Laser Focus World - January 2015

<$1M $1M–

$10M

Number of companies of total revenues Company size

$10M–

$50M

$50M–

$500M

$500M–

$1B >$1B

1600

1400

1200 1000 800 600 400 200

0

60

50

40

30

20

10

0

2,132 companies with photonics revenues <$10M produce ~4% of total sales

69 companies with photonics revenues >$500M produce >72% of total sales

Market Insights

Growing our core photonics
businesses: Transcending the
$10-million plateau

JAN MELLES and LINDA SMITH

According to research from SPIE, there are about 2750 companies worldwide supplying photonics components and materials, and they em- ploy 700,000 people. These companies sell $156 billion of light sources, optics, and sensors. Of these companies, more than 2000 realize revenues of less than $10 million, accounting for less than 4% of worldwide sales (see figure).

With photonics components at the core of most modern technologies, this is an exciting time for the indus- try. So, have the stars aligned for more photonics companies to transcend the $10-million plateau? If so, what can a small business do to become a larger market participant?

To explore the question, Linda Smith
of CERES Technology Advisors, an M&A advisory firm working with pho-
tonics companies, talks with Jan Melles, president of Photonics Investments
and founder of 12 photonics companies.

Linda Smith: Were you surprised by any of the research presented by SPIE
on the make-up of the core optics and photonics components market?

Jan Melles: Not really—it’s more a confirmation of many years observing the photonics components market. As the SPIE data clearly illustrate, little has changed in the way the components market has developed over many years.

LS: How has the competitive landscape evolved in that time? In industries such as semiconductor manufacturing, as technology matured, the industry consolidated. With photonics components, however, the technologies matured, but much of the industry remains highly fragmented. What do you see?

JM: There are two main reasons why the industry has developed this way. First, there is an absence of a high-volume market such as is the case with semiconductors. Second, the component market does not add enough value to enable component companies to grow into more substantial organizations. To make the jump from being a component supplier to an organization that manufactures and supplies products that add more value has been a difficult one.

LS: Looking at the photonics component companies you invest in, are the biggest challenges they face very different?

JM: In principle, no. If I could wave my magic wand and let those companies blossom where others do not, it would be wonderful but remains a fairy tale. What has improved, however, is the way we deal with this issue more professionally based on long experience. Along the way, plenty of errors were made, but as long as you learn from them, the potential to grow these companies improves.