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Food chains essential for European photonics

01 Oct 2008

Have you ever stopped to think about the factors that have shaped the structure of the European photonics market? Nadya Anscombe asks Arnold Mayer and Alastair Wilson about how the sector can learn from its past mistakes and which markets will shape its future.

The European photonics industry has in the past been poor at benefiting from its own inventions. So many times products that were invented or developed in Europe end up making profits or creating employment for companies outside of Europe. The flat-panel display industry is a classic example. Liquid crystals were a European invention but today only a tiny proportion of the world's flat-panel displays are made in Europe.

The origin of this situation can be traced back in history to the 1970s when much of the manufacturing of consumer electronics was shifted to low-wage countries. This is because at that time, the manufacture of consumer electronics was a low-tech business. Today, the manufacturing of consumer electronics is a very high-tech business but the location of the manufacturing has not changed. Europe now stands very little chance of reversing this situation and has therefore lost out on what is by far the largest sector of the global photonics industry.

"The problem is that the whole industrial food chain for flat-panel displays has disappeared," said Arnold Mayer of Optech Consulting and author of the report called Photonics in Europe – Economic Impact. "Today, if someone in Europe has a bright idea for a new display product, the chances of mass manufacturing it in Europe are nearly zero," he said. His report cites flat-panel displays and information technology (such as digital cameras and optical disc drives) as the two weakest areas in the European photonics industry. His research has shown that Europe has a healthy 19% share of the world photonics market (based on production), ahead of the US with 15%. In some areas, such as production technology and optical components and systems, Europe has a 40% share of the world market. But in flat-panel displays and information technology, its share is below 10%. "This situation is beyond rescue," said Mayer. "Because most of the value and technology chain has gone, the industry stands no chance of recovery in the short to medium term."

The great EUV hope
In another area, however, there is hope. There is currently no lithography excimer laser production in Europe despite the fact that European companies are world leaders in production technology such as optical lithography. However, unlike in the displays industry, Europe does stand a very good chance of benefiting from the next generation of technology – extreme ultraviolet sources. This optimism is based on the fact that the complete industrial food chain for this technology still exists in Europe.

Unlike consumer electronics, it was not financially viable for European companies to shift the assembly of wafer steppers and lasers for machining into Asia and therefore production still takes place in Europe. Research is at the start of the food chain and excellent research is carried out in this area in several universities and institutes; companies such as Philips Extreme UV exist to commercialize the technology and manufacture components and systems; Europe is home to world-leading optics manufacturer Carl Zeiss and stepper manufacturer ASML who can perform system integration; and, to finish off the value chain, the technology even has customers in Europe – the semiconductor industry.

"Having essential parts of the value and technology chain in Europe greatly enhances the chance of long-term success for the European industry," said Mayer. "This includes research, design, development, component manufacture, system integration and customers. This whole chain will probably never exist entirely in one country, so engineers from several countries will need to work together to make it happen. So many times I hear the questions: 'How can we become the number one in Europe?' and 'How do we beat Germany when it holds a near 40% share in European photonics manufacturing?'. But while competition is an excellent driver, co-operation along the food chain offers important potential for the photonics industry in Europe."

Solar potential
Solar cell technology is another example where Europe can defend or increase its market share. According to the Photonics in Europe report, Europe holds a healthy 28% in the world production of solar cells and a 37% share in the production of panels. Germany dominates the European scene with a 57% share of the combined cell and panel market. The country is also home to the world's largest manufacturer of solar cells, Q-Cell, and has the largest demand for solar cells worldwide.

"There is a chance that we can defend our market share but investment is needed," said Mayer. "There is a trend to larger fabrication facilities and countries like China will benefit from economies of scale."

Today 90% of the world's solar cells are based on crystalline silicon technology, but Europe is strong in the emerging technologies such as organic cells and thin-film technology. "Europe combines strong technology resources with a healthy market share in the whole value chain from materials and manufacturing equipment to solar panels, and the chances are excellent that Europe can play a significant role in the future of photovoltaics," said Mayer.

He believes that one reason why the solar energy industry in Europe is so healthy is that it is not purely a photonics technology but also part of a growing environmental technology industry. "Solar cell technology was never going to be ignored by the European Commission because it fits into its environmental theme," said Mayer. "This means that it benefits from a concerted and organized system of funding. Until recently, this did not exist for the photonics industry and it is the photonics areas that do not overlap with other industries that have suffered."

The importance of organizations
Photonics has now been recognized by the European Commission as an industry in its own right for about three years and the industry is now starting to feel the effects of this recognition. Not only does the EC now have a Photonics Unit, it has also given photonics a prominent position in the 7th Framework Programme. Some €90 m have been allocated to funding of the basic photonics technologies in the 2007–2008 period alone and it is expected that this level will increase over the lifetime of the programme.

The Photonics21 initiative (see OLE September p26) is also playing an important role in bringing together industry and academia and defining research, technology and development priorities. Until recently, Photonics21 was run on a voluntary basis but in August the FP7 coordination and support action Photonics Research Coordination Europe (Phorce21) stepped in to support Photonics21. It is hoped that this additional support will increase the impact that Photonics21 can make on the European photonics industry.

Alastair Wilson, director of the Photonics Knowledge Transfer Network in the UK, believes that organizations such as Photonics21 are important and can make a real difference. "I believe strongly in the importance of associations," he said. "I helped to set up Europe's first ever optoelectronics association – the Scottish Optoelectronics Association – and Europe has long needed a pan-European organization such as Photonics21. At last Europe has one voice and can communicate with organizations such as the Optoelectronic Industry Development Association (OIDA) in the US and the Optoelectronic Industry Technology and Development Association (OITDA) in Japan."

He agrees with Arnold Mayer about the importance of ensuring that the industrial food chain for a technology stays in Europe. However, he is a little more optimistic when it comes to the displays sector. "Whether or not next-generation displays will be made in Europe will depend on the manufacturing processes that will be used," he said. "If, for example, organic LED displays are made using printing technology, and not the conventional flat-panel display manufacturing processes, Europe stands a good chance of leading in this sector."

He also points out that, while devices such as digital cameras may not be made in Europe, much of the design takes place here. This contribution to the IT market is more difficult to measure than production value, and so does not show up in market reports such as Mayer's. "It is often European companies that design the image sensor chip whereas the cameras are manufactured in Asia," he said. "We have to be realistic: Europe is not the best place to do production if there is manual labour involved. But Europe can and should get a good market share in the value-added components such as the image chips in digital cameras."

There is even hope, says Wilson, in the optical networking sector. For optical communications systems and components, revenues from Europe-based manufacturing plants are estimated at €3.0 bn – a quarter of the worldwide production volume. "A lot is going to be happening in the coming years in the area of optical communications," said Wilson. "The backbone of our networks is now optical but most households still have copper wire going to the home. European companies are leading the way when it comes to next-generation access or fibre-to-the-home. Europe is well-placed in this area with some important companies, such as Alcatel, Ericsson and Nokia-Siemens."

So if Europe wants to hold onto its currently healthy share of the global photonics market, it needs to invest in next-generation technologies in a coordinated, pan-European effort. With sales revenues of more than €49 bn, the optical technology sector has already caught up with the microelectronic industry and will move ahead of it in the coming years, according to Mayer's figures. At present the industry has 246,000 employees (not including subcontractors) on its payroll in Europe and more than 5000 companies involved in manufacturing photonics, most of them small- to medium-sized companies.

You can download the Photonics in Europe – Economic Impact report by visiting www.photonics21.org.

• This article originally appeared in the October 2008 issue of Optics & Laser Europe magazine.

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