|
Misconceptions of Killer Apps
At market conferences you often hear that struggling optics markets just need a killer app to succeed. (*See below for a definition.) The usual example of such a stimulus is a new and irresistible consumer product, or a feature on the product, such as the built-in camera or 3D face recognition in smartphones. The idea is that an overnight success can kick a static photonics technology into the forward motion of a virtuous cycle. Demand for the killer app will drive volumes up and manufacturing costs down, which allow lower priced products, which open more applications, which feed even greater demand, and so on. It is certainly appealing, but it lacks nuance in the immediate here-and-now, and can sound like desperation.
So-called killer applications may appear to happen suddenly, but rarely do. They take years to develop, and years of investment to get to success. When they do, few companies may be in the position to supply a volume market. Consumer product giants like Apple and Samsung insist on rigorously qualified second sources for components, and they are demanding negotiators. The same is true for automakers.
Note also that killer volumes have to be arithmetically better than the "iso-revenue" line in the figure. The figure maps unit prices and volumes for a fictional product, with the lines showing constant product revenues. If a killer app drives volumes up by 10X and unit prices fall by 10X, the revenues remain the same. In fact, the product may have moved from a low-volume high-profit niche to a cutthroat low-profit segment. To do better, the supplier must expand volumes even more, or negotiate favorable margins. Either way likely means moving to the right of the line as volumes expand.
|
 "Iso-revenue" lines for a fictional product. Source: OIDA (2019).
|
There is a saying that it's better to be a small player in a large market, than to dominate a small market. But the details matter. Stepping through small- to medium-size markets diversify the customer base, bring nice profits, and buy time for suppliers while waiting for the elusive killer app, if it ever comes.
OIDA presented on this topic at the recent AIM members meeting, in San Jose on 17 October 2019.
*Wikipedia (here) defines a killer app as a software program that drives hardware sales. But today any hardware product with the potential to have breakaway sales may be considered a killer app. Current examples could be LIDAR for autonomous vehicles or augmented reality headsets.
Top
Good Standards Versus the Other Kind
It's long been our view that industry standards are a mixed bag: they can be good for expanding markets, but often at the expense of suppliers. Standardizing the product allows customers to play multiple suppliers against each other. This drives down prices, and suppliers' profits.
An industry veteran said at the MIT-AIM IPSR-I Fall 2019 meeting in Boston last month that there are good standards and not-so-good standards. The good kind are ones like the IEEE 802.3 networking protocol, commonly known as Ethernet. It enables inter-connectivity of diverse pieces of equipment, expanding the market from what it might be without a universally-adopted standard. This is particularly apt for networking, and the associated network effect is even quantified in Metcalfe's Law: the value of a network such as the Ethernet increases by the square of the number of connected users. The standard creates an entire ecosystem of compatible products.
MSAs (multi-source agreements) are the not-so-good kind of standards, according to the veteran. MSAs assure the customers that there will be a sufficient set of suppliers for a particular mechanical design. They help suppliers by reducing the number of component variations in the market, which can be expensive to develop and support. The MSA is so closely associated with optical communications components that its Wikipedia entry mentions only optics MSAs.
But is there really a difference between the good kind of standards and the other kind? We may appreciate the Ethernet standard because we all use it, at home and at work. We also appreciate WiFi-protocols and USB form factor connectors in our daily lives and take them for granted. We are the end-users, the main beneficiaries. But optical component suppliers feel the pain with MSAs, because their customers have the greater bargaining power. And it may be that the problem is not the MSAs, but that there are too many of them: ineffective and competing standards are expensive too.
The industry move to co-packaging optics and switch electronics may provide a turnabout in this gamesmanship. Co-packaging is considered necessary to advance the networking performance (i.e., improved bandwidth and power dissipation) in the next generation of hyperscale data centers. The cost to component suppliers to develop the co-packaging solution has been placed at US$ 50 million per supplier, not including the investment in the switch electronics. With stakes that great, suppliers want to be sure that their designs will be useful across multiple customers, and likewise the customers want to be sure there are multiple, healthy suppliers available to provide them. Microsoft and Facebook have founded the Co-Packaged Optics Collaboration for that purpose. (Its home is, appropriately, at a Facebook page, here). But there is talk that the suppliers should lead a standard of their own.
What do you think? The manufacture of integrated photonics in co-packaged devices will be a topic at an upcoming OIDA workshop on Sunday, 8 March 2020, collocated with OFC 2020, in San Diego. Stay tuned for more information. See also the July/August 2019 article in OSA's Optics & Photonics News, which explored the game theory of multi-company arrangements.
Top
The U.S. Presidential Election Three Years Later
At this time three years ago, we sent a special OIDA newsletter analyzing the effect of the U.S. election on the optics and photonics industry. We looked back to see how we did. What did we get right? What did we get wrong?
|
|
Our bottom line was correct: the long-term impact of the 2016 U.S. election will be significant, but it was business as usual for much of the optics and photonics industry in the beginning. There was a tax cut, but not a massive stimulus, and the presidency was initially mostly characterized by gridlock, much of it from the President's own party. In the last year, however, the trade war has become real. The imposition of tariffs and further rounds of retaliatory tariffs has driven some prices higher, and disrupted supply chains. The pressure on pricing is strongest where China is most competitive, such as solar cells and modules, and LED lighting. But the trade policies are felt in other sectors too, such as optical networking and lasers for machine tools.
|
President Trump has been consistent in his positions on U.S. isolationism: immigration, trade, and foreign partnerships. These have been most of the focus, along with tax cuts earlier in the administration. There continues to be little attention to technology and innovation policy outside of taxes and trade, but that's not unusual for an administration, as other policy matters take up attention. The President did sign the US$ 1.3 billion authorization for the National Quantum Initiative, following a bipartisan effort in Congress (and supported by OSA through the National Photonics Initiative, which includes SPIE and three other partner societies). It has also focused on AI, manufacturing, and cybersecurity. For a recent statement on R&D priorities, see this memo from the White House Office of Science and Technology Policy (OSTP). (For a list of the Trump campaign's positions on technology and innovation policy, see this summary from the ITIF.)
The effect on optics and photonics companies is greatest in corporate tax rates, H-1B visas for highly-skilled workers, trade agreements and tariffs, tightened regulations on foreign ownership of U.S. companies, and deregulation. Many policy changes favor some companies while hurting others, depending on where they sit in the market. Some policy changes might simultaneously help and hurt companies that move their materials and parts around complex global supply chains, which is becoming more and more common in our industry.
|
|
We also wrote in the OIDA newsletter and OPN Magazine wrote (here, here, and here) about the U.K. Brexit vote, particularly with respect to European R&D funding, company location, recruiting talent, and currency effects. The implications of the Brexit vote are more localized to the U.K. and Europe. A recent article suggests that Brexit will hurt small businesses the hardest, especially those that are R&D focused. The vote led to three years of deadlocked negotiations, but if it is ultimately implemented, the impact will stretch decades. In contrast, the U.S. has already conducted a mid-term congressional election and presidential candidates are preparing for the 2020 presidential primary elections.
|
OIDA monitors the changes in Washington, DC and advocates for our members where it is needed. Look to the December issue of the OIDA newsletter for a story on flat federal R&D funding. Your thoughts? Send them here: thausken@osa.org. For more on OSA's advocacy effort, contact David Lang, Senior Director of Government Relations, at dlang@osa.org.
Top
Welcome New OIDA Members
Top
Read New Interview with OIDA Member Laser Components GmbH
|
|
OIDA member Laser Components GmbH, Olching, Germany, sells and manufactures optical and optoelectronic components. Today, the company focuses on developing and manufacturing new and innovative components and continues to serve as a distributor for fellow international manufacturers. Here, OSA spoke with Laser Components Head of Sales, Sven Schreiber, about his career and Laser Componets. Read the article.
|
Top
RSVP for OIDA Member Benefit Orientation on 6 November
RSVP for OIDA's member benefit overview orientation on 6 November at 13:00 EDT. This is an opportunity to learn more about key membership benefits you and your company should be taking advantage of and explore how to maximize performance and grow your business.
Whether you have been an active member for years and need a quick refresh or are transitioning to the new OIDA membership model — this orientation is a must-attend! Please feel free to share this with your colleagues. When you join OIDA, everyone at your organization becomes a member.
Top
Looking for US Government Funding? Attend OIDA's Funding Accelerator Meeting on 12 November
US companies with less than 500 employees are invited to participate in OSA's 4th Annual Funding Accelerator Speed Meetings event focused on SBIR/STTR funding, on Tuesday, 12 November 2019 in Washington, DC at OSA headquarters. This event is free to OIDA members.
Meet one-on-one with program officers from multiple U.S. federal agencies, all in one place, in one day — minimizing your time investment and increasing your chances for new government funding. The Funding Accelerator Speed Meetings will give you an insider perspective on what specific agencies are looking to fund; as well as provide you with up-to-date information on each agency's SBIR/STTR funding process, and how you can enhance your probability of success.
Agenda: This event includes the opportunity for a private 15 minute meeting with each agency, a networking breakfast, luncheon, and a networking reception.
Federal Agencies you'll meet include:
- MDA (Missile Defense Agency)
- NASA
- Navy/NRL
- National Eye Institute/National Institutes of Health (NIH)
- National Science Foundation (NSF)
More information on the Small Business Innovation Research (SBIR) program can be found here.
This is a unique opportunity to find the funding you need to accelerate your business growth!
Please email OIDA@osa.org to RSVP today. Space is extremely limited for this special event.
Top
Announcing a Newly Expanded Publications & Report Center!
We are excited to announce our new OIDA Publications & Reports Center, which has been enhanced with more exclusive industry intelligence than ever before.
Check out the new features and reports:
- Expanded Report Options—Search a fully interconnected network of reports, roadmaps and articles. Browse the most recent and trending research.
- New Search Capabilities—You can now search by keyword or date
- Quick Access to the Information You Need—A simple one-step log-in with IP address is all you need. Two step log-in requirements are a thing of the past.
- Read Reports on Any Device Anywhere—Desktop, laptop, tablet, even your phone.
Visit the new OIDA Publications & Reports Center today and check out the options and features. Get credible and meaningful information you can use to make smart decisions, improve your products and advance your company.
Top
Opportunities in Agriphotonics—New Report from OIDA
|
|
Be sure to read our October Market Update Report on opportunities in agriphotonics. It's a timely review of the precision agriphotonics market, including key drivers, market segments, the supply chain and government funding—from an OIDA presentation at an OSA incubator meeting on the topic.
|
Top
OSA Career Accelerator for Optical Communications
The Career Accelerator for Optical Communications, 12-16 Jan 2020, is a high impact program centered on careers in optical communications. The program focuses on core skills needed to succeed including leadership, team building, business strategy, finance, marketing communication and negotiation skills. Sessions are led by experts representing key companies in the field. These speakers practice what they teach every day. Learn more.
Top
Invitation to Join the OIDA Optics and Photonics Industry LinkedIn Group
Join 3,000+ of your colleagues in our OIDA Optics & Photonics Industry Network LinkedIn Group. This one-of-a-kind Forum for Industry lets you participate in discussions about cutting-edge issues. Extend your professional network. Exchange information about problems, ideas and solutions. Collaborate with experts in your field. Now is the perfect time to build a relationship with fellow optics and photonics professionals!
Top
|
OIDA (OSA Industry Development Associates) Council
Thank you to the volunteers who oversee the programs and services available to the Industry Community.
|
• Claudio Mazzali,
Corning Research &
Development Corp, Chair
• Simin Cai,
Go!Foton, Chair Elect
• John Dexheimer,
LightWave Advisors, Inc.
|
• Turan Erdogan,
Plymouth Grating
Laboratory, Inc.
• Amy Eskilson,
Inrad Optics
• Christoph S. Harder,
SwissPhotonics
|
• Anjul Loiacono,
Thorlabs Inc.
• Frederick J. Leonberger,
EOvation Advisors LLC
• Debbie Wilson,
Lumentum Operations Inc.
|
|
|
|
|
Source: OIDA, in OSA 
Example embodiment of a 51Tbps co-packaged optics assembly. Source: 
