IPG Photonics (IPGP) manufactures high-performance fiber lasers and amplifiers for various applications. Fiber lasers are made up of special optical fiber infused with rare-earth ions creating an optical gain when pumped by a laser diode. They have a lower total cost of ownership when compared to more conventional lasers. IPG Photonics develops these lasers, along with fiber amplifiers and diode lasers primarily for materials processing. Other advantages with the use of fiber lasers include long life, high efficiency, and high amplification of beam qualities. The company has been selling its products globally to original equipment manufacturers (OEM) since the early 1990s.
IPG Photonics was founded by physicist Valentin P. Gaponstev in 1990. Gaponstev was a pioneer in the field of fiber lasers, and won numerous awards. Many recognize him as “the father of the fiber-laser industry”. The company started developing high-power fiber lasers and amplifiers, exclusively, in 1992, and went on to win its first major contract later that year. The firm then began expanding, through Germany in 1994, and eventually in the United States, Russia, and Italy by 1998. The company eventually started to win contracts for producing components for telecom companies. By the year 2000, the company began to vertically integrate its manufacturing strategy by producing most of its own key components for its products instead of shipping them in from outside suppliers at a higher cost. This gave IPG the ability to sell its products at lower prices as well as act as suppliers to those same companies. Savings from the improved business model gave the company flexibility to invest in new research and development initiatives.
Management has continued to implement a growth strategy that enhances its existing competitive strengths. This includes its differentiated proprietary-technology platform, leading market position, vertical integration, diverse customer base, and depth of expertise. IPG continues to target new applications, expand its portfolio and global reach, and optimize the manufacturing side of its business. These factors have made the company a market leader for quite some time. That said, competition within this industry remains fierce, as technology in this sector is rapidly advancing and evolving. However, due to the diversity of IPG’s business, it still holds a favorable position in the marketplace. In the materials processing market, its peers are generally makers of high-, mid-, and low-power CO2, YAG, and disc lasers, including Coherent, Inc. (COHR), Rofin-Sinar Technologies (RSTI), GSI Group, Inc. (GSIG) and Newport Corporation (NEWP). While, within the communications market, competitors include Oclaro (OCLR), Cisco Systems (CSCO – Free Cisco Stock Report), and Emcore Corporation (EMKR), all producers of mid-power fiber amplifiers.
The company went public in December 2006 and is listed on the NASDAQ Global Select Market. It sold 10.35 million shares to the public at an average price of $16.50 per share. Since then, the stock has experienced some adversity from the recent recession, however, the price has surged over the past few years. Management remains optimistic on revenue potential, as it continues to expand its sales base through China, Turkey, Japan and Korea, in an effort to capitalize on the Asian markets. This encompasses the automotive industry and consumer electronics manufacturers. Other opportunities include the microprocessing industry, which involves memory repair and LED laser manufacturing.
With its competitive advantage within the industry, coupled with solid financial fundamentals, mostly due to its vertically integrated business model, we view IPG Photonics as a sound investment. However, competitive factors remain at play, as a large portion of its competition includes companies much larger and more capable of acquiring resources than IPG. Although, as the telecom industry expands with the growth of fiber-based technology, in addition to other opportunities in developing regions, we believe the future remains bright for this optic-fiber supplier.
Investors interested in long-term appreciation potential within the laser and fiber amplifier market may want to consider reviewing our full-page report within The Value Line Investment Survey, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this writing, the author did not have any positions in the companies mentioned.