Visibility remains elusive

30 Dec 2009

Photonics vendors continue to hope for a favourable combination of external factors to lift the economic gloom

Photonics companies keen to begin 2010 with evidence that they have survived the worst of the recession are going to have to read between the lines. Sixty-one percent of vendors surveyed in the final quarterly review of 2009 from Longbow Research, Ohio, reported weaker year-on-year demand – an improvement of sorts over the 62% which had said the same in the previous quarter.

"Activity has picked up slightly, and some vendors remain optimistic about an industrial recovery in the second half of 2010 as production rebounds from the severe contraction caused by shutdowns and inventory liquidations," Mark Douglass of Longbow told optics.org.

But with industrial markets reportedly down by 20–40% overall since the far-off days of 2008, the damage will not heal easily. "We expect laser sales to lag well behind any increase in industrial activity," noted Douglass. "Capacity utilization remains low, and the sales process can take as long as three or four quarters to complete for large, high-power lasers."

In the optical components sector, 87% of suppliers now view 2010 positively, believing that restocking and incremental spending in niche markets will drive business. Laser OEMs, lacking that luxury, recognize that bank lending will need to reappear in the market before there is any significant recovery.

"Bank lending may not be the primary difficulty the OEMs face, but it certainly looms large," said Douglass. "Another big hurdle is industrial capacity. Even if credit was readily available, with industrial capacity at recessionary levels there is little incentive for businesses to purchase new equipment. Any efficiency gains will probably take years to appear."

Things continue to look brightest in medical and defence applications, which are propping up some optics suppliers. "These sectors are less susceptible to the winds of the general economy," noted Douglass. "People are willing to cut back in many areas, but not generally in health care. And in the defence sector the monies have already been committed, and usually don't get cut off just because a recession develops."

In addition to domestic issues, competition from emerging economies is a factor that looms large, although whether for good or ill depends on the perspective. Export markets and the level of the US dollar have certainly helped some suppliers to remain afloat. On the other hand, the Chinese government's continuing investment of significant sums into photonics is a worry for many US-based developers.

As Douglass noted, although prices of optical components have held relatively firm, the surest sign of continuing strife is that vendors of laser sources felt compelled to lower their prices yet further in the final quarter of 2009: "OEMs are still cutting prices, although it now tends to be year-on-year cuts, not necessarily sequentially. At this point any volume is better than nothing, and any machine going out the door, whether profitable or not, at least helps keep the lights on."