Strategically Blogging

China Pricing War II

Martin Shih 11/17/2014

We recently took a trip to China to interview top manufacturers of LED components for our upcoming China Quarterly Updates Report. According to these major LED players, we are convinced that several LED trends we predicted in my blog at the beginning of this year did and are continuing to happen.

The Dental Laser Market Needs A Filling

Allen Nogee 10/31/2014

It was just 14 years ago when a group of dental professionals came together to form the World Clinical Laser Institute. This group was formed to promote and share their ideas and experiences and to advance dental care through the use of lasers. Today, the WCLI is the largest group of dental professionals supporting the use of lasers in dentistry; with 19,000 members, the use of lasers by the dental profession has not grown as fast as many had expected. Today, in the US, roughly 7% of all dentists use lasers, which means that 93% of dentists don’t. Of the four medical laser segments we track (cosmetic, ophthalmic, surgical, and dental), the dental area is growing the slowest.

Integrated vs. Non-Integrated Luminaires

Shonika Vijay 10/30/2014

As time goes on, it is becoming more and more apparent that LED lighting will soon take over. With the current ban of 40W through 100W incandescent light bulbs and the dropping prices of LED lighting, it is no surprise that LED lighting is the lighting of the present and will be lighting of the future. However, LED lighting was first, or in some cases still is, introduced into the market to replicate the incumbent technology so that consumers don’t get scared away by a lighting system that they can’t associate with their old one. What I mean here is that having a fixture where the consumer can physically take out the lamp and replace it if it burns out. Today, there seems to be plenty of interest in fixtures/luminaires where the lamp could be replaced.

When Will OLEDs be the Next Big Thing in Lighting?

Stephanie Pruitt 10/08/2014

OLEDs have been gaining in popularity lately, mainly in displays, but also more recently in general lighting. They offer many benefits over traditional and LED lighting, including being a surface emitting light source (as opposed to point emitting), being extremely thin, and having the capability to be flexible and even transparent. OLEDs open the doors to really innovative and creative light forms that were previously not possible with traditional lighting. However, they still have a ways to go in efficacy, lumen output, and price compared to their less expensive inorganic counterparts that are still struggling to really penetrate into the market.

Shonika Vijay

High-End Lighting Markets for Solid State Lighting

Shonika Vijay 09/30/2014

Lighting has always been seen as a commodity market. In fact, most people buy their light bulbs from the same place they buy their milk. It is a price war out there with slim profit margins on lighting products; meanwhile, the market keeps demanding higher quality. The general indoor lighting market mostly consists of the following form factors: downlights, troffers, suspended pendants, track lights, and high bay lights (a detailed market report of general lighting luminaires with these form factors along with all technologies will be released this November). Downlights and troffers make up the majority of the installed luminaire base for all regions. In order to compete for penetration in these installed luminaire bases, LED lighting has had to slash its prices while making sure it can sustain the light output levels of halogens, incandescent, and fluorescent technologies.

Those lousy laser company margins

By Tom Hausken
Ever really looked at the margins earned by laser companies? And then looked at margins for companies like Cisco or Google? It's enough to make you weep.

Industrial laser company margins are modest but steady. The net profit margins for the industrial laser companies aren't too bad. Since 2006, gross margins on annual sales for Coherent , IPG Photonics , Newport , and Rofin are mainly in the 40-50% range. Operating margins range from single digits to 30-some percent. The net profit margins are mostly single digits to low teens (Coherent, Newport, and Rofin), while IPG is running lately at about 23%. Trumpf , which sells much more in machine tools than it does merchant lasers, used to have about 9-10% net profit margin, but suffered in the downturn and has recovered in the last fiscal year to 6.7%.

All in all, that's decent It's the telecom component suppliers that are really hurting.

Telecom supplier margins been mostly underwater until only recently. For Finisar , JDS Uniphase , Oclaro , and Opnext, the gross margins are lower, but it's the operating margins and net profit margins that are in the tank. Like, pretty much negative values for annual revenues since 2006. There's some improvement in the last year or so, with positive operating and net profit margins.

Now I know that these numbers are fraught with "yes, buts." These companies are generating cash flow, but their official, GAAP, unadulterated income statements show losses. And a company like JDSU is in multiple businesses. I'm lumping everything together.

Meanwhile, the customers reap the benefits. Now look at the customers. Cisco has gross margins in the 60% range, and net profit margins around 15-20%. That's net. EMC's net margin is running 12% this year. Juniper is 13%. The carriers aren't doing too badly either. AT&T is consistently in the teens and Verizon is in the single digits. And get this: Google's net margin is a running a whopping 27%!

So we know who is getting the margins. It's not the components companies. Nor is it Alcatel-Lucent or Ciena, who have had consistently negative margins too. It's the router and storage companies like Cisco and EMC, and the equipment users like Google and AT&T.

The component suppliers may finally be in positive territory for good. I hope so. It's not right that the customers get margins while the components companies don't.

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