Political- and national security-driven “do-good” policies can create illusions and feel-good optics that may be decoupled from economic and social realities, leading to negative impacts on companies, customers, and employees. The CHIPS Act and other U.S. policy moves on fronts such as tariffs, import-export restrictions and licenses, investment and agency funds flows, and taxation are winding their way into re-distributing trade flows to some extent, and photonics management are chasing those—the nature of the sector’s infrastructure won’t and in my view cannot change, as some policy and press wonks desire.
Corporate choices for plant and development sites and “multi-shoring” generally are driven by costs, talent access, customer access, and government incentives. Government policies can affect the “edge” cases and for many large U.S. firms, it is being reported by analysts that some movements are taking place toward “right-shoring” and alternative “multi-shoring,” not necessarily reshoring—which has limitations in electronics, as Carnegie Institute highlights.
CSET, a DC policy think-tank focused on advocacy for U.S. technology and STEM, analyzed how bringing up the planned new target semiconductor plants in the U.S. will require experienced talent to be brought in from existing Asian manufacturers. CSET also published that China was producing 2X the number of STEM PhDs as the U.S. in 2020, and projected it to be over 3X in 2025. Forbes reported 5 years ago the U.S. “was no longer attracting the best and brightest minds in physics.” In addition, risk capital for new and growing technology hubs for large firms and startups has become well funded around the world, so high-talent people have many choices of location. At this point in time, U.S. demographics and K-12 education are well documented as lagging well behind other countries in producing the baseline talents needed to support technology-driven innovation. Immigration and multi-shoring efforts have been and will remain key to supporting and advancing U.S. firm and government technology capabilities.
Among issues that photonics sector company managers should be addressing out of self-interest for productivity and customer relations, in March 2023, Harvard Business Review highlighted the topic Anti-Asian Racism at Work. The photonics sector has been truly global for decades, relying on materials and parts sourcing across the world as well as production, customers, and employee technical talents, with Asian countries and notably China playing a leading role in the supply side of scaling telecom networks and the internet backbone. The $20 million bias lawsuit against Lumentum by a former senior executive and long-time Asian American has captured national news coverage and much attention across the tech sector.
This case, and others noted in the press, will play out in the coming time periods. However, we should all be concerned about the negative environments that are antagonizing and dividing employees, suppliers, and customers based on ethnic lines, which clearly leads to sub-optimal company performances and possibly to catastrophic company-damaging scenarios. A datapoint noted in the lawsuit and press is 60% of Lumentum’s U.S. workforce is Asian; senior executives were mostly white, with less than 15% of them Asian. My observation is these undercount the impact of the Asian community on Lumentum. Digging deeper, for fiscal-year 2022, 73% of its revenue came from Asian customers; 29% of property, plant, and equipment (PP&E) is in the U.S., with Asian sites combining for nearly 50%. In many ways, as with other electronics hardware producing firms, Asia wags the dog—yet the board and senior management composition has little or no representation of these constituents.
The press on these cases is out of the “bag,” airing the dirty laundry of some firms’ management attitudes. There are consequences: While environmental, social, and corporate governance (ESG) scorecards are not fully used in the U.S., and some politicians dismiss them as a “woke” tool, many large investors and customers across the world use them to evaluate decisions on allocating funds, flows of investments, and supplier awards. In the Lumentum case, they will have some triage to do on the social and governance fronts. Unlike many of the software- and internet-based service business models, as a hardware-driven model, photonics companies require hands-on trusting teamwork by many, often across plant sites and time zones. Communications and tasks cannot be automated out to AI algorithms.
In 1967, John Steinbeck toured Vietnam to cover the war from the standpoint of telling human interest stories of American servicemen and to report his views to President Lyndon Johnson, a family friend. Among his notes are these, which seem as true today as they did then:
- “...our young of energy and imagination are going to be drawn westward as they always have been. I know of no great movement of people or animals that has ever moved from west to east. Always we follow the sun and find our dreams not in the rising but in the direction of the setting.”
- “...conquest is no longer possible or desirable but cooperation is not only necessary but inevitable.”
- “...we should trade with China to the limit of our ability...a bulldozer is a better weapon than a bomb and a shipment of vaccine is a more effective weapon than a shipload of napalm.”...”we should sell them our things, we should trade with them, haggle with them over prices not ideologies—the more trade, the more association, the better.”
Some of the banter and goals of reshoring are effectively fantasies beset with realities of complex supply chains, market opportunities, human capital mobility, and education systems barriers. Managing blocks of diverse employees and customers, globally distributed, is going to be the norm for U.S. semiconductor and photonics firms in the coming decades, no matter how much or how little reshoring is a factor. Inclusion, not insults, should be the management path, not a return to 1940s and 1950s management modes toward employees and customers.
John Dexheimer | President, LightWave Advisors
John Dexheimer is President of LightWave Advisors. He has been a past Laser Focus World contributor on business trends and investments in the photonics sector. As an investment banker, he managed the IPO of Uniphase, assisted in their early global acquisitions, and invested in and advised several other optical component firms that have since become part of Lumentum’s global business.