Lucent Official: Automate to Survive

Terrence K. O'Brien

BREINIGSVILLE, Pa. -- About one-third of the companies in the $6.4 billion optoelectronics market are likely to be out of business within the next three years, despite an expected 15 to 20 percent annual growth rate in the marketplace, predicts John Pilitsis, vice president of Lucent Technologies' Microelectronics Group.
That's why his company is aggressively moving to automate its operations to ensure that it is among those still standing.
Fierce competition to deliver less costly products will spark a major shakeout in the lucrative optoelectronics market over the next three to five years, Pilitsis said during a recent tour of Lucent's R&D and production facilities.
"The industry has to move from a cottage industry to a volume production industry," he said. "It's evolving from a physicist philosophy to an engineering philosophy."
That means automation will play an increasingly larger role in production. Pilitsis said he believes Lucent is two years ahead of most of its competition in this regard. Consequently, Pilitsis said, he expects Lucent not only to be among the survivors, but to increase its business by twice the market's projected 17 percent annual growth rate.
Pilitsis said smaller companies and niche players that are still emerging will be unable to survive as customers demand better products at lower prices. Typically, Lucent customers expect prices of optoelectronic products to drop 20 to 25 percent each year, he said. That will demand long-term investments that smaller players aren't going to be able to muster, he said.
Michael Trapp, product manager for Mitsubishi's High-Frequency Products Div. in Sunnyvale, Calif., expressed doubts that the industry will evolve immediately to a volume production.
"Right now, volumes are not increasing at such a rate that total revenue is growing," Trapp said. "We will continue to move toward a volume production industry, but whether it turns into a true volume commodity industry, like paper clips, I can't see that happening in the next five years."
Trapp said Mitsubishi also is moving toward automation, similar to what the company did in Japan with CD lasers. He added that automated testing is sure to be just as important as automated production.
However, Jay Liebowitz, marketing director for Epitaxx Optoelectronics Devices Inc., a medium-size company in West Trenton, N.J., said new designs also could change customer demand. If so, the investments in automation won't be justified.
"It's possible that those companies that have bet heavily on automation have bet too soon," Liebowitz said. He said he understands large-company thinking on the subject.
"If I were a large company and multiple small companies were taking a portion of my business, I think it's an intelligent move to change the platform for optoelectronics so that a huge capital investment is necessary. Then you create a barrier for new players to enter the marketplace."