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Auto industry drives IPG sales to $100M

03 May 2011

The market-leading fiber laser company sees a boom in welding applications for car production and heavy industry.

Fiber laser vendor IPG Photonics has posted sales of exactly $100 million in the opening quarter of 2011 – slightly down on a sequential basis in the seasonally weak opening period of the year, but close to double the $51.2 million it recorded a year ago.

Although every segment of IPG’s business showed a year-on-year increase, perhaps the most significant was the jump in business from China – where sales have more than tripled since last year. The country accounted for around 20% of IPG’s revenues in the latest quarter.

And as IPG delivered a $23.1 million net profit, CEO and founder Valentin Gapontsev also highlighted a strong market pull from the automotive industry, in particular for “body-in-white” welding applications. That is significant, not just because of the size and influence of the automotive industry, but because it is notoriously conservative and has already been burned once in the past with novel laser technology when diode-pumped sources proved unreliable.

Describing the recent traction as a “tipping point” for fiber lasers, Gapontsev highlighted IPG’s sales of high-power systems. In the past, the company’s sales have been largely driven by penetration of lower-power marking applications, but the recent market acceptance of high-power lasers for metal welding and cutting is more reflective of the wider industrial laser market and also indicates the growing maturity of fiber laser technology.

And despite lingering concerns over the global economic recovery, the CEO is not expecting a slowdown: “IPG’s order flow remains strong,” he said. “It has become clear that our fiber lasers are now well accepted in many applications, especially in materials processing. In addition, we are seeing customers, particularly OEMs, order products in significantly greater quantities.”

Heavy industry influence
Outside of car production, Gapontsev and CFO Tim Mammen also noted that applications in heavy industry are now coming to the fore, examples including welding of train locomotive parts and in shipbuilding, and a collaboration with GE Global Research that has shown the capability of a hybrid laser system for high-speed welding.

Although competition within the fiber laser sector is growing, with companies such as Trumpf, JDSU and Rofin-Sinar hoping to take a chunk out of IPG’s dominant market share as it strives to keep pace with the growing demand, Mammen believes that IPG is keeping those competitors at arm’s length.

The CFO highlighted that of four laser-cutting system providers who showed off systems based around rival fiber lasers at the EuroBlech show in March, three had now switched back to using IPG lasers again.

Part of the reason for that may be IPG’s ability to keep costs controlled through vertical integration - as noted by Longbow Research analyst Mark Douglass last week. The company has always sourced its laser diodes internally, manufacturing the strategically important devices using a molecular beam epitaxy (MBE) deposition process at its facility in Oxford, Massachusetts. More recently it has also begun producing optical components such as beam splitters, couplers and optical heads internally.

Crucially, IPG believes that it is not just replacing lasers in existing applications where CO2 or YAG sources are incumbent – it is also increasing the total addressable market for laser cutting and welding through advantages including lower cost and much higher electrical conversion efficiency.

Mammen cited one example of a 15-20 kW system for a heavy-duty application in thick metal welding, where the existing CO2 source was considered too expensive to run consistently because it only operates at 7-8% efficiency. Gapontsev says that IPG has increased typical fiber laser efficiency to more than 30% over the past year or so.

Scale-up challenges
It is likely that IPG’s biggest challenge in the coming months will be the production scale-up required to meet the escalating demand for its lasers – especially if customers in the automotive industry begin to place substantial orders. IPG has already begun building a significant build-up of inventory, perhaps in anticipation of just such a ramp in demand.

This year the company expects to grow its operations rapidly. It is working on new facilities in Italy and Germany, with further additions in Russia, Japan, China and the US. It is also hiring, and says that hundreds of potential new workers attended its recent job fair in Oxford.

With demand for its high-power lasers in particular expected to grow as a share of sales in the coming months, IPG said it expected to post revenues of between $102 million and $110 million for the second quarter, with sales momentum likely to continue building through Q4 – traditionally IPG’s strongest quarter of the year.

By then, IPG is scheduled to resume its patent litigation case with IMRA America. Although IPG had attempted to have IMRA’s case against it dismissed, that battle is now set to go to a full trial starting on September 26, barring any out-of-court settlements or further delays. IPG says that it is looking forward to defending its position – and the fiber laser community will be watching intently.

ABTechLaCroix Precision OpticsBerkeley Nucleonics CorporationTRIOPTICS GmbHSPECTROGON ABHÜBNER PhotonicsUniverse Kogaku America Inc.
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