As somebody who has witnessed three of the five semiconductor industry boom-and-busts during the last few decades of the 20th century, the photonics market of the late 1990s provoked in me an eerie sense of déjà vu. Could the industry manage to keep its apparent supply and demand levels in balance and avoid the mistakes that its electronics cousin had made? We now know the answer: it couldn't and it didn't.
As Europe's largest distributor of photonics products, BFI Optilas has identified several trends that will affect the markets in the future and will influence the role of distributors such as ourselves. One of the major trends that I expect to continue for some time is a further consolidation of the component supplier base. This will lead to the emergence of relatively few, but large, photonics companies with a broad component capability, large economies of scale, and greater ability to integrate functionality.
A significant number of start-ups expanded the potential supplier base in the past four years, particularly in the Far East. We believe that, unless a company can clearly offer a differentiated product from an early stage, it will be doomed to failure. Some Asian "me-too" start-ups will certainly benefit from the corresponding trend to move component production to the Far East. We have to assess constantly that we have companies in our portfolio that will emerge as the key suppliers to the market, for both commodity and differentiated applications.
One notable feature of the fibre-optic components market over many years has been that traditional distributors in Europe have played less of a role in developing the market than in comparable markets in electronics. This has been due to two reasons. Firstly, the relative narrowness of the customer and supplier base and, secondly, the relatively narrow range of standard components available. The small- and medium-sized customers that are traditionally serviced by distributors in the electronics market are not as prevalent in the photonics market. One result of the telecoms boom in the late 1990s was that the fibre-optic suppliers dramatically expanded their direct sales forces, putting a further question mark over the role of the distributor in this market.
The telecommunications market bust has caused two main effects, both of which will be advantageous to technically competent distributors. The first is that suppliers have realised that they cannot service all the available customers, as there is a diminishing rate of return as ever-smaller customers are embraced directly. Components suppliers are therefore reducing their direct sales teams and are asking distributors to handle more of the business — and credit risk. The second effect is that the suppliers need to reduce their dependence on the telecommunications markets and to encourage take up of fibre-optic designs in other, broader markets. This is exactly the role that a technically competent distributor is positioned to play.
We believe that technical distributors will play an increasing role in the photonics markets in the future. We see the need to handle increasing amounts of information in the security markets, the use of fibre-optic sensing, and applications in the scientific and medical fields as key to our future growth.
A further, important trend in the industry is the need for products that are faster and smaller — in particular, the move from 2.5Gbit/s to 10Gbit/s to 40Gbit/s solutions. What role does a company like BFI Optilas play in this transition? We see the original equipment manufacturers concentrating on the re-design of existing telecommunications systems rather than moving production to faster solutions. Raman amplification and 40Gbit/s communication systems are two examples of emerging technologies that, one day, will move into full-scale production. In the meantime, we see our role as offering technical support to those companies re-designing their existing production and we continue to search out and offer the appropriate products and franchises for the designs of the future.
Ernesto Prestifilippo European Business Development Director, BFI Optilas