Photonics Fundamental for Growth

Photonics technologies are ubiquitous and will be a fundamental element of all future global economic growth. The scope of products and services in which photonics plays an enabling role is enormous, encompassing consumer products, displays, lighting, manufacturing, renewable energy, healthcare, communications, environmental monitoring, security, defense, and more.

In fact, photonics is so important to the global economy that it has spawned economic impact studies and strategic agendas across the globe.

In China, for instance, the next Five-Year Plan aims for LEDs to achieve a 30% market share of its general lighting market by 2015. In Europe, Photonics21 (in which SPIE is a stakeholder) published the second edition of its Strategic Research Agenda in Photonics in January 2010. Then in November last year, the European Commission announced the ambitious Horizon 2020 investment plan aimed at helping the Eurozone innovate its way out of its current financial crisis.

In the United States, the “Harnessing Light” study produced by the National Research Council and published more than a decade ago is currently being updated.

As organizer of the world’s leading photonics conferences and exhibitions, SPIE is in a unique position to track the global photonics markets and provide market intelligence to companies and other industry stakeholders. Our own research leverages direct industry connections at our conferences — SPIE Photonics West, SPIE Photonics Europe, and SPIE/COS Photonics Asia among others — and can be combined with intelligent aggregation of information gleaned from working with organizations like Photonics 21, the European Photonics Industry Consortium (EPIC), the Optoelectronics Industry and Technology Development Association (OITDA) in Japan, and the Academy of Opto-Electronics (Chinese Academy of Sciences) in China.

While showing some signs of slowing, economic growth in China is still a significant driver for the photonics industry, and suppliers report to SPIE that they are experiencing continuing strong sales of equipment and supplies. Other regions of Asia continue to benefit from the seemingly insatiable world appetite for the latest consumer products like smart phones, flat screen displays, fuel-efficient cars, and LED lighting, all of which rely on photonics in their manufacturing.

A key photonics component is the laser, and last year, aggregate global laser sales reached $7 billion for the first time ever, according to Laser Focus World. Not only was 2011 a record-breaking year, but it also extended the rapid sales recovery that started after the 2009 recession.

On a broader front, one can infer from both anecdotal and available quantitative measures that overall photonics revenues also saw a robust 2011, up about 7% according to SPIE internal estimates. This was driven by strength in hot — and relatively independent — markets like high-brightness LEDs for lighting, image sensors for digital cameras, and displays.

It is this diversity of photonics-enabled applications and the underlying technologies that has generally buoyed the industry through business downturns or at least mitigated some of the impact. Photonics is used in so many different market segments, and each segment exhibits its own dynamics. Factors like U.S. Federal Drug Administration regulations and procedures, for instance, can influence medical and life-science markets but may have no bearing on military applications. Subsidies that have driven uptake of solar technologies in key markets like Germany have no relevance to other areas of photonics.

In addition, underlying the industry’s overall revenue growth are multiple diverse technologies that are continually advancing. From more efficient lasers to improved imaging systems, photonics advances can catalyze novel approaches to existing applications or create brand new market opportunities — and in so doing generate increased revenues for the industry.

To pick just one example, 15.43 million iPads were sold during the first quarter of 2012, each built with laser-patterned chips, multiple laser-based processes, and optical metrology.

Such diversities then beg the question: Is there, in fact, a single homogeneous photonics market?

While the answer is technically no, there are certainly markets for what photonics enables. And, underlying every photonics-enabled application are one or more photonic components. So it is potentially useful to consider the totality of the photonics business by examining individual product and market segments and aggregating them to assess their impact on the underlying economic ecosystem.

There are many ways to segment the photonics business, both in terms of applications (such as defense and security) and products (such as lasers and LEDs). They all overlap to varying degrees, but it’s generally more convenient to consider them separately.

It’s also typically more practical to look at products instead of applications since photonics companies mostly report sales in terms of products shipped.

In sales revenues, displays and solar cells dwarf all other photonics product segments. Displays alone account for more than half of all global photonics revenues.

In revenue terms, display sales, which are cyclical and sensitive to consumer demands and business spending, have seen gradual gains for several years, and the popularity of iPads combined with other mobile devices like smartphones will likely maintain moderate growth in this sector.

Unlike the display segment, sales of solar cells and panels have grown significantly in the recent past, from annual revenues of a few billion dollars to tens of billions. Solar is currently the second-largest photonics segment by sales, representing about 15% of all photonics revenues.

However, market demand has been strongly influenced by national and local government incentives around the globe. As such, solar revenue growth came with wild swings in demand and supply.

In 2011, as total solar output grew in terms of watts of generating capacity, unit prices fell as much as 50% with the result that many companies went out of business. Given the current global economic situation, it’s hard to predict the future of government subsidies. As a result, this segment could continue to see significant volatility.

Other individual product segments are much smaller than the displays and solar segments and include LEDs (~$12 billion US), image sensor arrays (~$8.5 billion US), and lasers (~$7 billion US) in 2011. All have been characterized to varying degrees by different market researchers.

Right now LEDs are hot because they are poised to enter the general commercial lighting market, which is the reason they are included in China’s latest Five-Year Plan.

 LEDs are poised to enter the general commercial lighting market.
Courtesy Synopsys, Optical Solutions Group

Like so many of the photonics segments, both image sensors and lasers are highly fragmented. While image-sensor sales are growing overall, most are currently low-margin and sold for camera phones.

At the high end, though, there are many specialized and high-margin devices, including infrared focal-plane arrays and x-ray imagers for radiography.

In the laser segment, diode devices sold for CD and DVD pickups and laser pointers are at one end of the spectrum, with kilowatt-class systems for industry and the military at the other.

So what does all this add up to?

According to a recent market review commissioned by SPIE, the total market for photonics products (i.e., mostly active components) in 2011 was about $185 billion US.

Given the diversity of photonics and the strong potential for growth in some segments like LEDs, combined with at least flat performance in others, the outlook for 2012 is for continued moderate growth of around 4-5%.

And later this year we can anticipate some new commentary on photonics and its global impact with publication of the eagerly awaited revision to the 1998 “Harnessing Light” report from the National Academies. You can follow these developments at spie.org.

 

— Photonics industry expert Stephen Anderson is industry and market strategist for SPIE. He is a former editor-in-chief of Laser Focus World.

Changes in U.S. military needs could mean new opportunities for photonics companies, especially in the area of IR sensing technologies.

Panelists at a government funding session at SPIE Defense, Security, and Sensing (DSS) in April said companies developing new sensing devices and technologies for improving image resolution for soldiers would find a welcome audience among U.S. defense agencies.

New and stringent requirements for modern asymmetric warfare are “good for business,” according to A. Fenner Milton of the U.S. Army Research, Development and Engineering Command. Milton, who received the 2010 SPIE DSS Lifetime Achievement Award, is a program committee member for the SPIE Infrared Technology and Applications conference at DSS.

“The nature of intelligence and surveillance, our ‘mission pull,’” added Brent Appleby of DARPA, “now involves looking for people rather than objects and for things that are well hidden.” But current sensor technology tends to be better at seeing objects rather than people, which limits effectiveness, Appleby said.

For more information, see Bringing new IR sensors to market.

Osram has plans to build a new assembly plant in the Chinese province of Jiangsu.

LED chips will be packaged in housings at the new backend facility expected to be opened in Wuxi, near Shanghai, in late 2013, with the Regensburg and Penang (frontend) plants exclusively continuing to make the actual LED chips.

The new plant will enable Osram to capitalize on China’s fast-growing market and support its two plants in Germany and Malaysia.

IMS Research has predicted strong growth for opto semiconductors such as LED components and laser diodes with average growth rates of around 5% worldwide in the coming years. The fastest growth is expected to come in China during the same period, with an average growth rate of 10%.

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