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Innovation is the secret of success

12 Jun 2009

Thomas Kessler, vice-president of European operations at Edmund Optics, talks to Joe McEntee about crisis management during the downturn and the priorities for the optics industry when growth returns.

What's your take on the prospects for the optics market in 2009/10?
Optical components are used in a large number of applications, which means that vendors have the advantage of participating in many different markets that exhibit diverse behaviours. Many aspects of the global optics market are down, of course, but others are growing.

In the semiconductor industry, for example, sales of optical metrology equipment, sensors, lasers and high-precision alignment systems have been badly hit by the downturn. The semiconductor sector may not recover in the short term and optics vendors along the food chain will inevitably suffer. The same effect can be seen in the automotive industry, with severe overcapacities among parts manufacturers and their machine vendors, including suppliers of laser systems, sensors and video observation hardware.

R&D in the big national institutes and universities has not been hit as hard by the financial crisis owing to strong government funding. However, it is expected that even this market will be squeezed through 2009/10.

Where are the silver linings amongst the clouds?
Biotech is showing strong growth, especially in Europe, and demand for high-quality optical components is still increasing in this sector. That said, many biotech applications lack maturity and it remains to be seen whether they turn into volume markets for optical components. Related biomedical markets are also doing well and profiting from increased awareness and funding.

The photovoltaics industry represents another big hope for optics vendors, though growth rates in this sector have slowed of late. With almost every optical player trying to enter the market, competitiveness on quality and efficiency will be decisive.

What are the priorities for optics companies as they struggle to navigate the downturn?
Top-quality service and a consistent market approach are key to survival right now. Pressure on our customers to reduce their costs is leading to reductions in inventory and working capital. This means that optics companies must offer better availability of products with short lead times and prompt follow-up on RFQs.

Companies are also asking their suppliers to revisit earlier quotations and market pricing, but at the same time everyone is looking for reliable partners who will still be around when a qualified product enters the larger-volume production stage. Consolidation is expected and will happen. An established and solid business position is therefore crucial for survival.

Clearly the focus for tech companies shouldn't just be crisis management, so how do optics vendors ensure they are optimally positioned for the upturn when it arrives?
The "innovate or die" mantra holds as true today as it does in better market conditions, but this is not the time for 10-year business plans. Instead the focus is on short-term successes in product development and incremental technology advances.

Further, a well equipped inventory and appropriate investments in manufacturing can help savvy vendors position themselves ahead of the competition when conditions improve. At Edmund Optics, for example, we recently acquired full ownership of Saito Optics in Japan, a move that increases our own manufacturing capacity of spherical lenses in one of the most important optics markets. We are also making investments in our filter-coating and aspherical-lens capabilities.

The current downturn is projected to be long and deep. What permanent changes will this mean for the optics industry?
Here are some headline themes. Consolidation is inevitable. Spending on risky developments and basic research will be limited until 2011. Some of the larger component makers are likely to be split into smaller divisions with tightly defined target markets.

But even in a downturn, there are opportunities for flexible, innovative and service-oriented companies in attractive niche markets. Consequently, optical components markets are likely to be dominated by small to mid-size companies with business models that are not focused on satisfying short-term shareholder goals.

What challenges and opportunities does Europe present for optics companies looking to grow their business?
In my view, it's not possible for vendors to address Europe, as a whole, from one country. A team that combines several nationalities with representation in the established and emerging economies is essential for success. At the same time, the complex and non-uniform structure of Europe not only requires an open mind and cultural flexibility, but also a detailed knowledge of the various laws and trading regulations, even inside the European Union. Edmund Optics, with representation in the UK, Germany, France and Italy, is committed to further expanding its service team in Europe, even through the current downturn.

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