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IPG stock drops on weaker outlook

02 Aug 2023

Fiber laser firm says that many of its customers expect a slowdown in the remainder of 2023.

IPG Photonics has posted sales of $340 million for the second quarter of 2023, on track with its expectations outlined three months ago but down 10 per cent from the same period last year.

The fiber laser firm’s stock price slumped in value by nearly 18 per cent following the latest financial update, with its senior executives pointing to project delays and key customers anticipating a slowdown in the second half of the year.

“Second quarter book-to-bill was below one as increased economic uncertainty negatively impacted customer orders in our key geographies,” said CEO Eugene Scherbakov.

“In particular, general industrial demand in Europe and North America has weakened, while industrial demand and electric vehicle (EV) investment remain soft in China.”

And while Scherbakov added that the company was benefiting from increased investment in EV battery production in the rest of the world, company CFO Tim Mammen told an investor conference call:

“At the recent Laser [World of Photonics] show in Europe, the tone about business was muted with most customers expecting a slowdown in the second half of 2023.”

China weakness
IPG said that although the latest quarterly period witnessed growth in welding, cleaning, 3D printing, and solar cell manufacturing applications, these were offset by lower revenue in cutting and marking applications.

Sales to China dropped 28 per cent year-on-year, with Mammen saying that demand had dropped across all applications except for laser cleaning and 3D printing.

Discussing EV-related applications in China specifically, Scherbakov said that the slowdown in the latest quarter resulted largely from traditional prismatic cell batteries, but the CEO said that IPG was also seeing increased investments into newer technologies like large cylindrical cells, and batteries for storage applications.

“The EV investment cycle in China is expected to rebound in 2024," he said. “Our team is working on new business opportunities in foil cutting applications and electric motor assembly.

“With a continued adoption of the EVs and growth in energy storage globally, demand for batteries should quickly catch up with recent capacity additions and we expect investment in battery manufacturing in China to be stronger next year.”

Laser drying order
Scherbakov also highlighted that IPG had received the first order for its new laser drying equipment for use in EV battery applications. IPG introduced the technology, which is said to be far more efficient than conventional infrared bulbs, at the SPIE Photonics West exhibition earlier this year.

“The drying solutions are well-received by customers and are gaining market acceptance because they significantly cut down energy consumption and reduce the environmental impact of legacy processes,” the CEO added.

Looking ahead, CFO Mammen told investors that leading indicators in both Europe and North America pointed to a likely contraction in industrial markets, while the timing of a recovery in demand in China remained uncertain.

As a result, the IPG team is expecting sales in the third quarter to end up somewhere between $300 milion and $330 million.

• That outlook appeared to spook investors, with IPG’s stock price immediately dropping in value by around 15 per cent, and ending the day nearly 18 per cent lower. Currently trading at around $109 on the Nasdaq, that equates to a market capitalization in the region of $5 billion.

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