IPG Photonics CEO Presents At Bank Of America Merrill Lynch 2012 Smid Cap Conference (Transcript)

IPG Photonics (IPGP)

Bank of America Merrill Lynch Conference

June 06, 2012 02:20 PM ET

Executives

Tim Mammen - CFO & VP

Analysts

Krish Sankar - Bank of America/Merrill Lynch

Presentation

Krish Sankar - Bank of America/Merrill Lynch

Hello everyone, I am Krish Sankar of BOF/ Merrill Lynch, I am the analyst who covers IPG Photonics which is the next company presenting. IPG is one of the leading providers of fiber lasers and we are fortunate enough to have Tim Mammen, the CFO here. He is going to give a short presentation and then we will open up it for Q&A after that, Tim.

Tim Mammen

Okay. Thank you Krish. Just before I start I want to draw your attention to our Safe Harbor statement, fact that we will be maybe making a forward-looking statement during the course of this presentation. These forward-looking statements involve risks and uncertainties and I also want to draw your attention to the risk factors that are outlined in the quarterly reports we file with the Securities and Exchange Commission.

As Krish mentioned IPG is the company that has been credited with commercializing fiber laser technology. This is a unique new laser technology that is rapidly gaining share against traditional technologies like gas lasers predominately CO2 and solid state lasers that use crystals for example ND:YAG lamp-pumped lasers.

We sell our product all around the world, primarily to own equipment manufactures as well as end users. There is a tremendous amount of leverage in our business model, which drive some of our profitability and we really are a global company with operations all around the world and now over 2000 employees as well.

In terms of the investment highlights about the company there are a couple of things that I want to draw your attention to. The first is that the market for laser sources itself is fairly significant, it's estimated to be about $3.8 billion and it's also growing at a nice rate. So between 7% to 9% average growth predicted through 2015 I should characterize that as being two times GDP and the reason for that is whether if you look at fiber technology or some of the older technologies lasers are being deployed more and more widely either to displace the existing machine tools or a near applications particularly in the microelectronics industry in the laser diode industry. LED diodes for commercial and residential applications, growth in semi-conductor businesses and solar some of the main areas that we are seeing growth in to for example displacing traditional welding technologies that have been around for about a 100 years.

Within that total market and I will it down for you into different categories and demonstrate how far and well accepted fiber is in each of those areas, fiber is displacing the existing technologies and our growth rate is actually significantly above that of the market. Through 2011, the average growth rate was about 27% but actually is recently accelerated closer to 60% in 2010 and 2011 really is the price points of fiber has come down to be equivalent to some of those legacy technologies. We believe we have significant competitive advantages which I will talk about in more detail as I go through this presentation and clearly we are the first mover in the industry.

We also have some of the lowest cost product out there and a very deeply, vertically integrated business operation. That integration does drive stellar margins and I will show you how those change and have changed over time later on in the presentation. I will also talk as we go through this about the diversity of the company in terms of the end markets both geographically and applications that we address. Talk a little bit about the growth of fiber laser, a few years ago this was a very small market, it was not a widely deployed technology we really used in niche applications.

The largest application back in 2007 was simple marking and engraving where we displaced some traditional technologies as well as CO2. So when you mark with a laser it's non-contact it's permanent, you don’t require inks, you don’t use environmentally unfriendly chemicals but actually engraving application. As you can see here the total market in 2011 has grown about $600 million and average growth rate of about 31%.

We started to penetrate much more deeply into macro processing applications primarily cutting and welding as well as cladding, saw some growth in micro processing. But those areas also represent significant potential growth in the future, so in early stage.

And that’s why most of the market analysis is done and the internal analysis we do at IPG expects the fiber market to continue to grow robustly, expectation is more than 20% through 2015 and for the total markets were increased from just under $600 million to about $1.4 billion and for fiber penetration to go from about 15% to about 29%.

Now this analysis is interesting because it excludes certain new products and areas that we think we can already get in but when the market analysis was done halfway through last year we didn’t really have commercial devices. Those areas that we think we can get into the future and expand further into first of all the micro processing which is the third column here.

We have a new laser that is more directly competitive with lamped pump YAG lasers that means that from the 24% market share in micro-processing we can replace these lamp pump YAG lasers and probably grow to about 60% there.

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

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