First-half global market results point to stronger second half
Financial reports from public companies for the first half of 2014 were available the first week of August and fiber laser market leader IPG surprised analysts with a stellar second quarter and first-half performance, beating guidance numbers with a 14-percent revenue growth (due to an 18-percent growth in materials processing which represents 96 percent of company total sales.) For the first half, IPG recorded a 17-percent growth over first-half 2013 numbers. Growth came from strong high-power laser sales into the cutting and welding markets driven by increased activity in Europe and Asia.
Rofin-Sinar logged in with a 2-percent loss for the quarter and a 9-percent loss for the first half.
Management cited slow second-quarter sales in the macro sector due to softer business in China and North America, while European sales in marking and micro improved. They expect that strong demand for high-power products from Asia will support third-quarter sales.
The other leading public industrial laser company, Coherent, reported second-quarter 2014 sales down by about 1 percent over the previous quarter; for the nine months ended in June, sales were also off by about 1 percent. Company officials said fiber laser metal cutting in China and India were solid, as were initial orders from the additive manufacturing sector and strong bookings of laser manufacturing workstations.
Analysts who track this industry sector suggest the laser market followed the pattern in global manufacturing, which experienced a very modest growth in global revenues. The fallout from political unrest in Eastern Europe (Russia and Ukraine) impacted sales of suppliers in Europe, bringing into question the anticipated 2-percent growth in 2014 sales of machine tools, and instability in the Middle East dampened capital investments in that market sector.
The BRIC nations' manufacturing revenue growth for the quarter and first half remained spotty, as Brazil missed economic growth projections, Russia essentially was cut-off from international investment. India, however, was a bright light, led by innovative high-power laser applications in the automotive industry.
In China, stimulus spending continued to boost the GDP by a point, but most of the funding to state-owned companies went to infrastructure projects that could produce rapid returns. Spending on capital equipment increased only slightly but private company investment continued apace, although mostly allocated to domestic spending. A cautious note possibly affecting the super-heated automotive business is the government's investigation of industries, including automotive, that may have been operating anti-competitively, specifically in the aftermarket service and parts sectors. Analysts worry that the government regulators may expand their investigations into new car prices and they speculate that the 'good times for profitability' may be coming to an end. This sector is a vital part of high-power industrial laser sales.
Japan, under a pro-business leadership, revived manufacturing and revenues for FY2014 and the second quarter was substantially higher, making that country a force in Asia again. Japan has traditionally been an active supplier of industrial laser equipment and this spurt of activity is expected to trickle down into that market sector, with sales of laser cutters up. An August report suggests that fiber laser cutting, long a drag in Japan, may be catching up to the rest of the world with sales expected to increase 250 percent for the year, although still at a miniscule 14 percent of total global fiber laser penetration of 35 percent.
Manufacturing in the US experienced three months of decline over the first six months of 2014, and the machine tool industry followed by projecting a stronger second half. Much of the decline is attributed to a sharp fall-off in defense spending.
Public companies' second-quarter guidance suggested a slower next quarter, even at normally active industrial fiber laser leader IPG Photonics. Thus, ILS expects a pickup in second-half performance to end the year.
David A. Belforte
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