Q1 2021 IPG Photonics Corp Earnings Call
Good morning, and welcome to IPG Photonics first quarter 2021 conference call today's call is being recorded and webcast at this time I'd like to turn the call over to your host Eugene Fedotov IPG director of Investor Relations for introductions. Please go ahead Sir.
Thank you Robin good morning, everyone. We've lost today's IPG Photonics Executive Chairman, Dr. Voluntary income plants up Chief Executive Officer, and Dr. Eugene Shcherbakov, and senior Vice President and CFO Jim on.
Statements made during the course of this call and 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 and uncertainties that could cause the company's actual results to differ materially from those projected in such forward looking statements.
Risks and uncertainties include the impact of the COVID-19 pandemic on our business and those debate all day in IPG Photonics form 10-K for the periods ended December 31st wanted to on it and I would reports on file with the Securities and Exchange Commission.
These filings maybe obtained by visiting the investors section of Ipg's website or by contacting the company directly you may also find copies on the SEC's website.
Any forward looking statements made on this call on.
Are the company's expectations or predictions as of today may four 2021 on that the company assumes no obligation to publicly release any updates or revisions to any such statements for additional details on our reported results. Please refer to the earnings press release, and the Excel based financial data on work.
We will post it on our Investor Relations website.
Post these prepared remarks on our Investor Relations website. Following the completion on this call with that I'll now turn the call over to volunteer.
Well the moving annuity.
And we do it.
Good day.
Yeah.
I will discuss how a zone.
I am very pleased to report another quarter of solid performance and excellent.
Houston, who is there on the revenue.
H.
Our revenue increase you can if you can see from credit to the same periods.
Yeah rich it was impacted by it.
Right.
Conditions.
Ooh.
And our weighted too.
Net.
One day.
Revenue was also quite yet.
Sequentially. Despite typical seasonality as it has also continued to put four months in North America.
When so you put all months in sales.
Europe.
Our bookings.
Well, but you put it on every day in China.
We expect growth will continue in the second.
Second quarter.
Is it would be when.
If he had from Ottawa.
No.
H O.
Oh well.
You ended the quarter with you must reach a dead zone thrown at us in our core market.
Sure.
So we're on good old mccutcheon.
You want to throw on good good old.
Hopefully piece.
Oh, Hi, Paula Amazes me top cheap cheap pipe within total.
Total high power sales.
And increased <unk>, 5% is a corp.
It's a high until the market, whereas in an increased incidence.
And all the volumes on 'twenty and since you came on board.
Ultra high power lasers from the open.
Okay.
Does that also catching speed improvement from my Cheetos.
Let's see.
And I believe a lot of them.
On the cutting machines.
And on the phased approach.
Oh power sales.
On Wednesday, Brett White.
PD parameters.
But you shouldn't see.
I I didn't why you'd be cheap debt.
Oh marks.
IPG put in.
All right great any comment on that.
In the past.
Growth in Abuja in applications to now you can use flow.
What day.
Sales so power power.
Should the buoy you ship huge debt.
Amazingly well.
Yes.
Please go ahead.
With the same day.
Who else here.
Sales, so far our adjustable mode beam.
In these and continue to gain share in the world.
In this call.
Should narrow manufacturing.
In electric vehicles with any way we didn't.
Location.
O M B a product offer.
Yes, Keith we will achieve our competing solutions.
The range goes beyond June ability, enabling it's quite that much.
Which is extremely important with debt.
Well.
During the first quarter it might have been products grew by six 2%.
And the beauty is 24, 9% thoughts on revenue.
Yes.
225% to one so that was on Twitch.
Imagine import growth wasn't what all the waste.
But.
I told you this before what's there.
Yes.
Oh, good all the scene in two ways.
With that with sales growth.
In both ways it for solar cell manufacturing.
Manufacturing and nausea.
Nick.
Since this.
Question.
In some instances.
Trailing up on your production to meet demand.
Additionally, we are in.
Isn't it.
The quality of niches.
In lasers.
So we enable next generation applications and saw what the aliens and corporate.
For pets.
Humor.
Yes.
On the emerging products.
It's performed well.
Power out.
It kind of falls beyond day, Liberty and when you put in and M D.
Customer feedback on <unk>.
I will.
Our new day so yeah.
So where.
We reported it.
Consumers I E.
The ease of use improvements in well really cheap you've reached your materials that can be destroyed.
On the program to religion parameters for different types.
Well from my Tito.
In certain applications right.
Enable has got so much when you could eat material possible from when you free.
Sheridan.
Because they tend to use metal.
Wouldn't be where we need to buy cheap.
So we are able to also clean such as it was before and often well.
Well we did.
While reducing cost.
What are the ex Chi Chi.
Additionally, our weighted.
But there is footage and of course to qualify to be able debt b of course.
Trading imports takes only a few hours.
And did your wife is.
Is it to use you wouldn't for non crop cash no well.
Yes.
Revenue from other applications, you could each weighted 90%.
Hi.
Revenue from advanced application.
It was more than offset by.
So our revenue.
So.
While revenue and a major COVID-19 Upi and due to the timing for this.
Have a strong order book book or on.
Our Thule I'm always ashish.
And the installed base for our consumable volume, but overall with the occasions.
10 years from goodwill.
Okay.
We continue to focus on product innovation.
And so from new products, what's the right range.
This includes you know.
Okay.
That's my view.
Numerous christos circuit boards or <unk> P M.
It has been slower.
So.
And beyond matured.
Okay.
Allocations.
We're working on new soft tissue medical treatment be it didn't put on the lasers for cutting on Weibo.
The dilution on the lines.
In.
Inspection sales.
Biomedical research piece.
A new high speed guidance, you explore the telecom and data from Mike.
He is debt in addition to our reported in our first quarter results.
We announced them.
When instruments have been issued this morning, which follow well.
Well Glenn succession.
T G.
We've got to wait for some time.
I am happy to announce.
Debt to doctors, a huge debt about coal.
Consider his cofounder of IPG.
Ex hit me, if Ipg's Chief Executive Officer.
No.
Sure, but cool is the well known challenges in there.
Non linear right talk to.
She menu years walked in general <unk> or whatever.
And the greater percentage of noble price Alexander.
Before to join me in IPG laser to Germany in 18.
Many years, he manage with the branch of IPG.
Kind of operation.
Well, yes.
When we say a kind of very cheap operations or $2 seven during the last two years.
I will transition into my new on all of executive Chairman.
And we'll continue to the.
Series search and development function and be involved in the strategy.
In my in Europe, we'll be spending more time on innovation.
And now if you go capabilities, which are my questions.
To continue to promote the world.
Is it.
Is this.
On one.
And applications.
We will drive future success and technology needed.
Of IPG.
And it is in.
Exciting evolution for me.
A very good guidance.
To the point.
With that I will.
On the call how much the Eugene Ipg's new Sheila.
Thank you really can't on good morning, everyone I feel extremely privileged to become the next year or is this a great company.
And look forward to continue the strategy order pick up answer.
Deliver on our mission to make fiber laser technology the tool of choice in high Tech mass production.
Going back to on a quarterly results I will provide additional details of our operations and performance by region and I'm happy to reported that all out for May.
Major production facilities are operating normally.
Hi, This is Chris adapted to the new operating environment.
And if theres Iranian production at higher levels to support increased demand for our products.
They don't want us to actually on safety pick push on our limited customer visits, but we have seen on the increase in traffic.
Our application on lapse.
We are benefiting from a number of significant and the vitamin trends does that include increased investment in capacity for renewable energy and electric vehicles to support growth in sales.
We are seeing an increase in demand pull out or getting on pulse laser Asia enable significant improvements in solar cell efficiency.
We're also supplying a wide range of products.
Improvements in electric vehicle battery manufacturing process, including the speed of manufacturing type process that are going to be richer and design flexibility on the OLED to increase battery performance and safety, while lowering production costs.
They are expensive to benefit from growth on electric vehicle sales driven by high emission standard and government policies, primarily in Europe, and China and that would require additional investment in battery production manufacturing.
And all of the revenue in China and Korea.
74% year over year as the.
The first quarter, representing approximately 41% of our total sales.
We have seen is a high demand.
Ultra high power lasers, and laser from general manufacturing in China, driven by these laser.
Metal processing productivity and EBITDA.
Okay.
<unk>.
First quarter bookings in China were strong benefiting from domestic infrastructure investment.
On general manufacturing.
As a result, our outlook for the second quarter is robust and debt.
Expect demand trends to continue.
Same store sales.
Asia increased 45% year over year.
We are seeing a strong demand for on a religion and foil cutting solutions Corp.
Electric vehicle battery manufacturing growth in solar manufacturing and increased demand for.
Our ultrafast lasers across Asia.
While sales in Japan, and decreased 21% year over year market economic indicators seems to be improving moderately and we are hopeful that level of business activity increased from got on depressed.
A depressed level.
In Europe revenue increased 14%.
Yeah.
<unk> and exploration demand from customers in the region.
Driven by growth in Germany.
While COVID-19 infection rates.
Remain high in Europe, It appears up investor growth is improving and booking.
Can America positive pointing to continued recovery in net income.
Yeah.
Yes.
Yes.
Yes.
Our first quarter revenue in North America continued to improve increasing 9% year over year.
Growth was primarily due.
By automotive.
Investments in new battery capacity for electric vehicles.
In particular strong.
In addition to demand from EV battery manufacturers is that a can.
To be opportunistic to replace all leaves us at several out of manufacturers in the United States.
Laser system Repower from.
It was a low level.
Yeah.
Also non laser system list.
<unk> remained weak.
The pipeline of procuring the simple lasers and non laser system.
Growth.
Yes.
So the quality of unions appointed Frank do you want.
I was wondering Jim mentioned medical into renewables.
Lower also increased medical broken mean that medical anything you'll you'll also improved during the day.
Sure.
And we were particularly pleased.
Growth in sales of medical consumable fibers.
As the number of procedures performed well our gold standard Lisa price at <unk>.
<unk> system in.
How long things growing installed base.
Yeah.
So continue to benefit of our vertical integrated production model, which enables key technology advantages over the competition.
While minimizing the cost and supply chain disruptions.
Gross margin improved to 47 five percentage this quarter.
<unk> benefited from increased volume Williams, and our continued focus on cost reduction initiatives.
Total SG&A and R&D expenses increased by approximately $5 million.
Year over year.
$82 million in the first quarter, but declined as a percentage of.
Our net revenue.
We continue to believe that out of large and advanced materials and components technology platform, our efficient R&D model.
But on balance sheet and free cash flow from whitehouse ample flexibility to respond to those.
The business disruption.
From this pandemic a stronger company.
On behalf of Oh from Wellington, and myself I want to Oh.
On our employers.
Poor execution during this third quarter.
Health safety and wellbeing of our.
Our employers they are free.
Families our customers our partners and our communities remains our highest priority.
Is that not all of it.
Coal or the team to discuss financial highlights.
The second quarter outlook.
Thank you Eugene and good morning, everyone.
Revenue in the first quarter was $346 million.
Which increased 39% year over year and 3% sequentially.
Revenue from materials processing applications increased 45% year over year and revenue from other applications decreased 9%.
Sales of high power CW lasers increased 43% year over year and represented approximately 49% of total revenue.
Sales of Ultra high power lasers at six kilowatts, or greater represented 55 percentage of total high power CW laser sales.
On the increased 55% compared to the prior year.
Medium power laser sales increased 41% on growth in cutting welding and sintering applications.
Q CW laser sales increased 38% year over year on increased demand from welding applications.
<unk> laser sales increased 74% year over year with strong growth in green pulsed lasers used in solar cell manufacturing as well as higher sales of our high power and ultrafast pulse lasers.
System sales increased 46% year over year as lower Genesys revenue was offset by higher sales of other IPG laser systems.
Other product sales decreased six 6% year over year, driven by lower medical laser sales.
First quarter GAAP gross margin was 47, 5%.
An increase of 620 basis points year over year.
Compared with the year ago period, the increase in gross margin was driven primarily by improved absorption of manufacturing expenses.
A decrease in cost of product <unk>.
Inventory provisions and shipping cost as a percentage of sales, partially offset by lower pricing.
GAAP operating income was $89 million and operating margin was 25, 7%.
First quarter net income was $68 million or $1 26 per diluted share.
Effective tax range in the quarter was 23%.
During the quarter, we recognized a foreign exchange gain of $7 million.
Primarily related to appreciation of the U S dollar versus the euro.
Foreign exchange gain benefited EPS by <unk> <unk>.
If exchange rates relative to the U S. Dollar had been the same as one year ago.
We would have expected revenue to be $17 million.
Gross profit to be $10 million.
We ended the quarter with cash cash equivalents and short term investments of $1 4 billion.
And total debt of $37 million.
Strong operational execution resulted in cash provided by operations of $88 million during the quarter.
Capital expenditures were $27 million in the first quarter and we expect capital expenditures will be in the range of $150 million to $160 million.
For the full year.
During the quarter, we repurchased 15000 shares for $3 million.
Commentary on outlook for next quarter.
We expect a strong quarter for revenue.
Regional and global economic indicators remain positive.
With continued improvement in manufacturing PMI in the Euro <unk> in Europe.
But with some moderation of economic indicators in China.
As mentioned previously first quarter book to Bill was meaningfully above one and order backlog has increased since the beginning of the year.
Displacements of non laser technologies secular environmental trends and investments we have made in emerging products.
I mean that we continue to see growth opportunities in ultra high power cutting.
Electric vehicle battery production solar cell manufacturing.
Medical procedures and advanced applications.
The second quarter of 2021.
IPG expects revenue of $360 million to $390 million.
Given the increase in sales.
We are returning to a more normal level of activity with.
With moderately higher compensation and other operating expenses.
Which means that we expect total operating expenses to be in the range of $82 million to $84 million.
The company expects the second quarter tax rate to be approximately 25%, excluding any discrete items.
IPG anticipates delivering earnings per diluted share in the range of $1 20 to $1 50, with $53 5 million basic common shares outstanding and $54 2 million diluted common shares outstanding.
There are several risks to our outlook because recent growth in China, 10% from uncertainty regarding the rollouts and timing of vaccines in Europe, Japan and elsewhere.
The resumption of normal business in travel activities.
The impact of automotive plant disruptions from chip shortages, the resumption of spending in aerospace and stimulus efforts in the U S and China.
Financial guidance provided this quarters continues this quarter continues to be subject to risks and uncertainty given the COVID-19 pandemic.
And its associated impacts to the global business environment public health requirements.
Government mandates.
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.
Cancellations and delays competition tariffs trade policies health epidemics and general economic conditions.
Our 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.
Yes.
Yes.
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.
Ask that you please limit to one question and one follow up.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from John Marchetti with Stifel. Please proceed with your question.
Thanks, very much I wanted to come back to the comments that you made about the China business moderating a little bit and just understand if that's a function now.
Running up against now some more challenging year over year comparisons as we get into the June and September quarters, or if there is you know maybe there was a situation where they were running a little bit Hot post pandemic and now thats more evening out to match supply and demand.
So John on our guidance for the second quarter continues to assume.
Good growth in performance in China on a sequential improvement in revenue on.
Order flow was very strong in Q1 and has continued to be strong in Q2.
The reference is really to just some of the economic indicators, having moderated a bit. So for example, <unk>.
In China have come back they pull back a little bit from 55 or 56% to about 51%. So.
It's just calling out that the economic.
Expansion is maybe.
On a little bit more moderate than it was and.
What has been over the last three or four quarters.
With reference to some of those indicators.
That's helpful. Thank you and then if I can just follow up real quick on maybe on the on the Japan outlook as well that's been a market that has continued to struggle a little bit here for you over the last several quarters are starting to see some early indications there may be those metrics heading in the opposite direction. Just curious if you could talk a little bit about your expectations.
For Japan market over the next quarter and maybe looking into the second half of the year.
Yeah.
Got it.
Certainly an improved guidance number for bookings and revenue in the second quarter. The general feedback that we're getting is that there is some moderate pickup in activity I think some of the Japanese machine tool orders from an export basis. It picked up and also from a domestic basis it picked up.
Potentially some of the investments in automotive and cutting should also start to improve.
We're looking for that transition to happen over the next.
Two or three quarters, it continues to be a difficult area to.
Operating from an economic perspective.
Great. Thank you very much.
Our.
Next question comes from Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Hi, good morning.
First off.
Congratulations balancing on the Eugene on the management transition.
Question about about Genesis.
The business still seems to be weak I'm wondering how much of that is potentially.
Potentially related to automotive, although I think it's much broader and manufacturing. So I wonder if you could talk to that and then I have a.
A quick follow up.
So on Genesis say struggling to.
Struggling maybe to close some of the orders, there's actually quite a healthy pipeline of orders and the general manager of Genesis thinks he's calling a bottom on that business. So there are actually waiting to close.
Significant number of orders some of which are in excess of $5 million a piece.
Given the environment some of those large scale investments Jim have certainly been more moderate over the last year or so and then they've also been impacted by some of the aerospace <unk>.
Activity being a lot lower so.
Moderately more optimistic that that business if they can close some of these orders will certainly reach a bit of a turning point.
I think the big difference is that the size of the equipment. They sell in terms of total value is significantly different from even some of our other systems businesses and also from.
The average asps even of our high power <unk> high power laser so that pipeline. The message is the pipeline of order flow has certainly improved they need to close some of those orders and if they can do so that will help to turn around that business.
I would like to add something for Genesis and also for us.
Our activity.
System business.
The supply the cash.
Complete system for battery welding.
If you are ready to supply to our customers, but received the weighted perspective, because for us it's absolutely there'll be no new.
I mean, not on the supply lasers laser components, although such grant applications, but complete systems.
Good day successfully installed palladium.
Automotive customer and Youll see a very good perspective for such kind of activity.
Got it. Thank you thank you for that and.
Follow up question, just with respect to the guidance.
If we look at the midpoint of the guidance it would suggest.
I think that Youre getting J gross margins.
You know close to the historical levels on the high Forty's not above.
Where you had been years ago several years ago, but it.
By looking at this the right way Tim should we assume that your gross margins have the potential to be north of 49%.
You too.
My Q2 guidance on gross margin is basically in the range of like 47% to 49% is not above that I think we provided some guidance on opex, where we're starting to see a more normalization of activity. So you may have gross margins a bit high in opex, a bit understated to get to the EPS number.
And then on EPS on record of 25% tax rates I know discrete benefits in that but certainly were pleased with the overall gross margin performance I mean, the underlying gross margin if you exclude some of the.
One time items and a higher inventory provisions has been pretty consistently in the mid <unk> at the moment.
We hope to see a track up to the upper half of our range, we still don't have visibility in getting it above 50%. So we're sticking with that 45% to 50% range, but.
Really targeting being in the upper half of the range.
Yes, no I understand it's just the fact that you can get as high as 49% is nice to see thank you.
New product growth suggest you're introducing to the market and we expect this year and next year.
Essentially impact.
Gross margin on.
I want to engage.
Sure.
Thank you for that.
Our next question comes from the line of Nick Todorov with Longbow Research. Please proceed with your question.
Yeah, good morning, everyone.
Tim I guess you talked about.
China bookings being very strong in the first quarter and so far in the second quarter, but if I look at the guidance on the stadium you know seasonal North America, and Europe, I think China growth is decelerating substantially from.
It's eventually mid teens and I think last year accomplished still in our favor.
Favorable down 11% can.
Can you maybe talk about you know what are you assuming for China.
And do you see sequential growth besides the second quarter.
For the rest of the year in China.
We're not giving any guidance for the rest of the year.
The performance of China in Q2 continues to be robust and strong. This whole concept I think theres been a couple of initial notes that have been issued around seasonality. This is an extraordinary time debt.
All companies have been through over the last.
<unk> thousand 18 months and I don't think there is any concept of normal seasonality at this point in time, we're very pleased with the performance of the business.
Even in the second half of last year, the strong traction in overall revenue in Q4.
A really good revenue number we've just reported on very solid earnings for Q1 that normally can be a down quarter compared to Q4, where we've actually sequentially seen an improvement even with Chinese new year pleased with some of the recovery in Europe in the underlying tone of the business There North America started to recover in the second half last year remain.
<unk> spending robust and so the guidance in Q2 relative to where the business has been is a strong guy I just can't come back to having a discussion around seasonality and what's normal seasonality in this environment I think it is.
It's a moot point.
You can't call what is seasonality at this point in time.
So as a 90 day or a prospect was important in the past, but now it's much more important vaccination of.
People. This is much more important percentage of originations from different countries.
Regarding China.
Saving the position.
Value and premium growth position for new products.
We introduced doing fewer.
Any competitive, whereas <unk> was it.
True what do with Deutsche in second quarter, it's pure more debt, but we're coming from a lower top frame orders for which cheniere with steer wage in our licensees ex.
So on it compare this for you on.
Kubota minimum ulcer.
Favorable weather, you're going to work from home.
80%.
Uhm.
More to come.
Are you on that.
Okay got it and if I can follow up on another question on gross margin.
If I look at the mid points of that gross margin about 48%, Tim when I compare that to your September quarter, but you reported last year, you did 48% on a significantly lower revenue run rate can.
Can you maybe compare and contrast, what you know what.
What's driving that lower incremental fall through and I guess.
Are you seeing any impact from a meter components or just from a higher logistics costs that could be holding this down.
So there are some things on the second half from last year, we certainly benefited from some <unk>.
<unk> mix, so we had reference selling.
Significant orders for single mode lasers that have <unk>.
Strong margin on them. In addition to that we had sales of.
Very ultra high power lasers for advanced applications. So for example, 100 kilowatt lasers those tend to be.
Advanced applications was good in Q1 and as good in Q2, but we don't have those orders on hand at the moment.
They may pick up in the second half of the year. There is also some strong backlog for advanced applications that were waiting for confirmed confirmation of when that should be delivered it's unlikely to be in the second quarter. So some of the mix side of it would have.
Being one of the main differences compared to.
The third quarter and fourth quarter of last year I'm actually quite pleased with gross margin performance in Q1, given we didn't have those.
Benefits in that.
Okay got it thank you.
Our next question comes from the line of Mark Miller with the Benchmark Company. Please proceed with your question.
Thank you for taking my question.
Just wondering you had very strong performance in Germany.
Related to automotive and EV welding.
Strong German and European performance in Q1 was at EV automotive.
That is of course festival with sub debt.
By standard applications for cutting applications and also very important.
For many quarters.
First time demonstrated very good results for welding applications.
Connected to our new lasers, AMB lasers, and also high power.
Ultra high power lasers used for welding applications.
And also demonstrates a very.
Very good performance.
So our supply to our customers.
High power pulse lasers.
Again for EV applications for battery applications and also for some other applications.
MQ CW <unk> as our new product sales. Thank you Tim.
Or did you ship from.
Auto sales.
Several very important customers have accepted this animal.
That's the supply not so you can go on the unions, but balance of Susquehanna.
Laser starter customers.
Let me say that it would in.
On a future for such kind of lasers.
For these applications.
Typically IPG has reported about 20% of sales are from products introduced within the last two years are you are you still running at that level.
Okay.
Yes, we actually had a great quarter on that they were at about 29% of sales on the emerging products.
That was the highest level they've been for.
Thank you have a sense we've tracked them.
That is good.
Got you.
Okay.
Our next question comes from Tom definitely with D. A Davidson. Please proceed with your question.
Yeah. Good morning, first after 15 years of earnings calls voluntary we're going to Miss your insights going forward, it's been a pleasure pleasure working with you.
Eugene a welcome and.
David first question to you if you look out at the next five years.
Given kind of some nice momentum recently in welding do you think the welding market is the biggest untapped market for IPG.
I don't think I saw it it was a biggest market, but it will be a subset.
A substantial.
Input from such kind of applications, our general material processing market.
Got you on market out there.
He will be dominated it's clear because a lot of different standard lasers installed now in the field.
Continuously on subsea field this old laser.
First oil and also new applications will catch on also.
Moving on.
The welding applications, yes, definitely it will grow.
The speed of the day is growing and it will depend of course on many parameters.
First of all electric electric vehicle vehicle, you'll see one of those applications, which demonstrates there is already a fast growing application for our new lasers, especially for AMB laser.
Why because sales type people can wealth.
Practically resolved any sputtering.
It OLED as possible from such kind of AMV technology.
And of course, it's in.
Increased immediately the processing of materials and quality of the building.
Monitory on online monitoring the unions again, it also demonstrated that weighted.
Big perspective for future applications.
Sure.
During the world and so on.
And when he thought it was a quarter or two welding.
Makes it immediately.
The solution or do you have to do.
And from Susquehanna for Big Fish on these new components of it as a new possible.
Application I think welding will demonstrate.
Good.
Sure.
Of course our.
Special Youll know relative mentioned above is our new product channel dwelling.
True.
Yeah.
Also future for such patent applications because of the way the simple robust.
Only in few minutes back, particularly on non trained people stopped developed lots.
And not only oil, but oil with high quality.
Also this year the vertical.
Fix it for such kind of application on such kind of tool.
Okay.
Okay. No. Thank you that's helpful. It does seem like a pretty large untapped market, especially for some of these new technologies that are coming out.
Maybe just a quick follow up for Tim you have Capex of 150 160. This year what are the main components of that as an expansion of capacity.
Yes, there's a lot of expense.
Of course, it's primarily expansion of capacity, but you add some.
Capability that for <unk>.
R&D and sales and service, but primarily on on capacity, particularly for some of the newer products.
Some of the new additional diode manufacturing coming on stream.
Yeah, I think that Cabozantinib is a whole host of new products that we have to add production capacity for and components production for those new products as well.
Okay. Thank you for your time.
Our next question is from Michael Feniger with Bank of America. Please proceed with your question.
Yes. Thank you guys for taking my questions on the gross margin Q1 was very healthy.
You're forecasting another healthy gross margin in second quarter.
With bookings in China, being solid and recovering is the pricing backdrop, there the standard competitive nature or you see a larger than normal step down or is the IPG, just finding ways to contend with debt.
That pricing dynamic better than than.
Than you did in the past.
I mean price declines in the first quarter has been a lot more moderate than they were saying.
18, and 19, so we are continuing to be disciplined about our approach to the Chinese market and to really.
Shell on the basis of our quality and reliability and performance and specifications as the.
The products, we're benefiting from the trend towards the ultra high power cutting where competition in <unk>.
<unk> is significantly lower.
We've got a very high market share on EV in China, where we benefit from ultra high power pulse laser sales that have a very good margin on them.
We've even started to see some of our A&P and LDP sales. So debt. So it's a question of the company being disciplined.
Disciplined around pricing and really valuing the technology and proposition that we deliver to the market rather than necessarily being a.
Just focusing on what our total market share is.
And that's our strategy I think we've been successful with over the last.
It's over a year now that we've been implementing this more disciplined approach.
Got it and I recognize that there's some comps in China on the second half and ex seasonality conversations kind of difficult.
If we just fast forward to 2022 from looking at a GDP of 5% Global GDP like how do you does the IPG.
Growth profile look in that backdrop is there going to be a potentially a different mix of geography new products on.
And market as Youre, starting to see some of the secular.
Discussions around energy efficiency, and electrification <unk> evolve and pick up more steam.
I think I mean, if you go on GDP growth rates that sustained on a global basis at 5% Youll see the overall laser market grow at a very significant premium to that we'd expect.
Continuing to execute very well for example in.
And the laser welding applications, which we think could be a very strong growth area.
Do you see some continued growth obviously in.
EV sounds like overall EV capacity over the next three plus three plus years is estimated to triple I think was about 500 megawatts of capacity installed now that's expected to get to one four trillion $1 four.
Tara apparent once.
So that's that would be a core driver and then you've got all of our new applications right. So you've got the medical applications you've brought some of the solar cell applications. So if GDP holds up from PMI remained strong that'll be a complement to our business and the new product growth.
I'll add an additional layer of growth on top of that.
I would certainly be very pleased to see global GDP transition into a 5% growth rate next year.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Our next question comes from Park Gosh MISO with Bahrenburg. Please proceed with your question.
Thank you and good morning, and congrats to Valentin and Julien for the next phase in their career.
First a question on the the chip shortage issue on the automotive business were you impacted by that much in Q1, and it's your automotive business.
The geographic exposure if there is China the biggest piece there or the rest of the world is bigger.
First of all we don't have any problem is allowing such panic chips because.
Nielsen data use and on our brothers Susquehanna chip the.
Secondly, no all of this activity in northern China, automotive restaurants sold festivals in Germany.
I of course.
United States also.
Yeah.
Got it and then just wanted to come back on the comments on the welding market for the electric vehicle battery welding, what what are the most important products its day.
It seems that the CW type products or maybe the QC debt Louise.
It's the most important.
Probably that you are selling from that end market.
Of course, we have to ask our customers, but for our opinion.
Important.
You see that will go on.
So power because of the different kind of applications not just same processes I'm, making this <unk> pulse lasers for example.
Nevertheless, as usual useful welding applications.
Net cash spend welding some parts of the.
Well on battery.
Pulse laser utilization is in for screening.
True.
Our foil cutting flow of oil.
The earnings.
But producing this battery is different applications and of course important.
Also welding and cutting and cleaning.
Ultimately, therefore, where we didn't answer his question.
Yes.
Income tax credits, Alex it's the way they report on their most critical sensitive.
And we do have a full machine tool you couldnt comment on machine and I'll go into March.
More and more customers.
Yes.
Looking at buying machines from us.
And.
And you got into this.
Genesis.
Do it with debt.
Although loss.
This year introduced price to go finish qualification it so.
On OLED appropriate risk what I wanted to the machine.
You put in Washington for different application.
If oil were Virginia for the.
Hold on.
Scott, Jim and for other kind of drill pipe.
From the railroad.
Machine from Marci, <unk> with announced with.
The way, we're putting on Russia cohort pool plus.
Qualification now on.
Anthony the water market.
And yes, it will drag on mass production now.
It is from on.
GAAP countries.
Then for oil the really new day.
On a new opportunities.
I would request from either.
West.
Yeah.
When you will be able to use this fall is this machine will provide too many 10 2 million.
What we do.
And they will now more.
More than 10.
Numerous additional which will introduce second half of this year on.
Yes.
And here we are.
Operating on.
Unique core application.
Highest quality systems.
It's newer generation, it's always our policy from material from quantity so on optical.
Edition.
Actual final machines and production right now in what your debt to walk on volume.
Thank you that was very useful I appreciate it.
We have reached the end of the question and answer session. At this time I would like to turn the call back over to your host Eugene Fedotov. Thank you for closing comments.
Thank you for joining us this morning and for your continued interest in IPG.
Forward to speaking with you on the coming weeks and we'll be participating in a number of virtual investor events. This quarter have a great day everyone.
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