR Team newsletters, deadline reminders, media opportunities and the advanced pre-registered media and analyst list.
OFC Career Zone — Now Open
The OFC Career Zone is where job seekers and employers from all areas of optical communications connect. Check out OFC Career Zone Online and create your account today!
Be sure to also participate in our Onsite OFC Career Zone Live at OFC, San Diego Convention Center, 5-7 March 2019.
Questions: contact email@example.com or +1.202.416.1942
Unique Career Opportunity — OSA Congressional Science Policy Fellowships
Combine your interest in policy with your science background. Apply for the 2019-2020 OSA Congressional Science Policy Fellowships. Congressional Fellows spend one year on Capitol Hill working as legislative assistants on the staff of a member of U.S. Congress or Congressional Committee. Applicants must have a Ph.D. by the start of the fellowship, 1 September 2019, to be eligible. Mid- and late-career applicants are also encouraged to apply. In addition to being a great opportunity for young professionals, it is also an ideal way to spend an academic sabbatical or leave of absence from a company. Deadline to apply is 4 January 2019. To learn more about eligibility and application requirements, visit the Congressional Fellowship webpage.
Present Your Applied Industrial Optics Research on 8 — 10 July 2019
The OSA Applied Industrial Optics Topical Meeting (AIO) is where researchers and professionals from diverse backgrounds gather and discuss photonics research, technology development, and commercialization. Here, industry leaders can stay informed of the latest advances in photonics technology. AIO creates an engaging multi-disciplinary program that encourages the sharing of ideas and generates cross-pollination across fields. Through workshops, tutorials, and panel discussions, AIO grants unprecedented access to industry experts and insight into today's commercial climate. It offers a unique atmosphere that is both informative and interactive, providing a forum for tomorrow's photonics leaders to meet, collaborate, and innovate. Submit your research for consideration by 13 March 2019 (12:00 EDT / 17:00 GMT). Learn more.
Invitation to Join the Optics and Photonics Industry LinkedIn Group
Join 3,000+ of your colleagues in our Optics & Photonics Industry Network LinkedIn Group. This one-of-a-kind Forum for Industry lets you participate in discussions about cutting-edge issues. Extend your professional network. Exchange information about problems, ideas and solutions. Collaborate with experts in your field. Now is the perfect time to build a relationship with fellow optics and photonics professionals!
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OIDA (OSA Industry Development Associates) Council
Thank you to the volunteers who oversee the programs and services available to the Industry Community.
• Claudio Mazzali,
Corning, Inc., Chair
• Alex Fong,
TruTag Technologies, Inc.,
• John Dexheimer,
• Amy Eskilson,
• Christoph Harder,
Harder and Partner
• Fred Leonberger,
• Inge Kabert,
• Martin Seifert
• Debbie Wilson,