Q1 2007 laser market hits a slow patch

NEW YORK, NY-A Q1 2007 earnings preview and industry update on the laser market from senior analyst John Harmon of Needham & Company LLC (www.needhamco.com) says that although “laser-industry fundamentals remain strong entering the calendar Q1 earnings season ...

NEW YORK, NY-A Q1 2007 earnings preview and industry update on the laser market from senior analyst John Harmon of Needham & Company LLC (www.needhamco.com) says that although “laser-industry fundamentals remain strong entering the calendar Q1 earnings season ... we are concerned regarding the steep drop in orders from the microelectronics segment experienced by Coherent and Newport in the December quarter (though this had been long anticipated and experienced by Rofin-Sinar a couple of quarters before).” Indeed, the recent Q1 financial announcements from both Coherent and Newport supported this microelectronics softness. “The laser industry appears to have hit a slow patch, primarily driven from the microelectronics side, since Coherent and Newport saw microelectronics orders decline for the second quarter in a row,” said Harmon.

The report detailed company specifics for four laser manufacturers: Coherent (Santa Clara, CA), Newport Corporation (Irvine, CA), IPG Photonics (Oxford, MA), and Rofin-Sinar Technologies (Hamburg, Germany and Plymouth, MI).

In addition to these four companies, the Q1 financial report from Cymer (San Diego, CA) provides insight into the market for excimer lasers used in semiconductor manufacturing. Cymer’s financial results showed a revenue drop in Q1 to $126,714,000 compared to $137,441,000 for Q4 2006-consistent with the slowing in the microelectronics segment. Cymer CEO Bob Akins said, “Total revenue for the first quarter of 2007 came in approximately 8 percent below the low end of the guidance range we provided on January 30, 2007.” But he said that the drop was due to a customer that had shifted its light source deliveries into the second half of 2007. Akins concluded, “If these push outs had not occurred, we would have come in within our revenue guidance for the quarter.”

“Coherent’s revenues came in at the midpoint of its guidance range, but this means that its year-over-year growth rate has slowed for the third quarter in a row,” said Harmon as he summarized Coherent’s Q1 financials announcement on April 26th. Overall, Coherent’s net sales increased 3.1% in calendar Q1 compared to the previous quarter. Harmon points out that of the major laser manufacturers, Coherent is the only one that has not yet announced a fiber-laser program; however, CEO John Ambroseo did say in the earnings conference call that Coherent has fiber programs going on internally, is monitoring that space, and that further announcements would make its strategy clearer. In addition, Coherent recently announced the acquisition of Nuvonyx (St. Louis, MO), a manufacturer of high-power (greater than 1 kilowatt) laser diode components, arrays, and industrial laser systems. The acquisition press release states, “Combined with Coherent’s capability in laser diode bars, this acquisition represents both a vertically integrated and more cost-effective approach than fiber lasers for certain applications.”

In its April 26th conference call to announce Q1 (ended March 31, 2007) financials, Newport said that although it did not reach the levels anticipated in January, it did see an increase in sales of 4% over the same quarter last year. Newport chairman and CEO Robert G. Deuster attributed the results to a seasonal slowness in the research markets and a “more severe” trough in the semiconductor manufacturing sector than was originally anticipated. Deuster did counter, however, that an increase in orders in the semiconductor sector might be a signal that this slump is coming to a close. Needham & Company said that along with its announcement of a fiber-laser division, Newport could see potential upside as it implements changes to improve the profitability of its laser business. Newport is moving quickly on the fiber laser market and just announced in an April 24th press release that its Fiber Laser Business Group had shipped its first fiber laser units (with ultraviolet wavelength and picosecond pulse operation) to select international customers.

Although Needham & Company said that IPG Photonics’ first quarter as a public company was somewhat of a disappointment for investors due to higher-than-expected operating expenses and the early shipment of a $1.5 million dollar laser in Q4, it pointed out that IPG’s 23% year-over-year revenue growth remained much higher than that of the traditional laser companies. Indeed, the IPG Q4 and full-year 2006 sales press release boasted revenue growth of 49% compared to 2005. In that same press release, IPG CEO Valentin Gapontsev said, “As we begin our first full year as a public company, we have several key goals that support our growth strategy.” IPG has definitely made good on one of those goals to “... support our growing customer base with expanded worldwide service capabilities and applications labs” by recently announcing the opening of a new office in Beijing, China to provide local support and service for IPG’s fiber lasers and fiber amplifiers in that region.

The recent acquisitions by Rofin-Sinar-80% of high-power laser diode maker m2k-laser GmbH, fiber laser manufacturer Corelase Oy, and laser marking systems provider ES Technology-were deemed “excellent” by Needham & Company, and described as an assembly of parts for Rofin-Sinar to construct its own fiber-laser program. Rofin-Sinar will be releasing its calendar Q1 (fiscal Q2) 2007 results on May 3rd. It will be interesting to see how the microelectronics slump impacts Rofin-Sinar on the heels of its solid calendar Q4 2006 earnings-a 17% increase in net sales over the comparable quarter of 2006.
-Gail Overton

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