siliconkanth

Outsourced Manufacturing Will Have Little Impact on Optical Suppliers' Operating Margins

I think the caption is catchy but I find little substance. I am a PhD in silicon photonics and have been following the trends very closely.

1. Primary argument, that the capital intensive industries alone (as
opposed to labor intensive) benefit from off-shoring is probably
incorrect. For example the best off shored operations, BPO (telephone
based support, medical transcriptions, tax filings) need little
capital to start. In fact, all off shoring to India is done in labor
intensive as opposed to infrastructure intensive businesses.

2. Secondary argument is that since vendors (JDSU eg) need to maintain the stock at Cisco etc it cuts into the advantage of off shoring. The need for maintaining stock is not a feature of optical components alone. The industrial ASICs to Cell phone chips/power supply electronics must be going through similar requirements.

All said and done, off-shored photonics companies competing with
on-shore photonics companies will face same costs for maintaining the stockpiles.

3. Another thing to consider is that one can do fab-less operation
without going off shore. There are a number of electronics companies
who do their fab in US. Silicon photonics allows this and thats what Luxtera and Lightera are trying.

4. Third argument, that the optical lithography does not need upgrading, I find hard to believe. As the leading fabs upgrade, the cost of a particular resolution process follows a U shape. The newest being the most costly and the older again being more expensive as the equipment makers (applied materials etc) phase out the old process machinery. So even though optical fabs dont need the latest resolution processing they need to stay at the bottom of the U-shape of the cost of fabs. So I doubt this statement as well.

5. And finally, there is little substance to my and his arguments except
may be some logic. My hope is that when numbers are put in, taking
40-100 million out from the initial 5 years cost for the fab
cuts the investment needed substantially. This is very helpful for a
start up but not necessarily for an established player like JDSU.

PS: I hope the author run the numbers before writing this article and compared the results for off-shored, non-offshored, established and upstart companies. It will be great if you share them else there is no credibility to anything mentioned in the article. If not as 'numinary' mentions above, I suggest the author do more homework next time.