Value Line has initiated coverage of IPG Photonics Corporation (IPGP) in its flagship product, The Value Line Investment Survey. IPG Photonics is the leading developer and manufacturer of a broad line of high-performance fiber lasers, fiber amplifiers, and diode lasers that are used for diverse applications, primarily in materials processing. Fiber lasers are a new generation of lasers that combine the advantages of semiconductor diodes, such as long life and high efficiency, with the high amplification and precise beam qualities of specialty optical fibers to deliver superior performance, reliability, and usability. Its diverse lines of low-, mid-, and high-power lasers and amplifiers are also used in advanced communications, and medical applications. The company sells its products globally to original equipment manufacturers (OEMs), system integrators, and end users. In addition, IPG markets its solutions internationally, chiefly via its direct sales force. Presently, the electronics developer has sales offices in the United States, Germany, Italy, Turkey, the United Kingdom, France, Spain, Japan, China, South Korea, Singapore, India, and Russia. However, its major manufacturing facilities are located in the United States, Germany, and Russia.
The business model is vertically integrated such that IPGP designs and produces most of its key components used for finished products, from semiconductor diodes to optical fiber preforms, finished fiber lasers and amplifiers. Furthermore, the company also develops certain complementary devices used with its lasers, including optical delivery cables, fiber couplers, beam switches, optical heads, and chillers. Moreover, it offers laser-based systems for certain markets and applications. The company’s vertically integrated operations allow it to reduce manufacturing costs, ensure access to critical components, rapidly develop and integrate advanced applications, and protect any proprietary technology.
IPG Photonics’ markets are competitive and characterized by rapidly changing technology and continuously evolving customer requirements. Core competitive factors in its markets consist of the following: product performance and reliability, quality and service support, price and value to the customer, delivering goods on a timely basis, custom fabrication to client specifications, and the capability to transition inventories according to demand trends.
The company competes favorably with respect to these criteria. In the materials processing market, the competition is fragmented and includes a large number of manufacturers. Its peers are generally makers of high-power CO2, YAG & disc lasers, including Fanuc, Rofin-Sinar Technologies, Inc. (RSTI), and Trumpf GmbH + Co. KG. Too, it squares off against makers of mid- and low-power CO2, solid-state lasers such as Coherent, Inc. (COHR), GSI Group Inc. (GSIG), and Newport Corporation (NEWP).
Several peers recently introduced fiber lasers or announced plans to introduce fiber lasers that perform in line with IPG’s high-power products. In addition, the company participates in materials processing, advanced, and medical applications markets with end users that produce their own solid-state and gas lasers. What’s more, it goes toe-to-toe with manufacturers of non-laser methods and tools, such as resistance welding and cutting dies in the materials processing market and scalpels in the medical market.
In the communications market, its principal competitors are makers of mid-power fiber amplifiers and DWDM systems, such as Oclaro Inc. (OCLR), the Scientific-Atlanta division of Cisco Systems, Inc. (CSCO - Free Cisco Stock Report), Emcore Corporation (EMKR), JDS Uniphase Corporation (JDSU) and MPB Communications Inc. It’s important to note that the fiber amplifier market is more established than the fiber laser market and technological change has not occurred as rapidly as it has in the case of fiber lasers.
Finally, investors should remain mindful that many of its competitors are larger than IPG, possessing substantially greater financial, managerial and technical resources, more extensive distribution and service networks, higher sales and marketing capacity, and more mature installed customer bases than IPG Photonics. These shares have performed poorly in recent months. For example, year-to-date the benchmark S&P 500 has increased around 20%, while this stock has tumbled about 15%. Although year-over-year sales and earnings have been solid, it appears Wall Street still expects more from this laser developer. Going forward, its prospects seem bright, as original equipment manufacturers should ramp up orders of lasers and the company introduces latest-generation fiber devices.
All told, subscribers interested in this laser and fiber amplifier provider are advised to consult Value Line’s quarterly reports for IPG Photonics Corporation, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.