Growing the industrial laser market

I’ve been looking at the most recent fiscal year quarterly reports from companies in the Industrial Laser Solutions financial database because I was curious to see if a statement I have made a number of times is correct. The statement refers to companies pushing every last order out the door on the last day of their fiscal year so that annual sales were shown most favorably.

I averaged out the published results from a dozen leading suppliers of industrial lasers, laser systems, and related products and found two interesting facts: one related to the statement and the other confirming that the economy in the industrial laser sector was greatly improved.

On average the surveyed companies showed a modest single digit growth in revenues in the first quarter of FY11 compared to the last quarter of the previous fiscal year. Not surprising I guess, confirming my statement. I also noted that the last quarter of FY10 easily outperformed the previous three quarters.

At first I was a little disappointed in the numbers for the start of the new fiscal year, until I considered that fourth quarter FY10 was for many companies a record quarter, with some companies enjoying a 50% growth in revenues over the year coming out of the recession. Thus, a modest single digit growth on top of record revenues meant that FY11 was starting off with a bang.

On another matter, the Laser Institute of America's Northeast Regional meeting, held last week in Nashua, NH, focused on ultra-fast laser processing of industrial material. With a modest promotion, this event drew a record attendance with more than 80 members and non-members showing up, including some from the West Coast, who arranged their travel to include this event.

What drew this audience? For starters, four speakers form the laser supplier industry presented their products in a wide range of material processing applications, much to the surprise of many in the audience who were unaware of the rapid strides being made in the UFP technology. Led by the organizer and moderator Ron Schaeffer (Photomachining Inc.), presenters Bill Clark (Clark MXR), Mike Armas (Raydiance), Sid Wright (RPMC Lasers), and Paul Graham (TRUMPF) made a strong case for impressive sales growth over the coming years.

Even those familiar with this progress were impressed by the inroads these lasers are making into the industrial marketplace. And those of us who are always looking for the next big market push may have found it in the new applications that had, until now, not been laser capable.

What the * is going on here?

The world's oldest marathon(115 years), the Boston Marathon, produced a new world record for the men’s winning time and almost did the same for the women. A mild day on Monday with a rather strong and gusty wind at the runners' backs helped them to phenomenal times this year. Unfortunately, an archaic marathon regulation dealing with the total drop in altitude over the course, from start to finish, which should be 150 feet instead of Boston's approximately 300 feet, prohibits this record from being officially world class. But as my neighbor, a four time Boston runner said, “Try telling the runners that the Boston isn’t tough.” Reports are that the winning time, a world record, will be accompanied by an asterisk.

This week is bringing to our attention the early first quarter reports from the public companies and, as expected from the comments we have received over the past three months, activity in the industrial laser sector continues its last quarter of 2010 performance. This alone is noteworthy because the end of the year, as mentioned in earlier columns, is a “clear the house” time at companies anxious to pump up annual revenues. So when 1Q11 numbers exceed 4Q10 numbers, you know that the market conditions are excellent, or as they say in the wine business, it has legs.

This is not in ignorance of the situation in Japan, as cited earlier, as those numbers are not available yet, but will obviously be seriously impacted by the reduced production schedules being experienced by most Japanese manufacturers. We are eagerly awaiting these numbers as we are now preparing a revised 2010 report and a new 2011 forecast to be presented in June on an ILS Webcast. But as we have stated earlier, any drag on the global economy should be noted with an asterisk as it is not a reflection on the market but on the result of the disaster in Japan.

Lasers not so unusual any more

The news early this week is more pessimistic than optimistic, but not enough to cause any media newsbreaks. Stalemates in Afghanistan and Libya, one step forward and one back in Fukushima, and the U.S. Congress kept the government from shutting down, just as most of us knew they would after a lot of posturing.

On a much smaller scale than these events, business in the industrial laser sector is great, sort of contrary to all the dull international and national news. China’s trade balance went negative, ho hum, in sectors not impacting laser sales. Yes, Japan has yet to get their industries perking again and that’s not good, but not news. Industry in the U.S. and Europe are still on an upward arc, even though the latter is coping with a bailout in Portugal.

So the past weekend was peaceful and quiet except for the concern for the Red Sox losing streak; two out of three wins over the Yankees ended that. So my only temporary concern was for the poor golfer who blew a 12 stroke lead in the Masters and plunged out of site on the scoreboard. With a gaggle of very good golfers in the hunt at the end, his disappearance went unnoticed.

Do you ever get the feeling that things are too stable and that something will upset the quiet this week? I’ll be participating in SALA, the Symposium for Advanced Laser Applications, where among my duties I have the pleasure of hosting the Innovation Award for Laser Applications in Manufacturing Operations. I haven’t seen the acceptance speech by the awardee, Dr. Marshall Jones from GE, but I hope that he will mention the impact that the laser technology he championed had on GE to make it more productive and competitive. Because this is typical of what pulled U.S. manufacturing out of the recession so rapidly, manufacturers here are the most productive among industrialized nations.

Here productivity equates to automation and automation is almost connected to the word laser. For the first decade of this technology, equipment sellers were hesitant to use the word automation, as it raised warning signal with unions. Then, as the threat of automation on the job market seemed to disappear, global competiveness made it an antidote for low labor cost competition.

Laser fit nicely into automation systems, and low operating cost and maintenance free operation make them attractive for multi-shift operations.

One aspect that I think has helped is that the mystique of the laser has all but disappeared as tens of thousands of units are operating around the world, many in plants where they are no longer considered unusual. And that is a good thing.

Potential nuclear fallout in the laser market

I’m getting more concerned about the nuclear accident situation in Japan than I was when I wrote last week’s blog. At that point I could envision a sooner rather than later return to normalcy at Fukushima, but now, as this is written, it’s beginning to look more like Chernobyl.

Setting aside the human misery connected to this event is difficult; here in my home state we are already measuring increased, but said to be safe, radiation levels in our drinking water, and the neighboring state of Vermont reports measureable radiation level increases in the snowpack on the mountains.

I’m far from being knowledgeable about nuclear power plant meltdowns, but many years ago, a good friend, Professor Vladimir Kovalenko of Kiev Polytechnical University, shared his observations on the Chernobyl solution with me. He had asked my assistance in soliciting funding from the U.S. Department of Energy to work on a solution to dismantling the Chernobyl reactor. It turns out we couldn’t get anyone interested in his approach, but in the doing I learned a little about sealing off reactors. Thus, I have a hard time seeing Fukushima’s three reactors being sealed as successfully as Chernobyl. I certainly hope they will.

Thursday at midnight is the end of Japan’s fiscal year. In the past, this was “hell week” as companies worked 24 hours a day to ship every billable order in their plants to insure a healthy end of year revenue report. It’s too late for many of the companies this year as it will be nearly impossible to get enough product shipped to influence the numbers.

I don’t have the facts, just reports here in the U.S. media about no shipments of parts, for example in the automotive industry, from Japan. At the very least, this lack of billable shipments has to hurt the last quarter and year end numbers. I estimate that Japan accounted for more than a $1 billon of industrial lasers and systems last year, and at 15% of world share any change in sales will be noted in the total global number for 2011.

I am currently working on a Mid-Year Report on the Industrial Laser Market that will be presented as a Webcast on June 30. I am going to delay making my final PowerPoint slides as long as possible so that I can get the Japan numbers right. The total impact of the Fukushima accident won’t likely be known until the end of the first half year here in the U.S. when public companies report their 6 month revenues.

Indicators point to disruption in Japan market -- maybe

As this is written, the disaster in Japan is 10 days old and the initial shock and awe is past. We are now coping with the recovery from the earthquake and tsunami and living in dread that more bad news will emanate from the nuclear power plant in distress.

Fortunately, to the best of my knowledge, my friends and associates in Japan are all accounted for and safe, and for that we are extremely thankful, even while we share the sadness of the Japanese people for those dead and missing.

To talk about the economic condition of the country and specifically the situation in the manufacturing sector almost seems blasphemous since there is so much personal suffering to get past. But our attention has been diverted by events in Libya where once again our armed forces are involved in another political action so we can view global things more dispassionately

Several querists have asked my opinion of the Japan disaster's effects on the industrial laser industry. Since the issue is far from settled, it is hard to project the impact that a nuclear event might have because the situation, as they are wont to say, is fluid.

Already we have heard about the impact in the semiconductor and microelectronics industries and today’s Web alerts spoke of auto plant shut downs here in the U.S. as plants are coming up short on component inventory. At breakfast this morning, my wife, commenting on TV news about a shortage affecting GM, said that it “wouldn’t have happened if they placed orders here in the U.S.” I think that was a sarcastic remark, not typical of her.

According to my records, Japanese suppliers were planning to ship mot=re than 900 laser sheet metal cutters, 500 via hole drilling machines, and a couple of thousand laser markers along with assorted industrial lasers products. Word is that many of the suppliers are on a short work schedule or closed. So shipments will be affected; the questions are for how long and can the companies recover?

It is the end of the Fiscal Year in Japan and the last quarter revenues will be seriously impacted. I guess I'll have to put an asterisk against the Japanese numbers in my report this year, signifying that the numbers must be read in light of the earthquake and tsunami disaster.

Japan tested by earthquake and tsunami

Along with countless others who have travelled in Japan, I am watching the news showing the results of the horrible earthquake and tsunami that struck the coast of Japan last week.

I made the first of many trips to Japan in 1978, and I still recall the thrill of landing in Asia for the first time at- Narita airport, which had just opened and was being besieged by protesters because local farmers objected to the government’s eminent domain policies. I spent three weeks and traveled many hundreds of miles visiting companies and touring most of the major cities. On that trip I met and/or was introduced to hundreds of Japanese citizens as I made presentations at the US Embassy and several major companies and universities involved in laser material processing. Many of the people I met remain among my valued acquaintances. They welcomed me to their country, gave freely of their time and knowledge to see that I was educated about their country, and made to feel at home.

A most memorable visit on the first trip was an unescorted walk through the Hiroshima Peace Memorial Park one Friday afternoon. I was one of the day’s last visitors and the only Westerner at that late hour. When you are all alone on such hallowed ground, you have the opportunity to think about the destruction and disruptions the atomic bomb caused. That visit was one of the most poignant I have ever made to memorials around the world. I left with a deeper appreciation for the resilience and dignity of the people of Japan who had suffered from the event.

As I watched the news reports flooding in, I was struck by the similarity of my feelings. Here was another sudden disaster visited on the peoples of Japan. My first thoughts went to many friends, associates, and acquaintances I am privileged to have in Japan. I contacted my closest acquaintances to ascertain their situation. One, my colleague who manages Industrial Laser Solutions – Japan, responded to my e-mail with a message that she and her family who live in Hokkaido were all OK. She ended her message by saying “I would like to say thank you to the US government that sent a big support to the afflicted area. It encouraged us a lot.”

As the weeks go by, we will follow the recovery in Japan. I am scheduled to be in Yokohama late in September; by that time, some level of stability should have been reached, but the lingering effects will be as indelible as the Hiroshima Memorial.

Fuel costs dampening rising economy

I was pumping $3.39 per gallon gas into my car and thinking that this fill was going to cost me about $2.00 more than last week and $4.00 more than the last week in February. I don’t use my car as much as many who pile up the business miles each week and consequently feel the pain more. A friend takes a $60 load every week and, since he is a practicing psychologist, the only way he can cover the fuel cost is to slip an extra hour per week of consulting time into his schedule.

The company that picks up my trash weekly bills me for fuel adjustment and if I hadn’t already booked an overseas flight a month ago I would be paying a fuel surcharge. Those who can pass it on will do so now that the weekly changes are in the double digits. Those who can’t will see their cost of doing business increase with an attendant drop in profits.

I’ve been touting the end of the recession and, like many analysts, qualified my forecast by stating that it assumed a status quo in the world economy. Current events in certain oil producing states have slammed the cost of doing business, and some pundits are raising the specter of another recession. Some of these forecasters stubbornly refused to acknowledge the recovery, and, as the weeks went by this year, they railed against the good news with a series of qualifiers, none of which by the way included double digit weekly hikes in the cost of fuel.

The rising cost of a barrel of petroleum, manifested at the world’s gasoline pumps, is one of those few costs of doing business that transcends national interests. The cost of fuel passed on to consumers directly or indirectly eventually impacts everyone.

Talking with an executive of a laser product manufacturer the other day, he was commenting on the power of the Asian manufacturing market to recover from the recession, while here in the U.S. it looked like his manufacturing customers were not recovering at the speed and rate of their offshore competition. He speculated the projected further increases in fuel costs might prove to be the death knell for many marginal suppliers located in the U.S. just when business was beginning to look up.

I countered that all global manufacturers may be forced to pass on the fuel cost increase effects to customers since it is a common global problem and that should level the playing fields somewhat.

Even in a service oriented economy like the U.S., these fuel cost increases will have an impact along the lines of my psycologist friend who ramps up his chargeable hours to offset the rise. So, whether U.S. manufacturers compete or not, the economy here is in for a jolt, and it may be so widespread that spending will drop just when the consumer was bailing us out of the recession. Not a pretty picture.