European photonics industry, risks, opportunities, and prospects

Introduction

Global technological advances have reshaped the world economy and driven nations into a continuous race for technological leadership. This competition has led countries to recognize the photonics industry as a highly strategic asset. The industry is becoming increasingly vital due to its broad applicability across various key sectors in leading global economies. Its significance is most evident through its dual roles during peacetime and wartime. In peacetime, economies excel at integrating photonics into strategic value chains like automotive, agriculture, communications, construction, and civil engineering to gain economic advantages. During wartime or for enhanced security, countries focus on incorporating photonics into critical sectors such as defense, space, artificial intelligence, and aerospace. This report will generally examine Europe’s position in the global photonics industry, market demand levels, key investment opportunities, risks, and challenges. It will also highlight strategic sectors where photonic science and technology are extensively used in Europe’s economy, such as defense.

Photonics is the science and technology of light, more specifically, generating, guiding, manipulating, amplifying, and detecting light. The field of photonics has changed global industries, incentivized competitiveness, and driven economic growth on a worldwide scale. The importance of the European photonics industry is reflected in the high market demand for photonics technology and science across several industries, its applicability over sizable portions of sectors on a commercial scale, and the interdependence between technological advancements and industrial growth.

The high market demand for photonics technology and science across several industries is primarily driven by the large-scale integration and incorporation of photonics science and technology throughout the vast industrial landscape. For example, the European defense industry is one of the sectors with the highest demand for incorporating photonics science and technology in several independent sectors. Major factors driving the leading level of demand are the rising levels of global rearmament efforts, resulting in a competitive edge over adversaries in terms of tactical and strategic advantages, and geopolitical turmoil.

The photonics industry’s applicability over sizable portions of sectors on a commercial scale complements the sector’s importance on a global scale, as it affects economic factors such as growth, investment, revenue streams, employment rates, and GDP upscaling. National economies achieve significant growth rates throughout the entire industrial landscape by applying the capabilities of photonics science and technology within various European industries of strategic nature. The wide variety of applicability through different industries also increases the investment potential on a national scale. Companies from different industries can expand and enlarge their investment portfolios by incorporating photonics into the industrial and commercial value chain. European enterprises and national companies automatically increase their revenue streams and employment rates through the increased investment capabilities and growth rates which also contribute to the upscaling of the region’s GDP.

The elevated level of demand in the European photonics industry is primarily driven by the latest technological and scientific advancements in the field of photonics and their implementation. Leading demanding industries on the European photonics landscape are defense, telecommunications, space, artificial intelligence, quantum computing, agriculture, healthcare, manufacturing, and the automotive industry.

In the telecommunications sector, driving demand factors are evolving high–speed data transmission, the increase in cloud computing sector capacities, as well as recent achievements in the development of 5G and 6G mobile networks. High-speed data transmission is crucial for the telecommunications sector, as it supports vital aspects of the industry, including wireless communications, internet service providers, data services, and analytics. The increase in capacities in the cloud computing sector is related to the development of AI technologies, the expansion of the IoT sector, and the acceleration of the digital transformation initiatives. Recent achievements in the development of 5G and 6G mobile networks have significantly risen the demand for the implementation of photonics technology in the industry. Photonics is used to construct a reliable digital infrastructure that meets the evolving capacity requirements, technologies that reduce latency, and improve the energy efficiency of modernized mobile networks.^[02]

In the space sector, demand is primarily driven by Europe’s direct competition with the US and China, the need for high–bandwidth satellite communications, and the requirements for enhanced earth observation and climate monitoring. The direct competition between Europe, the US, and China is due to the designation of space as a strategically advantageous theater that closely relates to national domination in other sectors, such as defense and communications. Space prevalence cannot exist without sophisticated satellite communications, thus the need for high bandwidth is one of the major driving factors for photonics applications in the space industry. Earth observation and climate monitoring are proving to be key segments of the space race in segmentary fields such as climate change, communications, and intelligence observation.^[03]

Artificial intelligence is another industry where photonics science and technology are widely applied. The key demand factors with respect to Europe are global competition to remain economically and technologically relevant, the needs of the semiconductor industry and its impact on artificial intelligence, and the incorporation of AI into various other industries. Europe is being actively outperformed by China and the US in AI development, through investment initiatives and designated national capital for expansion and innovation. This reduces Europe’s technological and economic relevance on a global scale, which subsequently increases the demand for photonics technology and science. The needs of the semiconductor industry, such as the development of high–end chips, other hardware components, and software programs, are a vast field where photonics is applied. AI is rapidly being incorporated into industries, which drastically increases the demand for photonics, where the processes of production and manufacturing could be made exponentially less cost-effective.

In the agricultural sector, the major demand drivers of the photonics industry are the convergence of different sectors and industries in the agricultural modernization, initiatives to develop sustainable growth and resource efficiency, as well as the enhancement of procedural productivity. In every aspect of modernization in the agricultural sector, photonics is largely applied in developing advanced technologies that could decrease the processes across the entire value chain in the industry. Sustainable growth and resource efficiency focus on enhancing the effectiveness of processes such as irrigation and fertilization, as well as improving energy use. The enhancement of procedural productivity in the agricultural sector through the development of modernized machines for soil exploration and resource extraction is another factor which drives the high demand for photonics in the agricultural sector.

In the healthcare sector, technological advancements in modern diagnostics, the development of non–invasive surgical procedures, and the adoption of high–tech medical imaging services are the factors that mainly drive the highest level of demand within the industry for the application of photonics science and technology. The latest technological advancements in modern diagnostics have seen a massive adoption of photonics technology, which allows medical professionals to use diagnostic systems for the detection of serious diseases in an expedient and exact way. The development of non–invasive surgical procedures, such as the photodynamic therapies for targeting diseases, as well as the implementation of photonics in optical coherence tomography and laser-aided surgeries, are fields that drive the highest level of demand. The adoption of high–tech medical imaging services, such as photoacoustic imaging, near – infrared spectroscopy, and Raman spectroscopy, is a field contributing to the high demand for photonics technology and science within the healthcare industry. ^{[04] [05]}

The photonic industry has become a strategic industry in Europe due to its applicability over a wide range of industries that drive technological growth and competition, the impact of technology in improving strategic sectors, and Europe’s technological competition with rivals such as the US and China.

The applicability of photonics technology and science over a wide range of industries makes it irreplaceable as an economic factor that excels technological growth and market competition on a global scale. Europe has identified several strategic value chains (SVCs) closely related to the development of the photonics industry, such as high-performance computing and quantum computing, augmented and virtual reality for creating a European digital metaverse digital infrastructure, fifth-generation industry, manufacturing, automotive and mobility, space and defense, renewable energies, and health and agriculture.^[06]

The impact of technology in improving strategic sectors placed photonics technology and science at the forefront of Europe’s strategic positioning on a global scale as a Key Enabling Technology (KET). In line with the identified SVCs, Europe translated measures into policy initiatives, such as the European Green Deal, which is the EU’s main novel growth strategy to transition the EU economy towards a more sustainable model. The 2030 Digital Compass is the European strategy for digital transformation of Europe by 2030, which stipulates digital sovereignty in a connected and open global market. Finally, the New Industrial Strategy for Europe aims at confirming Europe’s competitive sustainability as well as complementing the EU’s open strategic autonomy in terms of ensuring greater market and economic resilience. EU funding initiatives, such as the European Defense Fund, are in a constant state of improvement but still significantly lack the capital capabilities of the US or China. The latest example of the importance of photonics in Europe’s future strategic autonomy on a global scale is the StarLight project, where more than twenty-four technology companies and universities from 11 European countries will join efforts to enable Europe to become a leader in the 300mm silicon photonics technology (SiPho Technology).^[07]

Europe’s photonics industry is faced with a wide range of investment risks that negatively affect the continental market and its global positioning with respect to other leading economic powers such as China and the US. The report will address the four major investment risks to the European photonics industry, divided into four main categories: technological, operational, financial, and geopolitical investment risks.

Technological risks:

Disintegrated research and development on a continental level – despite considerable progress through joint research and development initiatives, organizations and industry professionals still lack coordination and cooperation, which in turn raises the cost – effectiveness of the process and dissuades potential investors.

Overreliance on critical components and lack of access to critical materials – Europe has been highly dependent on critical components from China, such as semiconductor chips, integrated circuits, and batteries, due to the absence of a long–term strategy in obtaining consistent access to critical materials such as lithium, cobalt, nickel, neodymium, dysprosium, graphite, gallium, and platinum. The codependence between critical materials and critical components emphasizes their importance in the photonics industry, which in turn undermines Europe’s position on the global market due to its overreliance and lack of access.

Potential for technological disruptions – Europe’s digital infrastructure lacks unification and technological resilience, which in turn makes it susceptible to technological disruptions caused by cyberattacks, sabotage, and natural disasters.

Operational risks:

Long and complicated bureaucracy procedures – this threatens the transition from the research and development stages of the photonics industry to the incorporation of the technology in end customer products, which in turn could decrease Europe’s production capabilities and market output.

Unconsolidated regulatory and compliance landscape – national regulation differs from the European Union’s regional regulatory and compliance frameworks, which poses a significant risk to the advancement of the photonics industry in terms of technological standardization of the R&D process to the production and manufacturing segments, and ultimately the market output.

Lack of operational integration between key sectors – universities, research institutions, and companies working in the sector still lack cooperation and collaboration capacities and initiatives, which directly threatens the operational upscaling and the implementation and integration of the photonics industry within crucial industrial sectors.

Financial risks:

Large amounts of baseline investment capital – the complexity of the industry and the requirements for devising industrial capabilities entail a large amount of baseline investment capital. This poses a significant risk for the expansion of the photonics industry on the continent, especially for small and medium enterprises.

Regulatory and compliance requirements – the difference between regulatory and compliance requirements within single national markets and the European market negatively affects new investment initiatives and expansion plans in existing and aspiring companies. The highly demanding and technologically strict regulatory frameworks also impede the expansion of the European photonics market.

Absence of long–term financial strategy – this positions Europe in a precarious situation, since the absence of long-term financial strategy threatens various subsidy and investment programs as well as cooperation initiatives. This consequently dissuades potential large – scale investors and forces existing companies in the industry to pursue alternative markets. Europe is being outmatched by China and the US in policy measures meant for financing deep-tech programs such as the photonics industry. Both China and the US have dedicated significant financial resources through concrete policy measures, which are intended to have an impact on the long–term economic projections.

Geopolitical risks:

Disruptions within the supply chain – crises such as the Covid 19 pandemic, the war in Ukraine, the rise in global inflation rates, the US – China trade war and recent geopolitical tensions encircling Greenland and Venezuela prove that Europe’s supply chain dependence lacks resilience and ingenuity, which in turn causes major industry disruptions such as limited access to favorable trade routes and markets, dependence on resources from foreign countries and the threat of military intervention.

Competitive disadvantages with respect to the Asian market – Europe’s balancing act between China and the US creates a vacuum in terms of market access for leading Asian national economies such as Japan, South Korea, and Taiwan, which are excelling in the manufacturing segment of the photonics industry. This could affect Europe’s manufacturing ambitions, cripple the European photonics market size on a global scale, and put the industry on the European continent in a constant state of codependence.

Applicability across different industries

Being recognized as a key enabling technology by the European Commission, the European photonics market builds investment opportunities. Industries such as aeronautics, agrifood, augmented and virtual reality, automotive, cosmetics and wellness, communications, construction and civil engineering, healthcare, wind, oil, gas and nuclear energy generation, photovoltaics, quantum computing, transportation and mobility, security and defense, and the space industry were identified as major emerging and actionable markets within the European photonics industry. The following table shows the applicability of photonics science and technology in various industries, industry-specific sectors, as well as technology and applications:^[08]

EU Initiatives for Investment, Partnership, and R&D?

In the last five years, Europe has consistently launched investment initiatives, partnership opportunities, and several research and development platforms that stimulate the implementation and incorporation of photonics science and technology across the wide industrial spectrum.^[09] Europe is the joint second-largest photonics market on a global scale, with more than 5 thousand companies and 500 startups operating on the market. In recent years, especially during 2025, there were several investment and partnership initiatives pushed forward by the European Commission (EC). The most significant projects within the field of photonics included the launch of programs such as the StarLight project, PIXEurope, Phortify, PhotonHub PHACTORY, EPIQUE, photonixFAB, and the SPRINTER project.

The StarLight Project, introduced by the EC in May 2025 with a budget of EUR 25 million, undertakes the development of silicon photonics applications for datacenters, AI clusters, telecommunications, while also affecting the automotive industry. More than twenty-four technology companies and universities from 11 European countries will join efforts to enable Europe to become the leader in the 300mm silicon photonics technology (SiPho Technology). The project is expected to strengthen Europe’s photonics ecosystem and advance industrial development on the continent.^[10]

PIXEurope was launched in June 2025, with an estimated budget of EUR 88 million to tackle obstacles in the manufacturing segment of the development of photonic integrated circuits (PICs). The project would combat manufacturing obstacles through the establishment of a global Open Access Pilot Line, which would undertake the collaboration between research institutions.^[11]

PhotonHub PHACTORY is a combined R&D and investment initiative launched by the EC with a baseline capital of EUR 15 million, introduced in January 2025. The initiative offers experts support in the form of expedient access to research facilities and supports newcoming investors through subsidy programs. The expedient access to advanced research facilities would enable professionals engaged in the research and development stage of the photonics value chain to be able to develop R&D initiatives cohesively and jointly. The subsidy programs would offer new companies on the European photonics market support of up to 85% of their budgetary requirements for technology innovation projects. The program would be sponsored by more than 30 EU partner companies from fifteen different countries, covering three project stages. The first stage is the introduction of an early – stage concept labeled TRL2, followed by prototyping or TRL3–4 and finishing with the business upscaling stage or TRL5 – 7. The initiative is led by Brussels Photonics (B – PHOT) at the Vrije Universiteit Brussel, focusing on the success of the previous PhotonHub project, which delivered extremely positive results in the form of EUR 750 million in revenue, creating more than 1 thousand jobs, raising over EUR 250 million in venture capital across more than 100 European companies in four years.^{[13] [14]}

EPIQUE is another EU initiative launched in 2024 with an estimated budget of EUR 10 million. The project aims at exploiting technological advancements in photonics science and technology in the development of quantum computing capacities. Addressing the evolving needs for scalability, EPIQUE consolidates global experts in photonics and quantum algorithms that aim to make significant breakthroughs in the areas of photonic chips, detectors, and deterministic photonic sources.^[15]

PhotonixFAB launched in 2023 with a budget fund of EUR 13 million, addressing Europe’s supply chain issues in the sector of silicon photonics. The initiative exploits technological advancements in the field of photonics, such as silicon–on–insulator platforms, the integration of indium phosphide active components in manufacturing, and the incorporation of silicon nitride technology.^[16]

The SPRINTER Project was introduced in Sep 2022 as part of the broader Horizon Europe strategic program with a budget of EUR 6 million. The project is led by the Institute of Communication and Computer Systems (ICCS) in Athens and supported by the Photonic Partnership, bringing together eleven partners from Europe and one from Israel. The project focuses on the development of high–speed industrial internet using light–speed lasers and next-generation flexible and adaptable wireless, which would replace today’s power-demanding industrial networks.^[17]

EU defense industry

The European defense industry has been identified as one of the leading industrial fields where photonics finds a wide range of applicability, driving exponentially elevated levels of demand on the market. The key factors that are driving the elevated levels of demand for photonics science and technology incorporation in the defense industry include the growing global arms race, Europe’s ambition to achieve technological and economic independence, and the modernization efforts within national militaries.

The growing global arms race is primarily instigated by large – scale conflicts such as the war in Ukraine, the numerous proxy conflicts where leading global powers are involved, and the constantly evolving field of emerging threats, such as cybersecurity threats, advancements in hybrid threats, and the upscaling of capabilities in the field of covert intelligence. Large – scale conflicts such as the war in Ukraine have revolutionized the need for advanced defense systems, especially in the UAV industry. The battlefronts represent a testing field for modern defense equipment where both Russia and Ukraine have proven their capabilities to develop and integrate highly technological capabilities in modern defense systems. The numerous proxy conflicts across the world between leading global powers, such as the civil war in Sudan and Myanmar, have also exhibited the need for advanced systems in the defense field. The conflicts have demonstrated that tactical advantage on the battlefield is dictated by access to technologically developed defense systems. The evolving field of emerging threats necessitates the incorporation of highly advanced surveillance systems, expansion of computing and AI capabilities, and development of sensing and imaging technologies, industry segments where the photonics technology plays a pivotal role.

Europe’s ambition to achieve technological and economic independence is closely related to the continent’s struggle to remain geopolitically and geoeconomically relevant on a global scale. Technologically, Europe is largely dependent on Chinese components and materials used in developing and integrating the photonics technology, while also being dependent on the US in terms of innovation and access to high – tech products. Europe’s ambition to become economically independent drives the demand in the photonics industry as a key enabling technology incorporated across the entire industrial value chain on the continent. As the second joint largest market globally, Europe continues to invest in scientific initiatives, technological developments, and market accessibility. This would enable European countries to decouple from the economic reliance on the US and China while building a resilient and self–sustainable continental market.

Modernization efforts within national militaries drive the high demand for photonics technology and science across various platforms. The evolving warfare factors, such as the shift from traditional hardware–heavy defense platforms towards intelligent C4ISR interconnected systems (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) systems places the photonics science and technological development at the center stage of Europe’s defense sector. This demanding factor is intricately connected to the constant need of national militaries for systems that could scale, integrate, and upgrade easily. The modernization efforts also undertake the space sector, where industry-specific segments and departments such as surveillance, early – warning systems, and secure communications, drive the demand for photonics technology.

Key challenges:

Fragmentation of the defense market due to national control – the continental defense market is still largely fragmented since investment reforms, as well as R&D and R&I initiatives, fall under the purview of national control. European countries are pursuing different investment reforms, R&D and R&I initiatives in the photonics industry despite having a unified defense policy. This raises the cost – effectiveness of the industry and doubles the budgetary expenditure on R&D and R&I initiatives.

Productional disunification – similarly to the fragmentation of the market, productional disunification negatively affects the development of the photonics industry. European countries were identified to have pursued similar initiatives or identical photonics capabilities independently, which caused the elevation of project costs and decreased the likelihood of investment interests.

Industrial unreliability – Europe’s highly regulated technological sector impedes the continent’s ambitions to challenge leading manufacturing forces such as China and the US. Aside from the complex regulatory requirements, the inflated costs in the R&D and R&I stages, as well as in the manufacturing stages, could decrease Europe’s photonics market share on a global scale.

The impact of the photonics industry on Europe’s economic landscape has multiplied over the years and became incredibly important. The importance of photonics science and technology is reflected through the high market demand across several industries, its applicability over sizable portions of sectors on a commercial scale and the interdependence between technological advancements and industrial growth. As any other industry, the European photonics industry also faces multiple challenges on a global scale, such as aggressive competition from large global markets, fragmented national industrial markets, a lack of funding initiatives in comparison to global rivals such as China and the US, supply chain overreliance, and high market entry costs. The market has demonstrated high demand in several industries such as defense, telecommunications, space, artificial intelligence, quantum computing, agriculture, healthcare, manufacturing, and the automotive industry. The prominent levels of demand across several industries placed the photonics industry as a strategic industry on the continent due to its applicability over a wide range of industries that drive technological growth and competition, the impact of technology in improving strategic sectors, and Europe’s technological competition with rivals such as the US and China.

Europe’s photonics industry faces technological, operational, financial, and geopolitical investment risks. In the technological risk section, the industry is faced with disintegrated research and development on a continental level, overreliance on critical components, and potential for technological disruptions. Operationally, the industry is faced with long and complicated bureaucratic procedures, an unconsolidated regulatory and compliance landscape, and a lack of operational integration. Financially, the large amount of baseline investment capital, regulatory and compliance requirements, and the absence of a long–term financial strategy are the major risks. Geopolitically, the European photonics industry is faced with disruptions within the supply chain, being competitively disadvantaged in respect to Asia, the escalation of hybrid threats, and difficulties in developing AI capacities. Industries with the largest investment potential for the photonics sector in Europe are industries such as aeronautics, automotive, agriculture, defense, space, communications, healthcare, and quantum computing.

In terms of investment initiatives, Europe has launched significant projects and platforms such as the StarLight project, PIXEurope, Phortify, PhotonHub PHACTORY, EPIQUE, photonixFAB, and the SPRINTER project. Europe’s defense industry is a particular sector where the demand for photonics technology is substantial. The high demand was primarily driven by factors such as the growing global arms race, Europe’s ambition to achieve technological and economic independence, and the modernization efforts within national militaries. The key challenges for the photonics industry within the European defense sector were the fragmentation of the defense market due to national control, productional disunification, industrial unreliability, and lack of funding as well as policy measures.