IPG Photonics - Earnings Call - Q1 2021
May 4, 2021
Transcript
Speaker 0
Good morning, and welcome to IPG Photonics First Quarter twenty twenty one Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to your host, Eugene Fetitov, IPG's Director of Investor Relations for introductions. Please go ahead, sir.
Speaker 1
Thank you, Robin. Good morning, everyone. With us today is IPG Photonics Executive Chairman, Doctor. Valentin Kaponsov Chief Executive Officer, Doctor. Eugene Sherbakov and Senior Vice President and CFO, Tim Momen.
Statements made during the course of this call that discuss management's or the company's intentions, expectations or predictions of the future are forward looking statements. These forward looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward looking statements. These risks and uncertainties include the impact of the COVID-nineteen pandemic on our business and those detailed in IPG Photonics' Form 10 ks for the period ended 12/31/2020, and our reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors section of IPG's website or by contacting the company directly. You may also find copies on the SEC's website.
Any forward looking statements made on this call are the company's expectations or predictions as of today, 05/04/2021 only. The company assumes no obligation to publicly release any updates or revisions to any such statements. For additional details on our reported results, please refer to the earnings press release and the Excel based financial data workbook posted on our Investor Relations website. We will post these prepared remarks on our Investor Relations website following the completion of this call. With that, I'll now turn
Speaker 2
the call over to Valentin. Good morning, everyone. In late two announcements today, I will first discuss our results. I'm very pleased to report another quarter of solid performance and excellent execution with strong revenue and earnings. Our revenue increased significantly compared to the same period in the prior year, which was impacted by these microeconomic conditions and global lockdowns related to COVID nineteen pandemic.
Revenue was also higher sequentially despite typical seasonality as a result of continued positive performance in North America and sequential improvement in sales in Europe. Our bookings remain at high level, particularly in China, and we expect the roles will continue in the second quarter and will be benefit from our technology leadership leading edge products in the global footprint. During the quarter, we demonstrated excellent progress in our core market with strong growth in the cutting and even stronger growth in welding applications. Ultra high power lasers made up 55% of total high power sales and increased 55% in the quarter. At the high end of the market, we're seeing an increased interest and order volumes for our twenty and thirty kilowatt ultra high power lasers and optical heads that offer catching speed improvement for materials up to 30 millimeters thick and high replacement plasma catching machines as a non laser processes and allow power laser solution.
Our lasers provide superior beam parameters, record for efficiency, and high reliability that are the hallmarks of the IPG brand. They are also the driver of the rate return on investment for our customers. Growth in welding applications stood out significantly this quarter. Sales of our high power CW and QCW lasers for welding application nearly doubled compared with the same period last year. Sales of our adjustable mode beam lasers increased and continue to gain share in the welding industry for general manufacturing process and in electric vehicle battery welding application.
Our AMD products offer superior speed and weld quality, our competing solutions with a broad range of beam capability enabling spatermized welding, which is extremely important for battery routing. During the first quarter, emerging products grew by 62 and contributed 20.9% of total revenue as compared to 25% in Q1 twenty twenty. Emerging products growth was broad based, but a highlight of this performance was the substantial growth in green pulsed lasers. The tablet sales for green pulsed laser for solar cell applications manufacturing in other quick change is placing a competitive test in some instances and scaling up manufacturing to meet demand. Additionally, we are increasing the power synergies of green lasers We enable next generation applications in solar, drilling, and copper welding for consumer electronics.
Other emerging products that performed well were high power pulps, ultrafast pulps, beam delivery and monitoring, and AMD. Customer feedback on light weld, our new state of the art handheld by the welder is very positive. Consumers are excited about the ease of use, improvements in weld quality, divestiture materials that can be joined, and program to welding parameters for different types and thickness of materials. In certain applications, light weld enables customers to decrease material possible for manufacturing parts because they can use metal that cannot be welded by the legacy processes. We also clean surfaces both before and after welding, further reducing cost and improving productivity.
Additionally, our handheld laser help address shortage in cost of qualified welders because the training process takes only a few hours, and the device is easy to use even for nonprofessional welders. Revenue from other application decreased by 9% as higher revenue from advanced application and telecom was more than offset by a low revenue in medical. While revenue in medical declined due to the timing of orders, we have a strong order backlog for our TULIUM laser systems, and the installed base for our consumable fibers for our robotic applications continues to grow. We continue to focus on product innovation. We have many tens of new projects across the wide range of application.
This includes processing of a class ceramic composite material, numerous crystals, second board, or LED film, batteries, and solar cells. And beyond material processing application applications, we're developing new soft tissue medical treatment with infrared lasers from molecular resolution on the line spectrum expertise, inspection, sensing, and biomedical research application, and new high speed transceiver for the telecom and datacom. In addition to reporting our first quarter results, we announced a management transition this morning which follow a well planned succession strategy that we have in place for some time. I'm happy to announce that doctor Eugene Scherbakov, who I consider as cofounder of IPG, will succeed me as IPG's chief executive officer. Doctor Scherbakov is a world known scientist in the field of nonlinear and biobite object.
She many years worked in General Physics Institute of Russian Academy of Science under the of Nobel Prize Alexander Brochamp before to join me in IPG Weiser Germany in 1995. Many years, he managed the best the best branch of IPG Corporation, sharing the position with corporate chief operation of its review during the last two years. I will transition in my new role of executive chairman of the board and will continue to direct the research and development function and be involved in strategy. In my new role, I will be spending more time on innovation and our technical capabilities, which are my questions to continue to promote development in lasers development in lasers components and application that will drive future success in technology leadership of IPG. And it is an exciting evolution for me and a very good rendition to the company.
With that, I will will hand the call over to Eugene, IPG's new CEO.
Speaker 3
Thank you, Valentin, and good morning, everyone. I feel extremely privileged to become the next CEO of this great company and look forward to continue the strategy of doctor Gabonso and deliver on our mission to make fiber laser technology the tool of choice in high-tech mass production. Going back to our quarterly results, I will provide additional details of our operations and performance by region, and I'm happy to report that all our four major production facility operating normally. IPG has adapted well to the new operating environment, and it is running production at high level to support increased demand for our products. Travel restriction and safety precaution limit customer usage, but we have seen the increase in traffic through our application labs.
We are benefiting from a number of significant environment trends that include increased investment and capacity for renewable energy and electric vehicles to support growth in sales. We are seeing increasing demand for our green pulsed laser, which enable significant improvements in solar cell efficiency. They also supply a wide range of products that provide improvements in electrical battery manufacturing process, including the speed of manufacturing, by process reliability, and design flexibility that all lead to increased battery performance and safety while lowering production cost. We expect them to benefit from growth of electric field vehicle sales driven by high emission standards and government policies primarily in Europe and China, and that would require additional investment in battery production manufacturing. In our revenue in China increased some 74% year over year in the first quarter, representing approximately 41% of our total sales.
We are seeing a decline in amount of our ultra high power lasers and laser heads from general manufacturing in China driven by these laser skin metal processing productivity and ability to cut silicon metals. First quarter booking in China was strong, benefiting from domestic infrastructure investment, EV and general manufacturing. As a result, our outlook for the second quarter is robust and we expect the demand trends to continue. Sales to sell at rest of Asia increased 45% year over year. We are seeing strong demand for our welding and foil cutting solutions for electrical battery manufacturing, growth in solar manufacturing, and increased demand for our ultrafast lasers across all Asia.
While sales in Japan decreased 21% year over year, macroeconomic indicator seems to be improving moderately, and we are hopeful that level of business activity will increase from current depressed level. In Europe, revenue increased 14% year over year, and we saw an acceleration demand from customers in the region, driven by the roles in Germany. While COVID infection rates remain high in Europe, it appears that industry growth is improving and booking are incrementally positive, pointing to continued recovery in the region. First quarter revenue in North America continued to improve, increasing 9% year over year. Growth was primarily driven by automotive investment in new battery capacity for electric vehicles being particularly strong.
In addition to demand from EV battery manufacturers, there continue to be opportunities to replace all lasers at several outlet manufacturers in United States. Laser system recovered from the low level in the prior year. Also, non laser system laser sales remained weak. The pipeline of opportunity for lasers and non laser systems has improved, and we are spending booking to recovery during the 2021. As Varunjan mentioned, medical revenue was lower.
Also increased medical booking, meaning that medical revenue will also improve during the year. And we're particularly pleased with the growth in sales of medical consumable fibers as a number of procedures performed for our low standard lithoprescent, fixed system, increased along with a growing installed base. To continue to benefit our vertical integrated production model, which enables key technology advantages over the competition, while minimizing the cost and supply chain disruptions. Gross margin improved to 47.5% this quarter as we benefited from increased volumes and our continued focus on cost reduction initiatives. Total SG and A and R and D expenses increased by approximately $5,000,000 year over year to $82,000,000 in the first quarter, but declined as a percentage of our revenue.
We continue to believe that our large and diverse advanced materials and components technology platform, our efficient R and D model, our strong balance sheet and free cash flow provide us ample flexibility to respond to the business disruption and emerge from this pandemic as stronger company. On behalf of Valentino and myself, I want to thank our employers for their execution during this first quarter. The health, safety and well-being of our employees, their families, our customers, our partners and our communities remains our highest priority. With that, I will turn the call over to Tim to discuss financial highlights in the quarter and the second quarter outlook.
Speaker 4
Thank you, Eugene, and good morning, everyone. Revenue in the first quarter was $346,000,000 which increased 39% year over year and 3% sequentially. Revenue from materials processing applications increased 45% year over year, and revenue from other applications decreased 9%. Sales of high power CW lasers increased 43% year over year and represented approximately 49% of total revenue. Sales of ultra high power lasers at six kilowatts or greater represented 55% of total high power CW laser sales and increased 55% compared to the prior year.
Medium power laser sales increased 41% on growth in cutting, welding and sintering applications. QCW laser sales increased 38% year over year on increased demand from welding applications. Pulse laser sales increased 74% year over year with strong growth in green pulse lasers used in solar cell manufacturing as well as higher sales of our high power and ultrafast pulsed lasers. System sales increased 46% year over year as lower Genesis revenue was offset by higher sales of other IPG laser systems. Other product sales decreased 6% year over year, driven by lower medical laser sales.
First quarter GAAP gross margin was 47.5%, an increase of six twenty basis points year over year. Compared with the year ago period, the increase in gross margin was driven primarily by improved absorption of manufacturing expenses, a decrease in cost of product, inventory provisions and shipping costs as a percentage of sales, partially offset by lower pricing. GAAP operating income was $89,000,000 and operating margin was 25.7%. First quarter net income was $68,000,000 or $1.26 per diluted share. Effective tax rate in the quarter was 23%.
During the quarter, we recognized a foreign exchange gain of $7,000,000 primarily related to appreciation of the U. S. Dollar versus the euro. Foreign exchange gain benefited EPS by $09 If exchange rates relative to the U. S.
Dollar had been the same as one year ago, we would have expected revenue to be $17,000,000 lower and gross profit to be $10,000,000 lower. We ended the quarter with cash, cash equivalents and short term investments of $1,400,000,000 and total debt of $37,000,000 Strong operational execution resulted in cash provided by operations of 88,000,000 during the quarter. Capital expenditures were $27,000,000 in the first quarter, and we expect capital expenditures will be in the range of $150,000,000 to $160,000,000 for the full year. During the quarter, we repurchased 15,000 shares for $3,000,000 Commenting on outlook for the next quarter, we expect a strong quarter for revenue as regional and global economic indicators remain positive with continued improvement in manufacturing PMIs in The U. S.
And Europe, but with some moderation of economic indicators in China. As mentioned previously, first quarter book to bill was meaningfully above one and order backlog has increased since the beginning of the year. Displacement of non laser technologies, secular environmental trends and investments we have made in emerging products mean that we continue to see growth opportunities in ultra high power cutting, electric vehicle battery production, solar cell manufacturing, medical procedures and advanced applications. For the second quarter of twenty twenty one, IPG expects revenue of $360,000,000 to $390,000,000 Given the increase in sales, we are returning to a more normal level of activity with moderately higher compensation and other operating expenses, which means that we expect total operating expenses to be in the range of $82,000,000 to $84,000,000 The company expects the second quarter tax rate to be approximately 25%, excluding any discrete items. IPG anticipates delivering earnings per diluted share in the range of $1.2 to $1.5 with 53,500,000.0 basic common shares outstanding and 54,200,000.0 diluted common shares outstanding.
There are several risks to our outlook as recent growth in China tempers and from uncertainty regarding the rollouts and timing of vaccines in Europe, Japan and elsewhere. The resumption of normal business and travel activities, the impact of automotive plant disruptions from chip shortages, the resumption of spending in aerospace and stimulus efforts in The U. S. And China. Financial guidance provided this quarter continues to be subject to greater risk and uncertainty given the COVID-nineteen pandemic and its associated impacts to the global business environment, public health requirements and government mandates.
As discussed in the Safe Harbor passage of today's earnings press release, Actual results may differ from our guidance due to factors including, but not limited to, goodwill and other impairment charges, product demand, order cancellations and delays, competition, tariffs, trade policies, health epidemics and general economic conditions. Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release and is subject to risks outlined in the company's reports with the SEC. With that, Valentin, Eugene, and I will be happy to take your questions.
Speaker 0
At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. We ask that you please limit to one question and one follow-up. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star One moment, please, while we poll up for questions. Our first question comes from John Marchetti with Stifel. Please proceed with your question.
Speaker 5
Thanks very much. I I wanted to come back to the comment that you made about the China business moderating a little bit and just understand if that's a function of running up against now some more challenging year over year comparisons as we get into the June and September quarters. Or if there's you know, maybe there was a situation where they were running a little bit hot post pandemic, and now that's more evening out to match supply and demand.
Speaker 4
So John, our guidance for the second quarter continues to assume good growth and performance in China, a sequential improvement in revenue. Order flow was very strong in Q1 and has continued to be strong in Q2. The reference is really to just some of the economic indicators having moderated a bit. So for example, PMIs in China have come back. They've pulled back a little bit from 55% or 56% to about 51%.
So, it's just calling out that the economic expansion is maybe, a little bit more moderate than it was or has been over the last three or four quarters, with reference to some of those indicators.
Speaker 5
That's helpful. Thank you. And then if I
Speaker 3
can just follow-up real quick on
Speaker 5
maybe on the Japan outlook as well. That's been a market that has continued to struggle a little bit here for you over the last several quarters, starting to see some early indications there of maybe those metrics heading in the opposite direction. Just curious if you could talk a little bit about your expectations for that Japan market over the next quarter and maybe looking into the second half of the year.
Speaker 4
We've got a certain improved guidance number for bookings and revenue in the second quarter. The general feedback that we're getting is that there is some moderate pickup in activity. I think some of the Japanese machine tool orders from an export basis have picked up and also from a domestic basis have picked up. Potentially, some of the investments in automotive and cutting should also start to improve. But we're looking for those transitions to happen over the next two or three quarters.
It continues to be a difficult area to operate in from an economic perspective.
Speaker 5
Great. Thank you very much.
Speaker 0
Our next question comes from Jim Ricchiuti with Needham and Company. Please proceed with your question.
Speaker 6
Hi. Good morning. First off, congratulations, Valentin and Eugene, on the management transition. Question about Genesis. And the business still seems to be weak.
I'm wondering how much of that is potentially related to automotive, although I think it's much broader in manufacturing. So I wonder if you could talk to that. And then I have a quick follow-up.
Speaker 4
So on Genesis, they're struggling to close some of the orders. There's actually quite a healthy pipeline of orders. And the General Manager at Genesis thinks he's calling a bottom on that business. So they're actually waiting to close a significant number of orders, some of which are in excess of 5,000,000 a piece. Given the environment, some of those large scale investments, Jim, have certainly been more moderate over the last year or so, and then they've also been impacted by some of the aerospace activity being a lot lower.
So we're moderately more optimistic with our business. If they can close some of these orders, we'll certainly reach a bit of a turning point. I think the big difference is that the size of the equipment they sell in terms of total value is significantly different from even some of our other systems businesses and also from the average ASP even of a high power or ultra high power laser. So their pipeline the message is the pipeline of order flow is certainly improved. They need to close some of those orders.
And if they can do so, that will help to turn around that business.
Speaker 3
I would like to add something. For Genesys and also for other our activity in system business, they start to supply the complete system for battery welding. It's only a few already supplied to our customers, but we see the very big perspective because for us, it's absolutely will be no new business. I mean, not only supply lasers or laser components to the such kind of applications, but complete systems. And we're already successfully installed a very important automotive customer, and we'll see very good perspective for such kind of activity.
Speaker 2
Got it.
Speaker 6
Thank you. Thank you for that. And and follow-up questions just with respect to the guidance. I mean, if if we look at the midpoint of the guidance, it would suggest, think that you're getting to gross margins, close to the historical levels in the high 40s, not above certainly where you've been years ago, several years ago. But am I, looking at this the right way, Tim?
Should we assume that your gross margins, you know, have the potential to be north of 49% in Q2?
Speaker 4
My Q2 guidance on gross margin is basically in the range of like 47 to 49%. It's not above that. I think where we provided some guidance on OpEx, where we're starting to see a more normalization of activity. So you may have gross margins a bit high and OpEx a bit understated to get to the EPS number. And then on EPS, I've got a 25% tax rate, so no discrete benefits in that.
And certainly, we're pleased with the overall gross margin performance. I mean the underlying gross margin, you exclude some of the onetime items and higher inventory provisions, has been pretty consistently in the mid-40s at the moment, and we hope to see it track up to the upper half of our range. We still don't have visibility in getting above 50%. So we're sticking with that 45% to 50% range, but really targeting being in the upper half of the range.
Speaker 6
Yeah. No. I understand. It's just the fact that you can get as high as 49% is nice to see. Thank you.
Speaker 2
New product which we just introduced in the market, and we expect this year, next year, the will essentially impact the gross margin will will also allow us to increase. It's very essential.
Speaker 1
Thank you for that.
Speaker 0
Our next question comes from the line of Nick Todd from Longbow Research. Please proceed with your question.
Speaker 6
Yes. Good morning, everyone. Tim, I guess you talked about China bookings being very strong in the first quarter and so far in the second quarter. But if I look at the guidance and assume seasonal North America and Europe, I think China growth is accelerating substantially from to eventually mid teens. And I think last year comp was still favorable down 11%.
Can you maybe talk about what are you assuming for China? And do you see sequential growth besides the second quarter for the rest of the year in China?
Speaker 4
We're not giving any guidance for the rest of the year, Nick. The performance of China in Q2 continues to be robust and strong. This whole concept, I think there's been a couple of initial notes that have been issued around seasonality. This is an extraordinary time that all companies have been through over the last eighteen months. And I don't think there is any concept of normal seasonality at this point in time.
We're very pleased with the performance of the business. Even in the second half of last year, the strong traction in overall revenue in Q4, a really good revenue number we've just reported and very solid earnings for Q1 that normally can be a down quarter compared to Q4, where we've actually sequentially seen an improvement even with Chinese New Year. Pleased with some of the recovery in Europe and the underlying tone of the business there. North America had started to recover in the second half last year, remains fairly robust. And so the guidance in Q2 relative to where the business has been is a strong guide.
I just can't come back to having a discussion around seasonality and what's normal seasonality in this environment. I think it's a it's a moot point. It it's you can't call what is seasonality at this point in time.
Speaker 3
Seasonality was important in the but now it's much more important vaccination of people. This is much more important, percentage of vaccination in different countries.
Speaker 2
Regarding China, we saving the position here and try to increase position for new products. We introduce that they don't have to any competitive versions for that. We also have what we're talking second quarter is firm orders, but we have a lot of frame orders, which really was still waiting the licenses, expert license, so on. If compared this for even third quarter minimum, also, we have a very good, even 80%, they will just use of this frame orders, we will convert to a new order.
Speaker 6
Okay. Got it. If I can follow-up another question on gross margin. If I look at the midpoints of that gross margin about 48%, Tim, when I compare that to your September that you do reported last year, you did 48% on a significantly lower revenue run rate. Can you maybe compare and contrast what's driving that lower incremental fall through?
And I guess, are you seeing any impact from either component charges or higher logistics costs that could be holding this down? So
Speaker 3
there's some things in
Speaker 4
the second half of last year, we certainly benefited with some product mix. So we had reference selling significant orders for single mode lasers that have very strong margin on them. In addition to that, we had sales of very ultra high power lasers for advanced applications, for example, 100 kilowatt lasers. Those tend to be advanced applications was good in Q1 and is good in Q2, but we don't have those orders on hand at the moment. They may pick up in the second half of the year.
There is also some strong backlog for advanced applications that we're waiting for confirmation of when that should be delivered. It's unlikely to be in the second quarter. So some of the mix side of it will have been one of the main differences compared to the third quarter and fourth quarter of last year. I'm actually quite pleased with gross margin performance in Q1 given we didn't have those benefits in there.
Speaker 6
Our
Speaker 0
next question comes from the line of Mark Miller with The Benchmark Company.
Speaker 6
Thank you for taking my question. Just wondering, you had very strong performance in Germany. Was that related to automotive and EV welding?
Speaker 4
Strong German and European performance in Q1. Is it
Speaker 3
EV or automotive? It's a there exists. Of course, first of all, it's a brand by standard applications, I mean, cutting applications. And also, very important that the for many quarters, the first time demonstrated very good results for welding applications. It's connected to our new lasers, AMD lasers, and also high power, ultra high power lasers, which are using for welding applications.
And also, we demonstrated a very good performance to supply to our customers high power pulsed lasers, again, for EV applications, for battery applications, and also for some other applications. In MQCW for MQCW is our new product. Yeah. Thank you, Tim. And we our leadership for our sale, very important customers have accepted this, and we not to supply not for single units,
Speaker 4
but tens of such kind
Speaker 3
of lasers to our customers. And we say we're able a future for such kind of lasers and for these applications.
Speaker 6
Typically, IPG has reported about 20% of sales are from products introduced within the last two years. Are you still running at that level? Yes. We actually had a
Speaker 4
great quarter on that. Were about 29% of sales in all the emerging products. So that was the highest level they've been for, I think, ever since we've tracked them.
Speaker 0
Our next question comes from Tom Diffely with D. A. Davidson. Please proceed with your question.
Speaker 7
Yeah. Good morning. First, after fifteen years of earnings calls, Valentine, we're gonna miss your insights going forward. It's been a pleasure pleasure working with you. Eugene, welcome.
David, first question to you. If you look out at the next five years, you know, given kind of some nice momentum recently in welding, do you think the welding market is the biggest untapped market for IPG?
Speaker 3
I don't think so. It is the biggest market, but it will be subset substantial input from such kind of application to our general material processing market. Cutting market after will be dominated. It's clear because a lot of different standard lasers installed now in the field, and we continuously will substitute this old laser for, first of all, and also new application for cutting also. Welding application, yes, definitely will go.
Speed of this drilling will depend, of course, on many parameters. First of all, electric electric vehicle. You see one of the applications which demonstrated the way of a fast growing application for our new lasers, especially for AMD laser. Why? Because first time people can weld without practically without any sputtering.
It's only possible for such kind of AMD technology. And, of course, it increased immediately the processing of materials and quality of welding. Monitoring online monitoring during the welding. Again, it also demonstrated that very big perspective for future applications because you have visibility during the welding to online monitoring the quality of welding and to make the immediate solution what you have to do. And for such kind of application with new components is a new possible application.
I think welding will demonstrate the very good future. Of course, our special, you know, wanting to mention about this, our new product, can't welding tool. We see a very big also a few a future for such kind of applications because it's very simple, robust, and only in few minutes, practically, a nontrained people start the wealth, not the only wealth, but wealth is high quality. And I also received a very good perspective for such kind of application and such kind of tool.
Speaker 7
Okay. No. Thank you. That's helpful. It does seem like a pretty large untapped market, especially for some of these new technologies that are coming out.
Maybe just a quick follow-up for Tim. CapEx of 150,000,000 $160,000,000 this year, what are the main components of that? Is it expansion of capacity?
Speaker 4
Yes. There's a lot of of course, it's primarily expansion of capacity, but you'll add some capability there for R and D and sales and service, but primarily on capacity, particularly for some of the newer products, some of the new additional diode manufacturing coming on stream. Yeah. I think that covers it really. It's a whole host of new products that we have to add production capacity for and components production for those new products as well.
Speaker 7
Okay. Thank you for your time.
Speaker 0
Our next question is from Michael Feniger with Bank of America. Please proceed with your question.
Speaker 5
Yes. Thank you guys for taking my questions. The gross margin in Q1 was very healthy. You're forecasting another healthy gross margin in the second quarter. With bookings in China being solid and recovering, is the pricing backdrop there the standard competitive nature?
Are you seeing a larger than normal step down? Or is IPG just finding ways to contend with that with with that pricing dynamic better
Speaker 4
Mean, price declines in the first quarter have been a lot more moderate than they were, say, in 2018 and 2019. So we're continuing to be disciplined about our approach to the Chinese market and to really sell on the basis of our quality and reliability and performance and specifications of the product. We're benefiting from the trend towards the ultra high power cutting, where competition and quality is significantly lower. We've got a very high market share on EV in China, where we benefit from ultra high power pulsed laser sales that have a very good margin on them. We even started to see some of our AMB and LDD sales sold that.
So it's a question of the company being disciplined around pricing and really valuing the technology and proposition that we deliver to the market rather than necessarily being a just focusing on what our total market share is. That's a strategy I think we've been successful with over the last it's over a year now that we've been, you know, implementing this more disciplined approach.
Speaker 5
Got it. And I recognize that there's some, you know, the comps in China in the second half and and that seasonality conversation is kind of difficult. If we just fast forward to 2022, if we're looking at a GDP of 5%, global GDP, like how do does IPG growth profile look in that back drop? Is there gonna be a potentially different mix of geography, new products, end markets as you're starting to see some of these secular discussions around energy efficiency and electrification start to evolve and pick up more steam?
Speaker 6
I mean, if you
Speaker 4
go to GDP growth rates that's sustained on a global basis at 5%, you'll see the overall laser market grow at a very significant premium to that. We'd expect to continue to execute very well, for example, in the laser welding applications, which we think would be a very strong growth area. Potentially, we see some continued growth, obviously, in EV sales. Like overall EV capacity over the next three plus years is estimated to triple. I think it's about 500 megawatts of capacity installed now.
That's expected to get to one point four trillion one point four terawatts. So that that that will be a core driver. Then you've all of our new applications, right? So you've got the medical applications. You've got some of the solar cell applications.
So if GDP holds up and PMIs remain strong, that'll
Speaker 3
be a complement to our business.
Speaker 4
And the new product growth will add an additional layer of growth on top of that. I'd certainly be very pleased to see global GDP transition into a 5% growth rate next year.
Speaker 0
Our next question comes from with Berenberg. Please proceed with your question.
Speaker 8
Thank you and good morning and congrats to Valentin and Eugene for the next phases in their career. First, a question on the chip shortage issue in the automotive business. Were you impacted by that much in Q1? And is your automotive business what's the geographic exposure there? Is is
Speaker 5
China the biggest piece there,
Speaker 3
or the rest of the world is bigger? First of all, we don't have any problem with, you know, with this such kind of chips because we are leaving to use and don't use in our product such kind of chip. The secondary, no. Out of this activity not in China automotive, it's the rest of the world, first of all, Germany, of course, and United States also.
Speaker 8
Got it. And then just wanted to come back on the on the maybe your comments on the welding market. For the electric vehicle battery welding, what what are the most important products? Is the is is it the CW type products or is or maybe the QCW is the is the most important product that you're selling for for that end market?
Speaker 3
Of course, we have to ask our customer. But for our opinion, it's important all c CWU and also pulse because it's a different kind of application. It's not the same processes which are making this CWU and its pulse lasers. For example, CWU is is usually used for welding applications, welding a cast and welding some parts of the battery. Pass laser, as usual, they're using for cleaning and for cut foil, cutting foil for during the for producing this battery.
Different applications and, of course, important also welding and cutting and cleaning.
Speaker 2
Optimizer for welding also, especially this battery. Contact. Yes. Contact. It's very important.
The most critical sensitive. Oh. And with the well full machine, the two different kinds of machine, and now we're going to mass more and more customer looking at buying this machine from us. And the total was regarding this Genesis. I have to add that we developed the last since you introduced practical finish qualification.
So minimum set already for first quarter, only three machine, different machine for different application, and the steel oil welding for the six glass cutting and for other kinds of pipe, different welding machine for mass usage We transfer the the way of in Russia for for passport qualification. Now there were entry to the world market and will transfer for mass production. Now we have interest from other countries, for example, oil, really new new opportunities. We and they will have a request from other companies. We deal with this only.
This machine will provide you many tens million business. But we deliver in the world right now more than 10 new machine addition, which will introduce second half of this year and next year. It's really a fully operating unique publication, highest quality systems. It's new generation. So with our policy from material, from components, and so on up to full electrification, with up to final machines in production right now in what is that to work in full volume.
Speaker 8
Thank you. That was very useful. I appreciate it.
Speaker 7
We've reached the end of
Speaker 0
the question and answer session. At this time, I'd like to turn the call back over to your host, Eugene Fedodoff. Thank you for closing comments.
Speaker 1
Thank you for joining us this morning and for your continued interest in IPG. We look forward to speaking with you over the coming weeks, and we'll be participating in a number of virtual investor events this quarter. Have a great day, everyone.
Speaker 0
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.