Q2 2021 IPG Photonics Corp Earnings Call
Good morning, and welcome to the IPG Photonics.
Quarter, 2021 conference call and webcast today's call's being recorded and webcast at this time I would like to turn the call over to Eugene set it up IPG as director of Investor Relations Free introductions. Please go ahead Sir.
Thank you Karen and good morning, everyone on the Foster day as IPG Photonics Executive Chairman, Dr. Valentin coupons of XI.
For Executive Officer, Dr. Eugene Sharp of call and senior Vice President and CFO at the moment.
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 and on.
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 on our business and those detailed in IPG photonics form 10-K for the peer.
We're at the end of December 31st 1 of 'twenty and all of the reports on file with 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 directly you may also find copies on the SEC's website.
Forward looking statements made on this call are the company's expectations or predictions as of today all of a third 2021on at the company assumes no obligation to publicly release any updates or revisions day any such statements for additional details on our reported the results. Please refer to the earnings press release and the excel.
Based financial data workbook posted on our Investor Relations website.
The real post these prepared remarks on our website. Following the completion of this call with that I'll now turn the call all of our to volunteer.
Good morning, everyone. We're pleased to report another good quarter for IPG.
The second quarter revenue, whether she can you if you can play a bulk of that day.
P J at the last year and increased from the room that is out in the.
The barrage of water the dragon by input or commodity.
And when the conditions in most major geographies gross.
Imagine the products.
The excellent.
Why is the IPG team.
So I had in the market.
Your month.
4 of our core materials processing product well fiber lasers I day parade.
Traditional tools.
At the wages.
And the continued to produce the yogurt the opportunities in.
Imagine the market.
We remain focused still on the growing sales.
And the applications that they require in the way too.
Solutions our <unk>.
But she is the unit.
Probably but with the technology and superior quality of old product such as the.
1 of the applications.
The UK vehicle battery production weighted co in micro approaches.
Our technology is transforming the way that's true.
Created enabling production or smaller and more complex do you why is this.
The product we have.
The used every day.
And but in the once the menu.
On your picture and the capabilities to electric vehicle and for the U.
The renewable energy industries.
<unk> been to address climate change and so on.
The effective date and that'd be of which he initiative.
All of it with them on the new products and the.
Yeah.
The patients that were in G.
Yes.
In the second quarter and medicine product sales the increase would you say I wouldn't with the year over year and the accounted for 29% of sales kind of per.
2 of 25 per cent of west here.
We continue to focus on the innovation that IPG and.
The working 110th of exciting new opportunities.
I hope to share more detail.
The bar would be supportive of niches with you on our future quote.
With that I will turn the call our dual EOG and share it.
Thank you Emily and Jim and good morning, everyone.
During the quarter, we demonstrated excellent progress and out of core materials processing market across all major geographies.
The accelerated growth in high power and ultra high power lasers flow.
Got it on applications in the U S and Europe and strong growth in the world in China and Europe.
We also do what's in the bus gross and the medicine products and applications.
Revenue from material processing applications increased length of 7% year on year.
<unk> contributed 93% of total revenue in the quarter.
Sales in the audience applications, but he was significantly.
And of the last several quarters. The increase say also power in me and just more beam lasers for general manufacturing purposes, and electric vehicle battery welding applications.
But I think of manufacturers are facing challenges the world and pack as a different type of materials such kind of of.
Copper and the Aluminio.
These materials are extremely the standard reflective and need to the ability to be as high per season end.
The liability.
Each battery model requires hundreds of wells and our AMB lasers can address these challenges operating superior speed and quality.
Wanted to overcome <unk> solution with the broad range of being the only ability in spite of the less well.
Building.
We also saw strong demand and Martin and micro material processing application.
Such as solar cell manufacturing and 3 the changing.
Sales of our Green pulsed lasers, which are used to improve solar efficiency more than tripled compared to the prior year and becoming a more.
You mean for part of IPG is revenue.
We are taking advantage of opportunities created by increasing focus on sustainability of globally and expect future solar cell manufacturing capacity to grow.
Driving additional sales in our green lasers.
Most of them could ease of pulse energy on the Green lasers. The enabled next generation applications like solar drilling and cup of welding for consumer electronics.
Revenue from out of other applications increased by 5% total year med.
Medical sales showed good growth most of the year over year and sequentially.
As a result of improved demand of our surgical lasers.
The advanced application of sales improved year over year, while telecom revenue declined compared to the same period as the prior year.
Examine of our performance by region, our revenue in China increased 10% year on year in the second quarter, representing approximately 40%.
Of our total sales.
Year over year comparison for the.
The reason was more difficult as China sales rebounded from the pandemic other than.
The other regions last year.
The strong demand in the building of application for our <unk>.
And other high power lasers of while Jim.
Aren't in Khartoum south of it at the end.
The quarter saw the sales of high power lasers increased only slightly compared to the second quarter last year.
We continue to see solid demand in foil Cochin and the welding applications.
Weighted the electric vehicle batteries.
Also stopped and the perceived some.
Some demand of course.
The light world.
The other.
Of the system in China.
Probably the modest benefit to revenue in the second half.
While China's other markets remain weighted price competitive.
We have continued to be disciplined with our brewing on the process of pricing given its superior performance quality energy efficiency.
The ability of our lasers.
Oh, Yeah, the remains a significant part of the customer base.
That is very focused on the price of law.
So does the rest of Asia increased hundreds range of 3% year over year, the strong growth in Korea, and other countries are sick and low revenue in Japan.
We have seen is the strong demand for the out of buildings and foil cutting the solution for EV batteries in Korea.
And encourage.
By improved bookings in Japan.
In Europe revenue increased 50% year on year as well.
So an acceleration of demand from customers.
The region and strong growth in cutting welding, marking and cleaning applications.
Sales of improved significantly in high power Ultra high power <unk> and QC double the leaders.
European kind of catching the customers are moving into the ultra high power lasers, and other places she would do lasers with fiber lasers to improve productivity.
Bookings well the reason the remain positive pointing to continued recovery.
Revenue in North America increased 23% of yellow here.
The growth was primarily driven by materials processing and.
And the increased sales of high power lasers for cutting applications.
Sales to automotive both traditional electrical.
So all of the markets remain strong.
We also saw solid improvement in micro material processing applications and strong growth and demand for of light world.
Besides the normal direct sales model.
I'll leave it isn't the new.
Part of it is sales these numerous welding stores and new direct online sales platform for the light rail in the U S.
Yes.
The laser system sales improved from the second quarter because of both laser on non laser system posting stronger revenue gross book.
Bookings remain high and we expect to see additional improvement in the system sales kind of the third quarter.
The continued to benefit from our vertically integrated production of model, which enable key technology advantages.
What is the competition of while minimizing the cost and supply chain disruptions.
However, we did experienced shortlist on certain components during the quarter.
The increase in lead time does that impacted our and our customers' operations.
I also had 1 of the agent inflationary price pressures on our input cost and the only.
The early 8 but I heard of quotations Wednesday expire.
Despite the <unk> <unk>.
Muse.
The other able to deliver revenue close to the <unk>.
The point of our guidance and gross margin of close to the top or expectations for second quarter.
IPG.
It has been a technology leader in the final believes her more than 20 years and none of our competitors have been able to much or approach the capability of our province.
Our research and development is our.
The DNA.
And we are continuing to focus on reducing the cost and improving the quality of our of components and products.
We are also committed to expanding the range of products and applications. The.
The address by Pushy on average.
Especially on developing the project my belief.
Can commercialize in the near to meet the of each.
Significant market.
Sure.
The will continue to focus on opportunities, where we can increase out.
The way they prefer our propositions to customers by delivering complete processing and technology solutions.
Our optical video of the system capability.
I want to thank all of the employers.
The execution during the second quarter, and Sam Colorado shareholders.
Continuum of support.
Because that I owe.
On the call or the team to discuss financial highlights from the quarter and third quarter outlook.
Thank you Eugene and good morning, everyone.
Revenue in the second quarter was $372 million, which increased 25% year over year and 8% sequentially.
Revenue from materials processing applications increased 27% year over year and revenue from other applications increased 5%.
Sales of high power CW lasers increased 20% year over year and represented approximately 51 percentage of total revenue.
Sales of Ultra high power lasers at 6 kilowatts, or greater represented 51 percentage of total high power CW laser sales and the increased 15% compared to the prior year.
Medium power laser sales increased 70% on growth in cutting welding 3 D printing and semiconductor applications.
CW laser sales increased 13% year over year on higher demand from welding applications.
Pulsed laser sales increased 45% year over year with strong growth in green pulsed lasers used in the solar cell manufacturing and higher sales of our infrared lasers for marking and cleaning applications as well as foil cutting applications in the electric vehicle batteries manufacturing process.
System sales increased 19% year over year with improved sales for Genesis and Iot.
Other product sales decreased 4% year over year.
We estimate that supply chain constraints impacted our revenue by $7 million to $10 million in the quarter.
Second quarter GAAP gross margin.
Was 48, 6% an increase of 260 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, partially offset by lower pricing and higher shipping costs as a percentage of sales.
GAAP operating income was $92 million and operating margin was 24, 8%.
Second quarter net income was $17 million on.
The $1.29 per diluted share the <unk>.
Effective tax range in the corner in the quarter was 24%.
Okay.
During the quarter, we recognized a foreign exchange loss of $3 million, primarily related to the appreciation of the Russian ruble and euro partially offset by the appreciation of the Chinese want.
The foreign exchange loss reduced EPS by <unk> <unk>.
If exchange rates relative to the U S. Dollar had been the same as 1 year ago, we would have expected revenue to be $23 million and gross profit to be $13 million low.
We ended the quarter with cash cash equivalents and short term investments of $1.5 billion and total debt of $36 million.
Strong operational execution resulted in cash provided by operations of $116 million during the quarter.
Capital expenditures were $27 million in the second quarter, and we now expect capital expenditures to be between 130 and $150 million for the full year.
During the quarter, we repurchased 185000 shares.
The $39 million.
Commenting on the outlook for the next quarter.
Second quarter book to Bill remained above 1.
While we expect continued improvements in sales outside of China sales in China are likely to moderate in the third quarter due to more difficult comparisons and softer demand in cutting applications.
However, displacement of non laser technologies secular environmental trends and investments we have made in emerging products, meaning that we continue to see growth opportunities in high power cutting.
Oil cutting and welding applications for electric vehicle battery production as well as opportunities of solar cell manufacturing medical procedures and advanced applications.
We also see like wealth sales gaining traction in multiple geographies in the second half yet.
For the third quarter 2021, IPG expects revenue of 350 million to $380 million.
Which implies a 15% year over year growth at the midpoint, despite more difficult third quarter year over year comparisons of softness in the cutting market in China and ongoing supply chain constraints.
The company expects the third quarter tax rate to be approximately 25%, excluding any discrete items.
<unk> anticipates delivering earnings per diluted share in the range of $1.10 to $1.40, with $53.5 million basic common shares outstanding and 54 million diluted common shares outstanding.
I would like to remind you that financial guidance provided this quarter continues to be subject to greater risk and uncertainty given the COVID-19 pandemic.
And its associated impacts to the global business environment.
Blink health requirements and government mandates.
Please refer to the Safe Harbor passage of today's earnings press release for more details on risks and uncertainties associated with our forward looking statements.
With that balance and Eugene will be happy to take your questions.
Tendai.
Thank you, we'll now be conducting a question and answer session.
If you'd like to be placed in the question queue. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press star 2 if he'd like Trimble of your question from the queue from participants on mute or using speaker equipment may be necessary to take the phone off mute or pick up of handset before pressing star 1.
1 moment, please while we poll for questions.
Our first question today is coming from Jim Ricchiuti from Needham <unk> Company. Your line is now live.
Hi, good morning the.
Kim I think I heard you say the impact that you saw from.
Supply chain.
Jane can change the Q2, I think you said around 7 to 10 million.
Is that just to be clear on is that of direct impact you or is that what you're seeing from some of your.
What you've seen from some customers it seems like a fairly modest number that's why I'm asking.
Yeah. It was a fairly modest number I'd agree with that it is a variety of things. It's both the impact internally on the ability to supply some products and also an impact from slightly light of demand from some customers because they can't get <unk>.
Components for some of the systems and therefore delaying shipments of the systems and then they don't want to take the lasers.
At the same time frame they did it at the.
The other thing is the disease across most geographies. So it's not just in 1 specific location.
China was impacted a bit but also north America are uneven.
Even Europe as well.
Do you anticipate that being a little worse this quarter.
No, it's probably going to be on a similar level of so in Q3, it's a combination of that as well as some of the softness in the China cutting market to the really impacting guidance. It's not that that is specifically driving the guidance number down.
Most significantly got.
Got it and use my follow up question is just with respect to North America.
So strong euro per growth and clearly.
Uh huh and easier comparison relative to the pandemic last year, but on a sequential basis I'm just curious the decline there 10% of ourselves sequentially is there are you seeing any signs of of the U S North American market.
Either slowing down or potentially being impacted by some of these external factors that we're all hearing of that.
No no specific I think with North America was more of a timing of revenue out of a very strong start to the year in Q1.
We still had some backlog for example, I think 1 of those 100 kilowatt lasers was recognized as revenue in the first quarter. So that was a bit of of benefit slightly slower quarter than in Q2, I will say that overall north American backlog continues to be very strong.
And the guidance number we have which are.
She comment by the sequentially I think it'll be basically flat, but again continuing to show growth on a on a year over year basis.
So the backlog in North America remains pretty robust.
Even though Q2 performance was a little bit lighter.
Got it thank you I'll jump back on the queue.
Thank you. Your next question today is coming from Nick Todorov from Longbow Research. Your line is now live.
Yeah. Thank you.
I am wondering I wanted to double click on the China demand, particularly in cutting if we go back a quarter ago. I think you were talking about macro indicators showing signs of weakness, but I think your data points of our strong you were talking about strong trade agreements that are tied usually true high demand for ultra high.
Our lasers.
If I look at the high power sales and breaking down between with the high power and the low 6 kilowatt, we can see that ultra high power lasers grew very incrementally on a sequential basis also on the year over year basis, while below 6 kilowatt lasers grew I think 24% of 25% year.
Over a year and in about 10, 15% sequentially. So that implies that China sales are should be should of been strong. So I just want on doubleclick and see the REIT loans. If he can give us more around to all of the softness in China cutting.
So China sales in the second quarter.
Strong both on a sequential and even on a year over year basis, Okay of the growth on a year over year basis was a bit lower than some other geographies, but don't forget the China had recovered already significantly the round of revenue in the second quarter of 2020. So the comparison there is a bit more difficult I wouldn't say I was not concerned about performance and.
China in Q2 in fact.
Bookings as well with strong. The issue is is that I think of couple of companies even that of announced in the last couple of days of pointed out.
The weaker macro environment in China on even the government being concerned about a potential but more of a slowdown yes, we'd highlighted that on some of the PMI data that it did it initially.
Come out I think in April so there is a bit of a concern of the China is a bit weaker than the unexpected.
That's clearly driving some of our expectations. In addition to the supply chain constraints in the.
In the third quarter. So I mean bookings were good but we expect those orders to be delivered over.
A slightly longer time than necessarily would have been if the demand environment has remained resilient.
The stronger Brazilian is still pretty resilient to stronger.
Okay.
Okay.
And if I can click on the on the supply chain dynamics I think we heard that there were some challenges with delivering chillers that were causing some lead times of extension, maybe you can give us what components are impacting your lead times and.
When do you expect those to get result in what are you doing 2 of to address debt.
Yes, and the LSA.
Some of this on.
On components, but it's not the critical components.
First of all of what also mentioned that the price for some materials also increased on a magic on it for example for copperweld in Kenosha well.
The components based on this material was but.
I don't know production is not under.
In the analytical and I think of it.
Deliver on in time.
On the children, but also on other.
The earnings of this quarter.
Okay last quick 1 on Germany sales were down sequentially I think the European sales overall are very strong what is the reason why Germany sales of our kind of diverging from the rest of Europe.
So that's going to look at the data on that on the which customer. It was specifically day, we tend to focus on total European sales rather than just the the individual countries there and as you point out total European sales continued to perform.
Pretty strongly.
I'd have to look at which customers was the change between Q1 and Q2 kind of from.
The other side German GAAP.
The demonstrate is the weighted.
Our high enough.
Orders for.
The ultra high power lasers.
20 kilowatts and more.
That's the first time.
Got it okay sounds good guys. Thank you and good luck.
Thanks, Jim.
The next question today is coming from Tom <unk> from D. A Davidson your line is now of life.
Yes, good morning, maybe 1 more question on China.
Talked in your prepared remarks, you said that the pricing pressure remains I'm curious of that is.
Moved up into the high powered weed, yet or most of the pricing pressures are still at the low power.
No the pricing and some of the competitiveness of introducing product out of higher power levels and trying to get into that ultra high power market. So.
12 kilowatt lasers, even and certainly the only way they can compete on pricing so.
On the what we call the low end of the market not just on power, but really on pricing.
Is moving up into higher power levels and <unk>.
Impacting while reducing pricing that our strategy, though is really as we articulated to continue to.
Deliver.
Behind the value proposition of Ipg's product and not get drawn.
Into.
What day, what would be a pair of victory on pricing in terms of trying to compete at that low end of the market, which is just it's not focused on on any kind of reliability of quality of devices season.
I think so far our strategy.
As has borne out pretty well with with fairly robust China sales, but good profitability on those.
And we're pleased with the way the gross margin and even total operating margin has continued to track in the second quarter Joe.
Okay.
So you talked about using your strong cost structure to maybe get more aggressive in the marketplace.
And it sounds like you've been a little bit more disciplined than over the last year than I thought you made it then after some of those comments on them.
The east pricing at all from your side or is it just in response to what you're seeing from the competitors.
And we've introduced some of the low lower cost rack mounted lasers, thats enabled us to reduce the selling price of those and make them a bit more competitive whilst maintaining margins on that but we're not using pricing as a strategy within the China market.
It really would be a bit of a pyrrhic victory in terms of.
Gaining significant amount of share of it is significantly lower average <unk>.
<unk> per watt and then having to devote even more resources to building product that would have a lot of profitability on it. So we're focused on the high end of the market and also outside of cutting very strong growth in.
Some of the welding applications for EV, the foil cutting applications for EV, even some mid power laser growth.
For.
Some of the additive applications in China and then the.
Surprisingly some of the pulse lasers, even at lower power levels from marking applications, where the quality of our product is recognized have actually held up quite well so.
There's a number of different areas, we're focused on on trying to drive that value at the highest level possible.
Okay that sounds great. Just 1 final housekeeping question, what's on your category of emerging products right now.
Anything really introduced in the last 3 plus years. So it includes things like high power pulse lasers, the AMB Green ultrafast.
UV.
Some of the systems applications accessories, so beam switches.
The cutting and welding heads scanners.
Some of the telecom product advanced applications as well.
The integrated.
Systems and subsystems based of our lasers from components.
Great. Thank you.
Thank you. Our next question today is coming from Michael Feniger from Bank of America of your line is now live.
Michael Please from Michael.
I believe he kept out of the Q1 of you. Please press star 1 on your telephone keypad. Our next question is coming from <unk> Misra from Baird. Your line is now live.
Okay. Thanks, guys good morning.
First of all on the electric vehicle I. If you could just talk about how's that market evolving and North America on perhaps maybe.
Sure.
Most of the current estimate as to what percentage of your Samsung going to Evs.
Okay.
Okay.
EBIT market of course is growing very fast and we can see first of all for them.
The welding and cutting.
Applications.
Gross.
And the production of components on some components for E vehicles.
But also of ESG as a new tendency.
Especially in Europe, as they start to produce and start the development of the new.
In the wide.
For the future E vehicles, because ophthalmology of using the standard and now based on the new technologies and new approaches based on <unk>.
So on laser welding on patents.
Using the process kind of transaction this not the producer of the new models based on the <unk>.
Such kind of approach.
Yes.
This market the growth dramatically and we see also our opportunity.
The participate in this by using debt it's not on the.
On the hour lasers or cash.
Components of the sub system, but also some proposal to produce the true.
The <unk> system.
For example on Nexium.
As of components.
Vehicles.
No.
Ship production system production line.
The production line.
It's kind of.
Got it and currently it's like maybe it's all.
All of these different sales combined of about 5% of your total revenue.
Okay.
Previously it was sort of we'd said on the weak quarter be 5% of a strong quarter with 10% in Q2, it it's actually well above 10% of total sales in the second quarter. So on.
On.
Continuing to grow strongly and if you looked at like.
The capacity Rollouts on on GAAP.
Battery investments that would potentially go meaningfully higher I think if you looked at like total capacity investments that could get to like 20% of them.
Quarterly revenue.
Overtime.
Got it interesting and maybe just a quick 1 is there a way to pick off.
Sure.
Year over year sales growth in terms of how much was volume versus pricing.
Most of it would have been volume because the average selling price per kilowatt across the line.
On it on a global basis.
<unk> was pretty stable it was down very moderately on a year over year basis.
Great. Thanks, Scott that's all I had.
Thank you. The next question is coming from Joe <unk> from Edgewater Research. Your line is non life.
Hey, good morning.
I wanted to ask him the China cutting of competition I know somebody already asked on the spot.
Really just wanted clarification on whether the per.
Repaired remarks.
From Dr. Sherpa called had intended to signal there was more competition than than your expectations 90 days ago or am I reading too far in.
You see here in principle, we don't have any competitors because our product is of the business of world and we are producing the best not only lose about the wholesale other components.
From this point of view again.
We mentioned in our presentation of that up to now.
More than 20 years non board of could produce the product.
Yes.
Parameters of our performance better than IPG laser did.
From this point of view is that the local petition of of course is because of some competition from the festival in China.
And of these Chinese production.
So these are some people using.
The combination of world acceptable quality.
Maybe acceptable quality for China, but the not acceptable quality for us our goal to produce best in the quality product.
Once this product we can guarantee you in garanti of not only the 3 es like now.
Now because of interest.
In principal guarantee of up to 570 years.
Our goal.
And from this point of view again, nobody can compete with us.
After an hour.
I Couldnt day also noteworthy in China, China Diamond product China.
So with the of low voltage of product up to now, but low volume from the best.
The American in the European Corp, when you're not able many of them price included mirrored did he because of the guidance try to make the compete with that nobody was able to complete the work that's not in the quality of the northern where are you seeing.
Up to now with Duane Keay is typical of any new product me at the 1.
On 2 years now.
At the point on why is this.
The team at a broader network.
The unique situation the main key year novel, Guangxi, North and the east North of <unk>.
<unk> took on peak IPG product globally.
Wholesale price 2 of 1 we.
He will lead 1 of <unk> here.
Yeah, I mean, I don't think of any of that is debatable.
The quality is proven out of her over decades in.
In the channel but.
Is is the market shifting more towards price focus of price first focus right now.
Because this is the point of the cycle, where you wouldn't necessarily expect that or again am I reading too far into just the second quarter trend in second and third perhaps.
The old <unk>.
Sales to wave in China, where it is where shall we keep the Asian today now the Chinese government, but now all of the police and the calls nor day by day.
Cool.
<unk> idea, we will have the cost somewhat neutral by the hour type of view.
China is the government per lead you on.
All of them with the financial means.
Food store present, the bio site already made in China in spite of much more towards quality of tolling, but in China, you could not compete with the sort of put the aggregator.
The cost of March customers, it's changes per year, now, it's notably China, when you're out of the country now throughout the day by day.
The 2.
The good nation of weird destroy your 2.
Yes.
When you're comping in our debt to make such quality fuels set of note there on the.
<unk> now made in the U S now.
In the pull of any advantage the meek.
So by 1 of the U S made relative to what.
In the.
Duane <unk> has to go we see now the return to the situations of which was 20 years ago when the even the laser for normally of Germany, what's the weighted difficult good flow in the U S. Due to mainly the regulation, which and the.
Create vehicles the go to Europe, the sale high quality products to U S.
Now the situation of the has done to this disease.
20 years ago in beginning of the.
Judy.
Working on kind of way.
With the new appointed CEO of <unk>.
Throw it away from.
Created in relation to the regulation.
Worldwide, the regulation of which way it created during the <unk>.
Now the destroyed.
Great maybe just sort of 1 follow up just on that very topic I'm curious on your take on rake is being put on the U S. Blacklist I don't think there's a bunch of of.
Rachis unit ending up in the U S. So probably not much of the immediate direct impact on your business, but wondering if you may have any other nuanced views there. Thank you.
Yeah, we're not entirely sure how that's going to impact.
Now on the global stage and in terms of the U S sales. It clearly does and then we know that they are and believe no notice of certain of the buying some components from U S suppliers.
I mean, I think we'll watch what they say in terms of what the impact on any critical components that they have.
And then how that may impact from going forward. Its obviously not a positive development for the metal.
Great. Thanks, Dave.
Thank you next question is coming from Michael Feniger from Bank of America of your line is my life.
Hey, guys. Yeah. Thanks for taking my question apologies I had some issues. So this is the act I apologize, but Tim what is the what's baked into Q3 on on the gross margin range can you can you kind of help us there.
Yes, I mean, so very similar to Q2 in the range of 47% to 49%.
Opex.
I think last quarter guided like $83.85 of them.
More in that sort of 85% $86 million range for Q3 as well.
Okay great.
Great Ken and low.
There's much investor worry on on China, right now of your guys faced the tough comps you mentioned the slowing in cutting.
And can you just help us understand.
The degree like in 2019, obviously, your China revenue was down 25% sequentially and other years, China down a more moderate 5% sequentially.
Help us understand.
Which weighed on the market right now is getting very worried we're thinking of 2018.19, where are we in that.
The 18.19 tight drop off is this a similar type of slowdown that we saw previously were on more moderate sequential decline just help us at the stock on right now is showing a lot of already on this in Q3 Q4.
No it's not a.
It's a very.
At this point of time, it's not a similar comparison to 18 and 19, where you saw that very steep contraction in drop off so we're seeing some weakness in the in the cutting market, but there's still a lot of strength in demand coming from a lot of the other applications, where we have inherent advantages and which markets continue to grow both in <unk>.
And outside.
Not going to give a specific number on what is baked into guidance, but it's nowhere near that 25 percentage.
Much lower than that impact on on Q3 sequentially compared to Q2.
It is a down quarter expected in China, but nowhere near like debt level.
Okay.
With North of you Express to you could not expect the crowd.
Mike It will grow next 50 of each day.
Occasionally the jewelry shouldnt because of peak and the long term.
Moving down.
The 10 markets exist <unk> seen the yet for you, which typical of a much more than many of us now.
And I would trend guidance in market share deterioration then we will go with you in the.
You will need to down weight because today on 2.
High power.
And where is that 1.
Duane.
What kind of team shifting with the indicate what the way the replaced 5.
5 you wouldn't turn on.
<unk> power kind of changed by 10, 1 only 1 shift on the new system much of <unk> beat it so on as the result to the market.
I'll go into high volume, but once you if you will per unit will saturate it will go down.
This is current <unk> nobody can destroy into 2 changes.
The Qiagen qiagen to talk about where develop new application.
Even the <unk> put it on before you would agree on the pupil viewpoint. It's now work on drove maybe 80% of very very high for you Mike <unk> part of the goodwill Tim put it of the goodwill.
Qiagen, we the way we work now with this new 2 of progressive 4 kind of thing.
Where do you see it from where it were true demand broadly at 7 years of 576.
Jeff can you go with fifth of Playboy the Suez.
<unk> net where we would appreciate the with you on 5.5 millimeter now with the will run through the system with the <unk> win.
Which card.
Good tool Duane Tim the limited.
The steel much faster and much higher commodity of Japan provides them a cartoon network Gladden, where qiagen is the U S.
Okay.
The net 20 millimeters it the way into price safety now weighted.
Sales growth, we felt the NY units in the exhibition.
On the annuity exhibition.
Jim on today.
On the new machine with Pizza.
And the quality of what we expressed concerns of its much prototype.
No it did not.
When we make them the samples.
We have a good value.
Danny correction now.
But the catch up alongside your machine, where EPS is the new application of <unk>.
The plasma cutting also where do you see this market and we weigh all of these processes.
The <unk> market.
New application.
Application the pool.
With the good in Q1 of the good in ways that for example, also guide you the answer Maietta with sort of where do you kind of your way of your predictive metals in the <unk>.
Mike.
<unk> from <unk> would not as you say, it's most of where the interest in the new market. So all the time, we develop newly new approach, it's not kind of more than <unk>, China, China and Malaysia.
The single Die.
G.
<unk> is the same so.
So I'd say its of note.
Hi Tech product at North of high Tech products, it's come more duty product with north of a life to go took on more day to Wix video of our margin.
We faced the company of unique type of company.
Thanks, Thank you for that and with all of that as Jeff said.
<unk>.
Cutting what you just said about.
Saturation of the cutting of growth in new applications and your view on China.
Hoping to level set for everybody. When we think of 2022, if global GDP is that 5% next year and what you are talking about with new applications versus cutting like how do we normally should be thinking about the puts and takes for next year. If youre backdrop is what you're you're playing out right now and you think.
And GDP might be in the 5% can you just help us frame some of the moving pieces there.
Think about thank you.
Yes, I'm not going to get growth drawn on like a <unk>.
Guidance for 2022 at this point of time, but if global GDP remains strong the.
Underlying materials processing markets, particularly with some of the growth coming from other areas in the welding as being the standout performer not just on EBIT and other areas.
<unk> achieved.
Ablative processes for cleaning the foil cutting applications and even the other cutting applications.
Generally that market will grow at a significant premium to global GDP, sometimes as much as twice that amount and then you have <unk>.
The expected growth from some of our newer emerging products to be additive to that.
Medical for example, ultrafast micro processing applications the systems business.
And.
Accessories and other areas. So no thats still gets us towards our double digit growth rate that we are targeting and continuing to target for the <unk>.
Medium term for the company.
Thank you.
Thank you next question today is coming from Mark Miller from the Benchmark Company. Your line is that line.
Thank you for the question the <unk>.
Strong growth in Green lasers, Besides solar what else was the driver there in terms of so the.
The growth in the Green laser sales.
Primarily at the moment of the Green is being driven by solar applications that actually improve the efficiency of the solar sales by a couple of hundred basis points, which is extremely.
It's actually quite of extremely high increase in total efficiency. There are other green applications, we're working on and things like.
Micro processing and semiconductor evolved from just referenced now development of.
Much higher power Green lasers.
Cutting and even welding of reflective materials, so but.
Of those need you to get the kilowatt scale green.
The green path.
Do you have any estimates in terms of the supply constraints when they might ease would it be later this year.
No I mean, all of our insights into this is the same as everybody else's insight relatively on certain a lot of lot of it is around the electronic electronic component supply chain.
Processes in the Cpus and things like that so it's probably going to take a few months of this to really fully alleviate joel potentially a bit longer but we don't have any specifics on that front. Good now.
Now in inflation grew in a growing the weight of you thought you were more.
More and more company, we went to you in the Western company of which now are you in the way <unk> shipment, Colorado Covid waging on when the price will grow.
Hi price.
All of the operating to increase.
Price for the pro.
We of course.
Inflation net and weighted nobody can predict what would be of price through.
4 months, maybe you and 50% more of you and sometimes the 1.
Total figure kind of lead time.
Present more novel the many electronic on once we have now happened.
The SaaS kind of components of price wars.
More than 3 times up to 10 times of course, it's not too low.
B component, it's about it's the.
Demonstrates its also dependent so this market trend.
Thank you.
Thank you. Our next question today is a follow up from Jim Ricchiuti from Needham <unk> Company. Your line is now live.
Hi.
Also go back of the growth Youre seeing in emerging.
And I Wonder if you could just comment a little bit more specifically at that the biggest components to the growth in that area.
And the biggest component to the growth in Q2.
Very high power pulsed lasers from foil cutting AMB.
<unk>.
Some of the accessories I think made the world medical isn't yes medical as well.
Okay 4 of 5 areas.
Okay of just with respect to the Opex.
You gave some color for Q3.
Your overall opex.
Can you sort of out sequentially and how much of that is just the layering back of some of the temporary expense.
Savings you saw coming back into the business in Q2 or are there some renewed interest et cetera are coming in.
Some of the.
Just the layering back of expenses. The other thing is that relative to.
On the budget that was put together our performance is above that so total variable comp is a bit higher than.
The bit higher it's significantly higher than it was the.
A year ago, so that will probably moderate over the over time and then we're continuing to invest for example on.
R&D to ensure that we're getting more emerging products and applications to the market that are of the future growth of the company. So we're not we're not pulling back on things like.
The R&D at this point in time.
The other area on G&A, which.
The required some investment is this for the whole of cyber security thing, where you need to continue to invest on the it infrastructure the the cost of having.
A more significant cyber event on on assets of challenge faced by every organization you've got to invest in that to make sure that you hard on your security and protect yourself as much as possible.
Thank you we've reached the end of our question and answer session I'd like to turn the floor back over to Eugene for any further closing comments.
Thank you for joining us this morning, and your continued interest in IPG the look.
Forward to speaking with you over the coming weeks and we will participate in the number of Gershon yesterday on advanced this quarter with the right day everyone.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Yeah.