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IPG optimistic despite impact of strong dollar and Russia restructuring

15 Feb 2023

Fiber laser firm rides EV battery boom, and says investment in automation and new locations will pay dividends.

IPG Photonics has posted sales of $334 million for the final quarter of 2022 - down 8 per cent compared with the prior year, but slightly higher than the company had predicted three months ago.

Largely attributed to the continued strength of the US dollar and weak demand for high-power laser cutting equipment in China, the sales decline means that IPG’s full-year sales came in at $1.43 billion, down from last year’s total of $1.46 billion.

“While 2022 was a challenging year for IPG, we successfully navigated the choppy waters,” said company CEO Eugene Scherbakov, pointing to the effects of ongoing supply chain disruptions and sanctions impacting IPG’s operations in Russia and Belarus.

IPG wrote down nearly $80 million in charges related to its Russian locations in the latest financial quarter, pushing it to a net loss of $93 million for the period. That figure compares with a net income of $65 million a year ago.

For the full year, it meant that the company delivered a net income of only $110 million, down from $278 million in 2021.

EV battery boom
Discussing the latest results in a conference call with investors, Scherbakov and IPG’s CFO, Tim Mammen, highlighted how trade restrictions following Russia’s invasion of Ukraine would ultimately benefit the firm, as it had prompted investment in both automation and new lower-cost facilities.

“We are working to offset the impact of changes in the supply chain and manufacturing footprint on our gross margins by investing in automation and investing in locations with lower costs than Germany and the US, such as Poland or Italy,” Mammen said.

Scherbakov said that the company was now far less reliant on machine tools for high-power laser cutting, with a much broader range of applications contributing to revenues.

“Our strategy to diversify revenue - as evidenced by the performance of emerging growth products and applications - is paying off,” added the CEO. “As we moved through the year, we continued to see record sales in e-mobility, medical and welding, including handheld welding applications.”

Notably, IPG’s sales relating to electric vehicle (EV) battery production accounted for close to 20 per cent of total revenues in 2022, up from around 10 per cent in 2021.

“We believe that the battery capacity build-out will accelerate in North America and Europe, and will continue to increase in China in the next several years to support growing EV sales,” Scherbakov told investors, adding that new US government incentives via the Inflation Reduction Act had already caused spending to shift.

At the recent SPIE Photonics West exhibition, IPG also unveiled a new high-efficiency laser drying system that is aimed at what is currently an energy-intensive step in battery foil production.

“The solution replaces less efficient infrared bulbs and environmentally unfriendly gas-fired furnaces,” explained Scherbakov. “It can significantly reduce energy costs and increase drying speeds for our customers.”

Handheld laser welding
While cutting applications have represented IPG’s historical cash-cow, that is now changing as the company’s user base becomes more diverse, with welding applications growing strongly.

“Welding now accounts for over 30 per cent of our materials processing revenue and grew approximately 40 per cent year-over-year, surpassing in size flat-sheet cutting revenue, a milestone for us,” noted Scherbakov.

Although EV battery producers have rapidly adopted laser welding as a key part of their manufacturing processes, the CEO pointed out that the rest of the welding market - worth an estimated $20 billion annually - lasers are at a much earlier stage of acceptance.

That market remains dominated by traditional MIG (metal inert gas) and TIG (tungsten inert gas) welding, techniques that require highly skilled workers. However, there is a skills shortage problem, with Scherbakov quoting figures from the American Welding Society suggesting that there is a deficit of some 375,000 trained welders in the US alone.

The CEO says that, in contrast, IPG’s “LightWELD” handheld product - capable of welding tricky materials including aluminum alloys, copper, titanium, and thin foil - requires much less training and can also weld up to four times faster than the conventional techniques.

“LightWELD is easy to use and comes with presets for different types of materials which can result in faster training for unskilled welders required to fill the employment gap,” he added.

• For the opening quarter of 2023, IPG’s executives are anticipating revenues of between $310 million and $340 million, with profit margins expected to improve through 2023 as demand from China rebounds and the EV battery sector grows strongly.

That outlook appeared to cheer investors, with IPG’s stock price rising by more than 11 per cent on the Nasdaq following the update. Now trading at around $125, the stock is up 50 per cent from September 2022, and equivalent to a market capitalization of just over $6 billion.

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