State of Laser Industry Contributes to Cautious Report, Forecast for IPG Photonics
OXFORD, Mass., Nov. 2, 2020 — High-performance laser manufacturer IPG Photonics is maintaining a wide guidance range moving into the year’s final quarter, after reporting a total revenue beat (IPG reported $318 million in total revenue) for quarter three, with earnings per share (EPS) of 66 cents. The company announced fourth-quarter revenue projections (pre-market) in the range of $290 to $320 million and EPS estimates in the range of 70 cents to $1.05.
IPG CEO Valentin Gapontsev highlighted sequential growth in North American and European bookings in IPG’s earnings statement. The company reported record booking in North America for the quarter ending Sept. 30, Gapontsev said, aided by large-scale orders for advanced applications.
“While total orders in China for the third quarter were lower, China continues to have a significant backlog given the exceptional level of orders booked in the first half of the year. In total, third-quarter book-to-bill was slightly below 1. Overall, it was notable that order bookings improved markedly during September,” Gapontsev said.
On an earnings call Oct. 30, the company reported that its components supply was in good position, now overcoming the effects of the COVID-19 pandemic, Mark Miller, an analyst covering the hardware technology industry for the Benchmark Company, told Photonics Media. Adding to the good news for IPG is that China appears to be back to pre-pandemic industrial production levels, Miller said.
IPG reported 58% of total revenue stemmed from continuous-wave (CW) laser sales. Ultrahigh-power (6 kW and greater power) fiber laser sales supported that total and represented almost 60% of CW laser sales. Medium-power CW laser sales were down year over year from just over $28 million in third-quarter 2019 to $11.8 million last quarter.
China, a region Gapontsev cited in March (when IPG reported on its fiscal year 2019) as consequential not only to the business but other markets worldwide, delivered a 22% sales increase for IPG, year over year.
While North American bookings grew in the quarter and continue to show promise for IPG in the fourth quarter, Miller said, any traction stemming from the quarterly beat ought to be weighed against the state of the fiber laser market.
“This is not 10 years ago, when the fiber laser industry was growing 20% to 25%. Growth in fiber lasers has slowed. And also, [IPG is] seeing pricing pressures. Margins came up. Historically, margins would be at 55%; they might get up to 50%.
“The big issue in fiber lasers [is that they] have been pricing at the low end of the market.”
IPG, Miller said, remains well positioned in the fiber laser market; the company is a low-cost producer and holds a considerable amount of proprietary information to adapt to and rise above a market in which growth has tailed off.
Another market player Miller identified was American semiconductor fiber laser manufacturer nLIGHT, and, specifically, its Corona family of fiber lasers that allow end users to adjust the size and shape of the laser’s output beam at full power within the fiber. He said the company has achieved a degree of penetration in the higher laser powers, though more notably, the company is performing well in aerospace and defense — an industry in which IPG continues to reside.
IPG said the delay of aerospace and transportation projects, heavily affected by the COVID-19 pandemic, contributed to lower performance of its Genesis Systems Group. The robotics systems and laser integration company influenced IPG’s reported goodwill impairment charges. Those charges reduced operating income by $45 million and operating margin by 14 percentage points.
A market that Miller said is rising more steadily than fiber lasers is lasers for use with OLED devices. Coherent Inc, he said, for example, had reported significant profits from selling to Samsung. Coherent announced its plans to report its fourth-quarter earnings after markets close on Nov. 10.
“That market cooled off and its starting to roam back up,” Miller said, of lasers for OLED devices and consumer technology.
“And this is not so much from Samsung or LG — this is from smaller [firms] in China. Especially with flexible displays, I am more upbeat there because I think that market, to me, has significant turnaround potential.
“Fiber lasers is still growing; don’t get me wrong, but it’s not growing 20% to 25%. It is maybe growing half that — maybe a third of that. It is a high-power cutting market, too, which is a slower growth…That is the bread and butter for IPG.”
Lower sales in cutting, welding, and marking applications, IPG reported, contributed to its total revenue decrease of 3% year over year and 5% decrease in materials processing year over year. Gapontsev on Friday did say, however, that near-term growth opportunities in ultrahigh-power cutting, electric vehicle battery processing, and medical applications will continue to benefit the company heading into 2021.
Laser systems, Miller said, which analysts had hoped would elevate revenue totals, were soft for the quarter and down sequentially. Laser and nonlaser systems accounted for $20.8 million (6.5%) in total revenue for the quarter. The figures are down from last quarter, from $24.9 million and 8.4%, respectively.
IPG stock fell and quickly recovered after the company announced its quarterly earnings prior to the market opening on Friday, Oct. 30. The company’s stock was trading at $185.96 when markets closed. It had fallen to $174.66 earlier in the day.
“To me the question with IPG — and I asked them — is about new products. They said they were up 21% in sales [in emerging products],” Miller said.
For IPG, those include new ultrafast and UV lasers.
“That is one thing I’m looking at — is IPG growing through the new products? Some of the mature markets aren’t [growing that much],” Miller said.
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