Market turbulence produces industry agita
This is the time of year when we are busy preparing the 2018 Annual Economic Review of the industrial laser market.
This is the time of year when we are busy preparing the 2018 Annual Economic Review of the industrial laser market that will appear in the January/February 2019 issue. Long-time readers are aware of previous columns on the vagaries of this process. In essence, even in this era of warp-speed communications and bottomless online resources, we are still in the thralls of time and can’t juggle it in our favor. Simply put, the key numbers we need for verification of 2018 public company financial performance won’t be available for verification until early in 2019, long after we will have published our review.
You may well ask, “How does Industrial Laser Solutions [ILS] get around this?” Or better yet, “why must the ILS Economic Review appear in the January/February issue?” I’ll answer the latter first—the initial issue of the year, by ILS tradition, contains the review of the preceding year. We can’t do it in November/December issue, as final-year data is not available. Simple?
As for the former, we rely on published comments by industry leaders. In our case, guidance for 2018 financials issued by public corporations as best estimates for the coming quarter/year. For industrial lasers, we look for financial data from two of the four members of the Billion-dollar Club: IPG Photonics and Coherent, which between them last year reported about 50% of total industrial laser revenues. The other two are Trumpf, a privately held company, and Han’s Laser, which to my knowledge does not publish guidance numbers.
This year, a concurrence of beyond-their-control economic factors plagued industry leaders IPG Photonics and Coherent (both have lost about half their stock value in six months), causing us to be alert when reading their corporate guidance numbers along with comments made in their earnings calls and other published reports. For example, as this column is being written, IPG Photonics announced that expected third-quarter revenues would be lower than previous guidance, as will be full-year revenue growth. Coherent has a broader product line than IPG Photonics with both commercial and scientific research products, but in recent weeks this company’s stock price has lost half its value, presumably on concerns with industry tariff barriers on manufacturing products and currency exchange.
In our view, of most concern to the industrial laser product suppliers is China, both as a market and as a potential source of competition. This country has a burgeoning global market for industrial laser processing systems, mainly fiber laser-powered flat sheet cutting machines. The Chinese government has shown funding support for domestic laser product companies that have developed IP that will enable these companies to compete on a global stage. The key is domestic IP, in product design and performance. Already, domestic fiber laser manufacturers and process and control software developers have eyes on the large and profitable international market.
Companies such as IPG Photonics and Coherent, which have a large percentage of revenues emanating from China, are fine-tuning their businesses to adapt for shifts in the China market and for potential new competition. Observers suggest the timing on this may have stretched out as a result of global tariff and currency actions.