II-VI (IIVI) Q4 2012 Earnings Call August 02, 2012 9:00 am ET Executives Craig A. Creaturo - Chief Financial Officer and Treasurer Francis J. Kramer - Chief Executive Officer, President and Director Analysts James Ricchiuti - Needham & Company, LLC, Research Division Avinash Kant - D.A. Davidson & Co., Research Division D. Mark Douglass - Longbow Research LLC Jiwon Lee - Sidoti & Company, LLC Doug Thomas Presentation Operator
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During the current quarter, the company continued to be negatively impacted by the declining pricing of tellurium at its PRM business due to decreased demand in the photovoltaic market. In addition, current quarter declines in pricing of selenium caused by unforeseen reduced demand in Chinese metallurgical applications added to these negative results. Furthermore, the worldwide economy is facing challenge and headwinds due to the uncertainty in Europe and swirling growth in China. This current global economic environment, combined with the unpredictable volatility in pricing of our minor metals, has resulted in a cautious customer base company-wide.During our fourth quarter, our Infrared Optics segment including HIGHYAG had bookings of $52 million, down 2% compared to the fourth quarter of FY '11, down 12% compared to the third quarter of FY '12, which was a record quarter. Fourth quarter was a record shipment quarter at over $53 million as we shipped against the order rate we experienced in the third quarter. Near the end of the quarter and into the month of July, we have seen softening in most markets with the biggest impact driven by Asia. We continue to be concerned as that softening is occurring at a time of lower customer spending -- lower consumer spending, vacation shutdowns around the world and slightly lower laser utilization as inventories worldwide are being adjusted. Still in our IR Optics unit at the HIGHYAG group, bookings for the fourth quarter were down 16% quarter-over-quarter but up 28% compared to the fourth quarter of FY '11. We continue to see growth opportunities in all addressable markets and in 1-micron welding being delivery systems and 1-micron laser cutting. We have added capacity, are focused on reducing lead times and are taking advantage of the strong market demand. We had record shipments in the fourth quarter, driven by remote welding heads sold to U.S. auto plants.
For our IR Optics business excluding HIGHYAG in the U.S., orders from the domestic OEMs decreased 11% quarter-over-quarter. This decrease was a result of timing of orders and a decrease in the low-power market. High power OEM orders remained flat quarter-over-quarter, which we feel will continue through the first half of fiscal year '13. The North American aftermarket experienced a 5% decrease quarter-over-quarter suggesting laser utilization is slipping. Based on survey feedback from the market, we feel the North American aftermarket will continue at the current pace for the next 2 quarters.European bookings for the fourth quarter were down 5% quarter-over-quarter but up 15% compared to the fourth quarter of '11. We are starting to see signs of unfavorable economic conditions affecting the high power OEMs. European aftermarket was down 16% quarter-over-quarter. Asian bookings were down 25% quarter-over-quarter with all areas in Asia contributing to this decline. In Japan, the high power business has softened. This was combined with the low power business already down and resulted in the quarter-over-quarter drop in bookings. Economic conditions and the strong yen are making it difficult for sales outside Japan resulting in the lower machine builds. China bookings dropped 15% quarter-over-quarter and were down 22% compared to the fourth quarter of '11. The China economy continues to grow but at a slower pace and our largest OEM customer has experienced a significant drop in orders which has impacted bookings. We are actively pursuing new end-user customers and the results have been encouraging. We expect economic conditions to improve in China towards the end of the first half of FY '13. In summary, our IR Optics business segment including HIGHYAG, continuous to see bookings pressure driven by worldwide economic conditions which have impacted our business over the past several weeks. The reduction in laser utilization has impacted Asia while U.S. and European markets have been flat.
Europe, due to our new diamond window product line, which should be strong as initial EUV Photop [indiscernible] systems hit the market, should be strong in the second half.Read the rest of this transcript for free on seekingalpha.com