European study says only the big photonics players will survive

ZURICH, Dec. 27, 2002 — Only 15 percent of Europe’s more than 100 optical components suppliers, many of which are small tech firms, will survive in the medium term, according to research from Yole Developpement.

The Lyon, France-based research firm polled and profiled some 90 European optical components companies for its newest study. It concluded that the sector is facing rapid consolidation.

“What promised two years ago to be a killer application for MEMS and MOEMS manufacturers has turned into a “killed” application,” said Eric Mounier, the study’s lead author. There are many “me too” companies and startups with only one product on the market.

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Other industry observers agree. “Too much money went into fiber optic application oriented firms,” said Antonio Oro of IDEA Consulting, a Zurich based optical investment firm.

More than $150 million was invested in privately owned firms in 2000, including Core Optics in Germany, ThreeFive Photonics in the Netherlands, Blaze Photonics and Intense Photonics in the United Kingdom, each of which raised early rounds of about $8 million on average.

Only the big players in photonics will survive, according to Mounier. He specifically mentioned Intel Corp., active in the sector since early 2002; JDS Uniphase, emerging strong from a period of restructuring; and Bookham Technologies, a U.K. university spinoff-turned-fast-growing-acquirer.

The investment wave enabled MEMS to emerge as a key technology for the next generation of optical telecommunications equipment suppliers, Mounier said. Engineers and scientists figured out how to put functions like switching, attenuating or tenability onto a semiconductor platform using small tech methods.

Despite the desperate situation in telecommunications, Oro and Mounier are both quick to point out that there is great growth in other areas of the optical MEMS industry. Optics is all around us, Oro said, referring to developments like traffic light LEDs that cut through surface glare and fog, or endoscopic surgical tools and lasers for cosmetic surgery. Those who can exploit existing “conventional” markets — automotive, IT or medical — according to Mounier, have opportunities for growth.

The notion that MEMS has significant potential even without fiber optics applications is backed by a recently published report from In-Stat/MDR, an Arizona-based firm. “Despite tough economic conditions overall, the market for Micro Electro Mechanical Systems (MEMS) is growing,” says a report by In-Stat/MDR, written by analyst Marlene Bourne. The market research firm reported that worldwide revenues for MEMS are forecast to grow from $3.9 billion in 2001 to $9.6 billion in 2006.

In-Stat/MDR reported that as the market expands, sensors take a smaller share. In 2001, nonsensor devices comprised nearly a third of total MEMS revenues, whereas by 2006, they will account for almost half.

According to the report, the communications and consumer sectors still see the highest growth based on revenues through 2006, at 151.4 percent and 42.2 percent, respectively. However, the computer market will remain one of the largest revenue-generating segments, moving from second place in 2001, to first place in 2006. These are the kind of growth rates that are attractive to venture capitalists.

Anecdotal evidence suggests there are even some niches delivering growth in telecommunications, namely in testing instrumentation and nonfiber-optic markets. Swiss startup Alpes Lasers, based in Neuchatel, supplies San Diego-based Maxima Corp. with mid-infrared lasers used in free-space-optics (FSO) networking equipment. An FSO link is a wireless broadband technology that is relatively cheap compared to fiber optics. It can be installed at one-tenth the cost and deployed in one day without construction permits, say product vendors.

Geneva-based STMicroelectronics reports growth in its MEMS product range. Some 22 percent of the company’s sales, that is $1.38 billion in 2001, are generated by MEMS products targeted at hard disk manufacturers, optical mouse makers and game controllers. The division is growing at 10 percent a year, according to the latest annual report. Customers include Hewlett-Packard Co., Seagate Technology Inc., Microsoft Corp., and Western Digital Corp.


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