As Manufacturing Falls, So Falls Photonics

Daniel C. McCarthy

The good news last year for industrial lasers and machine vision markets in North America was that their decline trailed the decline of the markets they supplied. The bad news is that their recovery will also trail the return of those markets.

Semiconductor revenues alone dropped 54 percent between 2000 and 2001, while electronics lost 27 percent. The size of those two markets relative to other machine vision sectors and the size of their declines outstripped slight gains in smaller sectors. Overall, revenues from the North American market declined approximately 7 percent in 2001. Units declined 18 percent. Courtesy of the Automated Imaging Association.

North American shipments of laser sources and systems in 2001 dropped 30 percent from the previous year's levels, according to the Association for Manufacturing Technology's Laser Systems Product Group in McLean, Va. The decline matched gains made between 1999 and 2000 -- meaning that, in terms of shipments, the clock for industrial lasers in 2001 was essentially set back two years.

The machine vision market evidently fared better, but not much better. A survey of 320 suppliers for the North American market revealed a loss of 7 percent in revenues and 18 percent in units shipped, as reported by Vision Systems International in Yardley, Pa.

Although machine vision had the better numbers, it likely had a rougher time in 2001 and could be looking at a bleaker future.

Shipments of both lasers and machine vision equipment sustained upward momentum shortly after their downstream markets began to atrophy. But the momentum couldn't last, making the downturn, when it came, that much more painful. The impact was particularly hard for the majority of machine vision suppliers, who rely on the semiconductor and electronics markets. Those two segments represent 56 percent of the revenues and 38 percent of the machine vision units shipped into the North American market.

Many vision vendors, in the first quarter of 2001, were still ramping up despite sagging indicators in the semiconductor and electronics segments they served. By the end of 2001, however, things were looking bleak, said Nello Zuech, president of Vision Systems.

"The result was that some of those companies didn't feel the pain until their backlog expired and all of a sudden there was nothing to ship," he added. "Because there were no bookings, there were no billings."

The landing may have been harder than Zuech's numbers imply because they encompass only North American markets. They do not account for the roughly 65 percent of vision products that North American suppliers export to semiconductor and electronics OEMs overseas.

Worse, vision suppliers will be waiting for the rebound longer than their customers, who will start ordering vision products only when their capital equipment use reaches a certain ratio of manufacturing capacity.

"We're down in the 65 to 70 percent capacity," said Zuech. "When it gets to 95 percent, then they have to buy more capital equipment. ... My own sense is that capital equipment will pick up in 2003. Machine vision is lagging behind that. You have to produce the stuff before you inspect it."

Not all of Zuech's news is bad. In fact, many of the sectors that constitute the 44 percent of vision markets not linked to semiconductor and electronics actually improved in 2001. Lumped under the consumables category, these segments include containers, food, fabricated metal, plastic and phar- maceutical/medical. All told, the consumable segment saw a 16 percent increase in both revenues and units.

According to estimates contributed by the Fuji-Keizai group in Tokyo, the total Japanese machine vision market, including value-added services, increased 5 percent to $1.8 billion in 2001. The European market was $1.3 billion last year, as reported by the Machine Vision Consultancy in the UK. Adding North American figures, the combined market for machine vision products was about $5.8 billion in 2001.

Demand varied for vision products in 2001. Vision processors clearly led in both units and revenue. Although frame grabbers and smart cameras captured a respectable portion of the units shipped, the low unit price of these components put them at the low end of the revenue chart. Courtesy of the Automated Imaging Association.

Return of the laser

Like vision suppliers, laser vendors are awaiting the return of capital spending, which the Laser Systems Product Group expects to arrive between the third and fourth quarters of this year. And, again like vision suppliers, it may be a little longer before laser manufacturers see a significant turnaround in revenues.

Why? Because lasers tend to follow the lead of more established mechanical systems with which they compete, said Pat McGibbon, vice president of the group's industry marketing services.

In fact, machine tool activity serves as a sort of bellwether for industrial laser products. Shipments of mechanical systems began to decline in early 1999, about three or four months before laser shipments did. When machine tool shipments spiked in the third quarter of 2000, a laser spike followed a few months later.

If the pattern holds, industrial laser vendors can take heart that either May or June looks to be the first month in a while where the volume of machine tool shipments exceeds that of the previous month.

"Even the most pessimistic forecaster is looking for an upturn later in 2002," McGibbon said.

A snapshot of the slump from which lasers will climb: Overall, 2001 brought in $502 million for the 49 companies that contributed to the group's data. About 71 percent, or $356 million, of those revenues came from North American sales, while the remaining $146 million derived from exports.
Broken down by laser type, CO₂ sources took the lion's share of shipments at $248.3 million, which dovetails with the report's observation that cutting applications were the primary application in 2001.

However, CO₂ lasers' disproportionate share of shipments earned them a disproportionate share of declining sales. They lost 30 percent from the previous year. In comparison, Nd:YAG sources lost 25 percent of their market.

Pulsed Nd:YAG sources drew $49.4 million in 2001. Although the report includes excimers and CW Nd:YAGs in its overall 2001 figures, it does not break down their market performance.
The group drew data from 49 industrial laser suppliers, who make up roughly 75 to 90 percent of the North American market. More on its "Laser Systems Product Report" is available on the Association for Manufacturing Technology's Web site at www.amtonline.org.

Vision Systems' report, titled the "North American Machine Vision Market Study," was underwritten by and is available from the Automated Imaging Association in Ann Arbor, Mich.