Stick with specialty fiber - the industry needs you

Nov. 1, 2004
From the current exodus of companies from the specialty fiber ­in­dustry, one could be forgiven for thinking that it is waiting for the last rites to be administered.

From the current exodus of companies from the specialty fiber ­in­dustry, one could be forgiven for thinking that it is waiting for the last rites to be administered. Quite apart from the price erosion and attempts to commoditize the industry that the recent influx of new players created, the departure of new and established players is an inevitable shakeout of an overpopulated marketplace.

Success in this market is a combination of long-term focus, ­in-depth expertise, and listening to and working closely with customers. The death of the specialty-fiber ­industry would deal a catastrophic blow across a broad range of industries. Reports of this impending demise, however, have been grossly exaggerated.

The “strategic withdrawal” of some specialty-fiber startups to the “high-power laser subsystem” business and the recent ­announcement by one seasoned player of the ­impending closure of their ­specialty-fiber facility has done little to cool the “buyers market” that those component manufacturers fortunate enough to have orders to fill are currently enjoying. Nevertheless, they should all take note that one day, perhaps quite soon, their next generation of product may need the services of an “old-school” specialty-fiber company - one that genuinely possesses the technical and commercial resources to deliver attentive customer service and quality product, in volume.

In some ways, this is reminiscent of the “bad old days” of telecoms; the difference is the companies’ refocusing or simply rebranding in 1999 to make ­fortunes.

Today, the prime motivation is survival. During the “Boom,” even some of the most respected names in the ­specialty-fiber industry turned their backs on longstanding commitments to supply contracts to the aerospace, ­defense and research communities ­because, frankly, these were of secondary importance to the certain promise of ­untold riches.

Any component manufacturer that has had the misfortune to base a design on a fiber developed by one of those ­recently departed (or reinvented) companies today will have found itself in a familiar predicament. Requalification or, even worse, abandoned development programs are costly lessons, so the moral of the story is crystal clear: when assessing suppliers, always look to the long-term and never be tempted into taking chances, however compelling the “story” or attractive the price.

So, will those companies previously known as specialty-fiber manu­facturers fare any better in their latest ­incarnations?

One of the failings that many of the new entrants made when they entered the special-fiber market was their failure to understand the complexity of a niche market. In fact, in part thanks to analysts’ predictions, most did not even seem to recognize that it was a niche, and have continued to make the same fundamental mistake.

Whether the decisions were made in 1999 or in 2004, certain characteristics remain the same - market size is grossly overestimated and estimates of penetration and growth rates are hopelessly unrealistic. The current premise seems to be that new technologies can penetrate existing markets and spawn entirely new, sustainable business areas within two to three years.

Unfortunately, history disagrees. Only look at the development of applications like EDFA (erbium-doped fiber amplifiers) and fiber-optic gyroscopes (FOGs), to see the development life­cycles of products using special fibers and to understand that success is a marathon, not a sprint.

The rise of the EDFA has been meteoric by any standards, taking the “magic” three years from first concept in 1987 to first commercial product circa 1990, but a further 10 years to become an accepted part of telecom networks (and to crash!).

With the FOG, the clock is currently running at 22 years and counting, with a market penetration of not much more than 5 percent; the experience in high- power fiber-laser subsystems or industrial applications for special fibers is highly unlikely to be any different. The key question is will the current crop of investors be willing to wait for as long as it takes? Once again, history has the answer.

As many of the startups leave the specialty-fiber arena, one concern is its knock-on effect on developing new ­applications that use, or could use, specialty fibers because of fears over continued supply or quality of product. Having wreaked havoc in the industry by driving prices down and offering solutions that turn out not to be replicable in volume, manufacturers must work to ensure the departure of these companies does not have a detrimental effect on confidence in our industry.

Successful development demands time, focus, and investment from all concerned. It is essential for the on­going technological progress and prosperity of the specialty fifer industry, the device and component manufacturers, and the industries our products are ­ultimately destined for, that current ­projects do not get derailed.

Working to develop new fiber solutions for emerging application areas ­requires a commitment to innovation and consistency - being able to manufacture a fiber in volume to the same ­exacting standards. The specialty-fiber industry also must remember that ­research and development is a business overhead and, as such, requires funding through regular, repeat business for significant volumes of product, from a ­stable client base - something the start­ups simply don’t have.

Recently, much has been made of ­increases in telecoms components volumes and an increase in fiber deployments as an indication that telecoms are on its way back. These increases are certainly real - with volumes of ­erbium-doped fiber up more than 100 percent from mid-2003. But anyone thinking of celebrating just yet should hold back a while to consider:

• the market is now concentrated within a very small number of key players;

• these increases are being recorded from a low base; and

• unit prices are typically one quarter of what they were at the beginning of 2000 - even though it was zero demand, not high prices that caused the recession.

It is therefore clear that no single ­specialty-fiber niche, neither established like telecoms and FOG, nor “new” like high-power fiber lasers, has the individual strength to support a successful stand-alone business. Once again, the ultimate winner will be the specialty fiber company that sticks to its guns, or perhaps even its smart-weapons systems, concentrates on fiber, and continues to support a broad range of application areas.

Chris Emslie is managing director of specialty fiber manufacturer Fibercore Limited in Southampton, England. He is available by e-mail at [email protected] or by phone at + 44 (0) 2380 76 9893.

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