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spk05: Good morning, and welcome to IPG Photonics' first quarter 2021 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 Fedotov, IPG's Director of Investor Relations, for introductions. Please go ahead, sir.
spk01: Thank you, Robin. Good morning, everyone. We've asked today's IPG Photonics Executive Chairman, Dr. Valentin Kaponsov, Chief Executive Officer, Dr. Eugene Shcherbakov, and Senior Vice President and CFO Tim Monin. 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 certainties 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-19 pandemic on our business, and those detailed in IPG Photonics Form 10-K for the period ended December 31st, 2020, and our reports on file with the Securities and Exchange Commission. Copy of these filings may be obtained by visiting the investor 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, May 4th, 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 the call over to Valentin.
spk09: Good morning, everyone. I made two announcements today. I will first discuss our results. I am 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 big microeconomic conditions and global lockdowns related to COVID-19 pandemic. Revenue was also higher sequentially despite typical seasonality. as a result of continued positive performance in North America and sequential improvements in sales in Europe. Our bookings remain at high level, particularly in China, and we expect growth will continue in the second quarter and has been a benefit from our technology leadership leading edge products and global footprint during the quarter we demonstrated excellent progress in our core market with strong growth and 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 are seeing an increased interest and order volumes for our 20 and 30 kilowatt ultra-high power lasers and optical heads. that offer cutting speed improvement for materials up to 30 millimeters and are replacing plasma cutting machines other non-laser processes and allow power laser solutions. Our lasers provide superior beam parameters, record flow plug efficiency, and high reliability that are the hallmarks of the IPG brand. They also drive a great 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 applications nearly doubled compared with the same period last year. Sales of our adjustable mold beam lasers increase and continue to gain share in the welding industry for general manufacturing partners and in electric vehicle battery welding applications. Our AMB products offer superior speed and weld quality our competing solutions with a broad range of beam tunability enabling spotless welding, which is extremely important for battery welding. During the first quarter, emerging products grew by 62% and contributed 24.9% of total revenue as compared to 25% in Q1 2020. Emerging product growth was broad-based, but a highlight of this performance was the substantial growth in green pulse weather. We doubled sales for green pulse weather for solar cell applications, manufacturing, and other things. displacing competitors in some instances and scaling up manufacturing to meet demand. Additionally, we are increasing the pulse energies of green lasers to enable next-generation applications in solar, drilling, and copper welding for consumer electronics. Other emerging products that performed well were high-power pulse, ultra-fast pulse, beam delivery and monitoring, and AMD. Customer feedback on light weld, our new state-of-the-art handheld laser welder, is very positive. Consumers are excited about the ease of use, improvements in weld quality, diverse materials that can be joined, and programmed welding parameters for different types and thickness of materials. In certain applications, like weld, enables customers to decrease material cost for manufacturing parts because they can use metal that cannot be welded by legacy processes. Light weld also cleans surfaces both before and after welding, further reducing cost and improving productivity. Additionally, our handheld weather 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 non-professional welders. Revenue from other applications decrease by 9% as higher revenue from advanced applications and telecom was more than offset by low revenue in medical. While revenue in medical declined due to the timing of orders, we have a strong order backlog for our Tullium laser systems, and the installed base for our consumable fibers for rotary applications continues to grow. We continue to focus on product innovation. We have many kinds of new projects across a wide range of applications. This includes processing of ceramic composite materials, numerous crystals, circuit boards, or LED film, batteries, and solar cells. And beyond material processing applications, We're developing new soft tissue medical treatment, with infrared laser form, molecular-level resolution online spectroscopy, inspection, sensing, and biomedical research applications, and new high-speed transceivers for the telecom and datacom markets. In addition to reporting our first quarter results, we announced a management transition this morning, which follow a well-planned succession strategy that we had in place for some time. I'm happy to announce that Dr. Eugene Shcherbakov, who I consider as co-founder of IPG, will succeed me as IPG's chief executive officer. Dr. Shcherbakov is a world-known scientist in the field of nonlinear and waveguide optics. He many years worked in General Physics Institute of Russian Academy of Science under patronage of Nobel prizer Alexander Prokhorov before to join me in IPG laser Germany in 1995. Many years he managed the best branch of IPG Corporation, sharing the position with Corporate Chief Operation Officer duties 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 roles, I will be spending more time on innovation and our technical capabilities, which are my passions. To continue to promote development and innovation, development in other ways as components and applications that will drive future success in technology leadership of IPG. It is an exciting evolution for me and a very good transition to the company. With that, I welcome the call hours to Eugene, IPG's new CEO.
spk02: 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 Dr. Gaponsov 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 fall 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. Trail restriction and safety precautions limit customer visits but we have seen the increase in traffic through our application labs. They are benefiting from number of significant environment trends That includes increased investment in capacity for renewable energy and electric vehicles to support growth in sales. We are seeing increasing demand for our green pulse laser, which enable significant improvements in solar cell efficiency. We also supply a wide range of products that provide improvements in electric vehicle 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 costs. We expect them to benefit from growth of electric vehicle cells 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 104% year-over-year in the first quarter, representing approximately 41% of our total sales. We are seeing the high demand of our ultra-high power lasers and laser heads from general manufacturing in China driven by these lasers in metal processing productivity and ability to cut sycamore metals. First quarter bookings in China were strong, benefiting from domestic infrastructure investment, EV and general manufacturing. As a result, our outlook for the second quarter is robust and there expect the demand trends to continue. Sales to the rest of Asia increased 45% a year earlier. We are seeing strong demand for our welding and foil cutting solutions for electric vehicle 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 indicators seem 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 growth in Germany. While COVID infection rates remain high in Europe, it appears that industrial growth is improving and bookings are incrementally positive, pointing to continued recovery in the region. First quarter revenue in North America continued to improve, increasing 9% year-over-year. Those were primarily driven by automotive investment in new battery capacity for electric vehicles being particularly strong. In addition to demand from EV battery manufacturers, there will continue to be opportunities to replace all lasers at several auto manufacturers in the United States. Laser system recovered from the low level in the prior year. Also, non-laser system laser cells remain weak. The pipeline of opportunity for lasers and non-laser systems has improved, and we are spending booking to recovery during the 2021. As Valentin mentioned, medical revenue was lower. Also, increased medical booking mean that medical revenue will also improve during the year. And we're particularly pleased with the growth in sale of medical consumable fibers as a number of procedures performed for our world-standard lithopressor encryption system increased along with a growing installed base. To continue to benefit our vertically integrated production model, which enables key technology advantages over the competition, while minimizing the cost and supply chain disruptions. Growth margin improved to 47.5% this quarter as we benefited from increased volumes and our continued focus on cost reduction initiatives. Total SG&A and R&D expenses increased by approximately 5 million year-over-year 82 million in the first quarter, but declined as percentage of our revenue. We continue to believe that our large and diverse advanced materials and components technology platform, our efficient R&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 a stronger company. On behalf of Wellington and myself, I want to thank our employers for their execution during this first quarter. The health, safety, and well-being of our employers, 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.
spk03: Thank you, Eugene, and good morning, everyone. Revenue in the first quarter was $346 million, 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 6 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 ultra-fast pulse 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 gap gross margin was 47.5%, an increase of 620 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 million, and operating margin was 25.7%. First quarter net income was $68 million, or $1.26 per diluted share. The effective tax rate in the quarter is 23%. During the quarter, we recognized a foreign exchange gain of $7 million, primarily related to appreciation of the U.S. dollar versus the euro. Foreign exchange gain benefited EPS by 9 cents. 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 million lower and gross profit to be $10 million. We ended the quarter with cash, cash equivalents, and short-term investments of $1.4 billion and total debt of $37 million. Strong operational execution resulted in cash provided by operations of $88 million during the quarter. Capital expenditures were $27 million in the first quarter and we expect capital expenditures will be in the range of $150 million to $160 million for the full year. During the quarter, we repurchased 15,000 shares for $3 million. 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 US 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 cuttings. electric vehicle battery production, solar cell manufacturing, medical procedures, and advanced applications. In the second quarter of 2021, IPG expects revenue of $360 to $390 million. 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 to $84 million. 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 $1.20 to $1.50, with 53.5 million basic common shares outstanding and 54.2 million 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-19 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.
spk05: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. We ask that you please limit to one question and one follow-up. In confirmation tone, indicate your line is in the question queue. You may press star 2 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 keys. One moment, please, while we poll for questions. Our first question comes from John Marchetti with Stiefel. Please proceed with your question.
spk00: Thanks very much. 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.
spk03: 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.
spk00: That's helpful. Thank you. And then if I can just follow up real quick, 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.
spk03: Certainly an 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.
spk00: Great. Thank you very much.
spk05: Our next question comes from Jim Rusciutti with Needham & Company. Please proceed with your question.
spk07: Good morning. First off, congratulations, Gallatin and Eugene, on the management transition. question about Genesis. 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.
spk03: So on Genesis, they're struggling to close some of the 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 five million dollars a piece given the environment um 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 we're moderately more optimistic that that business if they can close some of these orders will certainly reach a bit of a turning point um 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 you know the 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.
spk02: I would like to add something for Genesis 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 new business. I mean, not only supply lasers or laser components to such kind of applications, but complete systems. And we already successfully installed a very important automotive customer, and we'll see very good perspective for such kind of activity.
spk07: Thank you. Thank you for that. And, and, uh, follow up questions just with respect to the guidance. I mean, if, if we look at the midpoint of the guidance, it would suggest, I think that you're getting to gross margins, um, you know, close to the historical levels in the high 40s, not above, you know, certainly where you'd been several years ago. But am I looking at this the right way, Tim? Should we assume that your gross margins have the potential to be north of 49% in Q2?
spk03: 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. But certainly we're pleased with the overall gross margin performance. I mean, the underlying gross margin, you exclude some of the one-time 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.
spk07: Yeah, no, I understand. It's just the fact that you can get as high as 49% is nice to see. Thank you.
spk09: new product which just introduced in the market and we expect this year next year the will essentially impact the gross margin will also allow to increase it's very essential thank you for that our next question comes from the line of nick todra with longbow research please proceed with your question
spk08: Yeah, 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 on the seasonal North America and Europe, I think China growth is accelerating substantially from, you know, to eventually mid-teens. And I think last year comp was still, you know, 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?
spk03: 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 – 18 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 and 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 in 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 moot point. You can't call what is seasonality at this point in time.
spk02: It was important in the past, but now it's much more important vaccination of people. This is much more important percentage of vaccinations in different countries.
spk09: In China, we are saving the position here and trying to increase position for new products. We introduced that they don't have any competitive versions for that. We also have what we're talking second quarter firm orders. But we have a lot of frame orders, which here we're still waiting licenses, export licenses, so on. If compared to this, so even third quarter minimum, also we have a very good backlog here. Even 80%, 70% use of these frame orders will convert to real orders.
spk08: 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 compared that to your September quarter that you reported last year, you did 48% on a significantly lower revenue run rate. Can you maybe compare and contrast, you know, what's driving that lower incremental fall through? And I guess, are you seeing any impact from either component or just a higher logistics cause that could be holding this down?
spk03: Thank you. So there's some things. In the second half of last year, we certainly benefited product mix, so we had reference selling significant orders for single mode lasers that have a very strong margin on them. In addition to that, we had sales of very ultra high power lasers for advanced applications. So, for example, 100 kilowatt lasers. Those tend to be advanced applications was good in Q1 and is good in Q2. 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 mixed 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.
spk04: Thank you.
spk05: Our next question comes from the line of Mark Miller with the Benchmark Company. Please proceed with your question.
spk06: Thank you for taking my question. Just wondering, you had very strong performance in Germany. Was that related to automotive and EV welding?
spk03: Strong German and European performance in Q1.
spk02: Is it EV or automotive? Of course, first of all, it's driven by standard applications, I mean, for cutting applications. And also, very important that we, for many quarters, the first time demonstrated very good results for welding applications. It connected to our new lasers, AMD lasers, and also high power, ultra-high power lasers, which are using for welding applications. And also, really very good performances to supply to our customers high-power pulse lasers, again, for EV applications, for battery applications, and also for some other applications.
spk03: In MQCW?
spk02: MQCW is our new product. Yes, thank you, Tim. And already shipped for our sale, several very important customers accepted this. And we start to supply not for single units, but tens of such kind of lasers to our customers. And we see a very good future for such kind of lasers in these applications.
spk06: Typically, IPGs reported about 20% of sales are from products introduced within the last two years. Are you still running at that level?
spk03: Yeah, we actually had a great quarter on that. They were at about 29% of sales, all the emerging products. So that was the highest level they've been for, I think, ever since we've tracked them.
spk06: That is good. Thank you.
spk05: Our next question comes from Tom Diffley with DA Davidson. Please proceed with your question.
spk04: Yeah, good morning. First, after 15 years of earnings calls, Valentin, we're going to miss your insights going forward. It's been a pleasure working with you. Eugene, welcome. And maybe 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?
spk02: I don't think so. I feel the latest market, but it will be substantial. an 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 growing. Welding applications, yes, definitely will grow. Speed of this growing will depend, of course, on many parameters. First of all, electric vehicle. You see one of the applications which demonstrated a very fast growing application for our new lasers, especially for AMD laser. Why? Because first time people can weld practically without any sputtering. It only is possible with 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 demonstrates that very big perspective for future applications because you have this ability 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 applications with new components, with new possible applications, I think welding will demonstrate a very good future. Of course, our special, you know, when you can mention about this, our new product, hand welding tool. We see a very big future for such kind of applications because it's very simple, robust, and only in few minutes practically non-trained people start to build not the only world but the world is high quality and i also see a very good perspective for such kind of application such kind of tool okay no thank you it's helpful uh it does seem like a pretty large on top market especially for some of these new technologies that are coming out um maybe just a quick follow-up for tim
spk04: CapEx at 150, 160 this year, what are the main components of that? Is it expansion of capacity?
spk03: Yeah, there's a lot of expansion. Of course, it's primarily expansion of capacity, but you'll add some capability there for R&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. 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.
spk04: Okay. Thank you for your time.
spk05: Our next question is from Michael Fenninger with the Bank of America. Please proceed with your questions.
spk04: 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 pricing dynamic better than you did in the past?
spk03: I 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-powered pulse laser sales that have a very good margin on them. We've even started to see some of our AMB and LDD sales sold there. 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, you know, just focusing on what our total market share is.
spk04: um and 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 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 if we just fast forward to 2022 if we're looking at a gdp of five percent like global gdp like how do you does ipg growth profile look in that backdrop are is there going to be a potentially different mix of geography new products on 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 i think i mean if you go to gdp growth rates that's sustained on a global basis at five percent you'll see
spk03: The overall laser market grew 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 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 1.4 trillion, 1.4 terawatts. So that would be a core driver. And then you've got 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 be a complement to our business, 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 5% growth rate next year.
spk05: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Our next question comes from Prakash Misra with Barenburg. Please proceed with your question.
spk04: 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 China the biggest piece there or the rest of the world is bigger?
spk02: First of all, we don't have any problem with such kind of chips because we didn't use and don't use in our product such kind of chips. The secondary, no. Our big activity is not in China automotive. It's the rest of the world. First of all, Germany, of course, and United States also.
spk04: Got it. And then just want to come back on some of your comments on the welding market. For the electric vehicle battery welding, what are the most important products? Is it the CW type products or maybe the QCW is the most important product that you're selling for that end market?
spk02: Of course, we have to ask our customer, but for our opinion, It's important all CWU and also pulse because it's a different kind of application. It's not the same processes which are making this CWU and these pulse lasers. For example, a CWU is usually used for welding applications, welding a cast and welding some parts of the battery. Pulse laser, as usual, they're using for cleaning and for cut foil, cutting foil during the process. of producing this battery. Different applications, and of course important, also welding and cutting and cleaning.
spk09: Also welding, also especially this battery. Contact, yes. Contact, it's very important, the most critical, sensitive. And we developed two different kinds of machines, and now going to master more and more customers start looking at buying this machine from us. And in total, regarding this Genesis, I have to add that we developed the last, this year introduced practical finish qualification, so minimum already for first quarter only three machines a different machine for different application and this oil welding for the thick glass cutting and for other kinds of pipe differently welding this machine for mass uses with transfer They develop in Russia for possible qualification. Now there will be entry to the world market, and geniuses will transfer for mass production. Now we have interest from Arab countries, for example, oil drilling, new opportunities. We have requests from other countries, companies we believe this only this machine will provide you many 10 million business but we develop in development now more than 10 new machine edition which will introduce second half this year next year it's really fully operating unique for application highest quality systems It's new generation, so with our policy from material, from components, and so on, up to fully verticalization, up to final machines and production line. Now we start to work in full volume.
spk04: Thank you. That was very useful. I appreciate it.
spk05: We've reached the end of the question and answer session. At this time, I'd like to turn the call back over to your host, Eugene Fedotov. Thank you for closing comments.
spk01: 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.
spk05: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participations.
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