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Sizing Up Optics and Photonics

Tom Hausken

Optica’s Tom Hausken looks at estimates of the industry’s growth—and why such estimates matter.

figure[Getty Images]

To help investors and policymakers understand the the optics and photonics industry’s size and impact, Optica (formerly OSA) regularly assesses the market. Estimated revenues of optics and photonics companies provide a convenient proxy for the industry’s economic output, though the true added value would subtract intermediate products and inputs from other sectors.

Optica estimates that the market will reach about US$550 billion this year, after a slight gain in 2020. That may seem large, but optics and photonics contributes to far larger downstream value. Three segments alone—microlithography, optical communications and displays—enable, in some way, nearly the entire global economic output of US$100 trillion.

The EU partnership Photonics21 recently published its own estimate of the global market, prepared by Tematys and drawing from many sources, including Optica data. The figure on p. 23 compares our estimates and forecast with those of the Photonics21 report. Both include materials, components and optical subsystems or systems, but each defines the market differently. However, differences in magnitude are less important than the growth rates.

Comparing growth estimates

Quantifying a market at many billions of U.S. dollars can make it seem abstract. Yet it’s not difficult to sense the difference between strong or modest growth, or a recession. The growth estimates from Optica and Photonics21 differ from year to year, reflecting the different mix of products. Slow or negative growth before the pandemic in machine tools, displays and other products, for example, slowed the relative 2017–2020 growth in Optica’s estimates.

Still, with respect to long-term growth rates, the two estimates are quite close. Optica looks for an average compound annual growth rate of 5.1% between 2016 and 2021 despite the pandemic; the Photonics21 report places it only slightly greater at 5.2%.

A 5.1% growth rate may seem modest, but it’s healthy for a market amounting to half a trillion U.S. dollars. The U.S. economy averages 2%–3% annual growth in normal times, and the global economy averages only a little more, at about 3%–4%. This suggests that the optics and photonics industry is growing faster than the economy, as its output is adopted into more applications, more widely around the world.

Diverse growth sources

If the sector is growing faster than the global economy, it may be capturing a share of the economy from another sector—which takes time. Deployment of solar panels by utility companies might seem a recent success, directing energy spending to a renewable technology. However, the achievement builds on decades of reductions in manufacturing costs.

While new, emerging segments sometimes grow explosively, it’s hard to grow large markets consistently year over year. Contrary to the perception, blockbuster products rarely appear overnight, especially outside of consumer electronics. As applications gain in size, they tend to track the general economy more closely. LED lighting sales ramped steeply as high-brightness LEDs became more affordable and substituted for other designs. As LED lighting becomes more universal, however, its market share inevitably saturates.

Slow growth can even hide success stories. In a June 2021 report, McKinsey & Company predicts strong growth in lasers, optics and photonic sensors, but laments pressure on prices and earnings from low-cost suppliers. While falling prices create hardships for the ROIs of some manufacturers, though, other companies can plan for lower manufacturing costs to target new, larger-volume applications. Revenues to component makers will not ramp as fast as unit volumes because of the expected (and necessary) decline in price. Nonetheless, it can mean strong growth for companies early in the segment, and even larger returns in the downstream markets.

[Data from Optica and Photonics21] [Enlarge image]

The optics and photonics industry is growing faster than the economy, as its output is adopted into more applications, more widely around the world.

Why this matters

Estimates such as these can help validate the industry and other metrics, such as employment and investment. Such metrics must be consistent and credible. Strong growth—for example, in the rebound from a recession—might come for a year or two, but is unlikely to continue over the entire sector for multiple years in a row. A close look at a forecast that seems too good to be true often exposes that the corresponding findings are not to be trusted.

As industry advocates, organizations like Photonics21 and Optica need to document the size, importance and growth potential of the optics and photonics industry. But they also have to show where industry health is not assured without supportive government funding and policies. Exaggerating growth and overselling the industry not only misleads the industry itself, but can backfire later if policymakers perceive that promised growth didn’t materialize.

Happily, our industry is in the position that we have a lot of good news to report. Optics and photonics is a large and important business, with healthy growth. New applications in the R&D pipeline promise healthy growth for years to come. And that’s no exaggeration.


Tom Hausken (thausken@optica.org) is Optica’s senior industry adviser.

 

Publish Date: 01 October 2021


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