Historically, the VCSEL market has been driven by datacom applications. But a few years ago, 3D sensing applications entered the consumer market. This created a new growth momentum and opened the way to many more applications. Emerging applications, particularly in automotive and industrial, are expected to be fruitful opportunities for VCSEL manufacturers. In this context, Yole Développement forecast in its VCSELs – Market and technology trend report 2020 that the global VCSEL market was about $1.1B in 2020 and is expected to reach $2.7B in 2025, driven mainly by mobile and consumer applications.
In the VCSEL ecosystem, many players are involved. Most of them are small, but two big players make up 70% of this market: II-VI and Lumentum. II-VI has grown very fast with several acquisitions and is increasing its involvement in Apple’s supply chain.
Martin Vallo and Pierrick Boulay, Market and Technology analysts at Yole Développement (Yole), had the opportunity to talk about VCSELs with Sanjai Parthasarathi, Chief Marketing Officer at II-VI Incorporated. Discover the detail of their discussion below.
Martin Vallo (MV): COVID-19 is a worldwide health crisis and has impacted every industry. How was II-VI impacted in 2020, and what are your expectations for 2021?
Sanjai Parthasarathi (SP): Initially, we witnessed how the entire II-VI team in China quickly acted to manage a health crisis like none of us had seen in our lifetime. They were able to bring all our China facilities back to normal by the middle of March 2020. It was a remarkable accomplishment for which the whole team deserves great recognition. The detailed procedures and thorough methods that they defined and implemented became the framework for the rest of II-VI to adopt and adapt as the pandemic grew in other parts of the globe.
Since the very beginning of this crisis, our top three priorities have been clear:
- Assuring the safety, security, and well-being of our employees;
- Ensuring the protection, continuity, sound operations, and value of our business and its opportunity to continue to grow; and
- Complying fully with the government orders issued in response to COVID-19.
We have executed precisely on our priorities and are working hard every day to maintain this high II-VI standard of excellence.
We are also able to contribute to the fight in our own way. As many of you already know, II-VI has a product portfolio of lasers, optics, thermoelectrics, and subsystems to address the growing life sciences market. II-VI plays a key role in the supply chain for COVID testing based on the polymerase chain reaction (PCR); our filters and thermoelectrics are essential parts of most PCR equipment. We have been ramping up our capacity for these components as demand from our customers who make this test equipment grew exponentially from the start of the pandemic, driven by the need for COVID testing.
In fact, this growth led to the buildout of additional manufacturing space at our Santa Rosa (California) facility, with a goal to double the manufacturing capacity of optical filters over the next five years.
MV: II-VI produces a wide variety of application-specific photonic and electronic materials and components and deploys them in various forms for different laser systems. Regarding VCSELs for smartphones, II-VI increased its activity and recently became part of Apple’s supply chain for the LiDAR module in iPhones.
How do you view the competition with other VCSEL manufacturers, and how do you differentiate from them?
SP: We are proud to be serving so many large innovators, like Apple, that are also committed to having a profoundly positive impact on the world. The announcement by Apple focused on an award from Apple to II-VI of up to $410 million in future business from their Advanced Manufacturing Fund. As Apple stated in their announcement, this will accelerate II-VI’s delivery of future components for iPhones.
We first went public with our 3D sensing story in 2016. We said on our Investor Day in 2017 that entering the 3D sensing market with a vertically integrated 6-inch platform would prove to be the most long-term competitive and sustainable strategy. We have since executed on that strategy, and we are in a very strong position today because we believed in the opportunity very early on and have made significant investments over the past five years. Our acquisition of Finisar created a lot of synergies in manufacturing as well as in R&D. That combination enabled us to deliver great value to our customers, which in turn led to significant market share growth. What sets us apart from our competition is our commitment to in-house manufacturing, which is based in the United States. We own our fabs and control all the critical steps of the process, from epitaxy to wafer fabrication and automated testing. This translates into excellent quality, a flawless delivery record, and a very competitive cost structure. We are confident that our world-class R&D team and increasing investments in next-generation VCSEL technology will continue to propel us ahead of the competition.
Pierrick Boulay (PB): Regarding the Apple LiDAR module, what would be the main applications? Will it remain photography, or do you think the augmented reality application can really take off?
SP: While we cannot comment on specific customer opportunities, we can note that 3D sensing has a myriad of applications and potential.
For example, 3D sensing can greatly enhance smartphone photography, and this will remain an important use case. However, the technology is capable of so much more, and we firmly believe in the future of mixed and augmented reality. It is only a question of when — not if — this market will take off, and 3D sensing will be an absolutely vital part of this ecosystem. There is a lot more activity today than there was two years ago, and customers are becoming much more engaged as the technology is moving out of the lab and transitioning into product development. Across II-VI, we have many engagements in this emerging field, not just for VCSELs, but also for optics and advanced materials.
PB: Apple is using the bulk of VCSELs produced for 3D sensing.
Do you see other smartphone OEMs following a similar path? Or do you think other smartphone manufacturers will use VCSELs only for their flagships and / or specific functionalities (e.g., facial recognition, AR, etc.)?
SP: We believe that 3D sensing is likely to become ubiquitous in smartphones and other mobile devices, though it may take a few years.
At II-VI, we like to take a long view on the market; for example, in some platforms, like SiC, we have invested for over two decades, and those investments have recently started to pay off. In the emerging augmented reality ecosystem, smartphones and other wearable computing devices will be able to understand the context of where we are, what we are doing, and what is happening around us.
This technology has the potential to transform many aspects of our lives, from how we work and collaborate to how we communicate or meet other people. 3D sensing is one of the disruptive technologies that will enable this new ecosystem. Ultimately, this is why we decided to enter this market, and it is one of the cornerstones of our strategy.
PB: It seems that VCSEL devices have accommodated applications. In automotive, EELs were the first choice of LiDAR manufacturers, but recently we have seen an increasing number of LiDAR manufacturers using VCSELs.
How do you see these two light sources evolve in this application? What are the reasons?
SP: We like to segment the automotive 3D sensing market into in-cabin sensing (for gesture recognition and occupancy monitoring) and LiDAR (for ADAS/autonomy). We have been shipping VCSELs for in-cabin applications for quite some time now. We do see applications for VCSELs for ADAS and autonomy for shorter-reach applications such as pedestrian detection and on the sides of the vehicle.
In fact, recently, several OEMs and Tier 1s have announced VCSELs for such applications for production vehicles as early as 2022. The single most important advantage of edge-emitting lasers over VCSELs is their ability to generate higher optical output power for a given chip area. A small and relatively inexpensive chip can generate a short pulse of over 100 W of optical power, which is why EELs have been widely adopted in LIDAR applications. VCSEL arrays of the same area do not achieve the same optical output power, but the gap is not as large as it used to be.
We have recently announced double-junction VCSELs with significantly increased optical power per emitter, and we are currently developing multi-junction designs that will further narrow the gap with EELs. VCSELs, of course, have other well-known advantages, such as ease of integration, testability on the wafer level, and a circular beam shape.
Nonetheless, EELs are still key for long-range LiDAR and are a prime candidate for 1550 nm LiDAR solutions where higher power can be utilized and still remain eye-safe.
Ultimately, the decision on whether to use VCSELs or EELs will be driven by tradeoffs at the system level. The shorter the range and the less peak power required, the more compelling VCSELs become relative to EELs. We think the two laser types will coexist, depending on the specific requirements within the ADAS architecture and the interaction with the other sensing systems with which a vehicle will be equipped. II-VI offers both VCSELs and EELs, supporting any configuration our customers could need.
MV: Historically, and before 3D sensing applications emerged in this manner, datacom was the main driver for VCSELs. How do you view the trends nowadays in datacom applications?
There are several possibilities for how the laser technologies will position themselves:
- VCSEL-based modules will replace direct attach copper (DAC)
- Single-mode VCSELs will penetrate single-mode (EEL) applications
- Single-mode (EEL-based) transceivers will penetrate short-reach (VCSEL-based) applications
- Coherent (EEL-based) transceivers will penetrate datacom applications.
Can you tell us your view on the future penetration/migration of these technologies?
What do you expect the trend to be for EELs and VCSELs in terms of volumes in future optical modules?
SP: Overall, we foresee continued growth in both multimode and single-mode links for datacom. In terms of volume, we expect multimode links to maintain the same relative share as seen historically so far.
- VCSEL-based modules replacing DAC: Yes, we think this will become a significant trend. Several factors are contributing to create this opportunity. Servers and GPUs are becoming more powerful, justifying a need for 50G and 100G ports. They are also consuming more power, putting pressure on the power budget of a server rack. At the same time, switches with high radix are becoming more prevalent in the market. They can connect to more servers and GPUs. A combination of all these factors implies that a traditional top-of-rack switch will be moved to a remote location about 20 to 30 meters away. As the data rate increases, it gets harder and harder to achieve the same distance with electrical-only solutions due to impairments. And DAC links will migrate to multimode optical links over time.
- Single-mode VCSELs penetrating single-mode EEL applications: We don’t see this as a significant trend. The most cost-effective sweet spot is multimode VCSELs deployed in transceivers for multimode links.
- Single-mode EEL-based transceivers penetrating short-reach applications: we do no expect this to appreciably happen for several years to come. For 100G optical lanes, IEEE 802.3db standard will define specifications for multimode links supporting both 50 m and 100 m reaches on OM4 fiber. This will enable a variety of 100G and 400G multimode transceiver modules. For future 800G Ethernet, the IEEE Beyond 400G Study Group is discussing options that include a multimode version using eight lanes of 100G. These standards will see a market cycle that will last at least up to 2030.
- Coherent transceivers penetrating datacom applications: This is possible but unlikely for several years. If you define datacom reaches as up to 10 km, then MSA-compliant 400G-LR4-10 transceiver modules are already shipping in the market. These are based on direct detection and are more cost-effective than coherent transceivers. For future 800G Ethernet, coherent transmission is an option worth considering for 10 km reach applications. In addition to cost, the coherent solutions would need to compete in power consumption, which has historically also been a challenge. But it will have to compete against direct-detection alternatives like 800G-LR8. Instead, coherent solutions are gaining traction in the data center interconnect and metro edge applications, thanks to the availability of pluggable coherent optics. Deployments of coherent transceivers are ramping up, especially for webscalers, but also traditional telco operators are looking at these kinds of modules.
VM: II-VI is also a manufacturer of high-power semiconductor laser components enabling fiber and direct diode laser systems for material processing, medical, and printing applications.
What drives the traditional high-power applications?
SP: The industrial market represents one of the core businesses for II-VI.
The underlying demand for fiber and direct-diode lasers has recovered to levels unseen in two years and is expected to grow again.
We are actually recording a rapidly growing demand for fiber-laser pump chips. Typical high-power applications are in materials processing, like cutting, welding, cladding, and marking in industrial, or hair removal in aesthetics.
Moreover, advanced manufacturing applications like additive manufacturing are also enabled by lasers. Remote laser welding heads assisted by machine-vision software for automation and laser processes for electric-vehicle battery manufacturing are additional key growing areas.
While not requiring high power, demand for lasers for diagnostics, especially COVID testing applications, has seen a sharp increase, and as the broader economy recovers, we expect to see the demand for medical lasers increase.
MV: Where do you see new opportunities for solid-state lasers? What other areas are you looking at?
SP: Solid-state lasers, including semiconductor lasers, are not only the fastest-growing laser segment, they are also expected to be the largest segment of the laser market by revenue by 2026. Besides the traditional usage, innovative applications are opening new opportunities for solid-state lasers, including materials processing applications like laser additive manufacturing, welding systems for batteries, long-range LiDAR sources, and high-energy lasers for defense. These are some new markets we are excited about and in which we look forward to playing an increasing role.
PB: In December 2020, II-VI announced that you have entered into a supply agreement with Coherent, collaborating to enable faster process development and supply turnkey automotive and electrification welding solutions.
Then you won a bidding war for Coherent.
Could you comment on the trend to create large, diversified photonics technology houses (II-VI/Finisar/Coherent; MKS/ESI; …)?
What do such combinations mean for the photonics industry and especially for the laser players that are well established, particularly in the photonics application area?
And according to you, can we expect that this trend will continue?
SP: On March 25, 2021, we were selected as the successful bidder for Coherent. We have known and regarded Coherent for years as pioneers of industrial laser processing, and we have been discussing a possible strategic combination with them for quite some time. Coherent will add complementary strengths to II-VI with their expertise in industrial laser solutions for precision manufacturing and a focus on the markets and applications for life sciences, semiconductor capital equipment, and aerospace and defense, three of II-VI’s important emerging markets. We are excited about expanding our technical resources with deep domain knowledge in laser technologies to continue to bring breakthrough solutions to the market. The combination will also expand our access to new markets and provide us an unmatched opportunity to bring tremendous value to our customers and enable them to be successful in their chosen markets.
Sanjai Parthasarathi joined II-VI in 2013 and has been the Chief Marketing Officer since 2019. Previously, Dr. Parthasarathi was Vice President, Product Marketing and Strategy, for II-VI Photonics since 2015. Prior to II-VI, he served as Senior Director, Product Line Management, at Oclaro. With over 28 years of broad management and technical experience, Dr. Parthasarathi has held a variety of progressive roles in R&D, manufacturing, product line management, and marketing, including senior business and technical management positions at Avanex Corporation, Oplink Communications, TeraStor, Western Digital, and Concurrent Technologies Corporation. Dr. Parthasarathi graduated from the Indian Institute of Technology, Madras, with a B.S. degree in Mechanical Engineering and holds an M.S. in Mechanical and Aerospace Engineering from the University of Virginia and a Ph.D. in Engineering Science from the Pennsylvania State University.
As part of the Photonics, Sensing & Display division at Yole Développement (Yole), Pierrick Boulay works as Market and Technology Analyst in the fields of LED, OLED and Lighting Systems to carry out technical, economic, and marketing analyses. He has experience in both LED lighting (general lighting, automotive lighting…) and OLED lighting. In the past, he has worked mainly in R&D departments on LED lighting applications. Pierrick holds a master’s degree in Electronics (ESEO – France).
Martin Vallo, PhD, is a Technology & Market Analyst specializing in solid-state lighting technologies, within the Photonics, Sensing & Display division at Yole Développement (Yole). With 9 years’ experience in semiconductor technology, Martin is involved today in the development of technology & market reports as well as the production of custom consulting projects at Yole.
Prior to his mission at Yole, he worked at CEA (Grenoble, France), with a mission focused on the epitaxial growth of InGaN/GaN core-shell nanowire LEDs by MOCVD and their characterization for highly flexible photonic devices. Martin graduated from the Academy of Sciences, Institute of Electrical Engineering (Slovakia), with an engineering degree in III-nitride semiconductors.
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