It has been more than 60 years since the first “beam of coherent light” was generated in a California laboratory in 1960. As the inventor of the laser, T.H. Maiman, said, “A laser is a solution in search of a problem.” Laser, as a tool, It is gradually penetrating into many fields such as industrial processing, optical communications, and data computing.
Chinese laser companies, known as the “Kings of Involution”, rely on “price-for-volume” to seize market share, but they pay the price for falling profits.
The domestic market has fallen into fierce competition, and laser companies have turned outward and set sail to seek a “new continent” for Chinese lasers. In 2023, China Laser officially started its “first year of going overseas.” At the Munich International Light Expo in Germany at the end of June this year, more than 220 Chinese companies made a group appearance, making it the country with the largest number of exhibitors except the host Germany.
Has the boat passed the Ten Thousand Mountains? How can China Laser rely on “volume” to stand firm, and what should it rely on to go further?
1. From the “golden decade” to the “bleeding market”
As a representative of emerging technologies, domestic laser industry research started not late, starting almost at the same time as international ones. The world’s first laser came out in 1960. Almost at the same time, in August 1961, China’s first laser was born at the Changchun Institute of Optics and Mechanics of the Chinese Academy of Sciences.
After that, large-scale laser equipment companies in the world were established one after another. In the first decade of laser history, Bystronic and Coherent were born. By the 1970s, II-VI and Prima were established successively. TRUMPF, the leader of machine tools, also started in 1977. After bringing back a CO₂ laser from his visit to the United States in 2016, TRUMPF’s laser business kicked off.
On the track of industrialization, Chinese laser companies started relatively late. Han’s Laser was established in 1993, Huagong Technology was established in 1999, Chuangxin Laser was established in 2004, JPT was established in 2006, and Raycus Laser was established in 2007. These young laser companies do not have a first-mover advantage, but they have the momentum to strike later.
In the past 10 years, Chinese lasers have experienced a “golden decade” and “domestic substitution” is in full swing. From 2012 to 2022, the compound annual growth rate of my country’s laser processing equipment industry will exceed 10%, and the output value will reach 86.2 billion yuan by 2022.
In the past five years, the fiber laser market has rapidly promoted domestic substitution at a speed visible to the naked eye. The market share of domestic fiber lasers has increased from less than 40% to nearly 70% in five years. The market share of American IPG, the leading fiber laser, in China has dropped sharply from 53% in 2017 to 28% in 2022.
Figure: China’s fiber laser market competition landscape from 2018 to 2022 (data source: China Laser Industry Development Report)
Let’s not mention the low-power market, which has basically achieved domestic substitution. Judging from the “10,000-watt competition” in the high-power market, domestic manufacturers compete with each other, demonstrating “China Speed” to the fullest. It took IPG 13 years from the release of the world’s first 10-watt industrial-grade fiber laser in 1996 to the release of the first 10,000-watt fiber laser, while it only took 5 years for Raycus Laser to go from 10 watts to 10,000 watts.
In the 10,000-watt competition, domestic manufacturers have joined the battle one after another, and localization is advancing at an alarming rate. Nowadays, 10,000 watts is no longer a new term, but a ticket for enterprises to enter the continuous laser circle. Three years ago, when Chuangxin Laser exhibited its 25,000-watt fiber laser at the Shanghai Munich Light Expo, it caused a traffic jam. However, at various laser exhibitions this year, “10,000 watt” has become the standard for enterprises, and even 30,000 watt, The 60,000-watt label also seems commonplace. In early September this year, Pentium and Chuangxin launched the world’s first 85,000-watt laser cutting machine, breaking the laser wattage record again.
At this point, the 10,000-watt competition has come to an end. Laser cutting machines have completely replaced traditional processing methods such as plasma and flame cutting in the field of medium and thick plate cutting. Increasing the laser power will no longer contribute significantly to cutting efficiency, but will increase costs and energy consumption. .
Figure: Changes in net interest rates of laser companies from 2014 to 2022 (data source: Wind)
While the 10,000-watt competition was a complete victory, the fierce “price war” also dealt a painful blow to the laser industry. It only took 5 years for the domestic share of fiber lasers to break through, and it only took 5 years for the fiber laser industry to go from huge profits to small profits. In the past five years, price reduction strategies have been an important means for leading domestic companies to increase market share. Domestic lasers have “traded price for volume” and flooded into the market to compete with overseas manufacturers, and the “price war” has gradually escalated.
A 10,000-watt fiber laser sold for as high as 2 million yuan in 2017. By 2021, domestic manufacturers have reduced its price to 400,000 yuan. Thanks to its huge price advantage, Raycus Laser’s market share tied IPG for the first time in the third quarter of 2021, achieving a historic breakthrough in domestic substitution.
Entering 2022, as the number of domestic laser companies continues to increase, laser manufacturers have entered the “involution” stage of competition with each other. The main battleground in the laser price war has shifted from the 1-3 kW low-power product segment to the 6-50 kW high-power product segment, and companies are competing to develop higher-power fiber lasers. Price coupons, service coupons, and some domestic manufacturers even launched a “zero down payment” plan, placing equipment for free to downstream manufacturers for testing, and competition became fierce.
At the end of the “roll”, the sweating laser companies did not wait for a good harvest. In 2022, the price of fiber lasers in the Chinese market will drop by 40-80% year-on-year. The domestic prices of some products have been reduced to one-tenth of the imported prices. Companies mainly rely on increasing shipments to maintain profit margins. Domestic fiber laser giant Raycus has experienced a substantial year-on-year increase in shipments, but its operating income fell by 6.48% year-on-year, and its net profit fell by more than 90% year-on-year. Most domestic manufacturers whose main business is lasers will see sharp net profits in 2022 falling status.
Figure: “Price war” trend in the laser field (data source: compiled from public information)
Although leading overseas companies have suffered setbacks in the “price war” in the Chinese market, relying on their deep foundations, their performance has not declined but increased.
Due to TRUMPF Group’s monopoly on the EUV lithography machine light source business of Dutch technology company ASML, its order volume in fiscal year 2022 increased from 3.9 billion euros in the same period last year to 5.6 billion euros, a significant year-on-year increase of 42%; Gaoyi’s sales in fiscal 2022 after the acquisition of Guanglian Revenue increased by 7% year-on-year, and order volume reached US$4.32 billion, a year-on-year increase of 29%. Performance exceeded expectations for the fourth consecutive quarter.
After losing ground in the Chinese market, the largest market for laser processing, overseas companies can still achieve record high performance. What can we learn from the laser development path of leading international companies?
2. “Vertical integration” vs. “Diagonal integration”
In fact, before the domestic market reaches 10,000 watts and launches a “price war”, leading overseas companies have completed a round of involution ahead of schedule. However, what they “rolled” is not price, but product layout, and they have started industry chain integration through mergers and acquisitions. path of expansion.
In the field of laser processing, international leading companies have taken two different paths: on the road of vertical integration around a single product industry chain, IPG is one step ahead; while companies represented by TRUMPF and Coherent have chosen “Oblique integration” means vertical integration and horizontal territory expansion “with both hands.” The three companies have successively started their own eras, namely the optical fiber era represented by IPG, the disc era represented by TRUMPF, and the gas (including excimer) era represented by Coherent.
IPG dominates the market with fiber lasers. Since its listing in 2006, except for the financial crisis in 2008, operating income and profits have remained at a high level. Since 2008, IPG has acquired a series of manufacturers with device technologies such as optical isolators, optical coupling lenses, fiber gratings, and optical modules, including Photonics Innovations, JPSA, Mobius Photonics, and Menara Networks, to conduct vertical integration into the upstream of the fiber laser industry chain. .
By 2010, IPG’s upward vertical integration was basically completed. The company achieved nearly 100% self-production capacity of core components, significantly ahead of its competitors. In addition, it took the lead in technology and pioneered the world’s first fiber amplifier technology route. IPG was in the field of fiber lasers. Sit firmly on the throne of global dominance.
Figure: IPG industry chain integration process (data source: compilation of public information)
At present, domestic laser companies, which are trapped in a “price war”, have entered the “vertical integration” stage. Vertically integrate the industrial chain upstream and realize self-production of core components, thereby enhancing the voice of products in the market.
In 2022, as the “price war” becomes increasingly serious, the localization process of core devices will be fully accelerated. Several laser manufacturers have made breakthroughs in large-mode field double-cladding (triple-cladding) ytterbium-doped laser technology; the self-made rate of passive components has increased significantly; domestic alternatives such as isolators, collimators, combiners, couplers, and fiber gratings are becoming increasingly popular. Mature. Leading companies such as Raycus and Chuangxin have adopted the vertical integration route, deeply engaged in fiber lasers, and gradually achieved independent control of components through increased technology research and development and mergers and acquisitions.
When the “war” that has lasted for many years has burned out, the integration process of the industrial chain of leading enterprises has accelerated, and at the same time, small and medium-sized enterprises have realized differentiated competition in customized solutions. By 2023, the price war trend in the laser industry has weakened, and the profitability of laser companies has significantly increased. Raycus Laser achieved a net profit of 112 million yuan in the first half of 2023, a surge of 412.25%, and finally emerged from the shadow of the “price war”.
The typical representative of another “oblique integration” development path is TRUMPF Group. TRUMPF Group first started out as a machine tool company. The laser business at the beginning was mainly carbon dioxide lasers. Later, it acquired HüTTINGER (1990), HAAS Laser Co., Ltd. (1991), Saxony Machine Tools and Special Machine Tools Co., Ltd. (1992), and expanded its solid-state laser business. In the laser and water cutting machine business, the first experimental disc laser was launched in 1999 and has since then firmly occupied the dominant position in the disc market. In 2008, TRUMPF acquired SPI, which had been able to compete with IPG, for US$48.9 million, bringing fiber lasers into its business territory. It has also made frequent moves in the field of ultrafast lasers. It has successively acquired ultrashort pulse laser manufacturers Amphos (2018) and Active Fiber Systems GmbH (2022), and continues to fill the gap in the layout of ultrafast laser technologies such as discs, slabs and fiber amplification. “puzzle”. In addition to the horizontal layout of various laser products such as disc lasers, carbon dioxide lasers, and fiber lasers, TRUMPF Group also performs well in vertical integration of the industrial chain. It also provides complete machine equipment products to downstream companies and also has a competitive advantage in the field of machine tools.
Figure: TRUMPF Group’s industrial chain integration process (data source: compilation of public information)
This path enables vertical self-production of the entire line from core components to complete equipment, horizontally lays out multi-technical laser products, and continues to expand product boundaries. Han’s Laser and Huagong Technology, leading domestic companies in the laser field, are following the same path, ranking first and second among domestic manufacturers in operating revenue all year round.
The blurring of upstream and downstream boundaries is a typical feature of the laser industry. Due to the unitization and modularization of technology, the entry threshold is not high. With their own foundation and capital encouragement, there are not many domestic manufacturers that are capable of “opening up new territories” in different tracks. Rarely seen. In recent years, other domestic manufacturers have gradually strengthened their integration capabilities and gradually blurred the boundaries of the industrial chain. The original upstream and downstream supply chain relationships have gradually evolved into competitors, with fierce competition in every link.
High-pressure competition has quickly matured China’s laser industry, creating a “tiger” that is not afraid of overseas rivals and rapidly advancing the process of localization. However, it has also created a “life-and-death” situation of excessive “price wars” and homogeneous competition. situation. Chinese laser companies have gained a firm foothold by relying on “rolls”. What will they do in the future?
3. Two prescriptions: Laying out new technologies and exploring overseas markets
Relying on technological innovation, we can solve the problem of having to bleed money to replace the market with low prices; relying on laser exports, we can solve the problem of fierce competition in the domestic market.
Chinese laser companies have struggled to catch up with overseas leaders in the past. In the context of focusing on domestic substitution, every major cycle market outbreak is led by foreign companies, with local brands quickly following up within 1-2 years and replacing domestic products and applications after they mature. At present, there is still a phenomenon of foreign companies taking the lead in deploying applications in emerging downstream industries, while domestic products continue to promote substitution.
“Substitution” should not stop at the pursuit of “replacing”. At the moment when China’s laser industry is in the throes of transformation, the gap between domestic manufacturers’ key laser technologies and foreign countries is gradually narrowing. It is precisely to proactively deploy new technologies and seek to overtake in corners, so as to get rid of “using Good timing for price-for-volume destiny.
Overall, the layout of new technologies requires identifying the next industry outlet. Laser processing has gone through a cutting era dominated by sheet metal cutting and a welding era catalyzed by the new energy boom. The next industry cycle may transition to micro-processing fields such as pan-semiconductors, and corresponding lasers and laser equipment will release large-scale demand. The industry’s “match point” will also transition from the original “10,000-watt competition” of high-power continuous lasers to the “ultra-fast competition” of ultra-short pulse lasers.
Looking specifically at more subdivided areas, we can focus on the breakthroughs in new application areas from “0 to 1″ during the new technology cycle. For example, the penetration rate of perovskite cells is expected to reach 31% after 2025. However, the original laser equipment cannot meet the processing accuracy requirements of perovskite cells. Laser companies need to deploy new laser equipment in advance to achieve independent control of the core technology. , improve the gross profit margin of equipment and quickly seize the future market. In addition, promising application scenarios such as energy storage, medical care, display and semiconductor industries (laser lift-off, laser annealing, mass transfer), “AI + laser manufacturing”, etc. also deserve focus.
With the continuous development of domestic laser technology and products, laser is expected to become a business card for Chinese enterprises to go overseas. 2023 is the “first year” for lasers to go overseas. Facing the huge overseas markets that urgently need to break through, laser equipment will follow the downstream terminal application manufacturers to go overseas, especially China’s “far leading” lithium battery and new energy automobile industry, which will provide opportunities for the export of laser equipment. The sea brings historic opportunities.
At present, going overseas has become an industry consensus, and key companies have begun to take action to actively expand overseas layout. In the past year, Han’s Laser announced that it plans to invest US$60 million to establish a subsidiary “Green Energy Industry Development Co., Ltd.” in the United States to explore the U.S. market; Lianying has established a subsidiary in Germany to explore the European market and has currently cooperated with a number of European battery factories We will conduct technical exchanges with OEMs; Haimixing will also focus on exploring overseas markets through overseas expansion projects of domestic and foreign battery factories and vehicle manufacturers.
Price advantage is the “trump card” for Chinese laser companies to go overseas. Domestic laser equipment has obvious price advantages. After the localization of lasers and core components, the cost of laser equipment has dropped significantly, and fierce competition has also driven down prices. Asia-Pacific and Europe have become the main destinations for laser exports. After going overseas, domestic manufacturers will be able to complete transactions at prices higher than local quotations, greatly increasing profits.
However, the current proportion of laser product exports in the output value of China’s laser industry is still low, and going overseas will face problems such as insufficient brand effect and weak localization service capabilities. It is still a long and difficult road to truly “get ahead”.
The development history of laser in China is a history of cruel struggle based on the law of the jungle.
In the past ten years, laser companies have experienced the baptism of the “10,000-watt competition” and “price wars” and have created a “vanguard” that can compete with overseas brands in the domestic market. The next ten years will be a critical moment for domestic lasers to shift from a “bleeding market” to technological innovation, and from domestic substitution to the international market. Only by walking this road well can the Chinese laser industry realize its transformation from “following and running alongside” to “Leading” leap.
Post time: Oct-23-2023
