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A laser diode, like many other semiconductor devices, is formed by doping a very thin layer on the surface of a crystal wafer. The crystal is doped to produce an n-type region and a p-type region, one above the other, resulting in a p-n junction, or diode.

The many types of diode lasers known today collectively form a subset of the larger classification of semiconductor p-n junction diodes. Just as in any semiconductor p-n junction diode, forward electrical bias causes the two species of charge carrier - holes and electrons - to be "injected" from opposite sides of the p-n junction into the depletion region, situated at its heart. Holes are injected from the p-doped, and electrons from the n-doped, semiconductor. (A depletion region, devoid of any charge carriers, forms automatically and unavoidably as a result of the difference in chemical potential between n- and p-type semiconductors wherever they are in physical contact.)

As charge injection is a distinguishing feature of diode lasers as compared to all other lasers, diode lasers are traditionally and more formally called "injection lasers." (This terminology differentiates diode lasers, e.g., from flashlamp-pumped solid state lasers, such as the ruby laser. Interestingly, whereas the term "solid-state" was extremely apt in differentiating 1950s-era semiconductor electronics from earlier generations of vacuum electronics, it would not have been adequate to convey unambiguously the unique characteristics defining 1960s-era semiconductor lasers.) When an electron and a hole are present in the same region, they may recombine or "annihilate" with the result being spontaneous emission — i.e., the electron may re-occupy the energy state of the hole, emitting a photon with energy equal to the difference between the electron and hole states involved. (In a conventional semiconductor junction diode, the energy released from the recombination of electrons and holes is carried away as phonons, i.e., lattice vibrations, rather than as photons.) Spontaneous emission gives the laser diode below lasing threshold similar properties to an LED. Spontaneous emission is necessary to initiate laser oscillation, but it is one among several sources of inefficiency once the laser is oscillating.

The difference between the photon-emitting semiconductor laser (or LED) and conventional phonon-emitting (non-light-emitting) semiconductor junction diodes lies in the use of a different type of semiconductor, one whose physical and atomic structure confers the possibility for photon emission. These photon-emitting semiconductors are the so-called "direct bandgap" semiconductors. The properties of silicon and germanium, which are single-element semiconductors, have bandgaps that do not align in the way needed to allow photon emission and are not considered "direct." Other materials, the so-called compound semiconductors, have virtually identical crystalline structures as silicon or germanium but use alternating arrangements of two different atomic species in a checkerboard-like pattern to break the symmetry. The transition between the materials in the alternating pattern creates the critical "direct bandgap" property. Gallium arsenide, indium phosphide, gallium antimonide, and gallium nitride are all examples of compound semiconductor materials that can be used to create junction diodes that emit light.

 
Diagram (not to scale) of a simple laser diode (note that this diagram complements the laser diode shown above.In the absence of stimulated emission (e.g., lasing) conditions, electrons and holes may coexist in proximity to one another, without recombining, for a certain time, termed the "upper-state lifetime" or "recombination time" (about a nanosecond for typical diode laser materials), before they recombine. Then a nearby photon with energy equal to the recombination energy can cause recombination by stimulated emission. This generates another photon of the same frequency, travelling in the same direction, with the same polarization and phase as the first photon. This means that stimulated emission causes gain in an optical wave (of the correct wavelength) in the injection region, and the gain increases as the number of electrons and holes injected across the junction increases. The spontaneous and stimulated emission processes are vastly more efficient in direct bandgap semiconductors than in indirect bandgap semiconductors; therefore silicon is not a common material for laser diodes.

As in other lasers, the gain region is surrounded with an optical cavity to form a laser. In the simplest form of laser diode, an optical waveguide is made on that crystal surface, such that the light is confined to a relatively narrow line. The two ends of the crystal are cleaved to form perfectly smooth, parallel edges, forming a Fabry-Perot resonator. Photons emitted into a mode of the waveguide will travel along the waveguide and be reflected several times from each end face before they are emitted. As a light wave passes through the cavity, it is amplified by stimulated emission, but light is also lost due to absorption and by incomplete reflection from the end facets. Finally, if there is more amplification than loss, the diode begins to "lase".

Some important properties of laser diodes are determined by the geometry of the optical cavity. Generally, in the vertical direction, the light is contained in a very thin layer, and the structure supports only a single optical mode in the direction perpendicular to the layers. In the lateral direction, if the waveguide is wide compared to the wavelength of light, then the waveguide can support multiple lateral optical modes, and the laser is known as "multi-mode". These laterally multi-mode lasers are adequate in cases where one needs a very large amount of power, but not a small diffraction-limited beam; for example in printing, activating chemicals, or pumping other types of lasers.

In applications where a small focused beam is needed, the waveguide must be made narrow, on the order of the optical wavelength. This way, only a single lateral mode is supported and one ends up with a diffraction-limited beam. Such single spatial mode devices are used for optical storage, laser pointers, and fiber optics. Note that these lasers may still support multiple longitudinal modes, and thus can lase at multiple wavelengths simultaneously.

The wavelength emitted is a function of the band-gap of the semiconductor and the modes of the optical cavity. In general, the maximum gain will occur for photons with energy slightly above the band-gap energy, and the modes nearest the gain peak will lase most strongly. If the diode is driven strongly enough, additional side modes may also lase. Some laser diodes, such as most visible lasers, operate at a single wavelength, but that wavelength is unstable and changes due to fluctuations in current or temperature.

Due to diffraction, the beam diverges (expands) rapidly after leaving the chip, typically at 30 degrees vertically by 10 degrees laterally. A lens must be used in order to form a collimated beam like that produced by a laser pointer. If a circular beam is required, cylindrical lenses and other optics are used. For single spatial mode lasers, using symmetrical lenses, the collimated beam ends up being elliptical in shape, due to the difference in the vertical and lateral divergences. This is easily observable with a red laser pointer.

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