Optoelectronics 1994
Critical Technology Assessment of the U.S. Optoelectronics Industry
EXECUTIVE SUMMARY
- The main objective of this assessment is to provide policymakers in the
Congress and the Executive branch with needed information and analysis on
the production and technology status, economic performance and international
competitiveness of private sector firms in the optoelectronics area. The
primary source of information for this report was a written survey of 107
U.S. companies (and U.S. operations of foreign companies) involved in various
aspects of optoelectronics. This survey was conducted by the Department
of Commerce, Bureau of Export Administration (BXA) between July 1992 and
February 1993.
- For the purposes of this assessment, optoelectronics was very broadly
defined as all systems, equipment, or components which emit, modulate, transmit
and/or sense light or are dependent on the combination of optical and electronic
devices. The market applications for optoelectronics are diverse, and include
consumer products, communications, transportation, information, medical
and military.
Optoelectronics Technology
- Just as the invention of the transistor several decades ago led to dramatic
changes in many aspects of daily life, the marriage of optics with electronics
promises to lead 'o similar leaps in technology, Two optoelectronics advances
in particular have spawned myriad advances throughout commercial and military
industry: the invention of the laser in the late 1950's and optical fiber
in the 1970's.
- Optical technologies combined with electronics offer smaller, faster,
and smarter products and weapons that are more reliable, require less energy,
and are more cost-effective than those with electronics alone. Optoelectronic
technology also has the potential to unblock some of the bottlenecks that
are hindering electronics, such as pin congestion on integrated circuits,
tangled tracks on printed circuit boards, interference, and signal degradation.
- Optoelectronic technology is of particular advantage to the U.S. military
across many application areas. These include data communications and telecommunications
for command and control and high bandwidth video transmission for intelligence,
reconnaissance, display and electronic warfare systems. The technology also
has wide use in weapon-delivery platforms, sensors, guidance systems and
optical computing. The resistance of optoelectronic components to electromagnetic
and nuclear radiation interference is particularly desirable for military
applications, and, their lightness allow for fuel savings and greater ammunition
payloads.
- The largest market for optoelectronics is in industrial and business applications,
which accounts for about 28 percent of total sales. In particular, producers
of optoelectronic information systems, lasers, industrial equipment, and
components are dependent on this market for sales.
- The military market accounts for the second largest share of total optoelectronics
sales, with about 23 percent. Over 60 percent of the companies in the BXA
survey participated to some extent in the defense market. The other major
market for optoelectronics is communications (18 percent of sales).
Optoelectronics Manufacturing
- BXA's survey captured nearly $6 billion in domestic optoelectronics shipments
in 1991. A control group of companies providing shipment information f~
r ail years shows the total optoelectronics shipments fell by about eight
percent in i990 from 1989 levels. The drop in 1990 is also evident in the
raw data figures. Since that time, however, shipments have rebounded and
companies expect the upward trend to continue through 1995.
- The average production capacity utilization rate was slightly over 63
percent in 1991, with a range of just 3 percent to 100 percent. About one
quarter of the firms in the survey were operating at less than 50 percent
of capacity that year. In contrast, the average capacity utilization rate
for industrial production as a whole was about 79 percent in 1991.
- Capacity utilization rates varied by optoelectronic product group, with
the display and defense groups showing lower than average utilization rates
(54.7 percent and 57.5 percent, respectively) Nearly one-half of the display
companies and over one-third of the defense group were operating at less
than half of their capacity production levels.
- Thirty survey respondents reported closure of 3S domestic optoelectronics
production/research operations since 1972; all but one of these was since
1980 and 24 closings were since 1990. An additional seven companies reported
they expect to close down a facility or product line within the next two
years. Production lines that were closed ranged from semiconductor laser
diodes, to flat panel display operations, to optical guided munitions equipment.
- Production lines targeted to be closed in the future include optical modulators,
switches, wavelength division multiplexers, optical data communications
equipment, solar cells, photo detectors, lasers, and non-active matrix and
plasma displays. The most frequently cited reasons for shutting down facilities
and product lines were low profitability, consolidation of operations, and
declining demand for particular product. Loss of market share to imports
and loss of market share to domestic competitor were also mentioned.
- Twenty-six survey respondents reported they expected to expand their optoelectronics
operation; between 1992 and 1996; three of the new facilities were planned
to open overseas. Product lines to be added include video transmission equipment,
transmitter/receiver modules, lasers, blue LEDs, fly-by-light flight control
systems, projection displays, non-active and active matrix liquid crystal
displays, optical cable TV distribution systems, bar code readers/scanners,
optical military sensor equipment, optical munitions guidance equipment,
and laser diodes.
- Investment in optoelectronics production facilities has followed a generally
increasing trend, with a large jump between 1991 and 1992, due primarily
to major investments by one or two firms. Forecasts for the future show
a continuation of the increasing trend.
- The bulk of capital investment, however, is in machinery and equipment.
Capital investment in machinery and equipment has been more volatile over
the 1989-1992 period; forecasts for the future show a generally increasing
trend. Despite the trend toward increasing capital investment, total investment
in optoelectronics plant and equipment in the United States is relatively
low when compared with some foreign competitors (especially Japan).
- Optoelectronics employment increased about three percent per year in 1990
and 1991, and was virtually stagnant between 1991 and 1992. Those companies
making estimates for future years expect their employment to remain essentially
unchanged through 1994, with a modest increase anticipated for 1995. The
average size of an optoelectronics establishment is about 750 employees.
- About 54 percent of employees in optoelectronics facilities were classified
as production workers, while scientists and engineers accounted for 16 percent
of the total. Sales and technical service accounted for 14 percent of employees,
with the remaining 16 percent classified as administrative.
Research and Development
- In 1991, the surveyed firms spent over $884 million on, optoelectronics-related
R&D. R&D increased between 1989 and 1991, but then fell slightly
in 1992 from 1991 levels. Predictions for 1993-1995 show an increasing trend.
Although the decline is small, the lagging economy in 1991 may have
left fewer funds available for R&D in 1992, coupled with the start of
defense budget cuts affecting federal-funded R&D.
- On average, firms spent about 11 percent of their revenues on research
and development. The range was great, with one firm spending less than one
percent of sales revenue on R&D, to several (start-up) firms that spent
more than their revenues in certain years.
- Companies themselves funded 74 percent of the total R&D. The federal
government accounted for the second greatest amount of REED funds, with
23 percent of the total. Defense organizations were responsible for the
vast majority of government-funded optoelectronics-related R&D among
surveyed firms, accounting for nearly 90% of the total government funded
R&D in 1991.
- The remaining few percentage points of total R&D spending were accounted
for by funding provided by customers, foreign governments, and through partnerships
with other firms.
- In the field of optoelectronics as in many emerging technology areas,
much research and development is performed outside of private firms - at
government laboratories and in academic institutions. The majority of optoelectronics
research at academic institutions was funded by the federal government;
the National Science Foundation was the largest single source of funds.
- All surveyed universities and government labs indicated some degree of
cooperation with private sector firms in the area of optoelectronics. Technology
commercialization is a relatively new goal for both of these types of organizations,
and increasingly, the assets and resources of federal labs - personnel and
equipment -- are being made available to private sector finals.
- Technology transfer to industry is achieved through personnel interchange,
joint research, and joint meetings. Since these programs are relatively
new, the overall success of technology commercialization programs of universities
and government labs is as yet unclear.
Defense Markets and Effect of Budget Cuts
- The firms in the BXA survey group reported supplying optoelectronics products
to a wide range of weapons systems and other military equipment. The items
supplied ranged from optoelectronics components such as photo detectors
and laser diodes, to subsystems such as optical gyroscopes, to military
systems such as the LANTIRN - a two-pod navigation/targeting system for
night and under the weather ground attack.
- About 20 percent of total optoelectronics shipments were reportedly for
defense applications. A substantial minority of firms (about 20 percent)
are heavily dependent on defense shipments (more than 50 percent of business).
Over 10 percent of the establishments were almost exclusively defense producers.
- Thirty establishments reported that defense budget cuts will likely have
a significant effect on their operations. Frequently mentioned product categories
that will be affected by defense budget cuts include optical sensor equipment
such as FLIR and night vision, CCD's and focal plane arrays; other photo
detectors; optical munitions guidance equipment; and solid state lasers.
- Because of the nature of optoelectronics, many companies do not perceive
that there will be major problems in converting their manufacturing or research
operations to commercial production. Many supply similar or identical products
to both military and non-military applications; others said that while their
products were currently geared toward defense uses, they could be dual-use
(e.g., fly-by-light for use in civilian aerospace applications; military
sensor work converted to production automation, industrial security, or
medical censors; use of FLIRs for border control, drug interdiction and
law enforcement).
- The biggest concern/problem cited by the respondents in converting their
operations from military to commercial applications was financial.
Financial Performance
- Aggregated sales by the surveyed optoelectronics firms have consistently
risen over the 1989-1992 period, and are forecast by the survey respondents
to continue to increase. Sales in 1992, however, were only about five percent
higher than the previous year, a smaller increase than the more than 12
percent increase in each of the two previous years.
- Pretax profitability was relatively stable over the 1989-1992 period at
about two percent of sales. For comparison, the average profitability for
all durable manufacturing was slightly over one percent in 1991 and about
three percent for the first three quarters of 1992. About one third of the
companies lost money (negative profitability) in any given year 1989-1992.
Firms in the laser, display, and components categories had lower than average
profitabilities.
Sourcing
- Survey respondents listed specific examples of essential components for
which they are dependent on sole/single sources of supply, often foreign.
One material - glass - was by far the most frequently mentioned item. Other
components mentioned include diode lasers, photo multipliers, optical fiber,
electronic circuits, high reliability LED'S, photo diodes, and optical switches.
In most cases, firms indicated that the loss of supplies of these items
would halt production until another source could be qualified, often at
greatly increased costs.
- The companies in the survey relied on a wide range of imported machinery
and equipment, parts, subcomponents and raw materials to produce their optoelectronic
products. In the machinery and equipment category, test and measurement
equipment was the most frequently mentioned imported item, the primary source
of supply for which was Japan. The reason for importing given was that no
U.S. source was available, as well as price.
Competitiveness
- U.S. firms believe that they have a technological advantage, particularly
over their competitors in the Pacific Rim. U.S. firms also believe their
have a slight technological edge over European firms, but ranked their Japanese
competitors at or near parity for most technology-oriented competitive factors.
- Japanese firms were rated most competitive in the area of displays, and
above average competitiveness in the areas of communications and optical
information systems. Japanese firms were ranked below average in industrial
equipment, lasers, and particularly in the defense category.
- Firms in the Pacific Rim were universally rated technologically weaker
by the U.S. firms across all product groups. However, they were rated the
strongest competitors in the optical information category, which includes
such well commercialized items as fax machines, copiers, and printers.
- European firms were also consistently rated less technologically competitive
by the U.S. survey respondents. They were, however, rated as near equals
to U.S. firms in the laser category and are also fairly strong in communications.
- South Korea was named as the country with the greatest potential to become
a major competitor in the future, particularly in the areas of displays
and communications. Also mentioned frequently in this regard was China for
communications, industrial equipment, and component categories.
- U.S. firms believe they have a substantial lead over their Pacific Rim
competitors with regard to product and service performance competitive factors
(e.g., price, quality, delivery and customer satisfaction). They also believe
they have a slight lead over their Japanese and European rivals on these
factors. Surprisingly, price does not appear to be a significant advantage
or disadvantage for any particular region.
- U.S. firms considered the overall business environment in the United States
their biggest disadvantage compared to their competitors in all other regions.
This category includes such factors as access to and cost of capital, the
legal and regulatory environment, the cost and quality of labor, and the
support of government. With the exception of labor, U.S. firms uniformly
rate themselves at a competitive disadvantage vis-a-vis competitors, particularly
in Japan.
- Lack of access to low cost capital was perhaps the single most frequently
cited obstacle to U.S. competitiveness in optoelectronics. Similarly, government
policies that discourage investment and R&D were also frequently mentioned,
as was the lack of a coherent U.S. government "industrial policy."
- Other obstacles to U.S. competitiveness were external, including inability
to penetrate foreign markets due to trade barriers, and alleged dumping
by foreign firms in the U.S. market. Some obstacles in this category are
the flip side of those in the U.S. business environment, such as the close
relationship between foreign governments and their industry, the ability
of foreign competitors to finance high levels of R&D, lower labor and
other production costs abroad, and better educated workforces overseas.
- Responders were mostly optimistic about their competitive prospect. Over
60 percent of survey respondents expected the competitiveness of their optoelectronic
products to improve somewhat or greatly over the next five years. About
one fifth of the respondents anticipated no change in the competitiveness
status. On the other hand, about 20 percent of firms expected their competitiveness
to decline greatly or somewhat in the near term.
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