Incredible Shrinking 3DS VCSEL Margins Projected

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With eventually five or more six-inch VCSEL fab manufacturers playing in the worldwide 3D sensing space, the generation of impressive margins will get increasingly tougher, as they are vying for what is currently only a single, available business segment. There has been a significant reduction in barriers to entry, including vertical integration no longer being a prerequisite (Lumentum being a prime example), although without internal production, it may not result in the lowest ultimate cost. While we do not anticipate that prices will necessarily be driven to the very unhealthy levels experienced by vendors, such as Oclaro in the past, in the computer mouse market, the chance cannot be totally ruled out. One can hope that the traditionally high pace of innovation in the consumer electronics space will manifest itself here as well, and help to separate certain suppliers from the pack by staying ahead on innovations (even though at least for now, as we recently stated, Apple is stressing me-too, RFIC-like fabs). We have also discussed that enhanced packaging can be a key differentiator, especially with Android devices. Conversely, the full impact of the emergence of edge emitters as a competitive threat into the sector has yet to be determined.

It was not that long ago that there were comparatively few VCSEL wafers being produced, and they were three- and four-inch in size. They were just not that interesting to companies like Win Semiconductors. The volumes are big enough now that they could even attract the attention of a least a couple of unexpected entrants, as the various smartphone suppliers continue to open up the supply chain to other firms including LG, Samsung, Huawei, etc.

For example, firms such as Qorvo or Skyworks Solutions could be sleepers. They are both driven by Gallium Arsenide manufacturing as well as being very active in the mobile phone industry.

Regarding a more definite entrant, Osram’s purchase of Vixar definitely points to it wanting to make high-power VCSELs and gesture recognition a core business. It would be another fabless VCSEL company, which is hooked up to a six-inch GaAs fab in Germany.

We have also addressed Philips Photonics as being a potential competitor. Certainly, Philips has not focused as much on the gesture, etc. market with its high-power gear targeting industrial applications, like heating, etc. Yet, evidently, it has been working on doing the six-inch processing as well, and we think there are going to be multiple VCSEL players that will continue to be around for 3D sensing in the 940nm space. Still, others in that game are expected to avoid that application, as they do not want to be part of the new paradigm in the VCSEL sector, as again, Apple intends to treat these suppliers as foundries.

Interestingly, there are still some people in the industry wondering whether Broadcom will enter the fray. Given its earlier, adamant, negative stance, it would make even less sense for it to do it now with even more vendors at least seriously looking at getting into this arena.

On the subject of edge emitters (EELs), for the Apple product, it will probably continue to be VCSEL-based just because of the way the structured light systems work. In short, they seem to lend themselves more to VCSEL economics.

When it comes to other approaches, such as time of flight or flood illuminators with cameras, the EELs apparently provide a better combination of the lowest cost and most power-efficient solutions. While there may be a push in this other direction, with Apple’s focus on VCSELs in its phones, every other phone maker will be looking at these devices in one way or another.

As always fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.

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[written by Mark Lutkowitz]

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