Read About Why OFC Was So Strong This Year, a Global Photonics Market Update, Special Events, New Reports, and Other Noteworthy News, Opinions & Opportunities
In this Issue:
Why OFC Was So Strong This Year
Our community can take comfort in something heard over and over at the OIDA Executive Forum and OFC 2021 that the networks were remarkably resilient through the pandemic. Stores may have run out of toilet paper, but videoconferencing and Netflix kept running. There are substitutes for toilet paper, but a year at home without the Internet? That's unthinkable.
Both the OIDA Executive Forum and OFC were successes last month, despite the industry being sequestered from business travel for over a year. There are two reasons: strong demand for optical communications, and a boom in innovations enabling the industry to meet that demand.
Regarding innovations, there's 800G optics, copackaging versus pluggables, open this and disaggregated that, edge networks, machine learning, space division multiplexing (SDM), LiFi, hollow fibers, quantum key distribution and more. But there have always been innovations. Some are old ones that weren't ready for the market, or the market wasn't ready for them. Others represent a long progression of adding a zero to the data rate and competing with copper over shorter distances. Some are essentially new names for ideas that came before. As amazing as the achievements are—and they are amazing—it's only the supply side. It's not enough by itself to explain what's driving the industry.
That's where the economy comes in—the demand side. The chart below (updated from February here) illustrates how the NASDAQ composite index gained an average 21% compounded since 2016, compared to a value of 7% that would be considered "healthy" (including inflation and dividends). The growth of the value of the NASDAQ index over such a long period is more than remarkable. The most capitalized companies in the index are also companies driving OFC, so much so that it's almost a stock index for OFC itself. The top 20 companies (here) include Apple, Microsoft, Amazon, Alphabet (Google), Facebook, NVIDIA, Netflix, Comcast, Intel, Cisco, Broadcom, Qualcomm and T-Mobile.
Source: OIDA (2021).
And what's driving them? First, in addition to the existing growth in traffic for data centers for cloud computing, the pandemic added some extra pressure for videoconferencing and streaming. 5G is one more year into its deployment. The ongoing U.S.-China trade war threatens disruptions and opportunities. Satellite constellations are being planned to complement or compete with terrestrial networks, with Jeff Bezos himself planning a short space trip in July (about the risks, see here). And there are new, rapid changes in traffic patterns. We heard several times that "it used to be the peak traffic was voice calls on Mother's Day, but not anymore. Now it can be to anywhere at any time."
Second, there is interest in new applications such as face recognition, augmented and virtual reality, self-driving cars and quantum computing. While many developments are still far from large commercial success, companies are investing big in a race to see who comes in first. If nothing else, these applications suggest that there is a full pipeline of applications to drive traffic for several more years.
Not everyone's sharing in the largess, however. Anyone who doesn't have a personal retirement account isn't getting any of that NASDAQ return on investment. In the U.S. that's more than half of all households. Even the optical companies are not getting a windfall from this: they typically have far smaller net profit margins than the content providers or semiconductor IC suppliers (see figure below, from Vlad Kozlov, OFC2021 Market Watch).
Courtesy: LightCounting (2021), with permission.
Is this a bubble? There is certainly a lot of exuberance in finance these days. Cloud-based Peloton Interactive (PTON, discussed previously here) has a stock price/earnings ratio of about 130 as of this writing. There are meme stocks like GameStop (GME) and AMC Entertainment (AMC). SPACs are in fashion as a legal and efficient side entrance to getting publicly listed on a stock exchange. Not on a major stock exchange? Consider the USD113 million sandwich shop known as Your Hometown Deli that trades on the U.S. OTC (Over The Counter) market. There is speculation in bitcoin, and if investing in cybercurrencies is too conventional, there are NFTs (Non-Fungible Tokens, see also here). An NFT uses blockchain to certify that a digital asset (such as digital art) is unique, but the NFT doesn't convey copyright and in many cases the asset may be freely copied from a website. Got that?
Source: Mike Baldwin at CartoonStock.
But the customer demand in our industry is not driven by the exuberance in these novel financial instruments. And the kind of overinvestment in our sector that happened in the Telecom Bubble is not happening in our sector today. There are plenty of forces that are legitimately pushing optical communications forward to next year's OFC and OIDA Executive Forum in San Diego and at least several more years after that.
Update on the Global Photonics Market
OIDA regularly assesses the overall optics and photonics market to help investors and policymakers understand the size and impact of our industry. We estimate that the market will reach about USD 530 billion this year, after a slight gain in 2020. That may seem large, but even greater are the sectors that optics and photonics enable, comprising nearly the entire global output of USD 100 trillion in 2021. (Two segments alone—optical communications and displays—are used in nearly the entire global economy.)
The European Union partnership Photonics21 recently published its estimates of the global market (here), authored by the market research firm Tematys. The report drew from many sources, including OIDA. The figure below compares OIDA's estimates for the global optics and photonics market with those in the new Photonics21 report. The differences in magnitude are not especially important, as different analysts define the market to include different things. For example, one might count an entire smartphone handset as an optical product, or include microlithography photoresist or coated window glass as optical materials and components. (OIDA does not.)
Source: Photonics21 and OIDA (2021).
The rate of growth is more important than the precise magnitude, and OIDA and the Photonics21 report are close in their estimates of that rate. OIDA estimates average compound annual growth at 4.3% for the period 2016-2021, while the Photonics21 report places it slightly greater at 5.2%.
There are several reasons why these values are modest. It's hard to grow large markets consistently year over year, and the segments become more vulnerable to the movement of the general economy. Growing faster than the rate of the global economy (about 3.5% in normal times) also means taking revenues from another sector, which is hard to do. And the development of new applications often depends on reducing manufacturing costs; volumes increase more rapidly than revenues.
Why does it matter if the growth rate is 4.3% (or 5.2%) or one of the larger values sometimes quoted by other reports? Companies don't sell into the whole market, they sell into segments of it, but at some point—now or later—the segments have to add up and make sense. Greater values of growth are possible for a year or two, but are unlikely to be sustained over our entire sector for multiple years in a row.
Most important is that optics is a large industry and an important contributor to economic health and security. Long term prospects are strong, with promising new applications in the pipeline of development for years to come.
OIDA previously compared OIDA's estimates of regional share with preliminary estimates from Photonics21 (see the December 2020 issue of the OIDA newsletter).
Welcome New OIDA Members
OIDA Member Profile: Altechna
Based in Lithuania, Altechna provides customized solutions for laser optics to customers worldwide. Its emphasis on customer service and commitment to excellence in technology has led to its continued success. OSA reached out to CEO Antanas Laurutis to learn more. Read the article.
Register Now for OSA Applied Industrial Optics Virtual Topical Meeting
This year's Applied Industrial Optics Topical Meeting will be presented in an all-virtual, web conference format 26-30 July 2021. You can participate without the expense or commitment of travel, and from the safety and convenience of your home or office.
Join industry leaders at AIO, where professionals from diverse backgrounds discuss photonics research, technology development and commercialization.
Keynote Speaker: Michael Oshetski
Founder and CEO, Micatu, Inc.
Michael Oshetski, this year's keynote speaker, is a serial entrepreneur, founder and CEO of Micatu, Inc. (a provider of next generation optical sensing solutions for the industrial and utilities markets) and is considered an expert in the commercialization of optical solutions. Michael will present a timely talk A Grid Disrupted: How Optical Sensing Manages the Chaos with more Accurate, Digital Measurements. The Keynote presentation is scheduled for Monday 26 July.
See the impressive lineup of invited speakers. The organizers for AIO have developed a comprehensive technical program, which includes panel speakers and an impressive lineup of 24 invited speakers.
Help Celebrate Corporate Diversity Champions
Changing culture is hard. Help us recognize those companies investing in improving diversity, equity and inclusion throughout their operation and culture. The OSA Diversity & Inclusion Advocacy Recognition seeks to recognize an individual and institution with a demonstrated track record in championing change.
Apply or nominate today!
New Market & Technology Reports Available to OIDA Members
OIDA Members have exclusive—and complimentary—access to OIDA Market Update reports. Have you downloaded our newest industry reports?
A new report has recently been posted:
- OIDA Market Update: Optical Communications Market — 2020 Results and More: This report features the following sections related to the optical communications market:
- Optical component 4Q20 and total 2020 results
- Co-packaged optics (CPO)
- Internet Content Provider (ICP) data center optical component market
- Service provider switch and router market
- ICP and Communications Service Provider (CSP) partnerships
OIDA reports are available to all employees of OIDA member companies who selected the Market Intelligence & Advocacy benefit category. We encourage you to browse the OIDA Publications and Reports Center to see everything available to you.
Digital Programming Now Available Live and On-Demand
OIDA management and OIDA members have produced a series of webinars and virtual Technology Showcases that are available at no charge. We encourage you to browse our growing list of upcoming events and view on-demand recordings as they become available. And there is much more! Check out the OSA We Are On webpage for more high quality webinars on career development from the OSA Foundation and the OSA Career Lab.
Invitation to Join the OIDA Optics and Photonics Industry LinkedIn Group
Join 4,000+ of your colleagues in our OIDA 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!
Questions or Suggestions about OIDA Member Benefits?
We are committed to ensuring the value of your OSA Industry Development Associates Membership, so please email OIDA if you have any suggestions for new programs or comments on your membership.
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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.
Inrad Optics, Chair-Elect
Plymouth Grating Laboratory, Inc.
Cedric F. Lam,
Double Helix Optics
Optimax Systems, Inc.