IPG Photonics' Management Presents At Barclays Capital Global Technology, Media And Telecommunications Conference (Transcript)

IPG Photonics Corporation (IPGP)

Barclays Capital Global Technology, Media and Telecommunications Conference Call

May 22, 2012 10:45 ET

Executives

Tim Mammen – Chief Financial Officer

Analysts

Olga Levinzon – Barclays Capital

Presentation

Olga Levinzon – Barclays Capital

Good morning everyone. Thank you for joining us. I’m Olga Levinzon display and lighting analyst of Barclays. And this morning, it’s my pleasure to introduce Tim Mammen, CFO of IPG Photonics the leading fiber laser company in the world. And I’ll turn over to Tim.

Tim Mammen

Great, thank you, Olga. Just want to draw your attention first of all to our Safe Harbor statements and the fact that we will be making forward-looking statements during the course of this presentation. Actual results could differ from those forward-looking statements and I also just want to draw your attention to the risk factors that are outlined in our quarterly filings with the SEC.

Having said that, I'll move on to talking about the company. IPG released credit suite with being the company that commercialized this unique fiber laser technology. The company was started about 20 years ago and has grown very rapidly particularly over the last three or four years as fiber lasers have become more and more widely accepted. We are replacing traditional technologies. The laser market itself also is growing as new technologies are being developed the used lasers and also lasers displays non-laser technologies in them as primarily in the machine tool business.

We have a very nicely leveraged business model. We sell our product to OEMs and end users who when they qualify our lasers for using their systems results in multiple units being sold on a going forward basis. The company really is truly global with over 2000 employees and major manufacturing facilities around the world. We really are very proud of the fact that we are the leader and most profitable company not only in the fiber laser market, but the most profitable company in the entire laser sector altogether.

The laser market is significant. We currently are really focused on selling products into the laser source, so the laser source is the engine that drives the laser systems. That market is about $3.8 billion and I've got a slide to breakdown for you provides more information to that. The laser market is growing at about 7% to 9% per year. The estimates are it will grow at about two times GDP and that’s really a reflection of the fact that lasers are becoming more and more widely deployed in different application, in particular the ease-of-use and cost of the devices comes down and fiber is driving most of the changes.

The fiber market grew about 27% from 2006 to 2011 and then last year at almost 60% as we started to rapidly penetrate into applications like cutting or significant growth in welding applications in the automotive industry. The company has many competitive advantages. A couple of the more significant ones are that we are very deeply vertically integrated. So, we don’t just produce the laser that we have a very deep venture of optical components that we manufacture internally, very deep skill sets, know-how processes, invest in manufacturing and capacity in many of those optical components.

The IP portfolio is very deep. It encompasses not only our semiconductor diodes and the way that we package them, but a lot of the optical components for the use to combine the light from the diodes into the optical fibers. And the vertical integration surrounds the optical components and then the final manufacturing of the laser is what helps us to drive the stellar margins that we have. In 2011, our average gross margin was just about 54%, Q1 of this year, it was approaching 57%.

One of the things I liked about the business is its diversity. I mentioned a couple of applications welding, cutting, there are more esoteric applications out there, for example, 3-D prototyping. We sell product into the microelectronics industry for marketing and graving and newer applications, for example, people doing research into using lasers to drill oil and gas wells. So, on top of the applications, there you have tremendous geographic diversity as well with sales spread around the world in Asia, Europe and North America.

The following slides really look a bit more the existing laser markets and fiber share and how that has changed over the last four years. So, the laser source market itself has grown from about $3.4 billion to $3.8 billion and fiber share has gone from just under $200 million of about – to about $600 million in 2011. The average growth rate over that period above 31%.

Looking further forward, the market analysis that exists and that's really around the currently deployed products that we have, we don’t think that this captures opportunities, for example, the more recently introduce QCW laser into the replacement for a solid state laser and also the ability for IPG to start producing laser different wavelengths like green and UV has not really captured in this analysis here. But what you can see is the overall laser market continues to grow very strongly approaching just under $5 billion in 2015 and fiber grows at an average rate of about 23% to about $1.4 billion. If IPG can maintain its market share, which is very strong at the movement, we have a very strong belief that we can grow the company to more than $1 billion in revenue.

Read the rest of this transcript for free on seekingalpha.com

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