Annual Laser Market Review & Forecast: Lasers enabling lasers
Let’s cut to the chase: the key drivers for the laser market in 2017 were consumer electronics devices and China, and the biggest winners on the technology side were fiber lasers, light detection and ranging (lidar) lasers, and vertical-cavity surface-emitting lasers (VCSELs). These trends resulted in record profits for equipment providers in laser materials processing and semiconductor manufacturing, and many of the suppliers of lasers and photonics devices to these manufacturers. In short, lasers are playing a key role in speeding the fabrication of the semiconductor wafers and consumer appliances that are hungry for yet more lasers. And while industry consolidation continues, with most deals aimed at cherry-picking key enabling technologies, the pace eased in 2017 after 2016’s monster year of mergers and acquisitions.1
That said, it should come as no surprise that 2017 was a great year for the laser industry. Our numbers show that the estimated worldwide laser revenue for 2017 was up 18.1% over 2016, driven in large part by the materials processing sector, where laser revenues jumped more than 26% year-over-year—fiber lasers alone for materials processing were up a staggering 34%. We do see 2017, however, as an aberration, and expect laser sales growth to return to more moderate growth for 2018 as capital equipment spending cools2 for certain materials processing laser systems.
Judging by the robust 2017 laser sales numbers, Industry 4.0 and Internet of Things have become more than just buzzwords. The Integrated Photonic Systems Roadmap,3 for example, released in March 2017 by the American Institute for Manufacturing Integrated Photonics, anticipates IoT applications to have a particularly large impact in this market. And Industry 4.0 opportunities4 continue to emerge—in 2017, Trumpf (Ditzingen, Germany) opened its smart factory5 in Chicago, with an emphasis on digitally connected production solutions for the sheet metal process chain, and the VDW (German Machine Tool Builders’ Association) introduced an initiative for networked production.
Consider these four bellwether laser manufacturers, all of which performed well beyond expectations in 2017 with $1 billion or more in sales as well as significant year-over-year growth and corresponding stock price jumps:
Coherent (Santa Clara, CA): To say this company had a banner year is an understatement. Coherent reported6 net sales of $490.3 million and net income of $73.8 million for the fourth quarter of FY2017, nearly double its net sales of $248.5 million and net income of $30.8 million for the fourth quarter of FY2016. Net sales for the year were $1.7 billion, up from $857 million in FY2016; net income was $209 million, compared to $88 million the previous fiscal year. Coherent CEO John Ambroseo credited these impressive numbers to microelectronics orders, specifically sustained strength in OLED [organic light-emitting diode] deployment and service and a modest rebound in advanced packaging; materials processing orders from the Rofin acquisition and organic growth; stronger OEM instrumentation sales in the diagnostic and therapeutic space; and growth in the aerospace and defense market.
Han’s Laser (Shenzhen, China): With reported sales7 of RMB 3.1 billion ($452 million) in the first half of 2016 and growing 22.7% year over year, Han’s Laser is expected to reach the billion-dollar mark in 2017. Drivers behind this growth include their acquisition of Canadian fiber provider CorActive HighTech, further solidifying their expertise in fiber laser technology. According to a report8 released in March 2017 by Research in China, of the total worldwide 2016 industrial-laser market (estimated at $3.16 billion), China’s share is more than 17%. And this pattern is expected to continue, according to the report, with China’s share of the global industrial laser market topping 20% in five years.
IPG Photonics (Oxford, MA): This fiber-laser manufacturer’s third quarter revenues of $392.6 million represented a 48% year-over-year increase, pushing its nine-month revenues over $1 billion, up from $726 million in the same quarter in 2016. The bulk of this came from materials processing, with sales increasing 52% year-over-year—key markets here were cutting, welding, and 3D printing applications. Based on its third-quarter performance, the company is anticipating 37–39% revenue growth for the full year—its strongest annual revenue growth in six years, according to CEO Valentin Gapontsev. Not surprisingly, the company’s stock price more than doubled between January and November 2017, from $92/share to more than $200/share.
Trumpf: The Trumpf Group also saw a significant uptick in its 2016/2017 financials, with pre-tax profits up 11.3% to nearly $398 million and sales up 10.8% to a record-breaking $3.6 billion. The company attributes the upturn in sales to the strong global economy, noting that “political developments worldwide have had little impact so far on business in Europe, Asia, and the Americas.” However, CEO Nicola Leibinger-Kammüller remains cautious: “The prevailing strength of the global economy has been outweighing potential impediments to investing: pledges of protectionist measures, the Chinese government’s approaches to disseminating information, and the UK’s exit negotiations with the European Union,” she said in the company’s October 19, 2017 financials announcement.9 “All the same, we do forecast clouds over the investment landscape in the medium term.”
Much of 2017’s growth can be attributed to the increasing use of lasers and optics in consumer devices, and the manufacture of those devices. For example, assembling an iPhone (or pretty much any smartphone) involves a dozen or more laser-based processes, including cutting glass, engraving parts, and drilling circuit boards.
The iPhone X is also the first iPhone (although not the first smartphone) to feature an organic light-emitting diode (OLED) display, which has Coherent—a major provider of excimer lasers used in the fabrication of these displays—eagerly anticipating “unprecedented demand”10 going forward. The OLED Association agrees,11 projecting OLED smartphone penetration to increase from 20.5% in 2016 to 25.3% in 2017, which translates into around 308 million smartphone OLED displays in 2016 and 410 million in 2017.
In addition, many smartphones—including the iPhone 8—contain VCSELs for 3D sensing and ranging applications, which has become a major driver in the growing sales of these lasers.12 In fact, while VCSELs have been used in many applications outside of smartphones—such as data communications, computer mice and automotive lidar systems—smartphones represent a major new opportunity.
“It is safe to say that 2017 became the year that VCSELs broke out, driven by consumer applications,” said John Dexheimer, president of LightWave Advisors [Westport, CT]. “They are the driver for the 3D imaging systems for Apple, Samsung, and everyone else making smartphones.” Indeed, Philips Photonics’ (Ulm, Germany) late-2017 completion of a $27 million project to scale up VCSEL production13 capabilities is an indicator that this market is taking off.
The iPhone 8 is also notable for its purported face recognition capabilities, which is expected to be a boon for the mobile depth sensing market—another application that involves VCSELs.
Revenues of 3D camera modules are forecast to reach $6 billion in 2022,14 while the opportunities for the lens and illumination components are expected to reach $1.8 billion and $400 million, respectively. In November, Lumentum(Milpitas, CA),15 which supplies many of the VCSELs used in the iPhone, announced revenues of $243 million for its first quarter, driven primarily by a ramp-up in its 3D sensing business. And with Apple’s new iPhone X and its Face ID feature—based around a VCSEL array projector—it is telling that ams (Premstaetten, Austria) recently became the latest company to reveal plans for a major ramp-up in VCSEL device production,16 following its acquisition of Princeton Optronics (Mercerville, NJ) earlier this year.17
LASER UBIQUITY REDUX
While these numbers are impressive, they represent the tip of the iceberg for lasers in the consumer space. It’s been said before, but it’s worth saying again: lasers are increasingly ubiquitous in our everyday lives, to the point where we often don’t realize it. From our daily communications and the design of the products18 we buy to our cars, our homes, our medical care, the grocery store, the golf course
,19 a nearby apple orchard20 … they are seemingly everywhere and yet, in many cases, you wouldn’t know they exist.
In addition to VCSELs, one of the emerging frontrunners in the consumer space for lasers is lidar,21 a market that is projected to double in size22 over the next five years, primarily because of a single emerging application: self-driving vehicles. Lidar has been used for years for rangefinders, aerial mapping, 3D scanning of objects and spaces, and aerosol velocity monitoring. But autonomous vehicles are expected to turn this multi-billion-dollar market into a multi-trillion-dollar market, with lidar sensors for these vehicles accounting for a larger share of the market than all other lidar applications combined, according to Austin Russell, CEO of start-up lidar company Luminar (Denver, CO).
In an increasingly competitive space23 (note the acquisition of Princeton Lightwave24 by Ford’s AI unit and General Motors’ purchase of lidar maker Strobe25), Luminar believes its single-laser (1550 nm), single-receiver (InGaAs) lidar sensor, designed and built from the ground up specifically for autonomous vehicles, could be a game-changer. The company is partnering with four autonomous vehicle development programs, including the Toyota Research Institute,26 and is leveraging fab infrastructure originally developed for telecommunications lasers to more quickly scale up mass production of its sensors. At the end of 2017, Luminar was set to begin a 10,000-unit run out of its 70,000-sq-ft. Orlando, FL facility—an unprecedented number compared to conventional lidar sensor production.
Looking ahead, two other emerging application areas are worth keeping an eye on: quantum technologies and augmented reality/virtual reality (AR/VR) applications. In the quantum space, two key initiatives were announced in 2017: the QUTEGA optical single-ion clock project27 led by Toptica Photonics (Munich, Germany) (lasers are seen as a better alternative for cooling atomic clocks), and a $250 million investment by the UK government28 to convert quantum-physics research into commercial products, with a focus on chip-scale atomic clocks for improved GPS communication, quantum-enabled sensors, quantum communications, and quantum computing.
And AR/VR is expected to benefit from substantial investment over the next few years—according to IDC,29 total spending on AR/VR is projected to grow from $11.4 billion in 2017 to more than $200 billion in 2021. While this is should have primary significance30 for photonic crystals, optoelectronics, and diffractive optics, it could also boost the use of laser materials processing equipment for these products and fuel the integration of more lasers into AR/VR headsets for eye tracking31 and projection32 applications—again, lasers enabling yet more lasers.
LASER MARKET SEGMENTS
For the first time in our annual laser report, pure industrial laser sales (excluding lithography lasers) topped communications and optical storage laser sales. Telecom grew in accordance with bandwidth demand, while experiencing a short-term revenue drop in late 2017—a trend not expected to repeat in 2018. All other laser segments experienced growth, especially lasers for aesthetic medical and emerging surgical applications.
MATERIALS PROCESSING AND LITHOGRAPHY
In spite of the political, cultural, and social news bombarding us in 2017, it was a mostly quiet economic year with healthy growth almost slipping by unnoticed. In a nutshell, the world’s leading economies turned in a better-than-expected growth rate in 2017, and 2018 is expected to continue this trend. As Bloomberg Businessweek put it in a special issue33 on the year ahead, “The world economy should grow nicely again in 2018. Unless someone does something dumb.” This sums it up, allowing us to focus in on the world markets for industrial laser material processing.
Industrial laser activity experienced another growth year led by strong double-digit sales of high-power fiber lasers, a surge in excimer laser revenues led by laser processing of silicon of displays, and significant increases for ultrafast pulse lasers. This growth came at the expense of CO2 laser sales (down 14%) while solid-state (disk) spurted to an 18% growth. High-power direct diode and excimer lasers in the ‘Other’ category gained 56%, with excimer lasers continuing strong short-term gains based on their use in smartphone processing applications.