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China slowdown weighs on Coherent outlook

30 Jan 2019

Tariffs, debt and waning consumer confidence reduces visibility in key materials processing market.

Laser giant Coherent says it expects sales to continue slowing, as weak demand in the Chinese market for materials processing equipment weighs on an otherwise steady business environment.

For the quarter ending December 31, the Californian firm has just reported sales of $383.1 million – within the range predicted three months ago but down sharply on a sequential basis, and from the figure of $477.6 million posted a year ago.

CEO John Ambroseo and his executive team say that they expect revenues in the current quarter to drop further, to somewhere between $360 million and $380 million. Given the uncertainty in China from US-imposed tariffs, rising debt and subdued consumer confidence, they are not providing the usual outlook for the year – although prior expectations had suggested a 10 per cent year-on-year slowdown.

“We are currently experiencing a diverse set of market conditions,” summed up Ambroseo in an investor conference call to discuss the latest results. “The materials processing market in China is facing increasing pressure due to a number of factors. The business outside of China is a different story."

He expanded, "The combination of tariffs, rising Chinese consumer debt and eroding Chinese consumer confidence and spending have taken a toll on the Chinese economy. The Chinese government has to strike a delicate balance between reining in debt and providing stimulus, which has been previously effective in driving demand for big-ticket items like autos and appliances.

"In addition to these macro factors, a price war in certain fiber lasers continues to further exacerbate the challenges for the laser industry in China."

Ultrafast solar boost
The CEO added that the crucial flat-panel display (FPD) production sector, where Coherent’s large excimer lasers play a key role in annealing, remained in-line with expectations, with prospects continuing to look very healthy in the long term.

Microelectronics production is also showing solid demand, where new and more efficient solid-state lasers are replacing older legacy systems that have reached the end of their useful life. Coherent also reported an uptick from the solar photovoltaics sector, where new technology is making an impact.

“We booked a record order for ultrafast lasers in thin-film scribing against an incumbent supplier,” said Ambroseo. “The end customer anticipates to further expand capacity over the next four quarters.”

Turning back to the FPD sector, Ambroseo said that Coherent had been surveying the industry to try to establish whether the wider economic slowdown in China would have a negative impact on efforts in the country to set up volume production of organic LED (OLED) panels and challenge the market leader Samsung.

“The answers vary, but most believe the funding will be available when they need it,” he said.

That effort has not gone un-noticed in Korea, added Ambroseo, pointing out the frustration felt after some senior Korean technologists had been employed by Chinese competitors. “As a result, we understand that the Korean government is considering designating the Korean OLED equipment industry as a core technology of Korea.”

If such protective measure do come to pass, the CEO added, it would restrict the ability of Chinese challengers to purchase Korean equipment or to invest in Korean equipment companies.

“There are certain techniques, like lamination, where Korean vendors have a leadership position,” he explained. “Much of the other equipment in an OLED fab can be sourced outside Korea, so an embargo might slow, but would not ultimately stop, Chinese display manufacturers.”

New displays tech
Sticking with the displays theme, Ambroseo noted the recent developments witnessed at the Consumer Electronics Show (CES) in Las Vegas, where LG revealed “rollable” OLED TVs, and Samsung showed off new high-performance modular micro-LED displays.

“Availability of rollable units may come later this year, with a price tag that could exceed $20k,” he predicted, adding that while the image quality and size of Samsung’s micro-LED TVs was impressive, the current cost of that technology was somewhat prohibitive.

“Apparently, you could own one for the price of an average single-family home,” the CEO quipped.

As far as Coherent’s other application sectors are concerned, business remains solid in bioinstrumentation, with strong growth from emerging markets for laser-based flow cytometry equipment.

The company also reported a sharp jump in demand for aerospace and defense applications, thanks largely to spending on laser weapons development in the US.

• Coherent will be among the largest of more than 1200 companies exhibiting at next week’s SPIE Photonics West event in San Francisco, and likely to reveal a plethora of new cutting-edge lasers aimed predominantly at scientific applications.

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