Aiming to become the global leader in chip-scale photonic solutions by deploying Optical Interposer technology to enable the seamless integration of electronics and photonics for a broad range of vertical market applications
Message: Mark Lutkowitz of fibeReality comments on Chinese optical transceiver suppliers
Several Chinese optical transceiver suppliers in the datacom space perceive having a cost advantage over Coherent. They particularly view InnoLight (please see: https://lnkd.in/d9qtywFH) with a substantial edge, given its large automatic and touchless facilities (please see: https://lnkd.in/ey68GwpS). fibeReality is convinced that it is a sincere belief by engineers, and not about marketing hype. Yet, as we press specifically on what portion of the transceiver production is affected by these relatively recent manufacturing buildouts by perhaps the largest supplier in the world for these devices (please see: https://lnkd.in/e4DkNwnK), it becomes a very intricate subject that can hardly be fully addressed in a single LinkedIn post. There is a wide array of genuine views on the most optimal way to plan for manufacturing. Also, the use of robots is not about avoiding manual labor costs, but rather to increase throughput and consistency. In fact, the margins are so low with these transceivers that the difference between profit and loss is production time per unit. Those times are specifically segmented according to subcategories, such as alignment. Then the cost of the manufacturing line is amortized out across the total transceiver production on that line. Ultimately, the manufacturing lines across each of the players are converging to equivalence, as the entire industry benefits from the experiences of the individual firms.
Nevertheless, much of this complex discussion can be arguably condensed to the traditional, simple idea of volume being a key determinant on unit cost. So, with any thorough production approach, in looking at a large batch through a burn-in furnace, as an example, there is a savings in the burn-in time/cost per unit. In giving InnoLight and other Chinese vendors the benefit of the doubt in having their own cost benefits (besides government subsidization), Coherent’s emphasis on transceivers on its last quarterly conference call (please see: https://lnkd.in/dRPyJ-X6), should speed up the supplier substantially in overcoming any dramatic disparities, as it continues to gain itself from the collected lessons learned with its own factories in Asia. The stakes would be too high for Coherent to do otherwise, as we estimate that its margins for these products can get as low as 28% -- and despite having a noticeable amount of automation itself (as well as being a volume leader), it still may want to investigate this concept further of looking at its utilization beyond only a substitute for labor expenses.
Nevertheless, much of this complex discussion can be arguably condensed to the traditional, simple idea of volume being a key determinant on unit cost. So, with any thorough production approach, in looking at a large batch through a burn-in furnace, as an example, there is a savings in the burn-in time/cost per unit. In giving InnoLight and other Chinese vendors the benefit of the doubt in having their own cost benefits (besides government subsidization), Coherent’s emphasis on transceivers on its last quarterly conference call (please see: https://lnkd.in/dRPyJ-X6), should speed up the supplier substantially in overcoming any dramatic disparities, as it continues to gain itself from the collected lessons learned with its own factories in Asia. The stakes would be too high for Coherent to do otherwise, as we estimate that its margins for these products can get as low as 28% -- and despite having a noticeable amount of automation itself (as well as being a volume leader), it still may want to investigate this concept further of looking at its utilization beyond only a substitute for labor expenses.
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