IPGP - Earnings call transcript Q3 2018 | IPG Photonics Corporation

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Operator

Good morning and welcome to IPG Photonics Third Quarter 2018 Conference Call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to James Hillier, IPG's Vice President of Investor Relations for introductions. Please go ahead, sir.

James F. Hillier

Thank you, Rob, and good morning, everyone. IPG and is Dr. today us Photonics CEO, Chairman With CFO, Vice Valentin Senior and Tim Gapontsev; and President Mammen. or future during call or expectations that made discuss of Statements the management's the course company's forward-looking statements. are of this predictions the intentions, and are company's cause to materially risks results in projected that from could These forward-looking those to such uncertainties statements differ subject the actual forward-looking statements. December Securities on include those Form Exchange the year-ended Photonics' file detailed XX-K reports other the IPG uncertainties XX, in and and risks and These Commission. with XXXX, for of these be may company by filings Investors' section obtained the Copies contacting by of directly. or visiting IPG's website the

XX, may made Company to obligation release on on You expectations assumes the any statements are publicly revisions to updates call Any October the statements. company's forward-looking as copies any XXXX. find this only such or no SEC's also predictions or website. today, of

Investor Excel-based release additional workbook posted our earnings For on details our press website. results, please the financial data to Relations refer and reported to

We over will call the that, the on turn Relations post I'll now call. Investor remarks of the completion these Valentin. With prepared to website following our

Valentin P. Gapontsev, Ph.D.

progress greater help with and product position from emerge us the for will to power solutions. stronger laser current into Good these demand meaningful factors IPG higher growing products products. for laser competitive quarter market newest We in QX Despite a new traction believe the high solutions driving market important our our macroeconomic and address in and solutions. reduced and selling downturn our a made power was the morning, as progress everyone. geopolitical challenges, challenging generating opportunities

machines. weaker for in expected the suggest believe is pushed the Europe, main tariffs China China primary is industrial for metal are performance release, the for demand uncertainty purchases trade reducing Indication ongoing noted As US-China conflict driver trade-related these We customers from and we out. processing business China. predominantly European earnings purchases, headwinds laser perfect from preliminary system in being and market the where our in in overall our were of capital than believe equipment that of regions our resulting

climate is systems. In addition, we investment, demand PMI as believe and affecting for infrastructure Europe, and softening by manufacturing levels near-term reduced the of laser indicated lower in China macroeconomic

However, the growth other technology lasers longer we in remain fiber confident laser secular non-laser of term and over tools.

we automation launch business that and and transformational customers include prior order During laser in increase in downturns, solutions have investment products. miniaturization to technologies seen improve our to begin productivity new

and the our to laser traditional productivity, than flexibility, share increased. said, fiber continuous solutions precision fiber technology. X We That market laser at products systems. remain leader and We superior gain continue power from laser due in wave has kilowatts competition tools in technologies to clear of to expect less process the

to our of lasers also Some up competitors wave output largest power announced have competitive kilowatts. most with China remains market, unfortunately. and continuous XX

we As select pricing aggressive very have seeing for China. previously competitors our products are in indicated, we by

over in believe we enabling pricing our cost and win are scale despite us to actions. advanced these the advantage the However, competition market technology,

introduced we designed to the situation, the other to China. market As during quarter ultra-compact in third kilowatt new products and lasers our market response new for X the X specifically

OEMs and lasers from With to buying more competition. predominantly solutions, that of able sell new or production in the exclusively several lasers were these either additional we high-power benefit hundred were to our capacity China

fast-growing macroeconomic performance geopolitical limited part revenue gains the by impact frustration in result. because concern of have and with early products. We been some have won expressed from has and and of positive The competitor reliability but yielding these these efforts headwinds, customers these new are business

our high-power quality, solution and no at that is deliver laser company As lead a reminder, we cost believe scale, there can time.

our of above, of drive acceptance which X laser and high-power technology kilowatts power to sales. fiber at approaching our ultra-high continue market is laser XX% We now

unique continue see quarter for largest XX lasers. QX and of migrating power laser was our solutions, to higher and to sales a cutting record OEM We XX our customers fiber kilowatt

We leadership in solutions rapid productivity. marketplace. lasers the also the power cutting in as and introduced the adoption improved cutting producing new industry power demonstrating laser, enable IPG's smallest These ultra-high highest XX perfect speeds faster are world's kilowatt experiencing they end-user further

Our trade new innovation high-power releasing in be is that show generation upcoming featured the fiber three will super laser new technology at Atlanta. FABTECH

First, peak (sic) our times thick material power, in in heat YLR the speed, mode reduced mode piercing to [QCW X metals. for YLS introducing mode] provides CW lasers new average (sic) allowing power piercing and we We QCV increases and are input QCV [QCW of mode] duty up quality improved result unique designs of and in IPG's diode] thicker [QCW diode capability is drilling that (sic) new (sic) diode] controlled diode by high more short cycles. cleaner, higher enabled – This parts quality cut [QCW that for QCV of very designs QCV peak intricate power provide materials.

output flagship of cutting we adjustment enables material mode of mode of certain customer as well range allows lasers, and and thicknesses process beam wider Second, piercing programmable YLS optimize combinations. improve launching our as in which our are performance capability a beam material to quality, and on adjustable welding

is monitoring are increasing high-power their an as automotive, other. to our technology requirement and integrated These innovation for examples acquired introducing monitoring scan of we customers' new to meet IPG ever head how decreasing recently the ownership Third, committed increasing medical, cost industries of overall productivity. our with weld three quality such and

progress be out in will We of China. areas, processing, from product East, metal newest solid situation which and our in future is well-dependable Far especially in made also

used solutions, efficiency high-power near marking period. We For the green year-ago market material versus which our new tool lasers ultraviolet example, XX% increased an quarter achieved non-metal improving and for a ablation. and record for as laser our of ablation expanding cell solar sales addressable high-power of engraving for record super are – for pulsed

are than processing ultrafast evidence applications. systems we sales increased micro sales products new new delivery more for becoming Sales medical more and unique and the total and more XX% good telecom increased meaningfully solutions year-over-year XX% provider femtosecond complete picosecond approximately industries within year-over-year, XX% customer railway, small of these represent off device base lasers industries. and of beam pipeline, Our acceptance of family than pulsed products increased automotive, – seeing are and entertainment a revenue. of now aerospace, a and Collectively,

from year expect new We over application IPG's We next will diversified products optimistic much growth from industrial in of growth cost it of that applications technology. processing in performance, ownership dependable our for then reliability, remain cycling would revenue, productivity, less out enabled market to during one metal XX% by believe our area. opportunity significant the and the the solutions. advantages and about with longer lasers We is the competing technology given these core of term target market situation, over combined reach and take metal our our medium be of share our prospects more to superior processing cost total reach traditional

make this industries electric growth multiple of end macroeconomic choice advances that, silicon, and and in to display product areas drive augment the the the With long Tim. providing that addressable expect oil aerospace, and industries. advanced medical materials the our penetration device users projection fiber deliver We IPG's This laser railway, processing, and with defense, gas, new includes mass tool growth term, and on the medical, I'll meaningfully vehicle, geopolitical over backdrop, drivers and our in technology Despite of expand we in remain scientific, in more in we to I mission for processing. and challenging to solution production. laser turn to confident our call the system micro markets complete

Timothy P. V. Mammen

Thank and million. declined you, Valentin, good quarter $XXX everyone. in Revenue the morning, third X% to

third to quarter traditional guidance electric by represented would range. China of by of and welding cutting in welding XX% QX revenue the X% XX% XX%. decreased the and applications Revenue a sales from the demand $X revenue than year-over-year automotive year-over-year quarter Without battery lasers By of of welding, declining during reduced guidance saw Foreign low macro offset sales exchange and total. Modest in from have our in sales from was this growth materials our lasers on reduced headwinds for increased vehicle applications. high-power year-over-year applications more decreased revenue CW year-over-year into applications relative basis. applications above assumed In other slightly million. impact, end been processing revenue region, approximately

in However, during the order battery applications largest processing for received history. company's quarter, the we the third

such, In manufacturing we continue and As welding, electronics the consumer have suggest this in investment we year-over-year, see welding. cycles to year, micro other believe performance see to business to strengthen revenue demand we would XXXX. Europe, in should XX% decreased In primarily QX. should in for reduced softness to cycle. investment additive related Past consumer every begin cutting, materialized due better that which electronics

serving lasers the in primary believe demand weaker the we for the reduced a climate noted, driver Valentin cutting As region of is market. macroeconomic

sales versus shipments addition, record a we and cutting within year-ago of record lasers. applications faced period when In we the ultra-high comparison challenging power achieved

we last X% in cutting, strength prior lower Korea the with engraving. welding Sales which quarter, to Japan driven cutting, in increased and expect we year-over-year, increased As due continue customers. additive America, XX% European at welding In applications. larger of excess by one noted North our government inventory manufacturing Sales sales to not economic XX% decreased and consistent given revenue recent and rebound were country. continued by in in marking revenue year-over-year in turmoil year-over-year, year, the with a and that is offset Turkey in in surprising declines into

and for year-over-year declined to in million Sales total high-power by sales quarter were welding, by in and high-power laser other the strong and China represented in kilowatts of product, in XX% all manufacturing additive XX% weaker of Reduced that applications. more performance offset cited. cutting driven at Valentin of Sales to applications. above cutting $XXX than and XX% more of account year-over-year to fiber by strength and revenue. sales Europe high-power decreased Turning sales, government due of year-over-year lasers to X the sales than lasers adoption lasers increased environment for laser now demand nearly X% partially

in are are pressures products being exacerbated most kilowatt China, seeing lasers aggressive X Pricing for trends. market. business by pricing this cutting select the X by softening to notably competitors in serving our We demand

quarter. from XX%. period, and electronics delivery The business capacity investment laser manufacturing pulsed basis these to growth into high-power than of strong the year-over-year, declined consumer QX sales in ultra high-power more due as compact a was to points partially systems aerospace year-over-year are due $XX reduced range additional in to sales benefit result, expected pulsed power lasers, higher XXXX in the offset the of less and million of XX% guidance in exclusively decline has cutting in were with reduction in aggressively efforts we in revenue XX% favorable green, manufacturing XX% sales drilling attributable predominately QCW XXX products. pricing was ultraviolet our cycle, sales revenue by increased accessories. QCW sales targeting high and in million at welding our offset with XX% demand and product OEM quarter laser of cutting. absorption versus sales rapid additive lasers the during growth Other or pressure lower beam on strong largely sales either XXXX the lasers to softness the offset helped of contributed other power the production progress competition. XX% that end of margin to demand-driven accounts the the XX.X% Pulsed Gross of margin However, solutions, declined of $XX and additional decreased and ago Early and in Medium third by more decreased to ultrafast some costs. and in from related of year-over-year new growth gross in China applications. buying and year

offset and able mix. were favorable we to product However, this reductions impact continued cost partially with

income was down QX points operating $XXX XXX XX.X% sales, quarter Third of XXXX. basis or million, from

year-over-year exchange loss a was IT of a income $XXX per as talent, XXX of XXX and a well Operating $X.XX. investments basis, increased in a were sales. operating as On make diluted million sales, we administrative percentage as operating necessary share basis million, was points sequential percentage continue of in as margin systems. to earnings Net points expenses and increased as Excluding foreign expenses engineering sales XX.X%. $X basis

how items, these clarification Intangible tax certain EPS have by we to be discrete quarter million Income losses Derived was rates to on exchange the would EPS The gross Income IRS Global effective that in which expect higher Low net included benefit $X.XX. the we Foreign reduced in revenue U.S. tax profit exchange tax due as these million taxes dollar expected net year had been calculated. a and $X.XX. to the the $X XX%, from rate approximately Taxed and benefited relative higher. to of by the items Included Foreign should deductions If $X be act same U.S. one from now ago, in Intangible be

rate total with short-term the items, $XX discrete $X.XX and was Excluding of debt cash effective XX.X%. quarter investments the million. of equivalents, ended tax cash, We billion and

and we from now Europe, Europe represent quarter, million into by in Cash U.S. U.S. the million repatriated cash the the $XXX $XXX and Having During repatriated of investments XX% from operations and million were now basis. were year-over-year. $XX total. cash was provided million on was $XX the $XXX Capital million the during expenditures quarter quarter a up $XXX a year-to-date basis, XX% year-to-date during million on

we repurchased in in nearly invest demand QX, In several years. of meet products new continue for authorization $XX new announced facilities representing half shares over We million million, to the equipment and to August. we the our repurchase next $XXX XXX,XXX for

have our sector. fourth geopolitical along the others with persisted to headwinds into business in global Turning the macroeconomic affecting guidance, quarter, and

to As has a result, order continued soften. flow

seeing particularly headwinds pricing products, be in previously as competitors, we and quarter. fourth the in for our aggressive the than greater mentioned are in third to expect China, select by We currency quarter

made predominantly buying competitively of manufacturers to laser several hundred cutting from were our we third or lasers during strides China the in lasers However, more that competition. quarter exclusively selling high-power systems have

the We $XXX the million factors, we are progress revenue strength regions. other new for encouraged fourth $XXX to expect XXXX, in and of by some quarter and on Based products the these million. performance this in

improve range diluted $X.XX expect to range will full-year believe equity we of revenue our customers third in anticipate the the Based effects tax suggest for China quarter from We in may X%, order of expect that prior per there some relating encouraging earnings be quarter. first X% excluding We approximately be Indications down X%. outlook rate on the growth from guidance, to of share to this signs flow $X.XX. to delivering We XXXX for X% now grants. our are in XXXX. to in XX%, several

consumer other on electronics, in expect projects We welding battery increase to spending metal XXXX. and electric XXXX over vehicle

areas contributions and our we materials business. will product drive next believe addition, telecom, In early display and applications, entertainment new processing products, micro our in traction year systems from increasing

limited our current is macroeconomic geopolitical by in of and trough visibility global the uncertainty a trade downcycle However, environment. the the surrounding

guidance As conditions. cancellations and tariffs, release, not due Harbor discussed demand, of press and factors results passage including, but today's from in policies to to, the Safe limited actual competition, earnings trade differ economic product order may our general delays,

the is based SEC. and guidance conditions exchange the take upon in outlined our to happy your is current will and expectations, Valentin assumes subject Our referenced to market With with I reports rates in earnings questions. press be that, and release, company's risks

Operator

you. you. Thank Thank

Wittine with ahead question your line The Joe of questions. Longbow first from the with comes Please go Research.

Joe H. Wittine

Thank you. Hi.

better margin pressure creating So, a believe, most than past. we've here competition I seen have slowdown is more the a bit the would little than Yet, gross and holding in expected. up, is

GM, including full want you're the little those savings from you until say defending the won't beginning I fourth benefit the cost but a the precisely diode in how quarter to are in bit realizing fully Thanks. can first? efficiencies? be that realized where discuss further So, is maybe you

Timothy P. V. Mammen

So, we out Joe, is of we you on an taking focus as focused to the area entire continue on. material. of alluded cost Diode to, obviously bill

new the the producing packages quantity in the diode now a new types chip are with and We U.S. exclusively significant of design.

it's proportion of come of of – with but low older diodes. So, that. seeing in being you still as cost pretty are packages running produced There's into those a quantity a you QX the sales significant of Russia, some

reduction fully that be I substantially and to manufacturing absorption it's Absorption, very offset gross that the the certainly revenue second enough The quarter, expenses manufacturing has quarter. also it is was other which lower hasn't things also manufacturing level expected. on pleased in the down, that margin significantly actually total compared unfortunately, rates are would to unabsorbed expenses. But expenses albeit the is on the total down down third and see a lower we helped focused in which

on well a on puts expenses. material that focus focus as the bill So, a as manufacturing of actually

Headcount as are is on much total at processes also like manufacturing manufacturing some drastically being For reduced. increases on very example, And the reduced. of are chip throughputs of limited the the the moment. overtime processes expenses throughput down then is also

So, that's through I managing at we're good way a the this of think the high a level, moment. summary at

Joe H. Wittine

or all actually confidence out Okay. improving Great. customers on further tone at then uptick next do could Thanks. of that Is that the discuss you green And of optimism? China, year those any How can referenced? kind the How if quarter can skeptical materializing? have? merely handicap you that much are shoots Chinese we potential you that certain likelihood or be typical you

Timothy P. V. Mammen

tone the demand general just feeling because is there certainly right be likely the in way is cycle the not of the now So, to pick-up a CapEx that improving, is but functions.

of would more and the thinking the this that Chinese at hearing, been anything that some ability see sector government, far to But CapEx in optimistic give government term of give first them just will next we're that may rather make half the so and stimulus some more greater and the improvement a confidence in come decisions. more the has their for which definitive a sense to some point it of I to sector they'd into in of From private reflection than really is think is their the time. support private year. near confidence sentiments some the companies sector public from of the The looking private sector. are support lot what

Joe H. Wittine

finally, And That's me... great. for

Valentin P. Gapontsev, Ph.D.

According to cost. price competitors cheaper many is our situation Chinese case in and material our than

all. reports they on profit, cover how can And say understand difference we at expenses. so their who Or the don't

Joe H. Wittine

you. Thank

to mentioned Was from aside. that prepared peer? was Gapontsev, competition China-based your point Dr. Thank or XX-kilowatt up referring commentary the U.S. remarks of clarification competition. a to Just competitive you. I'll step then that

Valentin P. Gapontsev, Ph.D.

in have power up the believe even kilowatt. (XX:XX:XX) (XX:XX:XX) don't They they to But claim have product any It years We now, (XX:XX:XX) – XX low And believe two don't on. they was (XX:XX:XX) any this Chinese. can ago. (XX:XX:XX). provide we

only for service the now year. old for For for products the XX one a need years. (XX:XX:XX) even shipped a – new more only Only statistics example, lasers product, new few one lasers fifth need of demonstrates our of operation percent. few one three products which two a during service that But need than we ago, don't service, year. X, one, The percent year years

lifetime service five to without average (XX:XX:XX) three, So, up years.

ability power than Chinese So, on about a X service, in functionality. regarding few kilowatt in without lasers information, also We – low power. their source. their return also and possible. a this laser, only high customer ourselves achievable China they're our such have X practical (XX:XX:XX) months it's not it's whether check typical not What very Chinese customer about is opinion, It very concerned there's opinion. many situation. But more breakeven, limited (XX:XX:XX) kilowatt, Also, X, customer

Joe H. Wittine

You get what you pay for.

Valentin P. Gapontsev, Ph.D.

they can years. able reach next power, to They competition, during not able the small. during some not next very this quality improve are few also So, years, of

Joe H. Wittine

Thank you.

Operator

from line of next your Feniger question the with Michael The is Please of with proceed question. Bank America.

Michael Feniger

Hey, questions. my for guys. Thanks taking Yeah.

related. one, the you weakness. first it's tariff and trade seems the like biggest Just It still mentioned, obviously,

seeing plans sales auto XXXX. for at the We're auto auto CapEx a seems what just CapEx and the for and your month than I'm You disappoint customers sales if getting dialogues curious in you're also curious on shifting North see little auto out, cited what to to America, bit more month. side consumer auto be starting just stickier you're in into all seeing China, on there from but to side. electronics. just the pushed I'm

Timothy P. V. Mammen

that XXXX in applications a be both largest China. traditional been it pleased we've weaker the the China the Mike, it's in cutting said year of auto well EV order. the was automotive that's as for foil for welding in – weaker, we've order previously same that the and We've EV, can has and in said significant Both but was we're got So, than and said Japan. the this Europe

automotive American several grown. projects that this There So, good up. continued have on. it's North be and have to working pick been to to that The sales reasonable see start year we're

has automotive – has working are certainly to headwind them. So, several projects that of it they're – it's see being tend particularly had fundamental yeah, different the geographies. some it revenue in from game the of by the tailwind in not on, the is a them order behind in that is got Europe. traditional to They There we're cycle coming not and represent way out side numerous flow companies. We'd But some changers. changes and automotive not technology used expect the a

Michael Feniger

guidance that see more helpful. even first environment, on And to even particularly mean asked got price, know and we you. those resolution are That's kind low inside that guys that comfortable you quarter was this push expected. the type just on range and aggressive you're we protect – about end If going the the margin. of market to back Thank of continue share I that trade you don't win is gross IPG to make this new where is which on I back to you see peers? sure customers maybe of the range,

Timothy P. V. Mammen

in may level high-power of come you've with So, to we got lower if a defend revenue, gross and technology share margin. reliability with our market that lasers. a in short-term, prepared And be would superior lower the

to may to as lower so those It's to kilowatt the continue market lasers. we devices. X the recovery are prepared range that though new – in recovery then of term. products defend into to end from pick note and at And lower our also to that lead the the some period with not from share introducing expect to market, or very the But but recovery metal think of margin, margin the particularly we'd in to then we get that. yes, gross growth gross of the defend we in you it's important a important increasing contribution up near just cost well defend share to If we're X take you doing market out from see processing

we that in is made we've enabled been to and report QX significant think has margins even which as on what progress to aggressive gross us continue pricing stellar has So, QX.

Valentin P. Gapontsev, Ph.D.

a we'll year, a to up will Tim new kilowatt And contain mentioned module new horsepower, components, so of XX will laser a new electronics, or components, from generation diode, integrated kilowatt fiber cost and introduce much per kilowatt new XX% (XX:XX:XX) on. and X already these now. we into next high-power cost XX%, that X these components use more – now X

(XX:XX:XX) So, we impact fast We this But started so the improvement margin. of we serious October, only growth of very next gross impact (XX:XX:XX) expect generation, new diodes. very have year. the more production powerful of them, and of this efficient expect margin

Michael Feniger

Thanks, guys. Perfect.

Operator

proceed The your the Please Ricchiuti & line of Needham with next Jim Company. from question question. is with

James Ricchiuti

Hi. Tim, alluded large a to EV you in the win market. Good morning.

in about back is competition you that capture China? you managed gains in discussed Is EV some from in You that related also or to that share you've winning win to talked that think the China. all addition share

Timothy P. V. Mammen

had the orders discrete No. separate and battery and X the relationships Tier customers. Tier sort on that EV X we've That's from completely cutting, are wins the cutting of

James Ricchiuti

little about or of Was was and you handful broadly in progress Got concentrated customers? this among through as push-outs can talk saw it. a how the you it quarter? both And China you based Europe a bit

Timothy P. V. Mammen

the European coming beginning the performed some say end see battery China, of Europe, articulated, basically example, other QX, much the performance into we're sequentially actually on parts of that customer U.S., And the growth are win of the they decline of are for level In On year-over-year of There their situation. than strongly. the and higher cutting, that side. that areas, the for stable welding softened OEMs performance into I'd a more bit is you'd would welding revenue. a because year-over-year. the quarter additive stable a you'd there's has we've order cutting sequentially outside if flow board you the the are see applications. probably stable QX year-over-year expecting, which who tone for in expectations within Europe gains. more made China. growing, in across reasons In a basically the I'd power for down two our for example, the base, significant on in then, but Offsetting is significant and show solid sales and a year-over-year on little some at basis, weakness leaders and who, in Japan those say basis, growth the looked at are in

it, bit of So, we're sense of I'd softened whereas soft think, characterize way the QX. outside a seeing, the China be continues China, to has of end I some since better stability, and

James Ricchiuti

So China, in in and overall it was weakest closer below X It was book-to-bill Europe, X. your X to was U.S.? the around in

Timothy P. V. Mammen

we don't region. by get specific giving Jim, book-to-bill into

by that should the that my think ones that reference. I tonal comments you about are geography

James Ricchiuti

lot. a Thanks Okay.

Timothy P. V. Mammen

Thank you.

Operator

The Davidson. Tom is the line next question from of Diffely your question. with D.A. Please proceed with

Thomas Robert Diffely

more market. Chinese question One on Yes. Good the morning.

having it just tell? you they issue there capital seeing, nervousness slowdown or the access actually can is an are to with that So, or you're

Timothy P. V. Mammen

the to increasingly the tightening definite by stance one the out the government And it's that with you're uncertainty actually let's go period time, the now same macro the a more At see where, the to the come you're in war. decisions a and think think period things. that. impacting the that macro they the of Chinese And first that's I Chinese I policy. say, where is of had during around – investment credit compounded aggressive starting see the of related the has has uncertainty been I'd the that's year. So, then through got of credit the loosen trade That issues, Tom, on than half access

at infrastructure the primary process about but the tightening comfort process the overshadowed I'd around stuff trade some have the of war. private driver side also that I the decision-making some very increased to by weakness on to think future they the give sector I investments, do on the think the don't moment. seeing that's cycle driven the the we're got investment uncertainty CapEx with say

Thomas Robert Diffely

makes then ahead. – you sense. And China in look general That at Okay. if go

Valentin P. Gapontsev, Ph.D.

some Chinese market. the technology of years without make not years Chinese to war, anyway to to list laser customer to say the install like own XX of stop and laser the you to XX companies could Chinese to market. and fiber strategic And even It government the now tools to production. this the trade to policy I'd in try these include manufacturer win copies the to changing fiber is (XX:XX:XX), anyway situation. of helped Chinese strategic They products government this get their in help up ago.

the To this, strength such to with fiber China. technology get quality. government (XX:XX:XX), in to laser make strategic budget good have any that still electronics situation very the huge with Western they same It's will see much it's (XX:XX:XX). even go all They to here the We control it's Chinese we by in the all still a but start that war, electronics help they fight high war, gap poor the it why now product happened won, All they Then this. China. guys, quality this in from technology. these now (XX:XX:XX). these electronics no to trade state-owned nobody it's situation, to but That's China. ago. huge attempt (XX:XX:XX) The many moved years now Now means for we electronics companies between have but change can so same trade a with countries, have most on. and remain high-end It's

Thomas Robert Diffely

sense. of lot a makes That Yeah.

So, when versus driven? market is of you how much is that look to any at there down unit Chinese pricing driven year-over-year, the quantify X% way

Timothy P. V. Mammen

give definitively. just information. don't that Not We

level. at the – volume trying I'm it up some being of was XX% unit by it decreases a to declines, remaining I'd then overall come say pricing reasonable really XX% So, was the was driven XX% compounded with lower unit by number. particularly of and

actually lasers. back also of some power that's If on the volume increases ultra-high you the significant declines, you'd level, some pricing at but look in of high the very see

Thomas Robert Diffely

time. Okay. your for helpful. That's very Thanks

Operator

question of comes next Our line Ho Stifel. your from with with Please the Patrick proceed question.

Patrick J. Ho

based Thank for seeing you relative Tim, or you potential is based? better you XXXX of be the based, coming application very that the little broad more the as China you're comments more could much. the Is provide more about broad or weakness color application? made specific the Is just it to parts appear today. appears to within it about early obviously from maybe a it one to tone what much in market is where broad be a recovery

Timothy P. V. Mammen

I would cutting the other in circumspect. the comments of customers are bit market, of some from conversely cutting we've had some more the say companies

is that guidance comments they're loosening that the one the supports the more reflected in private on though for sector the continued cycles. of from credit the bit orders for for battery we've aspect and is I that of some think had had it broader based spending, infrastructure the a a The So, government welding. around looking require we've would

continues, you'd now in perform in if consumer investment in for visibility to see So, And that But anything don't is expect than moment. it into the better the cycle. cycle that cycle, definitive has general, a at investment XXXX XXXX. have that we biannual electronics

from reflecting we're upon the of business So, that's historically. basis has the also the functioned some how our which comments but customers also cycle

Patrick J. Ho

the the and given as And helping the lower enough. to are business? much that is product follow-up X XX% kilowatts your gross seeing? the revenues you stay to detailed you're been overall you're as Fair how How weaker is mix despite shift go the seeing, elevated has just high-powered performance, absorption approximately pretty at the that now which above gross laser question, shift of relatively and my pricing pressure the strong margins margin levels

Timothy P. V. Mammen

benefits mix, lasers higher the of quarter. No, it product some we so that one that That's the helps. on powered during certainly then sold of QCW the

electronics newer those very continued power consumer numbers investment off a and have I well shifts levels. performance the ultra-fast higher and if QCW think including given – also UV, The the been or product would can at pulsed offerings the to laser this lasers most cycle green, the those significant gross higher profile. pulsed was the the and and they also that QCW will the them those on help the would of powered strength of actually sustain an performed also from lasers of margin mix lasers product continue,

our in of shift efficiency. performing strategy us towards base enable So, the productivity customer it's been to helping – is certainly yeah, drive product performance mix and lasers and that higher higher improvements these part always

Patrick J. Ho

very you much. Thank Great.

Valentin P. Gapontsev, Ph.D.

Also application develop way. in one one margin implement. once generate and say for way, It's to to on also product new gross only order only (XX:XX:XX) to (XX:XX:XX)

with our much now competition, development, than provides to make With run faster when higher we new these market we're so able margin implement, of policy (XX:XX:XX) volume, with business and already time, typical law than Our it's for down, to any product gross we so change XX going margin nobody now more And have product. can introduced course target, of this. we new on. families

product. XX bring of product, more product with be margin. us we this will year higher current than will mass when cost would of which for revenue this Each times do now could year the Next much introduction a

(XX:XX:XX). first If market, you then

of (XX:XX:XX) less. much you course, margin, would so be If

This opportunities have for We product critical new excellent year. and new application. result this was (XX:XX:XX) it very these year,

current cost to competition margin with – any up (XX:XX:XX) in us good very current (XX:XX:XX) see very times decrease, product policy new go good cheaper in still bring with results applications, competitive very we now and and higher of us, to spite but with so still to efficient decrease go due of than than now manufacturing. But our And cost, all product much margin. minimum product decrease of very current our many hard for for spite this product, and still current very China, policies. It X prospective products. top will

them, products, New produce the today. most (XX:XX:XX) same of nobody

in the So, we'd be first market.

Patrick J. Ho

you very much. Thank Great.

Operator

Gapontsev Thank turn you. to will At I time, the floor this back Dr. closing remarks. for

Valentin P. Gapontsev, Ph.D.

joining Thank We look Okay. forward. for us you today.

Have day. a we'll We great are you provide sure better results. time that much next

Operator

conference. Thank you. This concludes today's

your You may this for lines time. disconnect Thank at you participation. your

IPG Photonics (IPGP) 30 Oct 182018 Q3 Earnings call transcript