IPG Photonics (NASDAQ:IPGP) Reports Q2 In Line With Expectations But Stock Drops

Fiber laser manufacturer IPG Photonics (NASDAQ:IPGP) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 24.2% year on year to $257.6 million. On the other hand, next quarter's revenue guidance of $225 million was less impressive, coming in 20.6% below analysts' estimates. It made a GAAP profit of $0.45 per share, down from its profit of $1.31 per share in the same quarter last year.

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"IPG's second quarter results reflect a challenging demand environment, particularly across industrial and e-mobility markets. Our focus on financial execution allowed the company to generate strong cash flow from operations and significantly reduce inventory, while continuing to work on significant product cost reductions," said Dr. Mark Gitin, 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 has been declining over the last three years, dropping by 6% on average per year. This quarter, its revenue declined from $340 million in the same quarter last year to $257.6 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 had a difficult quarter as revenue dropped 24.2% year on year, missing analysts' estimates by 0.3%. 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 25.3% next quarter, analysts are expecting revenue to grow 8% 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.

This quarter, IPG Photonics's DIO came in at 226, 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 Q2 Results

We were impressed by IPG Photonics's strong improvement in inventory levels. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its operating margin shrunk. Overall, this was a bad quarter for IPG Photonics. The stock traded down 8.7% to $79.99 immediately after reporting.

IPG Photonics may have had a tough quarter, but does that actually create an opportunity to invest 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.