Read about OIDAs Optics & Photonics Market Forecast, How to Read Q1 Reports in a Crisis, How to Navigate the Crisis from Your Laptop Special Events, New Reports and Other Noteworthy News, Opinions & Opportunities
In this Issue:
OSA COVID-19 Message
The Optical Society (OSA) is committed to ensuring our staff, members and customers are supported during the COVID-19 (Coronavirus) pandemic and will continue to implement measures to protect the health of our global community while maintaining business operations and programs to the extent possible. Learn more.
"Yes, There Will be Growth in the Spring" — Chauncey Gardiner
This was the wisdom of Chance the Gardiner, also known as Chauncey Gardiner, the clueless advisor to the President in the satirical novel "Being There" (see the trailer here). He says, "As long as the roots are not severed, all is well. And all will be well in the garden." Chance, or Chauncey, is a simple gardener, but the observation was welcome. It's welcome now, too. While the economy was already fragile when the pandemic arrived, and there may not be growth this spring, there will be growth this summer, and fall and next spring. How so? Read on.
Source: Everett Collection.
There was early hope that the pandemic would pass quickly and the hit to the broader economic recovery would be V-shaped. Now it's clear that the recovery won't be swift, given that U.S. unemployment just went from a 50-year low to the greatest jump in weekly initial jobless claims in U.S. history, along with many other disturbing metrics.
The International Monetary Fund (IMF) expects global output to decline 3% in 2020, returning to growth in 2021 of 5.8%, exceeding the world’s output in 2019. The wealthier economies will suffer deeper retreats in 2020, but recovering to 3-5% growth in 2021. The IMF expects China will end 2020 with 1.2% growth. In the chart, the recovery looks V-shaped and short-lived, but the numbers mask the full damage.
Source: IMF World Economic Outlook (April 2020).
The crisis leaves no region safe, as even China's many decades of remarkable growth has been interrupted. The chart below shows China's overall GDP annualized growth rate by quarter, on the x-axis, showing a year-on-year decline for the first time since it began releasing GDP figures in 1992. China's IT sector—which includes information technology, transmission and software—continued to show good year-on-year growth, and approximately flat quarter-over-quarter, even with the extended Chinese New Year holiday and pandemic shutdown. The IT sector is relatively small compared to the overall Chinese economy but has showed exceptional double-digit growth in recent years. The IT sector result suggests that the Chinese technology sector may fare better than the Chinese economy overall.
Source: National Bureau of Statistics of China (April 2020).
What does this mean for optics and photonics? It helps to sort all products into (1) consumables and (2) durable goods. Consumables are things like food and toilet paper that can continue selling even in recessions. In our sector, this could include disposable endoscopes and laser debris windows. (Service contracts, while not actually products, bring steady revenues the same way.)
Nearly all optics and photonics components and systems fall into the other group, durable goods, which range from LED light bulbs for your home to US$ 130 million microlithography tools. Each durable goods market will behave differently in this crisis:
- Optical communications and military products have steady demand, with telecom carriers reporting increased traffic on some backbones as much as 35% to 50% over only a month, while also reducing some revenue, particularly for business services. The shutdown will create delays in shipments and supply chain disruptions, but once these are overcome the recovery can be V-shaped. Orders have increased through the end of the year for server equipment. There are also expectations that 5G will boost sales in carrier equipment; for example, Deutsche Telekom recently announced its national rollout of the technology, even as arsonists are attacking cell towers in Europe in the chaos of the pandemic. Orders for military contracts continue, and many are considered "essential" by security agencies for the purposes of keeping operations open and companies solvent.
- Displays and consumer products. Asian factories are running and are assembling as many displays and consumer products as fast as they can. Tablet and laptop computer manufacturers may end the year even with 2019, with strong sales in H1 2020 tempered by softer sales in H2 2020. However, many are concerned that sales in the second half may sink once the immediate demand is met. Digitimes Research forecasts a drop in smartphone unit sales this year by 15%. This means strong sales for suppliers of displays, image sensors and LEDs now, but uncertainty for later this year. Omdia forecasts flat panel display unit shipments to decline by 11% in 2020. The forecast for this segment could be an "upside down V."
- Life science and scientific instrument markets forms a mixed bag, with demand in some segments steady, or even stronger, such as for UV-C LEDs, lasers, thin-film filters and other components for disinfection equipment, RT-PCR molecular analysis instruments, ELISA instruments for detecting antibodies, gene-sequencing instruments, infrared thermometers and imagers and even simple pulse oximeters. Outside of the life sciences, however, with university and corporate R&D labs closed for the pandemic, orders for R&D lab instruments may be delayed until the financial situation is clearer. This is a mixed forecast, without a clear shape.
- Semiconductor tools, solar cells and panels and LED lighting are vulnerable to falling demand in a recession. VLSI Research, IC Insights and Gartner Group all expect demand for semiconductor equipment to dip only slightly from 2019, as manufacturers continue to advance their facilities. Semiconductor technology will not wait for the pandemic to subside, it marches on. Even with the headwinds against the economy, Wood Mackenzie expects that the solar energy market may end up flat with 2019, the demand is so great, delaying the growth it expected into 2021. The same is somewhat true for LED lighting, as construction projects that were already in place continue. Expect a flat or V-shaped recovery.
- Machine tools for expensive durable goods will fare the worst. Much is made of the use of 3D printers to make ventilator equipment and face shields, but the 3D printer business is relatively small and uses little to no photonics. U.S. auto sales in April were expected to be down 50% from April 2019, and new orders of large aircraft have been delayed or cancelled as airlines keep flights on the ground. Sales of machine tools to manufacture large items like automobiles was a sector that was already soft in 2019, and now will see even weaker demand. Sales of such capital equipment generally suffer deeper cycles than the end-product market that such equipment serves. OIDA calls this the "Derivative Effect": the capital equipment market behaves as the mathematical derivative of the target market. As with semiconductors, however, companies may adapt to the weak market by retooling factory lines to make more competitive products, such as electric vehicles. This segment will have a wide U shaped or "bathtub-shaped" recovery, with some trajectories deeper and longer than others.
Using estimates in each of the segments above, OIDA created a more refined forecast for the optics and photonics market, which suggests a decline of 11-15% for 2020 overall. This would be a record decline for the industry, and more dramatic than the overall economy, because of the role of optics and photonics in durable goods, and particularly as capital equipment. While it's difficult to find something good to say about this, at least it isn't because of declining interest in photonics; it's entirely from the pandemic.
Source: OIDA (2020).
A decline of 11-15% is devastating for a US$ 460 billion components and systems industry, that could be US$ 70 billion of lost revenue. Some observers may be nonetheless skeptical. With factories shut down, flights cancelled and millions suddenly out of work, could a 11-15% decline in revenues be optimistic?
Consider that many factories never closed because they were considered essential, many in Asia have reopened, and demand for many products remains strong, even if the supply is interrupted. Essential consumables will sell well, certain small durable goods may see some variation in sales, while the "second derivative" capital equipment sales are most vulnerable.
What the numbers don’t show is the real damage, to companies and to individuals. More diversified companies that play in multiple segments—which are usually the larger companies—can weather the storm better. And some small companies, such as those in UV-C LED products, may do very well. But small companies are most vulnerable and many will need help from partners and government agencies to survive this circumstance that was outside their control.
The pain is not confined to one sector, or one region. We're all in this together. We hope we all recover together as well.
How to Read Q1 Reports in a Crisis
Last month in the OIDA newsletter we showed the seasonal nature of two Asian companies involved in the manufacturing of consumer products, Foxconn and Largan Precision. With factories in Taiwan and China, they offer a look at what is to come elsewhere as social restrictions lift. Foxconn's revenues so far this year are about 12% below the same period last year, while Largan's are up a remarkable 35% over the same period, but those results say more about the past 12 months than the current period. The updated charts show that the two companies seem to have weathered the initial crisis, despite any interruptions in production or the supply chain. Less clear is whether demand will hold up for the rest of 2020.
Source: OIDA, from Foxconn and Largan financial statements.
A lesson from Foxconn and Largan is that the usual financial figures are not very helpful in the chaos of this pandemic and recession. This is also the case with the Chinese economic data noted earlier in this OIDA newsletter. The quarter-over-quarter results likely exhibit seasonal variation; it's not clear if a decline or upturn by itself is normal or wildly atypical. Year-over-year results accumulate the performance of three other quarters, and may say little about the performance of the most recent quarter. Only by looking at this year's performance compared to the historical seasonal variation can we know if the current performance is on track, or not.
Keep this in mind as companies report financial results for the first three months of 2020. In times like this the year-over-year or quarter-over-quarter results lack the full context, and one has to look at how the quarter-over-quarter result is this year compared to the quarter-over-quarter result from last year. In other words, don't just read the headlines.
How to Navigate the Crisis from Your Laptop
Do you feel that you're flying by the seat of your pants? If so, you’re not alone. We keep hearing that this is "the new normal." Whatever you call it, how long will this last? And how can we navigate through it? We know that you are already spending more time on videoconferences, that's why we want to direct you to some important resources.
Source: Douglas Knight, CartoonStock.
OIDA launched its weekly series of webinars specifically addressing company management during the crisis, spanning topics from supply chains to employment and financial assistance. The webinars draw from collective wisdom from the community as well as experts from outside the community. See here and check for updates as we add more to the schedule. See also some helpful resources from experts we’ve posted here, and commentary from Laser Focus World’s Conard Holton on OIDA’s efforts here.
OIDA Council Chair Dr. Simin Cai for the 16 April 2020 webinar.
Grey Williams pointed out in the 23 April webinar that recovery of the supply chain has to be V-shaped, even if the overall sector is not. He explained a crisis management approach to re-secure the supply chain. The chain doesn't just include suppliers, you may need to consider logistics too, such as delivery and storage services. Cut your less essential projects; trying to be a hero by keeping all your projects going won't succeed. Forecast what you can based on updates on your supply, with best and worst case scenarios. The demand will be more difficult to update; focus on what you can control.
OIDA will be discussing its recent report, OIDA Quantum Photonics Roadmap: Every Photon Counts, as part of this year's online CLEO (here, see also here). The session will be live on Wednesday, 13 May at 10:15-11:15 PT. We will continue to feature the roadmap in coming events. The report is currently available only to OIDA members (here) and will become available to the public on 1 June.
OSA's Optics & Photonics News will host a webinar around ways that optics and photonics are used to fight against COVID-19 (here). The webinar will feature Thomas Baer and Christina Baer, authors of a recent OPN article (here), on 8 May at 13:00 ET.
OSA's We Are On webpage here lists all of the webinars from OSA's many activities. Webinars are offered nearly every day of the work week on topics ranging from optics and photonics technology to professional development and even activities for kids (see Optics4Kids here).
SubOptic, a partner with the OSA Foundation's Subsea School, offers webinar content on pandemic-related issues around the undersea fiber network business. See here for more information.
See also OSA's webpage for OSA's statement and updates on its response to the pandemic (here).
Welcome New OIDA Members
RSVP for Virtual OIDA Member Benefit Orientation
RSVP for OIDA's member benefit overview orientation. This is an opportunity to learn more about key membership benefits you and your company should be taking advantage of and explore how to maximize performance and grow your business.
Whether you have been an active member for years and need a quick refresh or are transitioning to the new OIDA membership model — this orientation is a must-attend! Please feel free to share this with your colleagues. When you join OIDA, everyone at your organization becomes a member.
"With our corporate membership, we're able to participate in networking events and obtain industry reports that help us make more informed decisions" - Chris Maloney, Director of Business Development, VPI Photonics
LAC Chairs Encourage You To Submit a Paper
12-16 October 2020, Québec City Convention Centre, Québec City, Québec, Canada
This meeting will be held as scheduled.
OSA continues to monitor advisories related to COVID-19, and commits to being responsive amidst changing conditions to facilitate maximum participation for speakers and attendees while ensuring the well-being of all participants.
We are pleased to encourage you to submit a paper and to attend the 2020 Laser Applications Conference (LAC), being held on 12-16 October 2020, at the Québec City Convention Centre, Québec City, Québec, Canada. This year's LAC meeting will feature Plenary talks by Jan Kleinert, Research Director at Electro-Scientific Industries (ESI), a division of MKS Instruments and Peter Moulton, currently senior staff member in Laser Applications and Technology at Lincoln Laboratory, Massachusetts Institute of Technology. The submission deadline is 11 June 2020 (12:00 EDT/17:00 GMT).
The Laser Applications Conference (LAC) is accepting papers for posters and may upgrade some of the posters to oral presentations. This 3-day meeting focuses on two main topic areas -- Materials Processing and Applications for High Power Lasers.
View a detailed list of paper submission subtopics.
View submission guidelines and other paper preparation information.
Mark 12-16 October 2020 on your calendar, and be sure to submit your paper before the 11 June deadline. See you in Québec City!
Ball Aerospace & Technologies, United States
Trbola Engineering, Germany
Showcase Your Company's Useful Techniques: Submit to Applied Optics' Engineering and Laboratory Notes
Applied Optics (AO) publishes Engineering and Laboratory Notes (E&L Notes)—brief, concise articles that share useful laboratory techniques and practical engineering approaches in the applied optics field. Topics range from design and analysis, to fabrication and integration, alignment, testing, and calibration of optical systems. E&L Notes offers a unique way to publish useful techniques from your engineering notebook in Applied Optics. Read more about E&L Notes and suitable topics for submission and learn about how to submit your contribution.
OSA Awards & Honors
Recognize the outstanding contributions of your colleagues through an OSA Award or Medal nomination. The awards below specifically recognize the achievements of engineers, business leaders, inventors, innovators and entrepreneurs. View a full list of OSA awards. Nominations are due 1 October 2020 unless noted.
John Tyndall Award recognizes outstanding contributions in any area of optical-fiber technology, including optical fibers themselves, the optical components used in fiber systems, as well as transmission systems and networks using fibers. This award is co-presented by OSA and IEEE Photonics Society. Nominations should be submitted to IEEE Photonics Society by 10 August 2020.
David Richardson Medal recognizes contributions to optical engineering, primarily in the commercial and industrial sector.
Edwin H. Land Medal recognizes pioneering work empowered by scientific research to create inventions, technologies, and products. This award is co-presented with the Society for Imaging Science and Technology.
Joseph Fraunhofer Award/Robert M. Burley Prize recognizes research accomplishments in the field of optical engineering.
Robert E. Hopkins Leadership Award recognizes significant impact on the global optics and photonics community or on society as a whole stemming from non-research oriented activities.
Kevin P. Thompson Optical Design Innovator Award recognizes contributions to lens design, optical engineering, or metrology at an early career stage.
Celebrate the International Day of Light: 16 May 2020
We encourage all of our industry partners to join the conversation around the International Day of Light on social media with #seethelight and #idl2020. This year, you can experience a special message at lightday.org/seethelight. Cleaner energy, sustainable farming, high-speed connectivity and better diagnostics and treatment are all enabled by the science of light, and it's up to us to help communicate that message to our friends, families and the public. Articles on each of those topics are in the works and will also be published on lightday.org/seethelight. 16 May 2020 is an opportunity to #SEETHELIGHT and celebrate what it does for all of us.
Invitation to Join the OIDA Optics and Photonics Industry LinkedIn Group
Join 3,500+ 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.
Forward this message to your colleagues.
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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.
- Simin Cai,
- Claudio Mazzali,
Corning Research &
Development Corp, Past Chair
- John Dexheimer,
LightWave Advisors, Inc.
- Turan Erdogan,
- Amy Eskilson,
- Christoph S. Harder,
- Anjul Loiacono,
- Debbie Wilson,
Lumentum Operations Inc.