IPG Photonics (NASDAQ:IPGP) Reports Strong Q4 But Quarterly Guidance Underwhelms

Petr Huřťák /
2024/02/13 8:08 am EST

Fiber laser manufacturer IPG Photonics (NASDAQ:IPGP) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue down 10.4% year on year to $298.9 million. On the other hand, next quarter's revenue guidance of $250 million was less impressive, coming in 16.4% below analysts' estimates. It made a GAAP profit of $0.89 per share, improving from its loss of $1.72 per share in the same quarter last year.

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IPG Photonics (IPGP) Q4 FY2023 Highlights:

  • Revenue: $298.9 million vs analyst estimates of $286.6 million (4.3% beat)
  • EPS: $0.89 vs analyst expectations of $0.95 (6.3% miss)
  • Revenue Guidance for Q1 2024 is $250 million at the midpoint, below analyst estimates of $299 million
  • Free Cash Flow of $80.84 million, up 37% from the previous quarter
  • Inventory Days Outstanding: 224, down from 259 in the previous quarter
  • Gross Margin (GAAP): 38.2%, up from 18.2% in the same quarter last year
  • Market Capitalization: $4.86 billion

"Fourth quarter revenue came in at the top of our expectations with higher sales in welding, cleaning, 3D printing and medical applications. We also saw increased demand in e-mobility applications outside of China. This growth was offset by continued soft industrial demand across many major geographies and lower sales in e-mobility applications in China," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer.

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ:IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

IPG Photonics's revenue growth over the last three years has been unimpressive, averaging 3.6% annually. This quarter, its revenue declined from $333.5 million in the same quarter last year to $298.9 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

IPG Photonics Total Revenue

Even though IPG Photonics surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 10.4% year on year. This could mean that the current downcycle is deepening.

IPG Photonics may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 28% next quarter, analysts are expecting revenue to grow 5% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

IPG Photonics Inventory Days Outstanding

This quarter, IPG Photonics's DIO came in at 224, which is 9 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from IPG Photonics's Q4 Results

We were impressed by IPG Photonics's strong improvement in inventory levels. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter missed analysts' expectations. Overall, the quarter was fine but the outlook is weighing on shares. The stock is down 4.3% after reporting, trading at $99.22 per share.

So should you invest in IPG Photonics right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.