Cutting Edge Companies: IPG Photonics

By Heidi Vanni, CFA
From the Winter 2013 Edition of Values

For years, this section of Values has focused on “cutting edge” companies typically held in the Walden Small Cap Innovations portfolios. In this issue, we introduce a company for which the term cutting edge is true in the literal sense. IPG Photonics is the world’s leading provider of high-power fiber laser systems. High-power fiber lasers are revolutionizing performance in materials processing, micromachining, telecommunications, and medical applications.

Lasers are becoming the preferred tool for cutting, drilling, and joining applications, particularly in manufacturing industries. This secular shift to fiber-optic lasers has been driven by a significant efficiency advantage relative to traditional welding. Lasers have a faster cutting speed, which drives higher throughput, and they have a relatively smaller footprint, which allows them to be easily deployed on manufacturing lines. Additionally, these instruments minimize harmful effects to the environment because of the lasers’ low energy needs and lack of waste.

A pioneer in fiber laser applications, IPG Photonics has spent the last two decades developing a technology that increases the strength of laser rays using “activated” optic fiber (that is, fiber treated with elements that increase light output). IPG Photonics owns 400 patents covering these technologies. Not only has IPG Photonics developed the technology, it has also established a vertically integrated, highly automated manufacturing process. This technological platform has tremendous power potential and a unique laser ray quality. IPG Photonics’ lasers are superior to legacy (solid body and gas powered kilowatt) lasers in terms of power, throughput, durability, reliability, and cost efficiency. They are integrated easily into industrial processes thanks to their relative compactness and low energy consumption. Finally, because IPG Photonics’ fiber lasers do not require vacuum and ventilation functionality, they consume less energy and generate less waste than alternative cutting methodologies like welding.

IPG Photonics’ customers include automobile, shipbuilding, aviation, and aerospace corporations, as well as producers of medical and telecommunications equipment. Among their many applications, fiber lasers are used to braze (i.e., join) automobile rooflines, weld titanium panels for airplanes, and cut cardiovascular stents that are placed surgically.

According to OpTech Consulting, a leading consulting firm for the laser and photonics industry, the overall laser component market totaled $4 billion in 2012 and is expected to grow 7-9 percent per year over the next five years. Fiber lasers currently account for 15 percent of the laser market, and are expected to grow 20-25 percent per year over the next five years. With 80 percent share of the fiber-based industrials laser market, IPG Photonics is well positioned to benefit from this strong forecasted growth.

This information is for illustrative purposes only and should not be considered investment advice or a recommendation to buy or sell any particular security. It should not be assumed that investment in any or all of the securities listed will be profitable.