Rofin-Sinar lowers year-end outlook, fiber laser sales goal

Plymouth, MI and Hamburg, Germany -- Rofin-Sinar Technologies' (NASDAQ: RSTI) latest quarterly results (fiscal 3Q12, ended June 30) were roughly in line with expectations, but its outlook is significantly weaker than previously projected on some key market softness and efforts to ramp up its fiber laser offerings.

Net sales were $131.6 million, a 2% improvement from the previous quarter but a -15% decrease from a year ago. Net income was $8.4M, up 4% M/M but slumping -45% Y/Y. Earnings per share (EPS) improved a tick M/M to $0.28, but was down -44% from fiscal 3Q11. Through the first nine months of Rofin's fiscal 2012, its sales are behind -8% from the same pace a year ago, with net income and EPS off by -43% and -42%, respectively.

For fiscal 4Q12, RSTI projects sales will slip to $125-$130M, and EPS to $0.25-$0.28. Simultaneous with the fiscal results, RSTI's board has authorized a $20M share buyback over the next 12 months.

Europe and China still lagging

The softness reflects what's happening in global macroeconomic markets, specifically the impact of the European debt crisis and slowing GDP (especially China) on industrial material processing. Initial sentiment this spring from China's machine tool sector "was really positive and we thought this would turn into orders in a faster way," RSTI president/CEO Günther Braun explained in the conference call with analysts and media.

Meanwhile, business from automotive and semiconductor customers was strong, but solar business slumped. One noteworthy drag on sales was currency valuation (particularly a strong US dollar), which dented sales by $8.5-$9.0 million vs. a year ago, and are expected to continue dragging down both order and sales figures.

Machine tool business should exceed norms in China due to a specific infrastructure project generated some bookings in June and July and could ultimately generate "double-digit unit numbers" of laser systems, Braun said. In Europe, automotive subsuppliers are still a market for welding applications for both fiber and CO2 lasers. RSTI sees opportunities for growth in marking and micro applications; semiconductor sector demand was "excellent" in 3Q12 but is "somewhat slowing down," Braun noted. The company sees growth in medical devices, solar, and military/defense (in the US).

Fiber laser business ramping, slowly

Sales related to fiber lasers in fiscal 3Q12 were $14M (a 7% sequential increase) vs. new orders of $24.5M, with large orders for low-power fiber lasers in electronics. However, Braun admitted that RSTI will fall short of its goal of doubling fiber-related sales in the current fiscal year to $80M, as it currently stands at $38.3 million with just three months remaining in the fiscal year. "We still see good demand and interest for our high-power fiber laser products, but of course, pricing is challenging," he explained, adding that the company is continuing to push cost reductions on the high-power fiber lasers.

Analysts immediately and persistently inquired on this topic in the conference call, pinning Braun down to specific backlog and sales for fiber laser units. Of the 218 fiber laser units shipped and 565 order entries in 3Q12, only 20-25 shipments and 44 orders were for high-power (kilowatt-scale) fiber lasers, he noted. "We are working on the fiber lasers still," Braun acknowledged later in the call. "It's challenging, but we all know that."

Nevertheless, "RSTI is making good progress in rolling out its fiber lasers, both low- and high-power," with fiber laser orders and backlog surging 66% and 36% respectively vs. 2Q12, observed Longbow Research analyst Mark Douglass in a research note.

Braun also was repeatedly asked to commit to a shipment date for the 200 W diode packages, which are expected to start shipping by the end of the current quarter. "I would say 50/50" for the amount of systems shipping by fiscal year's end (within the current quarter) vs. 2013, he responded.



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