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3D depth sensing in smartphones puts VCSEL arrays into spotlight

LightCounting releases new report on VCSEL arrays for 3D depth sensing

2017 proved to be a pivotal year for manufacturers of VCSEL arrays. The incredible success of the iPhone X, which incorporated face recognition technology employing VCSEL arrays for illumination, opened a whole new segment in the VCSEL market. Sales of VCSEL arrays for the iPhone X exceeded $200 million in 2017 – comparable to the revenues generated by VCSEL suppliers from the global optical communications market.

Expectations are high for sales of VCSEL arrays in 2018, as all new iPhone models announced by Apple include face recognition. The demand for VCSEL arrays is expected to skyrocket in the last three months of the year and we estimate that revenues from this new application will reach $600 million in 2018 – almost double the size of the communications VCSELs market. The figure below shows the size of the total market with the image of iPhoneX being roughly proportional to sales of VCSEL arrays for Apple’s products. Xiaomi started offering face recognition option on their new phones in 2018, and we expect all leading suppliers to start offering this technology next year, contributing to the market growth in 2019-2023.

Figure: Sales of VCSELs and VCSEL arrays into datacom and 3D depth sensing applications.

Source: LightCounting

The most staggering numbers related to the new 3D sensing market are units of VCSEL arrays shipped in 2017, and particularly the number of single VCSEL emitters on these arrays. The first figure reaches into tens of millions and the second into billions. Lumentum mentioned that in the last quarter of 2017, the company shipped more VCSELs in the last couple of months of the year than in the 40 years since they were invented.

The only reason that the optical communications market for VCSELs is comparable to 3D sensing in terms of revenue is the very low pricing of VCSEL arrays made for 3D sensing. The actual pricing is confidential, but our report includes estimates on the average selling prices (ASPs) of products in these two market segments. ASPs for VCSELs and VCSEL arrays sold into the optical communications market will gradually increase in 2019-2023, because of the increasing market share of VCSEL arrays used in 100GbE, 200GbE and 400GbE transceivers. Prices of VCSEL arrays used in 3D sensing will decline sharply in 2019 as new suppliers enter this market.

Lumentum remains the only supplier shipping these products to Apple in 2018, while II-VI Photonics, AMS and Finisar are expanding their production capacity to be able to ship such products in high enough volume to allow competitive prices. A number of suppliers in Asia are planning to enter the VCSEL array market in 2019, putting additional pressure on pricing in 2020–2023.

Being the only supplier of VCSEL arrays to Apple, Lumentum reported record profits in Q4 2017, demonstrating that high volumes make VCSEL manufacturing profitable despite low prices. However, Lumentum has invested heavily in development of this technology in the past and first expected to generate profits in 2010 from selling VCSEL arrays to Microsoft for gesture recognition in Kinect, a video game motion controller. Despite the power of Microsoft’s marketing machine, this product failed due to lackluster performance. The VCSEL arrays worked fine, but the application was too challenging.

It took another seven years before Lumentum’s products were chosen by Apple. This time the technology worked well; consumers liked the simplicity and safety enabled by face recognition. Some of Apple’s customers probably never even activated this option on their smartphones, but they still paid extra for the latest iPhone X, unable to resist an urge to own the best phones on the market. The iPhone X quickly became Apple’s best-selling model.

The 3D depth sensing market is already changing the fortunes of some optical component players. When Lumentum announced its agreement to acquire Oclaro for $1.8 billion in March 2018, its chief executive said the combination would create “a leader in 3D depth sensing”, with increased scale allowing them to allocate more resources to the technology. Indeed, it was Lumentum’s success as a supplier of 3D sensors to Apple that gave it the power to acquire one of its rivals.

This new report analyzes the business opportunity for suppliers of vertical-cavity surface-emitting laser (VCSEL) arrays for applications in 3D depth sensing for smartphone applications. It reviews different 3D sensing technologies and the VCSEL arrays required to support them. It offers an analysis of the leading VCSEL arrays vendors and discusses future developments in the supply chain.

The report offers historical data on shipments of VCSEL arrays for 3D depth sensing in 2017-2018 and a forecast for 2019-2023 sorted into several product categories. It also presents historical data and a forecast for shipments of VCSELs and VCSEL arrays for applications in optical communications. The database, published along with the report, offers units shipment, average selling prices and revenues for many different VCSEL product categories.

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LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.