Q4 2020 IPG Photonics Corp Earnings Call
Greetings and welcome to IPG Photonics Corp, fourth quarter 'twenty 'twenty Conference call today's call is being recorded and webcast at this time I'd like to turn the call over to Eugene set of tough IPG as director of Investor Relations for introductions. Please go ahead Sir.
Thank God the rider and good morning, everyone. The faster day is IPG photonics, chairman and CEO, Dr. Valentin Gabon stuff.
Operating officer, Dr. Eugene share my fault, and senior Vice President and CFO, Tim Mammen.
Statements made during the course of this call that discuss management's or the company's intentions expectations or predictions of the future are forward looking statements. These forward looking statements are subject to.
Risks.
Certainties that could cause the company's actual results to differ materially from those projected in such forward looking statements. These risks and uncertainties include the impact of the COVID-19 pandemic, one of our business and those detailed in IPG Photonics form 10-K for the beer at the end of December 31st 2019, and all of the reports on file.
The Securities and Exchange Commission.
Copies of these filings may be obtained by visiting the investors section of Ipg's website or by contacting the company director.
I also find copies on the SEC's website.
Any forward looking statements made on this call are the company's expectations of prediction as of today February 16th going into 'twenty. One on at the company assumes no obligation to farming of the entities.
Based on it is understanding of that statement for additional details on the reported the results. Please refer to the earnings press release and the Excel based financial data for most of it on our Investor Relations website.
The real positives prepared remarks on our industrial relations website. Following the completion of this call with that I'll now turn the call over at the voluntary.
Good morning, everyone.
We are pleased to really go for school of thought it's out it's the way.
The levered today, when you get to what Ken question right.
What's cool.
The government of 19 and the ball right.
In addition of book to Bill was the one is the imports of corn.
We saw the ex.
In order flow.
Is it true that tea to the fifth Corp continue.
During the fourth quarter and.
Into 2021.
We continue to benefit from the new vintage of scope of our lead the niche products.
Oh.
Oh of course, the production capabilities.
The Globo.
Sure.
We continue to see is drawn the revenue in China.
Which was significantly higher on a year out of the year basis.
Volume growth more than offset.
Edwin price is easy.
At June.
We were all of which were pleased to see day sequential improvement in the revenue.
In the Europe.
Everyone wins total revenue growth in North America is the what's called the <unk>.
Our system value.
Okay.
But continued to be below last year.
Primarily due to the impact all day.
Ed.
I mean from COVID-19.
We're demonstrating good progress in our core markets.
Through our technology differentiation and low cost production pay per visit.
In the high power lasers, we deliver thrown at you know all of the year of growth in boss or the command keep the one to four kilowatt worth of wages.
Volume market.
Our ultra high power lasers will lead the niche God she sees Jim.
It's favorite simple ways its a book.
Kill the award.
54%.
Compared to the fourth quarter two of that was at 19 in the teeth.
<unk> is fixed.
Total borrowings.
Okay.
And towards the market.
The pitch and from an increase in the order volume.
Four of our 20.
Hey Chi.
The alternative type of wages.
Oh Oh, yes.
There's some ways its not only enable it to Randy.
Pete.
And then our.
The <unk> killer of devices.
But kind of capable of approaches and my cute with the.
15 million meet the six.
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Or even some great.
This improvement in productivity in the fleet.
The beauty of cheap gas.
The fleet you put beam part of them at.
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And any liability.
Is there I didn't see the replacement the RASM of catching much.
I've been on the ways it solutions and the low.
Power solutions.
Solutions.
With books of the press toward that for the new unique.
Buck per mounted Youll see idiots overweight the.
No of course.
Catching system and degree.
We expect to start shipping.
What the unit volume.
The total is do these two ways, it's Greg Wright.
Can you talk.
How do you kind of powered the William Malaysia, and food put out the Erickson agreed.
She immediately.
The Oh.
If you can play a role in the cost to manufacture.
If it is that we expect the new design to improve gross margin.
This growth.
We continue to focus on growing share.
And not the application.
At the outside of our.
I would tell the used no catching the wave.
My kids.
Well, that's what the real lunch hour and evolution of 90.
In a way to integrate with the laser welding system and the initial cost somebody is once the.
Being extremely poor in situ.
We believe the system Chris of.
The great potential for IPG is easy.
A replay of today.
The additional.
And where we didn't products.
The used in the metal fabrication of like E. G O.
M a C.
The products to office or the true magnitude hi, yeah village in commodity Chin deep with much greater precision flexibility and the ease of use.
The well cost how much that island the world.
In addition of what's the value.
The product of real human Daniel.
Yeah, I really cheap, but he believes in the up the convenience of.
The well will take share.
It's the acuity.
Yeah.
We've kind of well over the years.
Non book for you and you in the last few weeks.
Be aware of.
The data.
Uh huh.
Main use value Oh gosh, how much in view of your way of Simone.
It tends to value.
The right.
That could be interesting in this unique product.
During the fourth quarter emerging growth.
The implication sales where.
We're 28% of total revenue increasing 22%.
We are pleased with the performance of the non viable product.
The key to the.
They received the occasion of our revenue.
Examples include.
Hi, Paul and then the second pulse the waves of youth.
For Ya Qin and convenience in the electric vehicle battery approach has been as well as for ablation inconvenient.
So medical wages.
Consumable medical fire, but how.
Well then that truly value.
Dilution, where you're all of G and green of ways as well.
So a lot of books.
But it kind of come back book, we expect share so getting the weighted to continue to grow fast it's the our good in some ways the hi.
Enable enabling significant improvement until the fusion.
Yeah.
In addition of <unk>.
High power lasers for different application per phone.
Well, yeah out of the year.
Despite the impact of the.
David.
Violet.
There are parts of the weighted into imagine might kind of put up.
The abbreviation.
No.
The loan growth well.
Great.
Our adjustable mode beam of M. B of wages continue to gain traction in the world in the <unk>.
Most notably.
So the exit the vehicle, but anyway.
And is the result.
We achieved significant growth that's for aim being weighted in Q4.
Our aim the products of COPD.
<unk> deep in the world for each of our pekin value since two broadly.
Sure.
The ability.
In April.
But that of what well.
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The multiple of Qsymia away the book.
Sportswear with unit allocation, but she she can eat chicken plus day.
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Due to an increase in.
Well, we didn't put in the activity in <unk>.
And the assumption.
Beyond the mosquito products, you've seen we've continued to develop new soft tissue medical treatment.
In the range of 4 million kind of way.
Dilution.
On the right.
Pete.
In <unk> sensing and biomedical research applications.
And the issue.
We are continuing development of our <unk>.
The new generation of when our paying the price shift into digital.
By the way it was.
Super high speed and price the volume data processing.
Four of Chili's comp later in the call my knee and the mainly of either.
Once future applications.
But the more we.
We're extremely pleased by the goodwill was switched flow in advance of applications and medical applications.
Research and development.
Has it been the Dragon reported declines IPG fits in the.
Companies in.
<unk>.
We spent our 10% of our total revenue.
On the R&D in 2020.
And.
All the.
650 people in the research and development in.
In the crude and many scientists and engineers.
<unk>.
We continue to develop new leading edge solutions per hour.
The customers.
Helping drive efficiency, and putting the acuity and fit with donations and making our fiber laser technology.
The goal of choice.
In March for that.
More than 20 years tool of choice in mass production.
Over the.
Most of these.
Absolutely.
And quality.
I would the right.
Our employees well.
The strong execution Julian our public school the.
Despite the continuing.
Operating environment.
Instead of that.
The well being of our employees.
The families.
As most of our partners and communities.
The parade in the remote.
<unk>.
Our highest priority.
The visit I would kind of go our two huge in share of muscle.
Thank you Wellington and good morning, everyone of the impact of COVID-19 on our production capability.
<unk> to be minimal.
We are focused on the ensuring the safety of auto employing with social distancing and.
And enhanced cleaning and filtration measures in place.
Otherwise the operating normally.
Despite the increase in our credit line to cases, and northern hemisphere as fall and winter.
Production remain fully operational and of and manage quality the related up census, effectively.
We are very pleased the performance of operations the unions of the fourth quarter as production ramps to meet the increase in demand, enabling us to exceed the top of end of our guidance range.
The fourth first quarter of year of sales growth in more of them two years.
We are proud of the improvement in underlying gross margin driving by an increase of revenue, but other cost reduction and product mix improvement.
Total SG&A and R&D expenses of about of $76 million as of fourth quarter.
And continue to benefit from lower travel and trade show expenses.
And the pandemic related restrictions.
The business activity start to pick up and some restrictions are lifted.
And of life's normalized in the second half of 'twenty into 'twenty, one we would expect out of operating expenses to increase as well.
We remain committed to supporting our R&D, while controlling the total operating expenses to drive operating leverage to the company.
We continue to benefit from the reducing the cost of devices.
All of the vertical integrations and from expenses reduction of initiative, we undertook in the second half of the way into 19.
Okay.
Performance by region revenue in China increased 52% of year over year.
The represented approximately reported 2% of total sales.
Demand in the order flow in China remained.
Zealand, the unions of quarter and order booked in 2021.
The Chinese new year have been strong.
While we face the greater competition in the region, we believe that out of product, we have superior performance and reliability and we are seeing is the strong growth and demand for our ultra high power lasers.
In Europe, while the revenue decreased 5% year over year, the utilization of COVID-19.
Good growth.
Sequentially.
In addition in the Europe.
Order flow will continue to get.
Better despite the increase in the distinction in Europe due to a lot of Dallas.
Some of the revenue in North America decreased 11% year over year of Bud video search of 7% of sequential basis as of <unk>.
The improvement in material processing sales fall of lasers and system and the.
The year over year of growth in medical and in the.
One of the applications.
The North America book and continued to be strong, even though relative to the expansion order flow.
Q3 2022.
Sales in Japan decreased net.
29% year over year.
While economic in the region continues to be negatively impacted by COVID-19.
Regional macroeconomic indicators have improved.
The recent months.
Sales of those the rest of Asia increased 3% year over year kind.
To the car from the second quarter, So and also benefit from shipment of Green lasers, the renewable energy.
Sales and talk of decreased 2% year over year and grew 21% sequentially.
The economic indicators continue to show improvement from significant contraction earlier in the year.
This is one factor because of the pro and direction of our business.
And additional it seems sort of some optimism in program investment cycle driving by the Greenfield upgrades related to requirements of the flexible.
The processing automation and energy efficiency.
Our the leading edge of private layers of technology offer significant productivity gains.
Typical efficiency and lower cost of all of ship all of the other lasers and non laser tools.
And increasing the focus of all of the environmental impact and commitment as of now.
Net zero emissions for a large industrial manufacturer is creating additional opportunities for all of the lasers.
Boswell four out of long term growth objective.
We're already starting to see it's the electrical vehicle.
The electrical vehicle battery production and are likely to see is with other industries.
We believe that efficiency is likely to become a more meaningful driver in this the place and processes that energy intensive such as plasma cutting.
The legacy of welding processes.
Despite the challenging operational environment that we faced in the year 2020 due to the COVID-19.
We believe that we are well positioned.
As of the <unk>.
The year 2021.
In addition, we continue to believe that.
Breadth and depth of our product portfolio, although often diversity and advanced material and the company of technology platform out of.
Decent R&D model all of a strong balance sheet and free cash flow provide us simple flexibility and that is part of the business disruptions.
Is that I will turn of the call over to the team to discuss financial highlights in the quarter.
Thank you Eugene and good morning, everyone.
Revenue in the fourth quarter was $337 million and increased 10% year over year driven by growth from most of our key product lines.
Revenue from materials processing applications increased 10% year over year and revenue from other applications increased 12%.
Sales of high power CW lasers increased 17% and represented approximately 55% of total revenue.
Sales of Ultra high power lasers above six kilowatts represented 56% of total high power CW laser sales.
Pulsed laser sales increased 55% year over year.
With strong growth driven by our high power nanosecond pulsed lasers used in EV battery manufacturing Green pulsed lasers used in solar cell manufacturing as well as higher sales of our new UV and ultrafast pulse lasers, which were partially offset by lower sales of low power.
Pulsed lasers for marking applications.
Systems sales decreased 20% year over year.
Due to COVID-19.
<unk> improved sequentially.
Medium power laser sales increased 25%.
Is there was some recovery in additive manufacturing and other fine processing applications.
Q CW laser sales decreased 16% year over year due to lower sales for aerospace drilling applications.
Other product sales decreased 11% year over year, primarily due to lower telecom sales.
Q4 gross margin was 44%.
Which increased 310 basis points year over year.
The additional inventory charge reduced gross margin by 410 basis points.
Excluding this impact gross margin benefited from lower cost of products and the decrease in unabsorbed costs as a percentage of sales as compared to the year ago period.
The additional inventory charge of $14 million.
With related to optical components that have been replaced by components with better performance.
Fourth quarter GAAP operating income was $65 million and operating margin was 19%.
During the quarter, we recognized of foreign exchange loss of $5 million per.
Primarily related to the depreciation of the U S dollar versus the euro.
Q4, net income was $49 million.
Or <unk> 92 per diluted share share.
The additional inventory charge and foreign exchange losses reduced EPS by 2007.
The effective tax rate in the quarter was 24%.
If exchange rates relative to the U S. Dollar had been the same as one year ago.
Would have expected revenue to be $12 million.
And gross profit to the $8 million.
We ended the quarter with cash cash equivalents and short term investments of $1 4 billion.
And total debt of $38 million.
Strong operational execution resulted in cash provided by operations of $85 million during the quarter.
Capital expenditures were $26 million in the fourth quarter.
We expect 2021 capital expenditures will be in the range of $150 million to $160 million for the full year.
Total capital expenditures in 2020 with significantly below our initial budget as we delayed some projects and some of these projects and now rescheduled for 2021.
2021, Capex includes facilities and equipment expenditures for production R&D and sales activity to support our future growth.
During the quarter, we did not repurchase any shares.
In total fourth quarter book to Bill was above one and.
And we were pleased with order flow across all of our main geographic regions.
Geographically most areas continue to show improvement with the only area of that remains weak being Japan.
For the first quarter of 2021.
<unk> expects revenue of 310 million to $340 million.
The company expects the first quarter tax rate to be approximately 25%.
IPG anticipates delivering earnings per diluted share in the range of 90 to $1 20, with $53 2 million basic common shares outstanding and $53 9 million diluted common shares outstanding.
The improvement in macroeconomic indicators is now toward broad based and if sustained gives us optimism for 2021.
However, we are a little cautious given the resurgence of COVID-19 in Europe, and North America as well as the uncertainty surrounding vaccination Rollouts and returned to normalcy is unclear at this time.
These uncertainties continue to make forecasting our business challenging in the medium term.
The first quarter guidance remained subject to significant uncertainties, including the impact on the global business environment unexpected recovery from COVID-19, economic trends growth from emerging product revenue competition.
And the long the lack of long term binding order commitments.
That said, we continue to benefit from near term growth opportunities in ultra high power cutting electric vehicle battery processing renewable energy micro processing medical procedures and advanced applications.
We believe the strides we are making in higher power products within our core materials processing business and new solutions are enhancing our competitive position.
As discussed in the Safe Harbor passage of today's earnings press release actual results may differ from our guidance due to factors, including.
But not limited to goodwill and other impairment charges product demand order cancellation and delays competition tariffs trade policies health epidemics and general economic conditions.
Guidance is based upon current market conditions and expectations assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC.
With that Valentin Eugene and I will be happy to take your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
The confirmation tone will indicate your line is in the question queue. You May press star two of them. If you like to remove your question from the queue.
We ask that you please limit to one question and one follow up.
For participants using speaker equipment, it may be necessary to pick up of your handset before pressing the star keys, one moment, please while we poll for questions.
First question comes from John Marchetti with Stifel. Please proceed with your question.
Thanks, very much Kimbell day I was wondering if maybe you could just talk about some of the puts and takes on the longer term view of I know you mentioned that the underlying fundamentals continue to get a little bit better here.
We're looking out through the.
Of course of the year all else being equal would you expect it that we're back to a sort.
Sort of getting back in line with double digit revenue growth range, maybe off of 19 as opposed to 'twenty given that 20th of such a challenging year.
Yeah, we're not going to comment on.
Annual guidance, so targets, except for your last comment John I think they're talking about puts and takes the.
A number of the articulated in the in the script first of all the.
The continuing shift to higher power lasers.
Lasers for cutting applications.
Lot of the new product introductions were very optimistic about the handheld welder and growth in revenue from that all of our emerging products in Q4 performed.
Ex really exceptionally well across a pretty broad portfolio of.
Of items that are starting to drive incremental growth so whether it's.
The green lasers, the high power nanosecond pulsed lasers for EV.
Some increasing traction for ultrafast and UV.
Medicals performed very well during the whole course of the year with the lithotripsy application.
Are the newer product introduction of the multichannel Q CW.
The displacing <unk> lasers in the spot welding, we had good orders for AMB. So.
If you continue to see traction and momentum of course, what is now of a pretty broad based and diverse set of products and applications. We continue to see improvement and we referenced again some of the key macroeconomic indicators that we follow certainly this year it looks like it could be set up the being.
Significantly better than the last two years, we've been through I mean, the key issue will be to get out of some of the volatility that we've seen the <unk>.
Sometimes impacted the second half of the year as happened in 2019 or has resulted in a slow start to the year as the pandemic did last year. So the main the main target is to get out of more of the volatility and get to sort of consistent year over year growth on a quarterly business and we've got significant drivers.
For that.
Got it and then maybe just as a follow up on the on the gross margin side as we're looking out over the next several quarters any expectations that we should assume maybe some some additional charges like we saw this quarter or is really to get more of a one off here.
<unk> added more back to a more normalized environment for gross margin as we're looking out over about the first half and into 'twenty. One. Thank you.
Yes.
Yes, I am much more definitively expecting of normalized gross margin per inch over the coming.
Yes.
During the course of the year not just in Q4, given some of the volatility related to the pandemic, we have had significant inventory provisions and charges.
And the last the final charge at the end of the quarter I think positions us well for a <unk>.
More normalized operating position going.
Forward. So I think we've got a good starts a year in that context, as well and on the other side on gross margin, we've got other benefits coming through from <unk>.
Some of the product mix as we continue to grow revenue better absorption of fixed costs and then if for example, the ultra compact laser starting to generate more meaningful revenue. There is a meaningful improvement in gross margin. We expect from that and then even taking the design changes on the ultra compact enrolling them into Hyatt.
Our lasers up to I think seven or eight kilowatts up to eight kilowatts, theyre going to be used and so there's a lot of other initiatives on.
On cost reductions as well that we're optimistic about.
Thanks, Tim.
So it is true.
We expect.
This year of gross margin already of talent.
Correct.
Our usual.
The frames book.
<unk> per cent, but we're going to the careful in the quarter.
What are kind of of your close the she's always from quarter three quarter weighted.
Secondly, the tolls.
What's the one reported to absolutely promise has been under the covenant.
Of course.
Our guidance is still very weighted Campo Verde.
Ah Confederates.
Understood.
Our next question comes from Tom <unk> with D. A Davidson. Please proceed with your question.
Yes. Good morning, Thanks for the question well when you look at the the strong activity. It sounds like you had pre Chinese new year in China on the order of Fred do you expect China to grow as the percentage of the order book over the next couple of quarters or is that being matched by growth in some of the other regions.
In terms of time, Tom relative to Q.
Q1 last year, when China order flow slowed down dramatically and then it really picked up in in April and May I would expect in total China order flow to remain relatively consistent as a percentage of the total because the growth in Europe and North America is also starting to recover.
The more meaningfully the growth in some of the emerging products as well that of not just strong in China, but the strong elsewhere. So totally we expect more of an even contribution in the rather less China centric focus perhaps on revenue for the year, but notwithstanding that China order flow has really been very strong prior to Chinese new year.
For example, not just of shippable orders, but even of frame agreements has been very very good and those are generally place to get the licenses. So that shipment can take place during the course of the year.
The amount of Cabo is the most for any more of that it didn't order much COVID-19 ctrip very more of that.
The production.
The double compared to last year.
The cohort two quarters.
And the major of this wouldn't feed for high power of 10 to 15 kilowatts when the day.
GE asking per license to get the right centralized.
And all of them are the growth of power from the point.
Nobody can supply them.
It's all of the cancer, while working more than 15 10 of 10 kilowatts of working on ways to deal with total and they're all of the tons of IPG all China growth.
So all of.
It's the Europe and America.
America is much more neutral here today much of width.
Q you across the major integrators patches.
Sure.
Europe and the U.
They don't kind of own high power lasers.
It's all of that.
The drop in 10 kilowatts.
But China and India.
The 15th.
Sure.
Okay no. Thanks for the extra color that's helpful. And then as a follow up how big of the EV battery market right now for lasers, and what do you think that goes over time.
I think it's I don't have a definitive number on.
That.
In terms of where it is today the message we gave on it.
Is that it is a potential decade long investment cycle.
The <unk>.
EV.
The vehicle production is going to get to the levels that are expected to hear people talking about $25 40, even 50 percentage of total vehicle sales over a 10 or 15 years.
It will drive hundreds of millions of dollars of laser based investment.
The EV battery manufacturing and even laser based investment for <unk>.
The auto vehicle manufacturing itself.
So it's the long term significant opportunity with hundreds of millions of dollars of laser based processing required for that even some of the I've noticed some of the battery older battery technologies like the cylindrical, which we're not using much laser based processing seem to be evaluating lasers more of ammonia.
Okay, great. Thanks for your time today.
Okay.
Our next question comes from Nick Todorov with Longbow Research. Please proceed with your question.
Thanks, Good morning, guys.
Tim in the last Upcycle, you guys had been very consistent I'm, putting about 60% incremental gross margin.
I understand you know guiding sales.
Difficult, but how.
How should we think of all the incremental gross margin you highlighted multiple cost initiatives.
Should we think about that 60% of the base case or you could see some upside and also can you talk about what are the limitations of rolling that the ultra compact design above eight kilowatts and done a hell of a follow up thanks.
I think.
Some of the incremental gross margins of probably not far off where we were historically, maybe a little bit below that 60%.
The one thing below the line we're cautious on is as we get into a more normal environment. We tried to call. This out on the script is that ex op.
Operating expenses, you get more travel and trade for trade shows and other activity in a more normal environment Opex will probably pick up in the second half of the year of little bit so that drop through wont be straight to the bottom.
Line in terms of the other question about migrating the design of the ultra compact of high power lasers that Eugene you'd like to talk about that and the potential rollout over time.
In principle, we have several of the generation of compact lasers Scott.
And about high power lasers of course.
As part of more than two three kilowatt.
The first.
The stage was.
Already demonstrated in relative to ship thousands of such kind of laser.
The next step was to use our rack mounted compact laser for high power.
Applications I mean, this power more than 123 and four kilowatt.
Again, such kind of lasers or of the satellite order customer effectively for first of all for cutting also for the.
The oil deck application as of now.
Generation of Israel, introducing this year, it's much more compact as output of oil up to eight kilowatts.
At the over the next stage and the.
The first reason.
All of the demonstrates the theoretical performances and we absolutely sure of is that it will be the next generation of our.
All of the compact rack mounted laser first of all for cutting applications and a very important that based off of this design the can dramatically reduced our cost of production.
Of course, the proposed dollar cost of them better price.
Such kind of situations.
The compact an ultra compact of lasers.
Okay very helpful. Thanks, and just the follow up maybe can you guys talk about the adoption curve that you expect for the handheld welding laser it sounds like you guys have received the.
You mentioned, an extremely positive feedback now how much do you think do you have to educate the customer or to kind of prove their point of it seems like they are seeing the benefits all right I'm just trying to see what are you thinking in terms of of the adoption curve.
P J D.
Okay.
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With the sale of <unk> might be appropriate coverage.
The order flow.
So we're doing this year or new rules of thumb thousands of units.
Next year, it would be tens of thousands.
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Any any brand it's been a year of students after only a few hours.
The demand sedation, presumably the introduction and kind of where would immediately.
No prediction of where it's available.
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Got it thank you.
Okay.
Our next question comes from Jim Ricchiuti with Needham <unk> Company. Please proceed with your question Hi.
Thank you good morning on the topic of the handheld laser. So I'm wondering are you going to market any differently with this product offering just given the.
The size of the market and the price points and how are the gross margins on this product.
So in terms of going to market at the moment, we're rolling it out in.
The phased manner with some of the key we've had a lot of job shops come into evaluated.
We're also looking at potentially some distribution arrangements.
Potentially also have to expand some of the sales force as volumes ramp up to support what is the.
A much broader base customer list compared to our typical OEM.
Base, So we're continuing to evaluate how best to get to that.
Patient model around it Jim but.
Typically we've invested in the stuff as we've grown the revenue on it to get that return.
Simultaneously.
We may use of few more distribute is around this as well.
And the growth gross margins by the way on the product of very good benefiting from some of the design improvements around the ultra compact lasers.
Okay.
The follow up question is.
Sure the nice recovery in the U S at Nissan North America at least on the.
Sequential basis, and I'm wondering as you look at that.
Business over the next couple of quarters, how sustainable do you think it is it broadly days than you are you feeling comfortable that that recovery.
In the U S is sustainable.
Yeah the.
The underlying materials processing business has improved in fact, some of the order flow in Q4 with the.
Some of our specialty AMB lasers for the battery processes was also in North America.
We still have some revenue day recognized on advanced applications medical growth will continue to be its not going quite as strong as it was last year because the camera is such a small base, but the medical business is continuing to perform well because of increasing visibility into medical sales in the second half of the year.
The green lasers going to southeast Asia, all of that made in the U S. At the moment the backlog for those I've mentioned is good I would say the only thing we don't have longer term visibility into and which is.
More uneven than lumpy as some of the advanced applications right, you're still waiting for some commercialization of.
Of the defense applications for that revenue to become more consistent.
Really start to grow consistently quarter over quarter and year over year.
Okay. Thanks.
Yeah.
Towards the new powertrain the pretty true.
Yeah.
Share of pro.
The reached to note the real weight from China.
Product for the applications.
Traditional.
Cutting and where would you know, Oklahoma what murdo.
Sure.
We reported this year, we increased the potential output.
Okay.
But the way our target to increase up to achieve enduring couple of years 50 percentage of most of this.
Promoting new products of which we are.
And as the application with the way were introduced in the U S.
So it increased the central with sales in the U S volume increase.
Gross margin in the U S before.
Before the.
Asia contribution to the net income in the U S who it is.
<unk> from savings total value.
And the temporarily of the last three years sales of value you could each.
Sure.
Net income from that is the result.
Now a ton of work for the growth.
Net sales.
It's for the profit from diet.
The lesser of growth for us.
The application.
Okay.
U S and may develop in the U S not the winner.
Germany is on the in the U S menu at some.
So it's the deal.
The American company, we were kind of one of the measure of generation.
And you measure the scenario.
The revenue.
Our target.
No doubt the research.
But all of our new menu.
As the manufacturing revenue.
Thank you.
Our next question of our next question comes from Michael Feniger with Bank of America. Please proceed with your question.
Hey, guys. Thanks for.
Squeezing me and Tim I recognize that you may not want to comment directly on one of your competitors.
I was just hoping to get a sense of.
The Big picture here, some investors fear that with the bidding war could create a bigger competitor that could be much more aggressive.
Attacking the industrial markets being price aggressive, but scaled up R&D, maybe you can help us understand the competitive landscape and laser technology, a little bit more how IPG positions itself to maintain that leadership and does this type of bidding war, even if it's not direct to IPG does it.
Validate some of the Mega trends that are accelerating with automation EV dual supply chains.
You see more consolidation going forward around laser technology and automation markets just curious on your thoughts on that one.
There's a lot of different elements of that question, Mike the first.
We're not going to make a comment on.
The transaction and the bidding war, that's going on out there I think the point is really the focus on where IPG strengths are in not only the core industrial markets.
But also in a lot of these emerging product offerings in our core industrial markets.
And none of the parties that are involved in in.
The process that is ongoing at the moment.
Really have any core strength and capability, where itg's core strength and capabilities. So we don't we view this as being.
Separate from our core strategies and capabilities in addition to that.
We've got a lot of emerging product development.
In areas that we've talked about the.
Of driving our growth with with inherent advantages around the products that we have so.
However, the competitor is.
The PGS fiber laser technology is unique and very many different ways and we have the fundamental strength of that comes from the vertical integration the speed the development of the ability to get cost out and as you can see from increasingly diverse product portfolio.
I think the main point that we make on this is that we get a significantly higher rate of return on our internal R&D and making limited.
It's very specific acquisitions that relate to our ability to leverage our own technology. So we don't view ourselves as being a consolidator in.
The industry with regard to some of the other trends I think the yes that perfectly apparent right the flexibility of the automation.
The increasing acceptance of lasers across many different applications and technologies flexibility. We call out for example of energy is becoming perhaps more fundamentally of drive it for IPG.
The only company that has the electric.
Electrical efficiency approaching 50% nobody else is close to us on that.
You really have to I think look into some of the very specific benefits that we have rather than.
And advantages we have rather than look at what may or may not be at a larger scale company that that will have competitive advantages against us we don't think that they will.
Finally I did.
Beyond beyond the data has already been quite a lot of consolidation within the industry.
So there's a limited number of large targets to the left out there the largest other competitor that's out there for us is actually of private German company. So.
The consolidation has already taken place a bit more meaningfully to varying degrees of success I would say.
Perfect. Thanks for that Tim and just following up if we take the higher end of your Q1 guidance and you see of typical of 15% to 20% sequential.
Growth in Q2, you're kind of starting to knock on that 400 million sales figure level do you have more confidence around the ability to drive gross margins above 50% of at that point, just help us understand what type of margins when we start getting into these type of buckets of.
The revenue ranges.
I think Walter alluded to that earlier in the call that certainly getting.
Back to the time of a little bit more concerned about getting back to the top end of our of 45% to 50% guidance range and then.
If you start to see revenue get back up to that $400 million level without guiding above that at the moment with all of these cost reduction initiatives involved in is increasingly comfortable that we're going to get back into what I would call more of an optimal gross margin operating model.
As compared to just being best in class, which we are at the moment.
Our next question is from Mark Miller with the Benchmark Company. Please proceed with your question.
Thank you for the question.
You've indicated several times about the opportunity and battery welding for Evs, but theres a chip shortage hauling all of its impacting auto sales do you see that having any impact on you.
Over the next couple of quarters.
Non mob.
John.
The chip shortage.
The semiconductor industry is going to affect us.
Even though it is affecting the auto industry.
In terms of some facility shutdown, we don't expect it to have an impact on our growth and we don't have any.
Visibility into it having an impact on us we do not have.
Any similar supply chain issues facing us at the moment.
Given our vertical integration.
And we also have inventory of electronic components for example that we've built up.
Germany sales were also down sequentially and year over year or is it is that Covid also like the chase in Japan.
I haven't looked at the German numbers overall Europe was up sequentially. So you saw the content of exactly where it is maybe some slight variation in where revenue in Europe was generated but overall Europe, we're actually pleased with in total.
Rather than looking at Germany, specifically, we look at the whole of northern Europe, and in Italy and even.
Western Asia, Turkey, there is some sequential improvement, even though down single digits.
You haven't got any more commentary around that.
Was better.
Thank you.
Our next question comes from Joe wedding with Edgewater Research. Please proceed with your question.
Hey, Thank you good morning, I wanted to ask on welding.
Obviously.
E D batteries up on A&P and Theres also also the kind of interest in the handheld which isn't surprising.
But beyond that how are you kind of viewing the broader macro welding market adopting laser.
And that includes both Standalone lasers, and then Youre systems mix as the broader cycle turns hearing and cost of capital is low.
Could there be kind of a tipping point in play for that market where.
The adoption has been slow over time.
Eugene I'll address this question if all of us.
Well the market, yes noise around the driving by first of all in vehicle.
<unk> battery welding.
But the real cutting and foil cutting of goods zone.
But in principle. Our advantage is that we are not supplying to therefore, such kind of of processes only of lasers. The supply and also our components I mean different kind of optical heads for content out of a building plus monitoring system like LGD loss of <unk> of specialty produce.
For such kind of applications.
And finally, the start to produce the complete system.
The rebuilding.
Already the supply to some customers automotive customer and now we are ready to supply additional such kind of system to the customer and for assets.
It's not a new product, but nevertheless, the process of new opportunity and we see the very good opportunity for us the satellite again not long delays is not on the components for these applications, but complete systems in.
In Europe in China, and also in the United States.
In total of relative market.
Going well.
Of course, not all of the connected to the automotive applications not only the.
Vehicle, but also for other applications one of them.
Example for.
Also based of basically of course for the first of all from different kind of metal welding.
But the.
This.
Demand is growing definitely year over year.
Okay.
I wanted to go back to the comments on Rolling out features from the ultra compact designs to the higher power units up to I think you said up to eight kilowatts, I guess I'm curious there what sort of tradeoffs do you need to make is it efficiency or.
Could it be flexibility and durability and going forward from a from a product offering perspective do you plan to offer those units side by side. These eight.
Eight kilowatts for example of the ultra compact functionality versus your kind of existing full featured if you will I think that'd be interesting. Thanks.
First of all we'll make a runway of brand.
Producers of such kind of ultra compact lasers.
We also produced the special components as of lately of course, and this is of why we've got the dramatic.
The decrease our cost of production for such kind of laser.
But.
You see Oh wait.
Yeah.
Such kind of philosophy of putting the first of all core cutting applications, but our customers must be already.
Adopts this laser possess systems of course as they need some time the.
It also could change the design.
And to implement our ultra compact laser for these applications.
The exchange it'll be north of exchange Adobe is on the new machines. It will be a much more complex much more efficient final machines for example for cutting.
From this point of view.
Youll see a very good opportunity festival.
Of course, better productivity better efficiency, but the compactness, but first of all better price for our customers.
Okay.
All of you that for example, the reported here Tom Glaser for cutting.
While the five book with Us.
We walk 10, 10, yes, north of one or two in spite of it.
From the Virginia.
All of it so fiber where the magic.
<unk> <unk> Hudson.
<unk> reported two from point of Australia of menu yields.
Your customer of <unk>, So on 10 of the yes, which granted now.
Can you share too.
<unk> cutting business, but at 10, a year if not the one <unk> five turn a year.
The fifth immediate or with you would've known a few months for replay of this.
The new Broadview and fantastic new products, it's not true.
It's the loan process.
Now it emanated in cutting business.
Nobody has dropped at all within the portfolio is only four weighted in metal.
But we'll never will come to you and then the.
Two or three millimeter the never will cut five millimeter now of $50 million.
The successful or not really.
Cfos.
Cutting our price.
The full of plasma.
Which share to never talked about the replaced.
For example.
<unk> is the budget.
One way.
Not so nave that medicine much further than the other people, but it takes time line.
Joe do you and the other parts of your comment was there is no trade off net.
<unk> introduced the new product that has less.
The less reliability of lower electrical efficiency. This uses all of the same optical components, but has a much more compact of electromechanical.
Sophisticated design around the electromechanical.
There isn't really a trade off in terms of those parameters.
Perfect. That's great color just what I was looking for if I could squeeze one more in the 20 to 30 kilowatt curious what geographies those units of shipping too. If that's just kind of the pensions et cetera of of the world in China or.
Is there interest in the West and then what are the relevant applications. There I'm assuming from of cutting perspective, you run into some edge quality issues at that power level.
Paul.
The level of and are not limited to ensure of surgical up recently or over the receives the request for 40 kilowatt laser for cutting applications of course, we are ready to supply such kind of laser for these applications.
First of all applications for cutting some kind of AGA.
Some of them.
A number of these lasers also use them for welding applications by cohort of special applications for lack of special materials.
And so on.
But mainly for cutting applications.
Youre right.
Unfortunately, the first customer alone.
In China for such kind of applications not in Europe, not in United States.
Okay, well, thanks and congratulations.
Thank you.
As a reminder, please limit to one question and one follow up our last question comes from the line of <unk> Misra with Bahrenburg. Please proceed with your question.
Thank you good morning, and thanks for taking my question.
Curious with that.
Capex guidance for the year 150 to 168 can you provide some color as to some of the bigger projects included in that and the Capex range and anything worth flagging as potential future growth driver.
The Capex total.
Capital share kind of it.
Some of our character.
The auction new view of region, Chris of all of it.
So for this year.
If you of course.
Sure.
Production in the city of practical work solely for 22% all time quarterly of tier one is the way.
Did you get the materials.
So all of our ships the parameter of project from one month delivery, but we of which half of year to deliver the <unk>.
Net to you when a window exceeding the total.
Sure.
What's the offload that volume for construction.
Yes.
<unk>.
Now we of course, we need the out of additional <unk>.
Our family of facilities.
Most of the concern of the total.
The new production line.
The newly of Covid, we need for mass production and so on.
On the award.
Of time, we're kind of improve and we're creating now what are we in the west It now.
The investing for future real world, where we need some of both the year, but the one thing Walt will deal with these new facilities one in.
<unk> technology now.
Towards the EPS would be absolutely of short.
The production.
So we don't have one of the future.
As normal.
And we still weighted more when the worst month radio.
We'll double the density the worst months more we put a fair during the Wilson is the increased facility and increased our for the Dutch so not all the money and the Gwen automate some of the episodes of the north of Houston.
New business is well known by the new business, while not by a nickel whereby all of the.
The technology group with some technology of really pretty solid technology choice is so it's all of our future, but not just the two by absolutely different of be it not possible to well weighted.
Good business is about the two to mine the children's at Samsung.
The electrical opinion not manageable.
We don't need the statue.
Mitch day.
Understood I really appreciate it.
Alright. Thanks.
Okay.
Next question Oh, Okay, sorry.
At my follow up what's the.
I was hoping if you could provide some high level color as to how pricing and volume.
Changed last year.
And any color you could provide with Greg.
So on a year over year basis pricing was down.
In a more normalized 10% to 15% has been basically the much more stable over the last three quarters. Since Q2 Q3 Q4, so that is.
Sometimes when you see an improving demand environment.
Some of the antics of the Chinese competitors are not are not so extreme the other part of this that we've talked about is that we're being more disciplined around pricing, we believe that the value of the laser technology.
Is still extremely high and net of the current pricing in the market.
Already displacing many existing laser and non laser technologies.
No more fundamental changes in pricing to drive that adoption of not required some of it's been good to see a bit more stability.
We also had some benefit going to higher power levels for cutting applications, where you have the competitive advantage.
And then outside of that the emerging products for example, even high power nanosecond pulse lasers of very well.
Almost exclusive to IPG, where we are.
The good Asps.
So some of those applications. So the mix has been a bit of of benefit too.
Great. Thank you so much.
That concludes today's.
The question and answer session at this time I'd like to turn the call back over the Eugene Fedotov for closing comments.
Thank you for joining us this morning and for your continued interest in June and look forward to speaking of few or of the coming weeks on the milk the participating in a number of virtual investor conferences this quarter great.
Good day everyone.
This concludes today's conference webcast you may disconnect your lines at this time and we thank you for your participation.
Thank you.