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Coherent slips on supply-chain issue; acquires Innolight and Midaz

02 Nov 2012

A busy period for the top-tier photonics company sees a double acquisition, but problems sourcing a key excimer laser component.

Coherent saw its stock price fall 7% as the laser company said sales for its closing fiscal quarter of 2012 were hit by delays in the delivery of key components used in large excimer laser systems.

The latest generation of those systems, which are used in flat-panel display (FPD) annealing applications, sell for more than $7 million each, meaning that any delays can have a major impact on results. CEO John Ambroseo said that the late delivery meant that acceptance testing of the system was also delayed, and that the system could not be shipped in the quarter.

As a result, Coherent posted sales of $188.7 million for the three months ending September 29, down sequentially and also below the guidance range of between $193 million and $196 million.

The stock price may also have been swayed by a decline in new bookings. Orders from FPD manufacturers tend to come in bunches rather than being evenly spread, and Coherent registered only $169.3 million in new orders in the latest quarter – down from $218.9 million sequentially and from $195.4 million at the same point last year.

That order shortfall has been exacerbated by a further slowdown in capital equipment purchases by semiconductor manufacturers, with Ambroseo pointing to recent weak results from some major semiconductor OEMs, and characterizing sentiment in the sector as “turning from neutral to negative” over the past three months.

Although the CEO did not specify the precise nature of the component that caused the delayed excimer laser shipment, in the past the company has highlighted how difficult it is to produce the large, custom-made ultraviolet optics that are used to shape the excimer’s output beam – something that will be magnified with the larger “Gen 8” excimer systems.

Coherent is reliant on a single supplier of the delayed component, and while stressing that they are far from “off the shelf” in nature, Ambroseo indicated that the company would consider multi-sourcing in the future.

Double acquisition
On a positive note, Coherent also used its Q4 results call to announce two new acquisitions of laser companies.

It has used $18 million of an extensive cash pile to buy Innolight, a diode-pumped solid-state (DPSS) laser specialist based in Hannover, Germany, with the deal completed on October 30.

Innolight sells into both the scientific and industrial markets, and will expand Coherent’s offering in the laser micromachining space.

Ambroseo highlighted applications in LED and semiconductor wafer scribing, specialty marking and semiconductor inspection as some of the major uses of the German firm’s pulsed infrared laser products. Future releases will include green and ultraviolet versions.

And Coherent has also snapped up Midaz Lasers. The UK-based company, originally a spin-out from Imperial College, London, has developed what Ambroseo described as a “very compact and elegant” solid-state amplifier operating across the nanosecond and picosecond regimes.

“Everybody at Coherent thinks it is very clever,” said Ambroseo of the Midaz technology. “[and that] we should have thought of it first!” In the past, Midaz has highlighted the very high efficiency of the diode-pumped alexandrite lasers that it has developed for satellite remote sensing applications.

The plan for the future is for the Midaz amplifier to be used in conjunction with both existing Coherent lasers and those acquired from Innolight, to improve capability in the general area of micromachining. Though the addition of Innolight will have only a small impact on Coherent sales in the short term, the CEO believes that the combination with Midaz’ technology will deliver “tens of millions of dollars” in sales by 2015.

Fiber laser launch
Having now officially released its first kilowatt-scale fiber laser, called the HighLight 1000FL, Coherent has also signed up its first customer and plans to start selling a version of its “Meta” laser workstation featuring the fiber source within the next year.

At the moment, the Meta tool – technology acquired from Beam Dynamics in 2010 - is shipped with a CO2 laser, seen as a more versatile source for use in machining job shops that are as likely to be processing wood as metal.

The fiber laser-equipped Meta will instead be aimed at shops focused on cutting thin metal components. Coherent is aiming to develop more fiber lasers with higher output powers in the future, although in doing so it will be up against both the market-dominating IPG Photonics and a whole host of other laser firms seeking to challenge IPG.

China and semiconductor sentiment weigh
On the general macroeconomic situation, Ambroseo said that the current uncertainty “may well get worse before it gets better”. Though optimistic regarding the longer-term laser business, current worries include China, where the unfolding leadership change is adding to uncertainty, and the semiconductor slowdown.

“Several recent earnings reports in the semiconductor market highlight that the business is slowing down, with fab utilization rates trending towards 80% overall by the end of the calendar year,” the CEO told investors.

However, Coherent could be set to benefit from the planned merger of ASML and Cymer. Although ASML’s acquisition of the excimer laser provider is predicated largely on making more rapid progress in extreme ultraviolet (EUV) lithography, Cymer does sell a similar annealing system to Coherent’s for FPD production.

Ambroseo believes that the process of regulatory approval regarding the Cymer acquisition could make some customers nervous, as the future of that part of the Cymer business is unclear, while the FPD application does not fit at all with ASML’s lithography tool focus.

For the current quarter, Coherent expects to post revenues of between $180 million and $190 million – a figure that includes the delayed excimer system shipment. In the full fiscal year 2012, the company registered sales of $769.1 million – down from $802.8 million posted in 2011.

Iridian Spectral TechnologiesTRIOPTICS GmbHHÜBNER PhotonicsLaCroix Precision OpticsLASEROPTIK GmbHBerkeley Nucleonics CorporationECOPTIK
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