The art and craft of laser market forecasting in 2021

When forecasting market size and growth rate for a technology such as lasers, I use three metrics to help guide me. First, I look at the applications that are driving adoption of lasers, and dig deeper to determine what is driving this growth within the application. Next, I look at how much of the adoption is being driven by unique technology and how much is being driven by price. Finally, I look at external conditions, such as the economy, to determine if problems in these areas might negatively impact adoption of a technology.

Together, I use data with a variety of econometric causal models to forecast laser segments. Econometricians measure past relationships among such variables as the economy, the adoption of laser technology, the price trend for lasers, industrial production, employment, and the like, and then try to forecast how changes in some variables will affect the future course of others. In “normal” times, these methods work very well, but in the last three years, times have been anything but normal.

Take for a moment the previous president’s 2018 and 2019 trade tariffs imposed on goods imported into the U.S. from China. This move caused China to retaliate and place tariffs on goods imported into China from the U.S. The intent of this measure was to encourage U.S. companies to buy U.S. goods, but for lasers, at least, that didn’t happen. American companies that sold lasers to China simply moved their production outside of the U.S. to avoid the tariff. Sometimes, only one critical piece of the laser had to be produced outside the U.S. to avoid the tariff entirely. American companies planning to buy Chinese lasers, for the most part, just delayed their purchases. Forecasting what was going to happen next has proved difficult.

Then, in 2020, there was COVID-19. Easily predicted was the fact that the closure of laser manufacturing factories in China and around the world in Q2 2020 would negatively impact laser shipments—and it did. Much harder to predict were all the secondary impacts that COVID-19 caused. Salespeople could not travel, tradeshows were canceled or made virtual, shipping was delayed, and a chip shortage slowed the automotive manufacturing industry. If you have driven by an auto dealership lately and witnessed a half-empty auto lot, you will see that this auto shortage is real. Then, there are the commodity price increases—lumber prices are up 250% in the last year and steel prices are up 210%. People are working from home more now, and consequently, office vacancies in many big cities are way up.

Since conventional forecasting techniques fall apart under conditions where so many aspects of life are rapidly changing, the solution is to closely monitor what is occurring in laser markets, then work backward to derive what may have caused these changes. After things settle down in a year or two, switching back to old forecasting techniques should work again.

Through trade tariffs and COVID-19, some laser markets didn’t bat an eye. The market for lasers for sensing has grown to over $2 billion in the last few years, with the recent world chaos not bothering growth a bit. Most of the lasers for sensing are diode lasers used in smartphones, with most of these in phones sold by Apple. In 2020, Apple sold 196 million iPhones, beating the 187 million it sold in 2019—so pandemic or not, people still want their smartphones.

In the medical laser segment, both the China trade tariffs and the pandemic slowed sales, but in countries where the pandemic has eased, laser sales are returning to normal. Military lasers are mostly unaffected by either trade tariffs or pandemics, but some deliveries will be delayed.

We were anticipating that laser revenue for communications would increase due to the pandemic, driven by communications providers needing to support many new at-home workers, but that demand has not materialized. Instead, the pandemic caused the delay in many communications projects, and the China telecom market was especially impacted. Limits on the purchase of equipment from Huawei and ZTE by Australia, Britain, Finland, Japan, New Zealand, and the U.S. didn’t help, either. We are hoping that by early 2022, things will reverse.

As for lasers for materials processing, there are many moving parts here. Overall, the sudden shock and ill-will brought about by China/U.S. trade tariffs created a larger negative effect on materials processing laser markets than did the pandemic. Perhaps part of this impact was because China was already experiencing a slowdown in late 2018 and 2019, whereas after the pandemic, China’s economy seems to be recovering nicely. In the U.S., the pandemic had a strong negative impact on the economy, but things have quickly returned to normal—at least a normal that includes delays in shipping, materials shortages, and limits on international travel.

When taken together, you get an appreciation for how diverse and widespread global laser markets are. While 2019 was a down year and 2020 was an okay year, we think that 2021 will be a strong year for laser sales. Maybe not as strong as we saw in late 2017 and early 2018, but strong nevertheless. Certainly after what we have been through these last few years, this should be very welcome news.