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During July, three of the world’s leading laser manufacturers reported financial results for their most recent quarters. While all three notched solid gains, the details—and the reaction of investors to them—highlighted the global reach of the laser business, and some of the challenges posed by the current environment of trade and political uncertainty.
IPG Photonics
Perhaps the most unusual story was that of IPG Photonics, the worldwide leader in high-power fiber lasers. On 31 July, the company reported what for most firms would be an enviable showing for the 2018 second quarter. IPG’s Q2 2018 revenues climbed a full 12 percent from prior-year levels, reaching a record level of US$413.6 million, and fully diluted earnings per share were up nearly 16 percent.
Those gains rested in particular on strength in products for cutting and 3-D printing applications, and more generally on a 20 percent gain in high-power fiber laser sales and even more blistering 50 percent growth in sales of “ultra-high-power” fiber lasers of greater than 6 kW power. Regionally, business was up pretty much across the board in all markets except Japan, with a 10 percent increase in China, an 18 percent rise in Europe, and a 23 percent gain in North America.
Macroeconomic and geopolitical headwinds
Yet these numbers, strong as they were, fell slightly short of Wall Street’s expectations and the company’s previous guidance—in large part because of foreign-exchange impacts with the euro and the renminbi relative to the dollar in light of recent uncertainties in the global trading scene. And the company warned of some choppy waters in the near term—“primarily driven by macroeconomic and geopolitical factors rather than competitive dynamics.”
These uncertainties, according to IPG’s CEO, Valentin Gapontsev, have ratcheted up “as compared to just a few months ago,” and have shown up in particular in a slowdown in IPG’s order book growth. The order slowdown again appears largely driven by softening demand in Europe and China, as some customers apparently are waiting out the current international-trade squall.
Largely as a result of these near-term “headwinds,” the company revised its outlook for the third quarter; it now envisions quarterly revenues of US$360-$390 million, versus US$392.6 million in the prior-year period, and fully diluted EPS of US$1.80-$2.05, versus US$2.11 in the previous year. While the company stressed the near-term nature of the slowdown, and the continued strong long-term global outlook for fiber lasers, investors still exacted swift retribution for the disappointment, driving IPG’s stock price down a startling 25 percent on the day of the announcement.
Coherent, Inc.
Coherent, which announced its earnings for the June 2018 quarter, the third quarter of its fiscal year, on the same day as IPG, likewise warned of some near-term softness—but for different reasons, and with a decidedly different investor reaction. For the fiscal third quarter this year, the company logged a 4 percent year-to-year increase in sales, to US$482.3 million, and a 9 percent increase in fully diluted earnings per share.
Looking ahead in its earnings call, Coherent particularly highlighted the current uncertainty in the organic LED (OLED) market, for which the company’s excimer lasers are used in a specific processing step. While Coherent continues to see considerable promise in end-user demand for flat-panel OLED displays (FPDs), that market is, for now, dominated by a single supplier, Samsung. Additional demand for equipment (like Coherent’s lasers) to build the displays thus won’t likely materialize until 2020, when new display manufacturers are expected to ramp up production to compete with Samsung.
Relying on diversity
As a result, according to the company’s CEO, John Ambroseo, revenues from Coherent equipment for the OLED sector will likely peak this fiscal year and be down perhaps 15 to 20 percent in fiscal 2019, before recovering starting in 2020. He stressed, however that the company’s business in other markets will “largely offset the FPD headwinds,” and that revenues in fiscal 2019 will likely come in “within five percentage points” of the current fiscal year’s sales.
The CEO cited in particular the company’s growth in fiber lasers and components, expected to tick up some 20 percent in fiscal 2019, and in laser-based tools for materials processing in the electronics, automotive and medical device industries. Another strong area has been orders from aerospace and defense, particularly for directed-energy weapons programs and satellite optics. Many of these business areas have significantly advanced owing to Coherent’s 2016 acquisition of the industrial-laser manufacturer Rofin-Sinar.
And, looking past fiscal 2019, the company still sees major opportunities in the resurgent market for OLED manufacturing equipment as new players enter the FPD market. “Recent conversations with panel manufacturers about the investment outlook again confirmed that more than 20 OLED fabs are planned between now and 2023,” Ambroseo said. “The customer base will be much more diverse than the first phase of the build out that was driven by a single large customer.”
The argument apparently convinced Wall Street. Despite the company’s projection of revenue softness for fiscal 2019, the price of Coherent shares clicked up 10 percent in the trading day after the company’s earnings call.
Trumpf Group
Trumpf, which is privately held, has not yet reported detailed earnings, but on 19 July the firm did release some preliminary sales numbers for the fiscal year ended 30 June 2018. The company says that revenues expanded some 15 percent year to year, to €3.1 billion, with orders up 13 percent, to €3.4 billion. (Note that Trumpf sells not only laser products but other industrial machine tools. In its fiscal 2017 annual report, lasers for production technology accounted for €1.23 billion in total sales, and machine tools for €2.7 billion. The machine tool segment, however, includes a variety of machines and systems for laser cutting and welding applications.)
Interestingly, the biggest share of Trumpf’s business is in its home market in Germany, which accounts for more than €700 million in sales (the U.S. and China each account for around €450 million). The company also stressed in its release that “sales to European customers were also encouraging,” with a particularly significant impact from the long-awaited growth of extreme-ultraviolet (EUV) lithography. (Trumpf supplies lasers used in the EUV systems built by the Dutch firm ASML, which dominates the EUV lithography area.) The company also noted “gratifying growth” in additive manufacturing.
Yet Trumpf did include a note of caution in its otherwise upbeat release. The firm’s CEO, Nicola Leibinger-Kammüller, noted that Trumpf is “monitoring the global economy's development very closely.”
“There are increasing signs that this long phase of recovery could soon be over,” said Leibinger-Kammüller. “We want to be prepared for that.”