Spectra-Physics rides out the telecoms storm

17 Jun 2002

Spectra-Physics's president and chief executive Patrick Edsell tells Michael Hatcher about a year of two halves at the pioneering laser company.

From Opto & Laser Europe December 2001

Patrick Edsell

In 1961 Spectra-Physics, US, became the first firm to sell lasers. Its 40th birthday came amid faltering economic conditions and a plunge in demand for telecoms equipment.This year has been a bit schizophrenic. Clearly the economy in the US has weakened in 2001, and we've begun to see cracks in both Europe and Japan. However, our base business has performed almost as we had planned, and, given this economic environment, we feel pretty good about that.

Of our five base markets, all except computer and microelectronics manufacturing have performed at, or above, expectations. In the medical market we've seen strength in both diagnostic and cosmetic applications. Image recording has also held up well because of the shift from film- and halide-based systems to carbon-based plates and computer-to-plate printing.

In industrial manufacturing there has been a fundamental technology shift from carbon dioxide and arc-lamp-pumped devices to diode-pumped high-power lasers. That market has held firm, and the research and development sector has been incredibly strong, experiencing about 20% growth.

So that's the good news. Then we have computers and microelectronics manufacturing, which has been down by about 30% this year. And then there is telecoms. We had a tremendous updraught in 1999 and 2000, but now we're in a nuclear winter.

Overall, [the good and the bad] balance out and our revenues will be up by 10-15% on last year. In general, I think that the laser industry will do better than most high-tech industries. In the bad times, we won't do quite as badly as other sectors, and in the good times we'll do better. It's an excellent time to be a broad-based laser firm, especially if you're a world leader like we are.Last year, the telecoms business made up less than 5% of our sales. But if you want to play in the telecoms market, you do have to invest a lot of money. It's a big market and it moves fast. If you're going to be a real player, you can't just stick a toe in, you have to jump in with both feet. So we invested a lot of money in that area, but we haven't seen the kinds of returns that we expected.

We were ramping up like everybody else. In December 2000 we started shipping narrowband filters to a large customer, and early this year we shipped a lot of lithium niobate components. Then it all stopped. We expected sales worth USD 40 million this year, but we will actually achieve USD 10 million. Anyone that says they know what's going to happen next is, as far as I'm concerned, smoking something.Quite frankly, had we been earlier, we'd have made a much bigger investment that wouldn't have produced good returns. We clearly have issues, but we're not going to have to write off USD 45 billion of investment like JDS Uniphase, US. A year ago I would have said yes we were a little bit late, and that's not good. But now I think that maybe our timing wasn't so bad.

Some of the areas in which people were investing a lot of money a year ago look like they'll never recover. At least we're now in a position to re-evaluate our investment and see where we want to place our bets.

Just 12 months ago everybody was adding capacity for passive components. There was a USD 800 million market just for thin-film filters. Now it's a USD 300 million market that is projected to be flat for the foreseeable future, but there is capacity out there for a billion dollars' worth of sales.We think that, next year, carriers will light dark fibre with tunable lasers. While we don't make tunable lasers, we do make etalons and wavelockers, which tunable lasers must have. So we're going to focus on tunability with our passive components.

On the active side, a year ago everybody was talking about amplifiers. In Raman amplification there was a battle between singlemode and multimode lasers. Singlemode lasers won because their powers were higher, but the delay in the market has helped our multimode sources become competitive with singlemode diodes.

People also have a clearer view of the metro market now, and, fundamentally, we still believe that the telecoms market is going to be a big one for lasers and optics firms. It will probably not get back to the superheated growth that we saw in 1999-2000, but once the excesses get shaken out, the market is likely to experience 15-25% growth, which is good - a lot more sane, and easier to make prudent investments in.The area that we're really pushing is ultraviolet diode-pumped solid-state (DPSS) lasers. We have three kinds: Q-switched, ultrafast and continuous wave. We've been a world leader in ultrafast and Q-switched devices, and [buying] Laser Analytical Systems, Germany, filled in the hole that we had in continuous-wave DPSS lasers.

We see big opportunities for all of these. Diode-pumped ultrafast lasers are the holy grail. Once their power is high enough it will be very interesting for the industrial customers. We have been able to achieve this in the last couple of years, so I think that there are tremendous growth opportunities in that area.They range across the board. In computers and microelectronics, it's things like via hole drilling and PC-board direct writing. For ultrafast lasers there will be medical applications, because the pulses are so short, they don't create any heat. There's two-photon microscopy, wafer-inspection applications, laser ultrasonics and PC-board direct imaging.

For continuous-wave lasers it is fibre Bragg gratings and wafer inspection: for smaller feature sizes, you need ultraviolet light to do the inspection. For Q-switched devices there's via hole drilling, PC-board structuring and resistor trimming.When computer and electronics manufacturing makes a comeback towards the second half of next year, that market is going to take off. There's a shift to 300 mm wafers, from aluminium to copper, and some new dielectrics. So companies are going to need a lot of new lasers to do the things that they were doing in the past.

We don't expect huge growth next year. If our non-telecoms business grows by 10-15%, that would be great in the current climate. Hopefully we'll see much higher growth in 2003 as the computer and microelectronics market comes back strongly. We don't expect to see telecoms coming back until 2003.We're a technology firm, so we need to be a leader in technology. One of the strengths of Spectra-Physics is its market power. When you say lasers, people think of Spectra-Physics. The only way to maintain this is to be at the forefront of technology and to focus on meeting our customers' needs. Some successful companies get arrogant, and they think that they know more than their customers do. The key is to ensure that we don't make those mistakes. If we focus on our customers and their needs, and drive at technology, then we'll be fine.This is an exciting industry. For a long time, we've been an answer in search of a question. With our new technology we have found the question. The future is going be tremendously exciting.