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nLight sales down as Covid-19 impact spreads

25 Feb 2020

US laser firm battling market forces and coronavirus as it tries to reduce reliance on customers in China.

Vancouver-based laser diode and fiber laser company nLight has posted an 8 per cent decline in annual revenues, with the coronavirus (Covid-19) outbreak set to further impact business in the near term.

That decline represents the first annual dip for nLight after several years of solid expansion. It also comes as the company works to shift its business away from China, which in 2019 accounted for around a third of all sales, and focus on defense and industrial markets elsewhere.

Sales of $177 million in 2019 translated to an operating loss of just under $10 million, with reduced profit margins resulting from a tough combination of US-China trade tensions, aggressive pricing of fiber lasers in China, and a general slowdown in industrial and consumer electronics markets.

For the closing quarter of the year, the company posted sales of $42.9 million - down 7 per cent on the final three months of 2018.

Viral impact
Despite the added complication of Covid-19, which is impacting both product demand and nLight’s internal operations, CEO Scott Keeney focused on the positives as he discussed the latest results with investors.

He told them that although revenues dropped overall in 2019, sales of higher-power offerings (6 kW and above) had nearly doubled in the latest quarter, compared with the same period in 2018.

“We closed 2019 with new product and customer momentum that positions us well for 2020 and beyond,” Keeney added. “The overall industrial market showed signs of recovery in the fourth quarter and our differentiated offerings enabled us to increase customer penetration across the globe. Within China, our mix of high-power fiber-laser sales continued to grow, and we see areas of long-term opportunity in this market.”

However, the Covid-19 outbreak - now appearing to spread well beyond China - is clearly disrupting that outlook.

“Over the past several weeks it's become clear that the Covid-19 virus is impacting the near-term demand environment and our internal operations,” Keeney said during an investor conference call, adding that the company’s primary focus with respect to the virus was to ensure the health and safety of its employees in China. nLight has a back-end assembly plant in Shanghai.

nLight’s management team anticipates that sales in the current quarter will come in at somewhere between $37 million and $40 million, with the financial impact of Covid-19 estimated at $8 million.

“The fluid nature of the situation has added significant short-term uncertainty to the Chinese market and our ability to fully meet current global market demand,” Keeney added.

Laser weapons
One sector where nLight did register sales growth in 2019 was aerospace and defense, where the company is a key player in the emerging area of laser directed energy weapons.

Defense-related sales of $42.5 million last year were up strongly from $34&nbs;million in 2018, with Keeney telling investors that the opportunity would expand “meaningfully” over the coming years.

“Our core semiconductor laser technology, combined with the beam combination and beam control capabilities of Nutronics [acquired by nLight in November], uniquely positions us to capitalize on this opportunity,” the CEO said.

Another area of promise is the company’s “Corona” programmable fiber lasers - even if the choice of name does now look unfortunate. Designed to optimize edge quality and speed when cutting metals of any thickness, the Corona can also be configured into both deep and shallow welding modes as required, without the need for additional free-space optics.

“While our historical exposure to laser welding has been relatively limited, [we] greatly enhanced our product offering in 2019 with the introduction of our fiber laser welding platform and through the evolution of Corona,” claimed Keeney, pointing out that the product introduction was critical to nLight’s non-Chinese industrial sales growing almost 10 per cent in 2019.

• Hit by the wider sell-off in response to fears of the growing global spread of Covid-19, nLight’s stock price slipped to just under $17 at the close of trading in New York on February 24.

That represents a drop of around 15 per cent since the start of the year, and values the company at a market capitalization of around $600 million.

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