Q3 laser earnings “chugging along”

WORLDWIDE—For calendar Q3 2007, major laser system, laser diode, optical fiber, and component companies saw 10–20% (and in some cases higher) growth compared to the same quarter last year, with the exception of companies tied closely to the struggling semiconductor industry.

Nov 15th, 2007

WORLDWIDE—For calendar Q3 2007, major laser system, laser diode, optical fiber, and component companies saw 10–20% (and in some cases higher) growth compared to the same quarter last year, with the exception of companies tied closely to the struggling semiconductor industry. Senior analyst John Harmon from investment and guidance firm Needham & Company (www.needhamco.com) published a summary note that said, “The calendar 3Q07 earnings season appears on track to be much like calendar Q2, with the materials-processing locomotive chugging along (and favoring those companies like IPG and Rofin with high exposure), while a recovery in semiconductor-equipment customers appears to have not yet materialized.”

Laser systems and component providers

Major laser system suppliers Trumpf (Ditzingen, Germany), ROFIN-SINAR Technologies (Plymouth, MI and Hamburg, Germany), GSI Group (Billerica, MA), Newport Spectra-Physics (Irvine, CA), IPG Photonics (Oxford, MA), and Coherent (Santa Clara, CA) all benefited from the ongoing strength of the microelectronics and materials-processing continued on page 4 industries (as well as the stellar growth of the fiber-laser market in the case of IPG), with the exception of Newport Spectra- Physics, which relies heavily on sales into the semiconductor industry.

Trumpf finished its 2006/07 fiscal year on June 30 with an increase in sales of 18% to $2.84 billion dollars (previous year was $2.42 billion). Sales in the Laser Technology/Electronics Division held steady, rising by 8.2% to $694 million. Trumpf is forecasting sales increases of about 10% for the 2007/08 fiscal year.

ROFIN-SINAR saw Q3 order entry, sales, backlog, and net income at record levels. Net sales of $130 million represented an increase of 12% over sales from the same quarter last year. ROFIN-SINAR executive chairman of the board Peter Wirth said, “The Asian market remains still strong; and we continue to see a high demand for our laser products from many diverse industries, which include machinetool and solar-cell customers.”

GSI Group reported $84.0 million in Q3 revenue compared to $73.1 million in Q2. Excluding restructuring charges, operating profit was $10.1 million in Q3 versus $5.5 million in the Q2. Sergio Edelstein, GSI president and CEO said, “During the quarter we saw stronger demand for our scanner and circuit-board drill products. Furthermore, our U.K. restructuring is on plan and our China facility is now producing additional higher-margin products.” GSI anticipates Q4 revenue to be in the range of $80 to $84 million.

Newport Spectra-Physics reported that Q3 2007 sales totaled $109.0 million, a decrease of approximately 5% compared with the $114.3 million recorded in Q3 2006. In addition, income from continuing operations in Q3 was $5.5 million, down from $10.5 million in the Q3 2006. “Newport inexcusably missed its guidance for the third quarter in a row, however much of the difficulties stem from the stillweak sales to semiconductor equipment makers” said Needham & Company, which recommended a “hold” rating on Newport. New president and CEO Robert J. Phillippy said, “While our Photonics and Precision Technologies Division continues to perform well, our near-term focus is on improving the operating and financial performance of our Spectra-Physics Lasers Division.We have taken and are taking a number of actions to address this situation, including changes in our Lasers Division leadership team, implementation of more rigorous business processes, and intense focus on a few specific yield and warranty related issues.”

Coherent announced unaudited selected financial results for calendar Q3 (its fourth fiscal quarter and year ended September 29, 2007). Net sales totaled $158.9 million, an increase of 0.5% compared to $158.1 million compared to the same quarter last year and a sequential increase of 11.4% as compared to $142.6 million in the previous quarter. “The strong sequential order growth in the fourth quarter reflected significant gains in materials processing and instrumentation. These results also suggest market share gains given recent announcements in the photonics universe,” said John Ambroseo, Coherent’s president and CEO. “We are also seeing encouraging signs from silicon scribing and singulation users as well as solar-cell manufacturers, with solid growth prospects.”

Needham & Company recommended a “maintain buy” rating for IPG Photonics. “IPG reported a solid Q3 with solid Q4 guidance, putting an end to the sequential flatness in revenues during the past several quarters, and growing a solid 32% yoy (year-over-year), four times the rate of the laser market. Our thesis: IPG is the market leader and gaining share in the fiber-laser category, which is itself growing faster than the laser market and gaining share.” In the Q3 earnings press release from IPG Photonics, CEO Valentin Gapontsev said, “Sales of our lasers for materials processing applications drove our revenue growth in the quarter.We also are generating increasing demand for our fiber laser technology from advanced applications such as test and measurement, instrumentation, sensing, scientific R&D and defense. During this quarter we also saw the beginnings of a rebound in telecommunications sales on the strength of orders from Russia.”

Laser diode manufacturers

Needham & Company is maintaining a buy rating on JDSU (Milpitas, CA), noting, “We think JDSU is making steady, dogged progress towards its margin targets, which will take many quarters. Our long-term thesis is that JDSU is a turnaround story, in the midst of a broad-based restructuring program aimed at aligning capacity with current demand levels and integrating the many acquisitions the company made during the Optical Bubble.” JDSU’s net revenue for calendar Q3 (JDSU’s fiscal Q1 2008) was $356.7 million and the net loss was $6.9 million. This compared to net revenue of $318.1 million and a net loss of $17.4 million in the first quarter of 2007— a steady improvement.

Bookham’s (San Jose, CA) revenue for Q3 (its Q1 fiscal 2008 period) increased approximately 20% from the previous quarter to $54.3 million, which was above the guidance range of $50-$54 million. It’s not surprising that Needham & Company is maintaining a “buy” rating for Bookham, adding that “Our thesis on Bookham centers on its using its advanced optical chip fab and China manufacturing facility to develop unique, high-performance products that drive above-average revenue growth, alongside substantial margin leverage.”

Fiber manufacturers

An indicator of the continuing health of fiber-laser manufacturers is the healthy earnings reports for optical fiber manufacturers Corning (Corning, NY) and StockerYale (Salem, NH).

Corning’s strong Q3 earnings included a 21% year-over-year increase in sales, reaching $1.55 billion total. Sequentially, telecom sales increased 8%. Chairman and CEO Wendell P.Weeks said, “The strong third-quarter performance was driven by growth throughout the segment, including increased demand for fiber-to-the-premises (FTTP) products and private network projects.”

Highlights from StockerYale’s Q3 financial summary include a revenue increase to a record $7.9 million, up 75% over Q3 2006.

NOTE: John Harmon will be speaking at the 2008 Lasers & Photonics Marketplace Seminar, to be held January 21 in San Jose, CA in conjunction with Photonics West. For more information go towww.marketplaceseminar.com.

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