3. Strategic analysis
3.3 Photonics Group
3.3 Photonics Group
Fiber Lasers
The broad-spectrum fiber lasers are used in microscopes and other measuring equipment used as an example for examining and analyzing cells, such as cancer cells. It is also used for examing skin, the eye or arteries.
Crystal fibers
Crystal fibers are used in both the fiber lasers and broad-spectrum lasers, and in gyroscopes and other sensors. This product group also contains systems and equipment to splice fibers.
Pulsed lasers
The pulsed lasers are used for examining the structure of small data chips that are now produced in such small sizes that it is impossible to examine and test them otherwise. Pulsed lasers are also used for various analysis in the life sciences industry.
Distributed Temperature Sensing systems (DTS)
DTS systems are used for monitoring temperature in cables and make sure to utilize the maximum capacity of the whole cable circuit. It also detects fires in tunnels and buildings and optimize oil well production.
Narrow spectrum lasers
The narrow spectrum lasers are used both onshore and offshore to carry out seismic survers in oil and gas fields.
Fiber Processing Equipment
The Photonics Group also markets different fiber processing equipment to develop and manufacture a large variety of fiber assemblies, fiber-based fused components and fiber termination assemblies.
Customers
The customers of the whole Photonics Group are very different from eachother depending on which product is sold. The product range is not easily described as the products are often part
of an end-product manufactured by one of Photonics Groups customers. That means that the products are fitted to match the customers needs.
Within the broad-spectrum fiber lasers R&D laboratories and industrial equipment
manucturers are amongst the customer base. There has been an intensified interest from both industrial and commercial companies within the life sciences industry and semi-conductor industry. As an example the german camera manufacturer Leica has now put in an order for use in microscopes.
The crystal fibers are primarily sold to laser and sensor manufacturer, while the pulsed lasers also targets the life sciences and semiconductor industries. The DTS systems are sold to large industrial players like for example Siemens, but also to cable manufacturers and service companies. The narrow spectrum low noise lasers, Koheras, targets the energy industry and are applied for on and offshore oil exploration and for measuring wind farm efficiency.
Customers are based around the world with the US becoming a more established market especially within fiber lasers.
Competitors
The total laser and sensor market is estimated to around 10 bn DKK a year. Photonics Groups share of that is very small because their technology is relatively new. The industry as a whole grows around 5-8% a year but the market on which Photonics Group operate is expected to grow more than that. Competitors are different from each product group.
Fianinum, a british niche manufacturer of fiber laser products are one of the competitors of the Photonics Group, but also manufacturer of more traditional laser products like the american companies Coherent and Newport.
Within crystal fibers Photonics Group has a well-established portfolio of patents which gives them a leading edge. This means that they are the only industrial manufacturer of crystal fibers.
Within DTS systems the competitors are smaller companies owned by large oil and gas
producers. Competition is intensified in the Chinese and Korean region lately, and has resulted in a pressure on prices. Photonics Group are trying to meet this competition by opening a sales unit in China.
The narrow-spectrum lasers not only has competition from manufacturers of comparable products, but also from new alternatives to narrow-spectrum lasers, primarily from the semi-conductor industry. Comparable competition comes primarily from american company Rio.
3.3.2 Macroeconomic environment Political
The political focus on the security of energy supply has a positive impact on some of Photonics Groups products. The DTS systems that monitor cable temperature and monitors tunnels for incidents of for example a fire is an important product in terms of securing energy supply.
Photonics Groups nature means that new products is developed. Every time a new product is developed application for approval needs to be submitted. Therefore it is important for
Photonics Group that these approvals come through as quickly as possible. To much bureaucracy in the political bodies that approve of the new products is not good for the company.
Economic
Earlier Photonics Group was not much dependent on the state of the economy. The group has up until only recently had its focus on research and development and therefore no large sales figures were expected. Now the company turns its focus more and more to sales to industrial customers and therefore Photonics Group has gotten more dependent on the state of the
economy. For a customer to update equipment and purchase new fiber laser products it takes a large investment. In times of economic distress many industrial companies rationalize and hold back money to investmets and this can have a negative effect on Photonics Groups business.
Social
The most prominent property of Photonics Group at the present state is its innovation power.
For the company to keep producing products that can attract customers it needs to be able to attract employees that has the abilities to come up with the ideas for new products and new ways of manufacturing. This is important to accomplish its goals in terms of market share and growth.
Technical
Photonics Group manufactures high technology products that needs high technological production facilities. The customers demand tailormade solutions whichs demands very specialized production. This also means that relatively high amount of capital prepared to be able to make ongoing investments to modify or develop the production facilities and fit it to each production.
In general the market for fiber lasers experience high growth. Fiber lasers has proven to be much more efficient than earlier types of lasers both with regards to power but also with regards to the cost35. It is also a market where development is quick and efficiency can become even better. After some years where research and development was the only thing to focus on it is now necessary to focus more on marketing the products and making them work properly at the customer. If the company is succesful in doing that it will have a good chance of getting a high market share in a market that will probably grow rapidly in years to come.
Environmental
Photonics Groups products are more effective in terms energy use and waste reduction. Some of the products also compliments industries of renewable energy. Therefore the company has a good reputation when it comes to respecting the environment.
Legal
When participating in a market with high innovation and many new products it is important for the company to protect its products with patents. Nevertheless it is hard to avoid legal cases
35 "Welding with high power fiber lasers" by Quitino, L. et al. (2007)
to protect the products and it is very important that the company is consistent in taking these measures going forward to protect company image.
3.3.3 Industry analysis Threat of new entrants
It is difficult for a new company to enter the market for fiber lasers. First of all it is expensive because heavy investments needs to be done in research and development and of course manufacturing facilities. It is a high-tech market and therefore it is not easily and quickly done by a whole new player in the market to establish itself. The most obvious way to enter the market for fiber lasers are through acquisition of smaller companies that already hold the facilities that are needed.
Other obvious entrants to the market of fiber lasers are the most established manufacturers of conventional lasers. Those of them that does not have access to the fiber laser market will probably seek to acquire an entry.
Photonics Group has a goal of becoming a global market leader within all three segments Imaging, Sensing and Fiber Processing and one of the strategic focus points is to find
partnerships that can increase the global market presence. So joint ventures or acquisitions will probably be the most important way to become the largest player in the market and take full advantage of the high growth. This means that existing players in the market has a possibility to grow even stronger, but also that new players has a possibility to enter the market if they have a technological edge that are interesting.
Threat of substitute products
Fiber lasers are the new product that can substitute the older products as conventional lasers, electronic meters and sensoring systems. Therefore it is not expected that any substitute product will take over from fiber lasers in the near future. The only possible substitutes are the older products and therefore focus turns to efficiency in terms of energy use, time and waste, and of course on the costs. This does not change the fact that the fiber laser market will keep winning on the alternatives. In the beginning of 2013 a leading manufacturer of conventional lasers announced its intention to use Photonics Groups crystal fibers in its new pulsed fiber
laser product. So the threat is more on the conventional manufacturers of laser than on the fiber laser industry.
Bargaining power of customers
The products that Photonics Group manufactures are not standard solutions that can be taken down from the shelf. Most of them are tailor made for the invidual project and in most cases the customer plays are large part in the making of the solution. So the final solution is often reached in cooperation between Photonics Group and the customer. This relationship gives the customer some bargaining power because he has a large impact on the final solution.
The market for fiber lasers are still a rapidly growing market that has in no way matured. This also means that the players in the market are no mastodonts. But it also means that a relative small number of players provide fiber laser solutions. This market situation means that customer lacks alternative manufacturers of fiber lasers and leaves the customer with little bargaining power.
All in all the customers barganing power is not a problem for Photonics Group right now. But as the market for fiber lasers gets bigger and more players enter with updated solutions the customers bargaining power increases.
This emphasizes the importance for any player in the market to stay technologically updated, to maintain a good cooperation with customers and to keep costs at lowest possible level.
Bargaining power of suppliers
The products manufactured by Photonics Group are made from unprocessed materials. This means that Photonics Group and the other players in the fiber laser market are the ones that add value to the product. It also means that the suppliers have no bargaining power because the manufacturers of fiber laser without any consequences can change to another supplier.
Intensity of competitive rivalry
The competitors of the Photonics Group are described earlier. The competitors differ
depending on the market segment. The competitive rivalry of the companies in the business are
still not high. The market for fiber lasers are still very unmatured and therefore the market players still have plenty of potential to compete about. As the market gets more matured and the market players grow bigger the competitive rivalry will intensify. The unmature nature of the market also means that competition primarily is based on technology and the ability to fit the solutions to customers needs.
In the Chinese and Korean markets within the Sensing segment there is a growing pressure on prices. These markets are characterized with high growth and therefore also has a bit more intense competitive situation. Photonics Group tries to meet this price pressure by streghening their position in the markets.
The growth of the total laser and sensor market is estimated to be around 5-8%. The fiber laser market still only form a smaller fraction of the market, but with higher estimated growth36. The share of the total laser market will get bigger soon and along with that comes are more
intensified competitive rivalry where both technology and prices will be the key factors in gaining a competitive edge.
3.3.4 Conclusion on Photonics Group
To sum up the conclusion on the strategic analysis of Photonics Group the most important findings will be listed based on the SWOT-model.
Strengths
Has a technological edge in a number of product segments
Comprehensive patent portfolio
Low supplier dependence
Green profile
Operates in a niche market
Weaknesses
Still needs to build a large sales network.
Only new started industrial player
36 NKT Annual report 2012
Dependent on high market growth
Opportunities
They operate in a market with high growth.
Increase sales to conventinal laser industry, fx. within the crystal fiber technology.
More strategic partnerships has to be made to increase access to more markets.
Threats
Lengthy regulatory approval process
Slower market growth
Price pressure on Asian markets