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Fiber Demand Delivers Record Revenue to IPG in Q2

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By Melinda Rose, Senior Editor

OXFORD, Mass., Aug. 1, 2012 — Strong sales of fiber lasers for materials processing applications were the driving factor behind IPG Photonics Corp.'s $37.7 million profit for the second quarter, a 23 percent increase over the same quarter last year, the company reported Tuesday. Revenue increased 13 percent year over year, to a record $138 million.

IPG Chairman and CEO Dr. Valentin Gapontsev attributed the company's sales growth to three factors: the continued adoption of fiber lasers over other types of lasers, the increasing number of applications that are using lasers and the strong demand in several key industries.

"Second-quarter materials processing sales increased 16 percent year over year to $124.6 million," IPG CFO Tim Mammen said in a conference call with investors on Tuesday morning. "This market continues to drive our growth and accounted for 90 percent of total sales during the quarter."

Telecommunications, advanced applications and the medical market accounted for the remaining 10 percent. Revenue from these decreased 5 percent year over year to $13.3 million, Mammen said.

The biggest materials processing applications for fiber lasers are cutting, welding, and marking and engraving, he said, adding that IPG also is seeing growth from applications such as cladding, drilling, brazing, annealing and rapid prototyping.

The increase in laser sales for materials processing was driven by demand for "high-power, medium-power and pulsed lasers with continued strength in cutting, welding and marking applications," Gapontsev said. "High-power laser sales increased 13 percent, primarily for the automotive manufacturing industry and cutting OEMs, while pulsed laser sales were up 10 percent, benefiting from increased demand in the consumer electronics industry."

High-power laser sales of $62 million accounted for 45 percent of total revenue, Mammen said. Pulsed lasers had a record quarter with $38.2 million in sales, representing 28 percent of total revenue.

Low-power laser sales, the majority of which are to the medical end market, were down 11 percent year over year to $4.2 million.

In the automotive sector, "OEMs are using new materials such as high-strength steel in advanced manufacturing techniques, and fiber lasers are the best solution to cut or weld these materials," Gapontsev told investors. "We believe that meaningful transition to laser processing is just starting for some of these applications."

Fiber's significant gains in market share across applications also explain why IPG is doing well in areas such as China and Europe, despite the global economic slowdown, he said.

"Europe reported a solid quarter, with record sales in Russia, primarily from telecom and materials processing applications. China, Japan and Turkey were strong in the Asian region," Gapontsev said.

European sales increased 11 percent year over year to $47.2 million, Mammen said, with growth driven by a record revenue quarter in Russia, where both telecom and materials processing markets performed well.

Sales in North America were down 10 percent year over year to $22.7 million. The decline "is primarily due to the timing of shipments, as order volume in North America was strong during the quarter, and we are anticipating significant growth in Q3," Mammen said.

Sales in Asia were up 26 percent year over year, to $67.6 million, and China and Japan both had solid quarters, particularly in general manufacturing, automotive and consumer electronics end markets, he said.

Lowering the cost boosted QCW (quasi-continuous wave) unit sales by 79 percent, Mammen said. QCW lasers are primarily used for microwelding and cutting applications and are now seen as a cost-effective fiber-based alternative to flashlamp, high-peak-power pulsed lasers.

IPG ended the quarter with nearly $346 million in cash on hand, even after buying out its partner in the Russian subsidiary NTO IRE-Polus for $55.4 million.

Looking ahead, Gapontsev said the company will work to develop new applications and products for applications where lasers have not been widely used.

Those plans include "pursuing large-scale, higher-margin applications, including welding and cladding with high-power lasers, microprocessing and ceramic cutting with QCW lasers, as well as processing of nonmetals, microprocessing, scribing and marking with high-power green lasers," Gapontsev told investors.

The company also continues to move into new areas to meet customer demand. It opened a sales and service office in Turkey in the second quarter for its OEM materials processing customers there and opened a new application development center for cutting and welding in Russia.

IPG also is improving the flexibility of its existing products, Gapontsev said. "We have developed a 2-kW air-cooled laser for use in dry environments and an ultracompact 1-kW fiber laser for use in applications requiring a small footprint."

The increasingly crowded fiber laser market is not a concern, Mammen said, as the increased number of products by competitors hasn't adversely affected IPG's business. It "may, ironically, help to drive acceptance of, and expand the market for, fiber lasers as our competitors educate more end users about the benefits of fiber laser technology."

In guidance for the fourth quarter, the company said it expects revenue in the range of $145 million to $155 million for the third quarter of 2012, with earnings per share ranging from 74 cents to 84 cents.

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Aug 2012
The low-refractive-index material that surrounds the core of an optical fiber to contain core light while protecting against surface contaminant scattering. In all-glass fibers, the cladding is glass. In plastic-clad silica fibers, the plastic cladding also may serve as the coating.
The process of perforating a silicon or ceramic substrate with a series of tiny holes along which it will break. Nd:YAG or CO2 lasers are now routinely used.
1-kW fiber laserair-cooled laserAmericasAsia-PacificbrazingBusinessChinacladdingCommunicationscontinuous wave lasersearningsearnings calleconomic slowdownEuropefiber lasersfiber opticsindustrialinvestorsIPGIPG PhotonicsJapanmaterials processingmedical marketmicroprocessingNTO IRE-Polusprofitpulsed lasersQCWquarterly reportrevenueRussiascribingtelecomTim MammenUSValentin Gapontsevweldinglasers

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