Staying Ahead of the Game

Maintaining diversity in an ever-changing industry is smart strategy.

Whoosh. Is that the sound of optical companies scrambling to support the needs of the telecom industry? Or is it the sound of the air rushing out of the telecom bubble? The problem is that it may be both.

As many have remarked, history does repeat itself, and we may be seeing the early warning signs in the optics industry right now. For many years, the optics industry put a lot of its eggs into the military basket. It was a safe, predictable, and often lucrative market. About ten years ago, the demand for military optics abruptly declined, forcing manufacturers to diversify into other markets. That led to a broader base of advanced photonics products for the medical, instrumentation, biotechnology, and telecommunications industries. The optics industry was necessary, but it had a low profile and low visibility in its support of those industries.

Telecommunications technology’s rather sudden rise to financial stardom changed all of that. Optics are now recognized as a critical, high-profile component to the industry and were thus pushed into the spotlight. The demand of the telecom sector for optics has been overwhelming and lucrative. It is not difficult to understand why the sudden emergence of the market caught everyone’s attention. Like the prospectors in any gold rush, many optics suppliers jumped into the telecom market hoping to get a piece of the action.

Accordingly, we have watched long-time optics players reposition themselves as telecommunications suppliers. Many of the industry stalwarts are now captives of the telecom players. At Edmund Industrial Optics, we also have experienced a frenzy of buying as the telecom giants protect their channels of supply, but we have resisted becoming too focused on this market to the exclusion of all others.

Navigating the downturn

Given the current market downturn, we now wonder if the expansion of telecom was just another bubble phenomenon. Are we confronting another period of correction similar to that of ten years ago?

Nevertheless, the rise of telecom has affected the optics industry in profound ways. Some of these effects will be long lasting and some will be transient. For example, companies that were heavily dependent upon orders from telecom companies must now scramble to serve other markets again.

The shift in focus to telecom applications also has contributed to some structural problems. The optics industry is already thin on engineering resources, and with a single market dominating the talent pool, we question whether the photonics industry will have the resources to service the needs of all the other markets. If not, work-force shortages will likely slow product development in other industries such as medical instrumentation, semiconductors, and consumer products that rely on optical technology.

Our team has found that a good strategy is to leverage a diverse customer base to develop single products to serve the needs of multiple markets. That way, precious product development and optical engineering resources are not expended on a single application. This also works well in under-resourced markets where we can provide optical know-how, stability, and consistency of service to gain many new and loyal customers.

As an industry, we need to understand that technology bubbles will come and go, and that in the future, Wall Street will play an even more influential role in the photonics industry. Flocking to the hot sector, while alluring, can be dangerous too. Steady, prudent management is needed to determine how our vital capabilities are used and protected so that the entire optics industry can remain healthy.

(John Stack is president of Edmund Industrial Optics Inc, OEMagazine, 2001, Jule).

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