Optics Boom Spawns Need For More Experts

Despite the trouble being encountered by some fledgling U.S. optics firms, when the University of Arizona’s Optical Sciences Center celebrated its 25th anniversary in March with the opening of a new $3 million building, optics specialists Used the occasion to herald a bright future for the discipline overall and for the young scientists who are enentering it. “I’m so bullish on the field that we’ve already selected an architect for the next addition to the center,R

May 1, 1989
Anne Gibbons

Despite the trouble being encountered by some fledgling U.S. optics firms, when the University of Arizona’s Optical Sciences Center celebrated its 25th anniversary in March with the opening of a new $3 million building, optics specialists Used the occasion to herald a bright future for the discipline overall and for the young scientists who are enentering it. “I’m so bullish on the field that we’ve already selected an architect for the next addition to the center,” said Robert Shannon, its director.

Shannon and others point out that optical scientists will increasingly be needed to fuel a burgeoning multi-billion-dollar industry that makes everything from lasers and telescope mirrors to fiber optics and compact discs. The industry has been growing so quickly that the nation’s two leading optical sciences schools—Arizona and the University of Rochester—cannot keep up with the demand for their graduates—despite the two schools’ efforts to expand to meet the need. Due to the current shortfall in the supply of skilled personnel, optical scientists just out of school are now commanding starting salaries of $50,000 with a doctorate and at least $30,000 with a bachelor’s degree. Not surprisingly, the programs at Arizona and Rochester are turning away far more students than they accept each year. Nor is it suprising that another dozen universities have started new optics programs of their own.

“A few years ago, I would have loved the group that we put on our waiting list now,” says Duncan Moore, director of the University of Rochester’s Institute of Optics, where 150 people applied for a graduate class of 12 this year. He says the growth in the field has been dramatic, particularly in the past decade. And the numbers back him up: In 1976, six students graduated from the school with bachelor’s degrees in optics. In 1987, 97 students graduated with aB.S. in optics—and had no trouble finding jobs.

“There is a shortage of people in the whole optics area because it is a field that is growing really, really fast—much faster than the number of scientists and engineers trained in this area,” says Amnon Yariv, professor of electrical engineering and applied physics at the California Institute of Technology and cofounder of Ortel Corp., a company that manufactures specialized lasers. He predicts that in 20 years almost every U.S. university will have a department of optical science engineering.

But despite this demand for professionals, there are signs that this is one field in which the U.S. is having trouble turning science into profits. Successful competition by the Japanese and imprudent management of many startups have delayed a major U.S. foray into the world market for optics—a trend that many hope is beginning- to change, now that some large U.S. corporations are developing more active interests in the field.

Why this tremendous boom in the optic sciences? The field is not a new one; it dates back to the time of Galileo. But recent discoveries in the behavior of light and its interaction with matter have strongly influenced the development of modern science. The laser, first demonstrated in 1960, for example, has endowed scientists with a tool of exquisite strength and specificity: a perfect beam of photons—or light—that scientists can manipulate as easily as electricity.

Such breakthroughs have also led to the birth of a new branch of optical science called electro-optics, or photonics. The marriage of light with electronics, its most visible offspring has been the laser diode—the tiny chip at the heart of oompact disc players, laser printers, point-of-sale scanners, and other products. It took almost 20 years before engineers could make lasers practical for consumer products, partly because they were handmade and required cumbersome and inefficient flash lamps to stimulate the atoms. But now, with the advent of the laser diode and other developments in fiber optics, the technology has matured and is responsible for much of the explosive growth in optics in the past five or six years.

The kind of products that are captivating investors are the ones that already have made lasers so ubiquitous, putting them into many homes, offices, and hospitals. “Twenty years ago, if I said I was in optics, people said, ‘Fix my glasses,’ “ says the University of Rochester’s Moore. “Now, with fiber optics, holography, point-of-sale scanners in the supermarket, and CD players, everybody’s got a laser.”

Advances in transferring optics technology into the home and workplace also have come at a time when the Department of Defense has invested inoptics—in a big way. “One reason why there are so many more optics companies is the Star Wars money,” says Lois Fisher, an associate with Southern California Venhires, a venture capital firm in the Los Angeles area.

As more and more people are recognizing that optics clearly is the wave of the future, investment firms are hiring analysts who focus on optics, and some of the major aerospace and electronics firms that traditionally have eschewed optics have resurrected their research in the field. International Business Machines Corp. is one of them, and even Amoco Corp.. a giant in the oil business, has entered the industry for the first time with a division founded in 1986, called Amoco Laser Co. in Naperville, Ill. “Even the companies who always felt that electronics was going to do everything they needed in computing are now beginning to have a real interest in optics,” says Jim Harris, a professor of electrical engineering at Stanford University.

Dozens of startup companies are springing up, as well, though many scientists are discovering that starting an optics company—especially one in the laser industry—isn’t always an easy road to riches. Greg Olsen is one scientist who caught this entrepreneurial fever.

Olsen was working at RCA Corp.’s labs in Princeton, NJ., in 1983, when he got caught up in the excitement to start a company that makes laser diodes. His idea was to make a special kind of indium gallium arsenide detector, which would be a receiver for light at the, end of a fiber optic line. At first, he tried to convince RCA to try his idea. But the company “kind of yawned over it,” he says. ‘They were kind of interested, but the market is $1 million to $2 million a year, and RCA is a billion-dollar company. My idea didn’t set them on their ear.”

But the more he thought about it, the more he was eager to break out on his own. “I loved RCA,” says Olsen. ‘They treated me very well. But after awhile, you feel saturated. You want to go in a new direction.” That’s when he set up his first meet- ing with a venture capitalist, who asked him for a business plan. “I said, What’s that?” Olsen recalls. “When they got done laughing, I sat down and wrote one.” He met with four venture capital firms and found they were interested, but worried that he was a scientist who had never had any business experience. Finally, Olsen hooked up with a former optics colleague at RCA, Henry Kressel, who is now managing director of E.M. Warburg, Pincus & Co., a large venture capital firm in New York. With help from Kressel and $1.5 million in venture capital-raised by his firm, Olsen founded EPI TAXX, Inc. in 1984 in Princeton.

Today, Olsen’s company is making detectors, particularly those used in satellites that detect infrared light. The company also is making light-emitting diodes for telecommunications. It had sales of about $3 million last year (with $480,000 in profit), and is expecting sales to rise to $4.5 million this year. Olsen attributes the success of his small company to keeping it lean and watching expenses it was a “bare-bones” operation that started with five people and didn’t expand until after it already was making a profit. If he hadn’t done that, Olsen says, the company probably would have folded a year after it was founded when he had quality problems with his detectors because he was trying to meet demand too quickly. “After that, we watched everything like a hawk, solved our quality problems and things started picking up,” recalls Olsen.

At about the same time, another team of scientists across the country in Silicon Valley also was founding a new laser diode company. Robert Mortensen had worked on lasers for 11 years at Spectra-Physics Inc. ,. had founded his own startup company called Quanta Ray and sold it to Spectra-Physics in 1981. But by 1984, he was getting the entrepreneurial itch again. He approached a friend who was a professor at Stanford University and asked “whether he had anything in his labs he was willing to bet his wife, house, and kids on.” Robert Byer, now a vice provost at Stanford, showed Mortensen a laser powered by a laser diode. At about the same time, another friend who also was a Stanford professor, David Bloom, telephoned Mortensen and told him he had an idea for using lasers as a diagnostic tool to measure voltages in inte- grated circuits up to microwave frequencies.

Fragmented Markets

Mortensen liked both ideas, so he cofounded Lightwave. Electronics Corp. in 1985 with both professors. But, unlike Olsen, they had to rely on their own personal funds and help from the federal government’s Small Business Innovation Research program to get themselves started. “We have fragmented markets, so we tend not to be of as much interest to venture capitalists,” says Mortensen.

In fact, one of the problems with interesting investors in the field, he says, is the diversity of the applications that use lasers. “It makes it hard to understand, hard to validate the market size,” he says. “It’s difficult to sell to people.” Today, Lightwave is one of the companies most cited by investors and scientists as a success in making solid state lasers powered by diodes.

But despite success stories like EPITAXX and Lightwave, there have also been an abundance of failures. As Olsen recalls the dozen or so laser diode companies that started about five years ago, he names four or five that either have gone bankrupt, are struggling to survive, or have been absorbed by their parent companies. “Hardly a month goes by that one laser company doesn’t buy another," observes Charles Troy, managing editor of Photonics Spectra, a trade publication.

“I sense a downturn in a number of companies in the past two years,” continues Olsen. “The luster has started to wear off. Realism is setting in and demand isn’t growing as first as people thought it would five years ago when fiber optics was a glamour tech, like biotech."

But the question isn’t whether the field will grow—experts are convinced it will. It’s who will profit. The Japanese already have cornered a large portion of the market. Giant firms, such as Fujitsu, Hitachi, Mitsubishi, Sony, and Toshiba, are making most of the middle-of-the-road laser diodes that power many of the consumer applications. And they are charging bargain-basement prices that the small U.S. firms can’t afford. “The Japanese are the biggest threat to the optics business in this country,” says Shannon at the University of Arizona. ‘They virtually control the world’s market in laser diodes.”

Few large U.S. companies have invested in the laser and fiber optics technology. The startups that have survived have done so by making specialty products that fill niche markets or that are needed by the military or for scientific research. “The main thing about the U.S. is that the brunt of the innovation in lasers here was not done by the giants but basically by small companies,” says CalTech’s Yariv. ‘The U.S. side has dwindled so that a few little companies of less than 100 people are carrying the U.S. torch in the World Olympics [of optics].”

Unrealistic Expectations

Others say that the reason the laser business is flat is more complex than just successful competition from the Japanese. Expectations probably were too high five years ago, when many investors believed that by 1990, “everything would be fiber,” Olsen says. The companies that did well in the beginning couldn’t compete once the Japanese caught on and entered the market a few years later. Other companies went for government contracts instead of plunging into the intense competition for consumer products. “We have a large lead in the military applications of optics,” says Shannon. “But the negative part of this is we don’t have a lead in consumer products. We build some marvelous range-finders for tanks, but we can’t seem to make a good CD player.”

Finally, the problem may be the fault of poor management. Most people in the field can cite examples of companies that started with millions in seed money, built fancy labs, didn’t worry about costs, and went under when competition got tough. Many weren’t market-led and invested in dazzling technology first, and then tried to find a market for it later. Others didn’t know how to scale-up laboratory ideas for mass production. “Many companies have fallen apart because they have'nt been able to build things in quantity,” says Shannon. “I’m still bullish on the field, but there’s tremendous international competition in this area [of photonics].”

Many are watching with interest the developments at Amoco Laser Co., pleased to see that a giant U.S, corporation is entering the field. The feeling is that larger companies may be the ones that will have the staying power to compete with the Japanese. “A lot [also] depends on the military,” says Troy of Photonics Spectra. “SDI was one of the great hopes of this industry: Lasers in space, mirrors in space ... If it goes away, then a ripple will be felt throughout the industry.”

But regardless of what happens on the laser front, analysts insist that the optics industry as a whole is so diverse that its future is not dependent on any one product. Most industry observers expect even more opportunity to be created as the technology matures, particularly as the semiconductor manufacturers join forces with optics scientists.

“I have concerns as an American about the laser diode industry,” says Shannon of the University of Arizona. “But, in terms of opportunity for my students, laser diodes are just a very small niche. There are so many opportunities out there, I’m not worried.”

Anne Gibbons is a science writer at the San Diego Tribune.