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01 Nov 2011
The fiber laser manufacturer has posted yet another record quarter and will add laser diode production capacity early next year.
Bolstered by a growing set of applications including pipeline welding and strong demand for high-power fiber lasers used in automotive production, IPG Photonics is continuing to expand and will add significant laser diode fabrication capacity in early 2012.
The Oxford, Massachusetts, company said that it would bring additional diode capacity on stream in the form of new molecular beam epitaxy (MBE) wafer production kit as it reported a 62% year-on-year increase in revenues for the third quarter of the year.
In the three months ended September 30, IPG posted revenues of $129 million, up 6% sequentially and at the high end of its guidance. That increase is largely attributable to sales of high-power lasers, which were up 131% on Q3 in 2010, with IPG’s CFO Tim Mammen highlighting “increasingly strong demand from automotive manufacturers” as a key application sector. On the bottom line, that translated to a net profit of $32.9 million, up from $13.2 million in the equivalent quarter last year.
IPG sold seven of its new seam-stepper laser welding systems to one of Germany’s leading auto companies in the quarter, while it also shipped a $2.6 million system to a customer in Russia for pipeline welding – indicating the greater versatility of fiber laser systems when compared with CO2 lasers in particular.
And although IPG did see some weakness in sales of pulsed lasers that are typically used in marking and engraving applications, with some negative impact from credit tightening in China, the overwhelming story is one of fast-growing acceptance of fiber laser technology in both welding and cutting applications.
New products; extra capacity
IPG is also working on a number of new product introductions, including thulium-doped lasers emitting at 2 micron and suitable for processing non-metal materials like paper and plastic, as well as 20-30 W green lasers, "ultra-compact" 1 kW systems and a 2 kW air-cooled laser for dry welding.
Although IPG’s Q4 guidance – flat sales and net income compared with Q3 - suggests a conservative outlook for the closing quarter of the year, the company continues to invest in capacity expansion at both the system and component level.
The planned addition to MBE capacity with equipment capable of depositing active semiconductor layers on a much larger number of wafers simultaneously will greatly increase the company’s laser diode production capability. CEO and founder Valentin Gapontsev said that IPG would likely produce diodes with a cumulative output power of some 15 MW this year, but he expects that figure to rise to 25 MW in 2012, almost entirely for internal consumption in IPG’s own fiber lasers.
The company anticipates growing demand from Japan, where fiber laser cutting applications are only just beginning to take off, and also from Gapontsev’s native Russia, where IPG is engaged with some very large state-run companies. Russia currently accounts for close to $10 million in quarterly sales for IPG, and that figure looks certain to grow quickly.
Though acknowledging the weak macroeconomic environment, particularly in Europe, and admitting that IPG was not immune to that, Mammen indicated that bookings in the current quarter had got off to a strong start.
Potential acquisitions
As well as enabling large-scale investment in production capacity – IPG has spent some $35 million in capital expenditure in the first nine months of 2011, mostly on expanding its manufacturing capability, and expects to spend $50 million overall this year - the company’s very strong financial performance means that it is also building up a significant cash reserve.
The firm’s balance sheet now shows close to $200 million in cash and cash equivalents, but Mammen said that it was too early for the company to give any thought to either a buy-back of shares or issuing a shareholder dividend. “We’re still 18 months away from [thinking about] that,” said the CFO. However, the company is looking at the possibility of using the cash to fund some small-scale technology acquisitions should the opportunity emerge.
“While there is some uncertainty in the global macro-economic environment, fiber lasers’ growing share of the laser market and the continued acceptance of our products and technology foretell exciting growth prospects for the long term,” concluded Gapontsev.
Shares in IPG fell sharply on November 1 as the company announced the latest results, although that appeared to be in line with a wider market fall triggered by general negative sentiment over the decision by Greece to hold a referendum on its European bail-out agreement and IPG's stock is still up more than 60% on the year to date.
• Although IPG won the high-profile patent infringement case brought against it by IMRA in early October, CFO Mammen warned that the case was not yet entirely concluded. "A formal judgment has not yet been entered and the district court will need to decide numerous motions that we expect IPG and IMRA to file," he said.
"Near-term post-trial expenses are uncertain at this time because IPG will have to respond to IMRA’s post-trial motions and any appeal."
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