Q2 2022 IPG Photonics Corp Earnings Call
[music].
Okay.
Good morning, and welcome to IPG Photonics second quarter 2022 conference call.
Today's call is being recorded and webcast at this time I'd like to turn the call over to Eugene Fedorov Ipg's director of Investor Relations for introductions. Please go ahead Sir.
Thank you, Rob and good morning, everyone with US today is IPG Photonics CEO , Dr. Eugene Shcherbakov, 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.
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. These risks and uncertainties.
Our detailed in IPG photonics form 10.
For the period ended December 31st 2021, and our 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'll also find copies on the SEC's website.
Any forward looking statements made on this call are the company's expectations or predictions as of today August 20th one or two on that.
The company assumes no obligation to publicly release any updates or revisions to any such statements.
Additional details on our reported results. Please refer to the earnings press release earnings call presentation, and they excel based financial data workbook posted on our Investor Relations website.
We will post these prepared remarks on our Investor Relations website. Following the completion of this call with that I'll now turn the call over to you James share of them.
Good morning, everyone. Hello, Please as always is off this quarter as we continue to diversify our revenue across our key regions and applications second.
Second quarter revenue increased 1%, but was.
Meaningful impacted by a stronger U S dollars, we should have.
And the revenue grows by $18 million and 5% respectively.
I am proud of definitely a continued to make progress on our key strategy a strategist.
We have made progress to achieve a better Jakob.
In our business sales outside China accounting for 64% of our total revenue and grew significantly this quarter led by strong revenue growth in North America, and Japan second.
Second we also made progress in diversifying across the different applications.
Revenue in welding.
But all the girls and medical applications.
As a result, it was a high power cutting business in China.
Entravision is less than 10% of Ipg's total revenue in the quarter.
This was.
Another record quarter for revenue that benefited from growth in electric vehicle batteries and general manufacturing medical device applications.
Adoption of our higher.
Laser for welding applications.
Laser welding adoption continues.
Fiber laser enable faster more precise we are for a wide range of materials, including cinquefoil.
Coils, and reflective materials like copper and aluminum.
Our adjustable mode beam lasers.
But.
Less high quality high speed and uniform welding or broad range of different materials used in electric vehicle battery manufacturing and other applications.
Our landfill Congo.
There is superior tour for small mid sized fabricate.
<unk> brings easier of yours.
Well good passes well.
Well I think it was the strongest that either.
Declines of powder growth this quarter and so the revenue from this application because the cam.
As important as our revenue from high power cutting applications.
While our content gives us steel accounted.
A significant portion of <unk> revenue well genco to video.
First ill summarize high power cutting it in several key geographies.
IPG is benefiting from current investments in mobility, which may potentially accelerate.
In the near future as a result of higher.
ZIP costs across the regions.
Xavier market continuous to drive our demand for these new model launches.
Additional battery capacity announcements.
Support higher sales.
We've got record sales of three applications in the quarter with strong demand for <unk> and for our content solutions.
We are also working on a number of additional opportunities, including the cleaning and <unk> solutions that increase our exposure to this growing market.
Imagine grow gross product sales were 40% of our total revenue in the second quarter.
Many of these products are benefiting from global macro trends such as automation that he might be Luca.
As well as our focus on sustainability renewable energy and energy efficiency.
More specifically our record sales in AMB lasers, and high power pulsed lasers were driven by strong growth in electric vehicle applications.
We also continued.
The gradual improvement in demand of our green lasers for solar cell manufacturing applications.
This market is expected to grow as a result of the increase in investment.
Renewable energy solutions.
We also saw strong performance in cleaning application, which is driven in part by sustainability benefits of our lasers, which fell to reduce use toxic materials.
Medical revenue more than doubled year over year as our Jordan lasers is considered as a new standard for laser or LNG market.
We are rapidly gaining adoptions.
<unk> sales increased significantly three aircraft received CE market.
Notwithstanding the likely up in several markets in Europe .
Yes.
Also seeing as it grows and laser based system sales, which are benefiting from complete solution designed for EV applications and other medical applications such as laser cleaning.
Before I turn the call to Jim.
Update of our operations.
Yes.
As previously announced IP just stopped all new investments in Russia and prepared plans.
Increased manufacturing of critical components in the United States.
In rest of Europe in order to reduce our <unk>.
Elias on the manufacturing capacity in Russia.
We continue to make progress.
Additional employers.
<unk> space for increased production in the second and third shifts in certain locations.
Our inventories of critical components increased and <unk>.
<unk> lowered our risk.
Our supply chain.
And disruptions.
You quantified some third party suppliers and now operations of orders for some of these components.
As the second quarter, we started setting up the infrastructure for production increase in Germany, Italy, and the United States.
We expect most of the manufacturing capacity.
Online during the course of the rest of the year enabled us to reduce Colorado.
On the rostrum components by year end.
Why our facility our mortgage DARPA.
Our production our ability to acquire additional employees remains challenging.
However, we are introducing a new brand ashwin technologists and automation.
So it should eliminate some more labor intense.
<unk> steps and increase yield and productivity.
I will turn the call over to Jim to discuss financial highlights as of quarter.
Thank you Eugene and good morning, everyone.
The comments generally will follow the earnings call presentation, which is available on our Investor Relations website.
Start with the financial review on slide four.
Revenue in the first quarter was $377 million.
<unk>, 1% year over year, driven by growth in most of our key geographies.
<unk> increased 2% sequentially, mainly due to higher revenue in North America.
China and Japan.
Revenue from materials processing applications decreased 1% year over year and revenue from other applications increased 29%.
Second quarter GAAP gross margin was 45, 7% a decrease of 290 basis points year over year.
Due to increased inventory reserves as well as higher shipping costs and tariffs.
We also had slightly lower absorption of manufacturing costs in the quarter, which negatively impacted gross margins.
This was partially offset by lower cost of products sold which benefited from stable selling prices.
Lower cost products introduced to the market such as the ultra compact lasers and improved systems margins.
We faced strong currency headwinds this quarter with significant strength of the U S dollar.
If exchange rates relative to the U S. Dollar had been the same as one year ago.
Would have expected revenue to be $18 million higher and gross profit to be $10 million higher.
Excluding foreign currency transaction losses related to revaluing foreign currency assets and liabilities to period end exchange rates.
Operating expenses decreased slightly year over year, primarily in research and development.
GAAP operating income was $72 million and operating margin was 19%.
Net income was $57 million or $1 10 per diluted share.
<unk> tax rate in the quarter was 22%.
During the quarter, we recognized a foreign exchange transaction loss of $18 million.
28 cents per share primarily related to the appreciation of the U S dollar and Russian ruble.
Moving to slide five.
Sales of high power CW lasers D.
Decreased 14%.
And represented approximately 43% of total revenue.
Sales of Ultra high power lasers above six kilowatt represented 50% of total high power CW sales.
Pulsed laser sales increased 13% year over year with continued growth in high power pulse lasers used in EV battery manufacturing.
But offset by lower sales into solar cell manufacturing.
System sales increased 30% year over year, driven by growth in laser systems and higher sales of light world.
Medium power laser sales increased 4%.
While Q CW laser sales were down 9% year over year.
Other product sales also increased driven by higher sales in medical applications.
Looking at our performance by region on slide six.
Revenue in North America increased 33% driven by growth in cutting welding and medical applications.
In Europe sales increased 2% as a result of higher demand and marking cleaning and medical applications.
In the first quarter, we reported pull forward of demand in Europe as customers with securing supply.
Which negatively impacted demand in the second quarter.
Revenue in China decreased 14% year over year.
Despite strong growth in welding in foil cutting applications in the region.
While revenue in high power cutting application stabilized at a lower level.
And the last several quarters it was still down significantly on a year over year basis.
Moving to a summary of our balance sheet on slide seven we ended the quarter with cash cash equivalents and short term investments.
A $1 $2 billion.
Total debt was $32 million.
Cash provided by operations was $79 million during the quarter and capital expenditures with $35 million in the first quarter and the quarter.
Cash generation was negatively impacted by an increase in inventory during the quarter as we continued to build safety stock in order to keep reasonable lead times and secure critical components.
However, in the second quarter, approximately $40 million of the $72 million increase in inventory value was due to the translation effect of exchange rates.
With 32 million attributable to investment in inventories of critical components.
While continuing to maintain a strong balance sheet. We have returned a significant amount of capital to shareholders with our ongoing stock repurchases.
In the last 18 months IPG repurchased shares for approximately $450 million.
With $312 million spent on share repurchases since the beginning of this year.
During the quarter, we repurchased just under two 4 million shares for a total of $233 million a.
A record quarterly share repurchase number for the company.
We believe in a disciplined approach to share repurchases and it become more active as the share price declined in the recent quarter, providing a good buying opportunity.
Given that we completed both May 2020 in February 2022 share repurchase authorization during the quarter.
<unk> approved a new $300 million share repurchase authorization in July .
Moving to outlook on slide nine second quarter book to Bill was slightly below one.
We saw some moderation of order flow across Europe , as compared to record bookings in the first quarter.
So we're pleased to see continued strength in.
In key applications and more stable demand in other key geographies.
Macroeconomic indicators have been moderating, particularly in Europe , but remained in the expansionary territory for North America and Asia.
Furthermore, PMI in China returned to growth in June due to easing COVID-19 restrictions.
<unk> posted a modest increase in July .
While forecasting our business continues to be challenging in the medium churn and our third quarter guidance remains subject to significant uncertainties, including the impact on the global business environment from geopolitical events.
Trade restrictions and sanctions COVID-19.
Economic trends tariffs currency fluctuations.
<unk> from emerging product revenue competition, and the lack of long term binding order commitments continue to benefit from growth opportunities created by major macro trends.
Drive growth in electric vehicle battery manufacturing applications like world and medical sales.
For the third quarter of 2020 to IPG expects revenue of $350 million to $380 million.
The company expects the third quarter tax rate to be approximately 25%.
IPG anticipates delivering earnings per diluted share in the range of $1 to $1 30, with 51 million diluted common shares outstanding.
Continue to expect currency headwinds and estimate that third quarter revenue guidance range is reduced by about $15 million due to the strength of the U S dollar.
As discussed in the Safe Harbor passage of today's earnings press release.
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.
And with that we will be happy to take your questions.
Yeah.
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.
A 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 Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Hi, good morning.
No understood.
It's a fairly healthy step down in <unk>.
Spending for R&D and sales and marketing in Q2 versus Q1, just looking at your guidance for Opex. Kim for Q3 should we assume things begin to more begin to normalize and some of those expense levels I don't know if you want to talk.
Because some of those the variability we saw in Opex in the quarter.
Yes, so in terms of the quarter does have some benefit on opex due to the weaker Euro for example.
But we are also on the R&D side.
Stated we intend to.
Rationalize R&D expenditures to ensure we are focused on projects that are really going to add value and we believe that we can commercialize in the.
The medium term so theres been some rationalization of expenses that the embedded control over some of the material expenses that were being outlaid for R&D. So there's a bit more discipline around that is called the win focusing investment on R&D.
But really trying to.
Ensure that the projects.
Targeting a meaningful return on them as you do get into Q3, we go through our merits.
Salary cycle in July so part of the increase of Opex.
In Q3 relates to those merit increases coming through during during the quarter.
And the question I have is in.
You provided a little bit color on the book.
In light of the changing macro environment I'm wondering if you can give us some sense as to how the bookings have progressed through the quarter into Q3, and if theres been any.
Significant variability in bookings by region, it sounds like you're seeing some softness in Europe .
Okay.
Yeah.
Significant.
Change in the overall tone of bookings, we did come off this in a very spectacular level of bookings in Q1. So the book to Bill in Q2 being below one as an example, we took a very significant number of medical orders in Q1, but theyre slated for delivery during the rest of this year and into next year. Some of the other orders we took in Q1.
Give us visibility into the second half of the year, so totally in Q2 setting.
Certainly in the middle of the quarter with the Lockdowns in China, there's a little bit weaker than we saw some improvement in June and then in general through July order flow has held up reasonably.
Well some of the impact in Europe is really currency related as well.
PMI is if youre looking anywhere in Europe the area, we're watching closely.
Would be Europe , given the weakening of PMI is that it was good to see some improvement in <unk>.
<unk> in China, we had good order flow in Japan across multiple applications.
And good order flow in in North America as well.
Jerry during the quarter. So I'd say, we're watching things closely Jim Robbins seeing any real fundamental changes at this point in time.
Our next question comes from Nick Todorov with Longbow Research. Please proceed with your question.
Yes, thanks, and good morning, everyone.
I think I heard that you talked about some difficulties about finding employees in Europe to grow capacity in Germany, and Italy, and you also mentioned that you've qualified some.
Rd suppliers for some of those components coming out of Russia should.
Should we expect any of those to have any impact on the gross margin range that Tim you gave in the last earnings call. It seems like no based on your guidance. Maybe you can talk of some of the offsets and the puts and takes.
Offsetting those thank you.
Uh huh.
Hey.
Manufacture different I've got this of course, if it somehow.
Some problem.
And Germany, but Italy.
In Italy, it's much easy situations people. This is why the increase.
Reasons our facility.
Production.
It'll be much easier.
Hey, Bob.
Sure.
Components of issue in our Biopharm, Russia, not but now have placed an order for the supplemental ses related tested already qualified.
Practically all components of it.
Before the shift from Russia, and now we are placing orders for this.
Yes.
Suppliers and <unk>.
We've got the first.
Big enough quantity orders Chicago components in one months and Daniel.
Our production our final new assets in Europe based on these components.
Okay on gross margin I would say in Q2, and it's a lot of challenges around the business at the moment right. So is actually quite pleased with the gross margin performance, even though our inventory provisions were high and inventory provisions are high as a result.
As carrying inventory to support the supply chain constraints and other issues that we face.
I thought what was really pleasing was the gross margin off the products sold.
It was good and we were able to offset some of the inventory provisions and then some of the higher costs related to shipping.
Tariffs and import duties and so yes, the guidance for Q3 implies maintaining.
The gross margin rather than seeing it.
Get impacted any any more than it has been.
Overall as I said I thought the margin profile on the.
The expense containment on the business Jim asked about on Opex I thought it was all pretty positive for us during the quarter.
Okay.
Just a quick follow up on that Tim you touched on the inventory reserves. It seems like you've taken now reserves for three quarters in a row at least.
Should we expect or should we model inventory reserves going forward given the supply chain challenges are how should we think about that.
I think they are incorporated in our gross margin guidance that we provided so.
If you're modeling gross margin within that range youll be taking into account, while we expect inventory provisions to be.
Okay.
That's why that's how I'd answer the question.
Okay.
Last one for me just on the demand side, you talked about bookings in the prior question, but I didn't hear much said about China.
You talked about stabilization in China cutting what are the prospects of seeing some potential rebound in China cutting and also can you kind of rank the visibility into the second half by region that you have based on bookings.
No.
No I'm, calling ranked the second half into visibility on bookings.
Overall, China bookings in Q2 were pretty reasonable.
I would say compared to peak revenue that continues to be down we referenced that total cutting into China both.
The low end or less than six kilowatts of more than six kilowatts was less than 10% of our total revenue. So.
We've certainly managed to diversify away from that business and Derisk. It.
It may be a moderate pickup in cutting applications in Q3, given some of the rebound from COVID-19, but certainly not expecting anything very meaningful there and we're continuing to focus on many of the other applications that are driving the stability on on China side, we referenced on where bookings were in Q2 I was really pleased.
To see some of the improvements in Japanese bookings and it was also fairly diverse.
And we've got very good backlog for medical applications, North American total bookings were good the light well performed very well.
When we referenced that we kind of like watching Europe , which is it's called a both the currency headwind and some slightly weakening PMI data at the moment.
But also for China for example, cutting applications.
OE producers this quarter, the new compact eight kilowatt.
Lasers and frequency.
<unk>.
Good adoption from the Chinese market.
New lasers.
We also.
Additional opportunities are to increase our presence in cutting applications in China.
Okay. Thanks for the answers.
Okay.
Our next question is from part <unk> Mizrahi with Bahrenburg. Please proceed with your question.
Yes.
Thanks, and good morning can you guys talk about your medical business for us too.
Sell it to some sort of integrators selling directly to customers and then.
Taking share from another laser producer or is that something you are.
Developing a new market.
As usual, we are working with some OEM customers.
And.
Okay.
I mean.
I'm talking about the medical business.
The important customers of ours.
Directly with those customers.
And evolve as a new application CSS.
Sure.
I was thinking about this and dose.
<unk> investigation and reach.
Medical area receptor also provides our.
<unk> lasers.
But in total.
And demonstrate already our medical business is growing fast enough.
We are seeing is.
We see the potential Florida.
Business medical.
Medical business this year and next year.
Just to add to some of the applications are displacing older laser technologies in each of the areas, even if theres a laser application thats there.
Our solution also is enabling displacement of for example.
Surgical applications or ultrasonics would've application as well so.
Partially displacing lasers, but it also is broadening the total application set.
Got it. Thank you for that detailed response and then.
Also on your electric vehicle battery business.
What are you hearing from your customers, but could you talk to the rollout this year.
Any sense of how much incremental capacity you think that it does.
This year.
Yes, there is a significant increase in capacity. This year, we estimate that the laser demand for batteries is probably more than doubled this year. The view is that.
That continues to be sustained for the next two to three years.
So like 2013, I mean, these numbers are changing almost every month.
The latest I think there was a.
Reports out a couple of days ago that showed that total battery capacity may get as high as between five and six Terawatts and was still.
I think we're still below at Terawatts at the moment so.
There's still a huge capacity addition is being planned.
It's a moving target paraphrase it changes it changes monthly it seems.
I would also add important out there.
Revenue discussion about the new capacity for battery production that exist also possibility.
The use of laser for new applications, which we've discussed.
<unk> discussed before it's very important.
And from our point of view of the laser applications.
Its also youll demonstrated.
Additional growth.
Yeah.
Great guys. Thank you.
Yes.
Our next question is from Mark Miller with the Benchmark Company. Please proceed with your question.
Thank you for the question.
I was wondering your your your emerging products is continuing to grow 40% or so of sales.
What is the margin profile of these emerging products is it higher than your overall.
Margins.
It depends which product you look at a lot of them have.
Higher than corporate average margin so.
Particularly on the higher power pulse lasers, the AMB lasers.
The medical device lasers have very good margin on them.
Some of the renewable energy sources.
You get down to some of the system as I said, we've seen some improvements in margin, but they are below corporate average if you look at the handheld Wilder, which we classify within systems. When it was first introduced a year ago. The margin profile of that was quite low but there has been significant improvements in our margin profile as we've reduced the.
Bill of material cost, but also added feature sets to that.
And then some of the advanced applications, obviously would have extremely good margins. So if you take all of that together the overall margin benefit of the emerging growth products.
Definitely positive.
So theres a bit of a mix effect, it's much higher.
Another product.
With also as you're shifting the operations out of Russia, how much of a impact on your margins.
Once you get set up in the other countries.
So we've stated obviously you called out.
Higher salary costs outside.
The moment, we think that.
We've called those factored into.
The gross margin guidance in the near term.
The way you were going to offset some of those costs.
By introducing with not just <unk>.
Replicating very manual processes, we're looking at more automation and improvements in yields.
Then offsetting some of those higher cost saw you call as <unk> just mentioned the introduction for example of the ultra compact lasers at higher.
<unk>.
At higher power levels, there'll be a margin benefit from that and I just talked about some of the margin benefits, we've seen from things like light world and other product lines. So.
We were hoping we can manage manage through that but certainly Russia was a low cost manufacturing area for us and you've got to find ways to improve.
Yields and lower costs in order to offset some of those headwinds.
So very important on the cost.
Our strategy.
Produce automation and mouser.
In Peru.
Technology for some process and so on but.
Under these conditions, we insist in case our activity in this area is Hawaii.
Or is this still a project concerning the Autonation assembler of some components.
The sub components and some final devices.
And I assume the unions.
One year gives a much better improvement in this area than it was before.
Thank you.
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 Michael Feniger with Bank of America. Please proceed with your question.
Yeah. Thanks, Hey, everyone. Thanks for squeezing me in Kevin If we look back the last 10 years like outside of.
2020, Q4 revenue is typically down sequentially I am curious if you think that normal seasonal trend plays out this year or are we just in like a different kind of weird cycle given some of these lockdowns.
Michael I'm not going to give up.
Not giving guidance on Q4 at this point in time so.
Yeah.
Getting heightened caution.
Okay Fair enough and then one.
I guess, Ken just.
The inventory build.
Like how does this play out in the second half of Q2.
Do you slow production to wind some of that inventory down or do you do you continue to build at this at this pace just curious since you know the inventory number does kind of stick out and.
I'm curious, how you guys kind of manage that.
Over the next really six months into 2023.
First of all have some sort of physical plan, how we can manage our inventory.
That exists.
Prominence festival.
We would like to continue to supply our product.
Accordingly, our standup delivery time, it means from <unk> up to eight months.
Our standards are delivery time for mainly out of products.
And we continue to insist our customer who use our products resist a short delivery time.
Of course, both of these we have to get some strategical inventories cleaner or some components cost of optical components, but much more important electronic components because in many cases.
Do you need what is the acquisition of Tony's components from outside vendors increased dramatically.
After two or three times.
This is why we felt we have to organize a strategical inventory.
And the second.
Of course why is that.
It grows because price was as components festival electrical components also grows that much further in several several cases up to several times up to 10 times for some components.
Of course, that's also going to increase our.
But in any case.
We have to manage this inventory and mentor.
We have to also such as flight hour.
Internal request for delivery time is very important and receptor and assist our customer to use our product.
Our main goal.
Yes, just to add to that I think.
We've clearly added a significant amount of inventory in the first half of the year part of which has been driven by some some of the translational currency.
Certainly a lot of focus in the company on ensuring that I'd say a lot of the investments. We've made have happened and we're targeting having a more stable level of inventory, we don't expect to see the <unk>.
A decrease in it but.
Cutting to stability and not seeing a significant amount of additional cash used to invest in inventory was clearly.
<unk> built a lot of strategic suppliers on that side, particularly on electronic component supply.
So I think part of your other question Michael.
If you've taken the data that impact gross margin a lot of the inventory that we've got was purchased from third parties. It wasn't related some of it obviously is related to internal production of optical components, but a lot of the increases on the electronic component side uneven mechanical components side.
Where we're sourcing those from third parties.
Got it that was that's really helpful and I'm just curious like we're seeing these headlines in Europe . Obviously, you are seeing as well you guys have some production facilities in Europe and moving some capacity.
Some of your facilities in Europe , how do we kind of how do you guys plan around this.
Potential energy prices I don't know if your customers have talked to you guys about that.
Obviously, we're all watching the headlines.
With Nat gas, but just curious them like high level. If you see if those conversations are picking up and how do we how do you even kind of think about that and what that might might entail.
Does the potential gas.
Yes of course, but absolutely we are interested in our gross margin now.
Productivity is clear, but how much strong.
Today, it's difficult to say, but in any case, we are thinking about the optimization of our production across the point of sale so energetic.
Got Samsung, it's clear that our work in this disease.
Our next question comes from Hans Chung with D. A Davidson. Please proceed with your question.
Hi, Good morning, and thank you for taking my question. So.
First.
Other operating expense.
<unk>.
As we now need to beauty.
<unk>.
In 19 states.
Hi, guys.
Okay.
The impact should be embedded in your third quarter guidance.
The full Q I think you mentioned.
Pretty much the new capacity will be coming online.
During the course of the year so.
Kind of wanted to get an idea what kind of out the invitations for it.
Opex.
The second half.
About first of all we are not Mega man.
Increasing our capacity.
Using our existing capacity in Germany.
Because we are using.
To increase our productivity by installations second in some cases for example for fiber production of the substrate.
But using the same capacity in.
In Italy.
Same situations, we are not using the new capacity is into our existing facility.
Wanted to make some modifications and toys Bell Samsung additional.
<unk>.
Yeah.
Got it got it Okay, and then I think the other thing is that just.
For example in Oxford.
A major new building thats been under construction for a while so we're not seeing any of that building is close to completion and will help us to expand capacity, we acquired a building in Germany at the beginning of this year that is being devoted now more fully to replicate and so we're actually not seeing any we're not guiding to a change in our capex.
For the year in terms of any increase in.
In fact for the first half of the year I think we're well within the budget and guidance we gave.
So we're kind of we're trying to do this as efficiently as possible rather than <unk>.
Driving it.
We don't have to invest $200 million in additional facilities to get where we want to be on the I didn't quite get the question on the Opex side.
It wouldn't really be any.
Significant change related to <unk>.
The manufacturing.
Capacity additions, we're making.
I see.
And then second question.
Can you give.
Give us some color.
They're around.
But the main train or Phil.
So for.
Yes.
The printing vertical.
I'd say, yes, <unk> printing additive manufacturing, but its come back a little bit, but it's still some way below peak levels, we're starting to see maybe a little bit of a renewed interest in resurgence in the industry, but it's.
Certainly not increased by 30 or 40% year over year since the benefit of as well as being some geographic diversity. We've seen so we referenced before that we've seen some orders from customers in.
In China.
Some other customers outside of Europe .
It's kind of improved it's not.
It's not a drag on growth at the moment, but it's certainly not.
<unk> increased.
<unk> increased by 50% on a year over year basis, I think the industry is still trying to resolve that.
The issue is they call it where they go to improve the speed of growth of product. They got to improve the repeatability of it you're starting to see systems with up to 10 lasers.
Houston them.
Which would ultimately be a benefit to us if it if the commercialization.
It comes more successful.
Okay. Thank you.
Our next question is from Jamie Wang with Citigroup Hong Kong. Please proceed with your question.
Hey, good morning. Thank you very much for taking my question just wanted huh.
<unk>.
And Joseph.
Yeah.
Jamie you reported 40% year on year decline.
Revenue in China. So I'm, just wondering is that more.
We won't be cashed out there.
The market share moves do TV.
Petition from Chinese competitors.
Nice job.
Yeah, Max Photonics center on rate case or is it mainly because of the lockdowns in China and just a quick question. Thank you.
It's primarily.
We had a significant decline in the cutting market part of which was locked down but obviously a lot of which is also the competitive dynamics that what really we thought was fantastic.
The degree to which we were able to offset that by growing the other applications in in China, such as welding and marking applications with stable other.
<unk> processing.
Fine processing applications performed exceptionally well.
We are certainly benefiting from for example, the battery investment cycle that so yes. The coffee market was both impacted by competition was certainly slower due to lockdowns.
Some module pickup in cutting and in Q3, but it's really pleasing to see the diversity of the the.
The rest of the business in China that.
And has offset some of those.
Dynamics, but I was speaking about the cutting market in China without taking that mindset.
E metal cutting applications.
But that exist also Jim mentioned above.
Commercial production of oil and it's also used by our lasers.
In this area they don't <unk>.
Steve.
<unk>.
Okay.
Thank you very much thank you.
Yeah.
Our next question is from <unk> Misra with Bahrenburg. Please proceed with your question.
Hey, guys. Thanks for taking my follow up so I.
I think it was doing about $100 million of sales from Russia to China. So I was just curious if you could give us any sense as to how that number in Q2 and how it will evolve as you conclude your.
Risk reduction program.
For the year end. Thank you.
Russian sales to China, which is Russia for Shannon our degrees.
Note that our mantra here about the sensor business this quarter.
And because it is tough to produce the same.
First of all is the mid power lasers.
The United States increased our production elsewhere in Germany. We're also started production of this.
Lasers in Italy.
Our goal is.
The decreased expense.
Production of this leaves us into Russia substitute.
<unk> by Germany, Italy, and the United States.
Great. Thanks, guys.
Okay.
We've reached the end of the question and answer session I would now like to turn the call back over to Eugene Federal for closing comments.
Thank you for joining us this morning and for your continued interest in IPG, we will be participating in a number of investor events. This quarter and are looking forward to speaking with you over the coming weeks have a great day everyone.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.