Read about Changes in E.U. Funding of Photonics, France and Europe Photonics Markets, Optical Communications, Special Events, New Reports and Other Noteworthy News, Opinions & Opportunities
In this Issue:
Changes in E.U. Funding of Photonics
While the U.S. has been inwardly focused on a presidential election, there is mixed news on European funding of optics and photonics.
Photonics21 hosted an information session on 5 November (here) in place of its annual meeting. Among other things, the session included an update on proposed funding through 2021-2027 under the new Horizon Europe R&D program. Photonics21 is the E.U. technology platform in public-private partnership with the European optics and photonics community. Horizon Europe is the new European Commission's R&D budget that follows Horizon 2020, which spanned 2014-2020. At stake is the continued dedicated funding of photonics as one of the E.U.'s key enabling technologies.
The good news is that photonics will remain as a unit in the new Horizon Europe, but differently than before. There is talk of a "ring-fenced budget", having its own section in Cluster 4 (Digital, Industry & Space) of Pillar 2 of the program, and so on—all somewhat difficult to decipher for anyone not familiar with the labyrinthine nature of the European Commission's workings. (For example, see this presentation from 2019).
But what everyone wants to know is: What of the budget? As of this writing, the proposed funding for photonics is "up to €500 million" over the period 2021-2027, which would be up to €71 million per year. This compares to €100 million/year under the seven years of Horizon 2020. The new budget could set funding back to the level of 2013.
Photonics21 has done well to reach its targets and demonstrate the value of photonics to Europe. However, the Commission wants to avoid entrenched entitlement programs, and keep its agenda current with the E.U.'s strategic goals. Toward that end, Photonics21 will reorganize to match the six E.U. Pillar 2 application groups pursuing those goals. This will require formal collaborations with each group, with the aim of opening up co-funding. The Commission also wants more commercialization around these collaborations. It's an ambitious undertaking but one intended to make the agenda more effective.
In short, Photonics21 will survive for another 7-year funding program by adapting to the times. If it continues to perform well, it may continue as a dedicated photonics unit within the E.U.
It's not just photonics that is chafing at the proposed budget. While Horizon Europe is not the only channel for E.U. funding of R&D, it is the largest. In 2019, the Commission proposed €94.4 billion for the full Horizon Europe program, an increase from the previous 7-year program of €74 billion (in 2018 prices). That budget was cut, but then increased again, to about €85 billion (in 2018 prices). The figure shows how the E.U. funding for its R&D "framework programmes" (FP) grew dramatically since 2007, recorded here in current year (i.e., unadjusted) prices.
Source: OIDA, from E.U. documents. The 2021-2027 proposed budget is in 2018 prices.
In November, the League of European Research Universities (LERU) complained about the cuts through an opinion piece entitled "They couldn’t care less." It notes that the E.U. governance promised greater investment in R&D, with hopes that it might exceed €100 billion, but it hasn't followed through.
To put this all in perspective, the U.S. federal government non-military R&D budget is about US$ 80 billion per year, or about 7X that of the E.U. But consider too that the E.U. is not the primary provider for its member states. The entire E.U. budget, which is about 12X larger than Horizon Europe, is still only about €150 billion per year. This is in the range of the Denmark national budget. The State of California budget is about US$ 150 billion per year.
None of this precludes the E.U. national governments from increasing their own spending on R&D, whether for universities or industrial projects. But that requires different conversations with different policymakers. It's easier to make the case for increasing spending on existing programs than to make the case for new programs.
France and Europe Report on Photonics Markets
Photonics France recently reported on its optics and photonics industry, approximately confirming OIDA's own estimates for the country. The market research firm Tematys conducted the study, and is also tabulating the values for the E.U. countries for Photonics21 (see story above). It’s helpful to have the same firm doing both studies and Tematys has done a good job.
The Tematys study estimates employment of about 73,000 workers across over 1,000 companies, bringing €18.6 billion in annual revenues. This compares to OIDA's estimate in 2016 of 68,000, about 21% of the European employment, including the U.K and non-E.U. countries. OIDA estimated France's location quotient at 2.5, second only to Germany. The location quotient is a measure of the relative concentration of photonics employment compared to the overall economy, with values greater than 1 indicating greater than average concentration.
OIDA places France behind Germany but essentially tied with the U.K. as the second-largest optics and photonics industry within Europe. OIDA estimates that 86% of the European photonics employment is in these three countries. Germany has the most organized and visible industry, with strengths in optics and lasers for manufacturing, and home of the biannual exhibition commonly known as Laser Munich. France and the U.K. aren’t as well recognized, but boast their own strong photonics sectors, including significant military equipment and aerospace industries that employ a lot of expensive precision optics
Source: OIDA, from Photonics France document (2020).
Tematys also recently provided preliminary estimates for the European optics and photonics market at the Photonics21 event mentioned above, with a final report coming by the end of the year. Tematys projects growth of 5-6% for the period 2020-2025, which approximately agrees with OIDA’s projection.
Tematys's preliminary estimates for national market shares match in some places with OIDA's estimates from early this year (here and here), shown side by side below. We both agree that China is leading in production. OIDA places North America slightly ahead of Europe, while Tematys reverses the order. The two regions are approximately equal in both market size and the kind of products they offer—Europe and North America are each strong in applications that use high performance, high precision optics and photonics.
Sources: OIDA (2020) and Tematys (2020).
Asian countries generate about 2/3 of revenues, and are strong in assembly of high volume consumer products, such as displays, camera modules and LED lighting. The order has changed significantly in recent years, however, with China rising in nearly every major segment, while Japan and Taiwan have moved much of their manufacturing offshore, as the U.S. did decades ago. The specific estimates can vary according to the exchange rate, since OIDA values the worldwide market in U.S. dollars, while Tematys values it in euros.
There is one striking difference between OIDA's market estimates and that of Tematys. OIDA sized the 2019 optics and photonics global components and systems market at US$ 500 billion. Tematys places it at about €650 billion, or about US$ 730 billion. While it's difficult to reconcile such a gap, the numbers are so large and heterogeneous that they become abstract, just numbers. What matters is whether they are growing or declining, and how much.
Optical Communications Keeps Moving Forward
Market research firm Omdia expects that 2020 will end up with positive growth in the optical communications components market, followed by several years of strong growth, to nearly US$ 25 billion by 2025, a compound annual growth rate of 10%. This is remarkable growth for a market at any time, much less through a pandemic. One doesn’t have to go far to note industries that have been devastated by the pandemic, such as travel and hotels, as we’ve written in previous OIDA newsletters.
The forecast includes both transmission components (such as transceivers and other active and passive components) and transport components (such as ROADMs/WSSs and the active and passive components they contain). The chart shows the overall optical components market, beginning at US$ 14.2 billion in 2019. It includes both merchant and captive devices (products that are made and consumed internally by network equipment manufacturers, NEMs). The merchant portion was US$ 10.2 billion, or approximately 74% of the market. Omdia expects the merchant portion of the market to shrink to 64% as component suppliers that were recently acquired by NEMs increasingly get pulled into supporting internal products. By 2025, this would bring the merchant market to US$ 16.1bn.
Source: Omdia (2020), with permission.
Wide Area Networking (WAN) was the largest segment of the market in 2019 with 52%, followed by datacom with 37% and access with 11%. Omdia expects datacom to gain share over the next five years to bring it to 45%, just ahead of WAN with 43% and access will be at 12%.Driving this increase in revenue will be Internet Content Providers (ICPs) adoption of 400G, and some adoption of 800G toward the end of the forecasting period.
This forecast and more will be included in an upcoming OIDA Market Update.
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It's a Wrap! 5th Annual OIDA Funding Accelerator Speed Meetings Focused on SBIR/STTR Funding
OIDA is committed to fostering the development and commercialization of new optics and photonics technologies that will expand the industry's product pipeline, and to offering OIDA members the opportunity to get the funding they need. We brought companies with less than 500 employees together with top U.S. federal agencies for one-on-one virtual meetings and presentations on 12 November. Companies had the opportunity to discuss their innovations and business model with this exclusive audience, and got an insider perspective on what specific agencies are looking to fund. The event helped government agencies better understand what our Industry can offer and how optics and photonics technologies can help them meet their goals.
Thank you to the participating agencies: Department of Energy (DOE), NASA, Navy/NRL, National Science Foundation (NSF), and U.S. Department of Homeland Security (DHS). Thank you to the companies attending including: GAMDAN Optics, Intelligent Fiber Optic Systems Corporation (IFOS), Iris Light Technologies, KMLabs, PFG Precision Optics Inc., Semper Fi Systems, Source Photonics, and SRICO, and Vertex Optics.
If your company is interested in learning more about OIDA SBIR/STTR events, please reach out to: OIDA@osa.org.
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Plymouth Grating Laboratory, Inc.
Double Helix Optics
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Optimax Systems, Inc.
LightWave Advisors, Inc.
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