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IPG sales hit by China EV slowdown

31 Oct 2023

Fiber laser giant expects further decline in December quarter; timing of any recovery remains uncertain.

IPG Photonics has posted sales revenues of $301 million in its latest financial quarter, down 14 per cent on the same period last year, with a further decline now expected in the closing quarter of the year.

CEO Eugene Scherbakov said that the fiber laser firm was facing a “challenging” capital investment cycle, with weak industrial demand in Europe compounded by reduced investment in battery production for electric vehicles (EVs) in China.

“General industrial demand in North America has held up better than expected, but many customers continue to predict a slowdown and are delaying purchase decisions, so our visibility is limited,” he said.

“At the same time, we remain optimistic that sales in China should recover with an increase in investment in EV battery capacity in 2024 and sales in the US are likely to benefit from government investment and onshoring initiatives in the next several years.”

However, Scherbakov and IPG’s CFO Tim Mammen admitted in an investor conference call that project delays related to battery capacity expansion in China and elsewhere were now adding further uncertainty to their outlook.

“Leading manufacturing indicators in Europe are trending at the lowest levels since the 2008 recession,” Mammen added.

Cost cuts aid margins
The decline in sales in the latest quarter saw IPG’s operating income shrink to $56 million - down from $93 million a year ago - although IPG’s executive team noted that recent cost-cuts, lower shipping costs and tariffs, and improved performance at its manufacturing sites in Poland and Italy had helped to reduce the impact on profit margins.

The firm, which also raised $29 million through the sale of two buildings in the latest quarter, continues to generate plenty of cash and has a balance sheet boasting more than $1.1 billion in liquid assets and no debt.

Despite the impact of the weaker macroeconomic environment caused primarily by lower demand in flat sheet cutting applications, Mammen and Scherbakov pointed to stronger sales of the firm’s handheld laser welding products and applications in semiconductor fabrication as two bright spots.

Mammen also pointed out that investment in EV battery capacity outside of China remains in its early stages in comparison, and should increase over the next few years - alongside “on-shoring” activities in the US.

One recent example of that is Toyota's planned $8 billion investment in a battery facility in North Carolina. On the other hand, Ford is delaying investments worth billions of dollars in its US-based EV battery production sites.

EV battery production has become a major market for IPG lasers in recent years, and accounted for around 20 per cent of its total sales in 2022, up from 10 per cent in 2021.

3D printing ‘catalyst’
One potential growth area remains 3D printing - laser additive manufacturing of metal components in particular - and although Scherbakov admitted that so far the market had developed more slowly than many had expected, that might be about to change.

“We are seeing a significant increase in demand for our lasers in 3D printing applications,” the CEO told investors. “Industry reports suggest that the technology is being tested for manufacturing of consumer electronic devices…it seems like there is a new catalyst that can potentially drive further adoption.”

While any significant roll-out of the technology in consumer electronics remains unclear at this stage, IPG has recently introduced a new laser specifically targeting additive manufacturing.

“This laser has an adjustable mode and can move from single-mode for fine structures to multi-mode output for up to six times [faster] build-up rates,” Scherbakov said, adding that the high stability of the source’s power and beam distribution would benefit customers using the technology in a round-the-clock production environment.

• In their outlook for the December quarter, the IPG team said that sales should come in somewhere between $270 million and $300 million - well below the $334 million total posted for the closing quarter of 2022.

But that did not appear to alarm investors unduly, with IPG’s stock price holding steady at around $85 on the Nasdaq - close to its valuation a year ago, and equating to a market capitalization of $4 billion.

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