Focus: Optical Sensing & Communication

Our alliance partner, Daiwa, recently issued a thematic report on the Optical Sensing and Communication (OSC) sector, focusing on the sector’s large market potential and exciting growth prospects. Forecasting a 113% CAGR for the consumer-laser market (including automotive) for 2017-20, we flag Globe as a beneficiary. Inari is our preferred exposure in the infrastructure-laser space.

Consumer-laser Market – Up and Coming

With the improving adoption of vertical-cavity surface-emitting laser (VCSEL) technology in smartphones, the former has been fast replacing LED sensors, and creating a new leg of growth for the consumer laser market. VCSEL’s superiority (over LED), enhances photonic-sensing qualities required amongst others in proximity sensing, gesture reading and biometric recognition. Likewise, VCSEL adoption has found its way in smartphone 3D-depth imaging, to facilitate and enhance augmented reality/virtual reality user experiences. On the infrastructure-laser market front, continued bandwidth upgrades in the wire-line data transmission infrastructure will likely ensure multi-year demand growth.

Automotive Segment Likely to Drive Future Consumer-laser Market

Beyond smartphones, the next driver for the consumer laser market will likely be led by the automotive segment via adoption of laser headlights and more so by light detection and ranging (LiDAR) for advanced driver assistance systems (ADAS). Growth in this area should be more prevalent once penetration of autonomous vehicles increases, beyond 2020.

A Massively Growing Market

Underpinned by demand from the smartphone market, Daiwa expects the consumer laser market at the die/array level to exceed USD400m in 2020E and growing at a CAGR of 114% over 2017-20E (Fig 2) (see A whole new world, 28 June 2017). By 2025, the market size is estimated to be worth USD1bn, which will be driven predominantly by the automotive sector, with a crossover from the smartphone sector by 2022-23E (Fig 4). At the module level, the total consumer laser market is expected to be valued at USD1bn in 2017E and to surpass USD10bn in 2020E (Fig 3).

Inari and Globe Are Our Top Picks

We maintain our Neutral sector view, but are positive on the OSC subsegment. For exposure to the infrastructure laser segment, we like Inari (INRI MK, RM2.12, BUY) for its data server chip business, which in our view will benefit from data-network upgrades. In the consumer and automotive laser space, Globe (GTB MK, RM6.03, BUY) will likely be a key beneficiary given its strong partnership with its Austrian customer, where the latter has established a strong foothold in this space.

Source: Affin Hwang Research - 29 Jun 2017