II-VI appoints new CTO as earnings slump

23 Oct 2012

The diversified optics firm benefits from laser investments by the US automotive industry, but Japanese and European economies put a drag on demand.

II-VI, the Pittsburgh optics company that supplies a large proportion of the infrared components used in CO₂ lasers around the world, has appointed a chief technology officer – in the form of one-time Avanex CEO Giovanni Barbarossa.

Barbarossa joins at a tricky time for II-VI, which has just posted a decrease in bookings, sales and net income for the first quarter of its fiscal year 2013.

For the three months ended September 30, II-VI reported a 4% year-on-year decline in sales, while bookings slumped 12% and earnings crashed by nearly one-third. Those figures were in line with market expectations, after the company adjusted its financial outlook downwards last month.

CEO Francis Kramer blamed customer caution for the weak overall demand picture, in what he described as “a world fraught with economic and political uncertainties”. Worst affected, he told an investor conference call, were a “stagnant” Japanese economy suffering from the high value of the yen, and ongoing weakness in the eurozone.

Silver linings
But there are some bright spots for II-VI. Most notably, the US automotive industry continues to invest heavily in lasers for welding and cutting applications, with II-VI able to benefit from both fiber laser and CO₂ laser applications.

Though total orders were down across the company, its HIGHYAG Lasertechnologie joint venture, which supplies beam combiners and processing heads for industrial fiber laser applications, enjoyed a strong quarter.

Kramer said that demand from automotive manufacturers was benefiting the HIGHYAG division, and he is hopeful that the investment currently centered on the US industry will soon spread to the rest of the world.

“We think other countries that do not use as much laser processing of cars will get into it,” the CEO told investors. “Whether that’s a year down the road, or two or three [we don’t know].” He estimated that of the 80 million automobiles currently produced annually, only 14 million are made in the US – highlighting the headroom for growth of laser-based production in that sector.

Kramer also highlighted how momentum has shifted away from 10.6 µm wavelength CO₂ lasers and towards solid-state sources, saying: “Right now it’s headed towards 1 µm, as far as we can see.”

That could mean either fiber lasers or disk lasers, with both types of source being used by the likes of BMW, for example. optics.org understands that the German automaker is to install 14 disk lasers from Trumpf and a number of fiber lasers from IPG Photonics at its Mini manufacturing site in the UK, in an investment worth some €30 million overall.

ASML merger “positive”
Kramer also welcomed the decision by Cymer and lithography giant ASML to merge, saying that the move is “probably good” for II-VI. It provides high-performance infrared diamond optics that are used in the laser-produced EUV plasma sources being developed by the two companies.

II-VI is itself “very closely aligned” with Cymer, and is developing large-format diamond optics – measuring up to four inches in diameter – for the EUV systems. ASML is due to ship eleven EUV scanner systems to customers next year, although it is not clear how many of these will feature sources based on plasmas produced by CO₂ lasers. Kramer said that there was a steady order pattern for II-VI’s diamond optics – even though they are among the components whose performance needs to be improved as ASML seeks to boost the productivity of the scanners by increasing EUV output power.

The CEO also hinted at further restructuring measures at II-VI, saying that the company’s management was “closely monitoring our discretionary spending and adjusting our cost structure to match market demand”.

Having posted revenues of $132.3 million in the quarter just completed, sales are now expected to decline slightly in the current period. Full-year sales are forecast to range between $550 million and $560 million – a total that would represent an increase on the previous fiscal year but will require a strong rebound in the second half to come to fruition.