Matt Briggs, Yosha Huang, Lukas Vlahos

• World’s Leading developer and manufacturer of high-performance fiber lasers, fiber amplifiers, and diode lasers that are used for diverse applications.
• Vertically integrated business model has led to industry leading margins.
•
•
Diverse Global Customer base
•
• Largest customer accounted for 11% of sales in 2013
Sell to OEMs, System Integrators, and End
Users
Numerous applications and industries that use IPG products
• Offers low, mid, and high power lasers
IPG Photonics Key Stats
Market Cap
2013 Revenue
2013 Net
Income
Operating
Margin
Net Margin
$3.54 Billon
$648 Million
$156 Million
34%
24%

Europe:
• $205,426
• 31.8% of Rev
North America:
• $116,935
• 18% of Rev
Asia:
• $324,461
• 50.1% of Rev

Materials Processing
• Cutting and Welding
• Micro-processing
IPG’s largest Source of Revenue
Medical
• Surgery
• Skin and Tissue Resurfacing
• Kidney Stone Treatment
Advanced Applications
Communication
• Source in fiber Optic Communications

Global Laser Market
Revenue, $2.6bn (2013)
IPG
($648m)
Other
$345m
Total
Fiber
$823m YAG
$330m
CO2
$1,100m
Global Laser Market Revenue,
$3.4bn (2018P)
Other
$830m
CO2
$842m
IPG
($1.2b)
Total
Fiber
$1.49b
YAG
$287m

•
•
•
Electrons excited by pumping into excited state.
Specialized material settles into meta excited state.
All atoms in meta excited state release photons at once; released gradually through from mirrored chamber.
•
•
•
Utilize fiber optic cables doped with rare minerals to store excited electrons.
Initial pump energy provided by Diode pump laser
Beam can be more finely controlled with gratings at release point.

•
•
•
•
Efficiency – dissipates heat over the entirety of the cable, reducing energy loss.
Precision – fiber lasers offer straight, focused beams, increasing power and accuracy.
Maintenance – mirrors used in other lasers require frequent, extremely complicated alignment; fiber lasers avoid this problem entirely.
Convenience – lighter and smaller due to the removal of large mirrored chambers.

•
•
•
Occurs when a company expands into areas at different points along the same production path.
A company that controls its suppliers has backward integration.
A company that controls its distributors has forward integration.
•
•
Lowers costs and improves margins.
Additional competitive advantage.
Banana Phones

•
•
•
Components
Complete control over manufacturing process.
Patents on diode pumps, special fibers, optical components, amplifiers, and gratings.
Diodes and other components more reliable and powerful than others on the market.
•
•
Applications
Extensive application testing facilities – offers process development services.
Does further R&D on new applications of more powerful lasers.

• Conventional lasers are getting older (20+ years)
• Companies looking to replace older lasers
• Market is mostly concentrated with conventional lasers
• Fiber lasers are a cheaper, more powerful, and more reliable alternative
• IPG is the leader of the fiber laser space.
• Great opportunity for
IPG to steal market share from competitors and further innovate its products
•
•
• Recent insider sales have lead to an overreaction from the market, driving the prices down.
The Street is concerned about adoption rates of the disruptive technology.
The Street is overly concerned about increased competition from low-cost producers due to temporary slowdowns in bookings from key market sectors, like
China.

Product line % revenue Forecast assumptions
High Power 54%
Pulsed 17%
Medium Power 11%
QCW
Low Power
4%
2%
• Forecast strong growth in material processing.
• Difficult for first generation lasers to compete in pricing since efficiency of fiber lasers allows high wattages
• UV Lasers will add additional product line for more precise machining and memory usage.
• Revenue will decline due to increased Chinese competition
• Revenue will increase in material processing (correlated to high power growth)
• Revenue will increase in fine welding applications as they replace Nd:YAG
• Decrease in revenue due to stronger competition in Asia and from established gas laser producers which can manufacture low power lasers at a lower price point

Highest projected growth Non-metal
$273m
High power applications
(cutting and welding)
Marking
Fine Processing
Micro-processing
(semiconductor, packaging, flat panel display, solar)
Non-metal processing
Microprocessing
$935m
2% pen.
High power
$1.2bn
23% pen.
Slowest projected growth
Fine processing
$316m
24% pen.
Marking
$407
48% pen.
New products will be able to address unpenetrated markets.

Market Cap
P/E (TTM)
ROA
Operating
Margin
Net Margin
Revenue
Growth (q/q)
IPG
Photonics
3.45B
20.02
14%
34%
Coherent
1.62B
24.05
4.9%
9.7%
ESI Newport Corp Rofin-Sinar
Technologies
222.5M
717.6M
649.2M
--
-4.4%
-12%
26.04
5.4%
8.7%
26.57
3.1%
6.4%
24%
14.3%
7.5%
-8.1%
-25%
-4.5%
4.6%
-3.5%
4.3%
-3.5%

Case Assumptions
Bear 20% Competitors are able to break into high power market (16% q/q); Chinese competition forces greater than expected decline in other segments (-14% q/q)
Base 50% IPG maintains technological advantage, high power growth is strong (22% q/q); Chinese impact limited to smaller segments (-10% q/q)
Bull 30% High and medium power growth is stronger than expected (26% q/q); Chinese impact reduced (-7% q/q)
P/E Multiple Price Target
17 $63.45
20
21
$80.52
$89.50
Current Price - $66.86
Price Target - $79.80 (19.35% return)

2013
4,480 Total Laser Industry Revenue
% Growth
Total Fiber Laser Revenue
% Growth
Market Share
911
2014
4,704
5%
1,093
20%
23% 20%
71%
647
69%
754
IPG's marketshare of Fiber Lasers
IPG Fiber Laser Revenue
Cost of revenue
% of Revenue
Gross profit
Gross Margin
Total operating expenses
Operating Margin
Operating income
Operating Margin
Net income
Net Margin
302
46.7%
344.7
53.3%
121.0
18.7%
224
34.6%
153
23.7%
355
47.0%
399.8
53.0%
141.8
18.8%
258
34.2%
181
24.0%
2015
4,939
5%
1,312
20%
27%
67%
879
413
47.0%
465.8
53.0%
167.0
19.0%
299
34.0%
209
23.8%
Earnings Per Share
Basic
Diluted
3.07
2.95
3.48
3.48
$4.02
4.02
Current Price - $66.86
Price target by
Market share value:
$80.46 (20.34% upside)

22,00%
20,00%
18,00%
16,00%
14,00%
12,00%
10,00%

2015 P/E
2015 EPS
Share Price
Current Price
Expected Return
20
4.03
$80.52
$67.93
18.54%
3.63
3.73
3.83
3.93
4.026
4.13
4.23
4.33
4.43
Return Sensitivity
Analysis
17
61.64
63.34
65.04
66.74
68.44
70.14
71.84
73.54
75.24
18
65.27
67.07
68.87
70.67
72.47
74.27
76.07
77.87
79.67
19
68.90
70.80
72.70
74.60
76.50
78.40
80.30
82.20
84.10
20
72.52
74.52
76.52
78.52
80.52
82.52
84.52
86.52
88.52
21
76.15
78.25
80.35
82.45
84.55
86.65
88.75
90.85
92.95
22
79.77
81.97
84.17
86.37
88.57
90.77
92.97
95.17
97.37
23
83.40
85.70
88.00
90.30
92.60
94.90
97.20
99.50
101.80

Revenue (by product line)
% Growth (yoy)
High power laser
% Growth (yoy)
% Revenue
Pulsed laser
% Growth (yoy)
% Revenue
Medium power
% Growth (yoy)
% Revenue
QCW laser
% Growth (yoy)
% Revenue
Low power laser
% Growth (yoy)
% Revenue
Laser Revenue subtotal
Other products
% Growth (yoy)
% Laser Revenue
Services, parts, accessories
% Growth (yoy)
% Laser Revenue
Q1 2013 (A)
141.7
Q2 2013 (A)
166.1
Q3 2013 (A)
172.2
Q4 2013 (A)
170.6
Q1 2014 (A)
170.6
20%
Q2 2014 (A)
192.2
16%
Q3 2014 (P)
195
13%
Q4 2014 (P)
199
17%
Q1 2015 (P)
199
17%
Q2 2015 (P)
217
13%
Q3 2015 (P)
228
17%
Q4 2015 (P)
235
18%
75.1
19%
53%
85.4
38%
51%
95.8
42%
56%
100
-13%
59%
100
33%
59%
104.1
22%
54%
116.9
22%
60%
122.0
22%
61%
122.0
22%
61%
127.0
22%
59%
142.6
22%
63%
148.8
22%
63%
33.3
21%
24%
3.9
>100
3%
10.4
9%
7%
4
6%
3%
126.7
5.8
5%
9.2
7%
40
5%
24%
15.7
41%
9%
5.6
>100
3%
3.6
-14%
2%
150.3
6.2
4%
9.6
6%
34.4
-32%
20%
14.2
27%
8%
6.5
>300
4%
2.8
-28%
2%
153.7
8.6
6%
9.9
6%
28.8
67%
17%
17.5
43%
10%
5.6
43%
3%
3.8
-7%
2%
155.7
6.8
18%
4%
8.1
-13%
5%
28.8
-14%
17%
17.5
68%
10%
5.6
44%
3%
3.8
-5%
2%
155.7
6.8
17%
4%
8.1
-12%
5%
32.4
-19%
17%
21.6
38%
11%
8.1
45%
4%
3.1
-14%
2%
169.3
6.7
8%
4%
16.2
69%
10%
31.0
-10%
16%
17.9
26%
9%
8.8
35%
5%
2.5
-10%
1%
177.0
7.1
-18%
4%
10.6
7%
6%
25.9
-10%
13%
22.1
26%
11%
7.6
35%
4%
3.4
-10%
2%
181.0
7.2
6%
4%
10.9
34%
6%
25.9
-10%
13%
22.1
26%
11%
7.6
35%
4%
3.4
-10%
2%
181.0
7.2
6%
4%
10.9
34%
6%
29.2
-10%
13%
27.2
26%
13%
10.9
35%
5%
2.8
-10%
1%
197.1
7.9
18%
4%
11.8
-27%
6%
27.9
-10%
12%
22.5
26%
10%
11.8
35%
5%
2.3
-10%
1%
207.1
8.3
17%
4%
12.4
17%
6%
23.3
-10%
10%
27.8
26%
12%
10.2
35%
4%
3.1
-10%
1%
213.2
8.5
18%
4%
12.8
18%
6%

Revenue (by product line)
% Growth (yoy)
High power laser
% Growth (yoy)
% Revenue
Pulsed laser
% Growth (yoy)
% Revenue
Medium power
% Growth (yoy)
% Revenue
QCW laser
% Growth (yoy)
% Revenue
Low power laser
% Growth (yoy)
% Revenue
Laser Revenue subtotal
Other products
% Growth (yoy)
% Laser Revenue
Services, parts, accessories
% Growth (yoy)
% Laser Revenue
Q1 2013 (A)
141.7
Q2 2013 (A)
166.1
Q3 2013 (A)
172.2
Q4 2013 (A)
170.6
Q1 2014 (A)
170.6
20%
Q2 2014 (A)
192.2
16%
Q3 2014 (P)
202
17%
Q4 2014 (P)
207
21%
Q1 2015 (P)
207
21%
Q2 2015 (P)
225
17%
Q3 2015 (P)
245
21%
Q4 2015 (P)
253
22%
75.1
19%
53%
85.4
38%
51%
95.8
42%
56%
100
-13%
59%
100
33%
59%
104.1
22%
54%
120.7
26%
60%
126.0
26%
61%
126.0
26%
61%
131.2
26%
58%
152.1
26%
62%
158.8
26%
63%
3.9
>100
3%
4
6%
3%
126.7
33.3
21%
24%
10.4
9%
7%
9.2
7%
5.8
5%
40
5%
24%
15.7
41%
9%
5.6
>100
3%
3.6
-14%
2%
150.3
6.2
4%
9.6
6%
34.4
-32%
20%
14.2
27%
8%
6.5
>300
4%
2.8
-28%
2%
153.7
8.6
6%
9.9
6%
28.8
67%
17%
17.5
43%
10%
5.6
43%
3%
3.8
-7%
2%
155.7
6.8
18%
4%
8.1
-13%
5%
28.8
-14%
17%
17.5
68%
10%
5.6
44%
3%
3.8
-5%
2%
155.7
6.8
17%
4%
8.1
-12%
5%
32.4
-19%
17%
21.6
38%
11%
8.1
45%
4%
3.1
-14%
2%
169.3
6.7
8%
4%
16.2
69%
10%
32.0
-7%
16%
19.2
35%
9%
9.1
40%
5%
2.6
-7%
1%
183.6
7.3
-15%
4%
11.0
11%
6%
26.8
-7%
13%
23.6
35%
11%
7.8
40%
4%
3.5
-7%
2%
187.8
7.5
10%
4%
11.3
39%
6%
26.8
-7%
13%
23.6
35%
11%
7.8
40%
4%
3.5
-7%
2%
187.8
7.5
10%
4%
11.3
39%
6%
30.1
-7%
13%
29.2
35%
13%
11.3
40%
5%
2.9
-7%
1%
204.7
8.2
22%
4%
12.3
-24%
6%
8.9
21%
4%
13.4
21%
6%
9.2
22%
4%
13.8
22%
6%
12.7
40%
5%
2.4
-7%
1%
222.9
29.8
-7%
12%
25.9
35%
11%
11.0
40%
4%
3.3
-7%
1%
229.8
24.9
-7%
10%
31.9
35%
13%

Revenue (by product line)
% Growth (yoy)
High power laser
% Growth (yoy)
% Revenue
Pulsed laser
% Growth (yoy)
% Revenue
Medium power
% Growth (yoy)
% Revenue
QCW laser
% Growth (yoy)
% Revenue
Low power laser
% Growth (yoy)
% Revenue
Laser Revenue subtotal
Other products
% Growth (yoy)
% Laser Revenue
Services, parts, accessories
% Growth (yoy)
% Laser Revenue
Q1 2013 (A)
141.7
Q2 2013 (A)
166.1
Q3 2013 (A)
172.2
Q4 2013 (A)
170.6
Q1 2014 (A)
170.6
20%
Q2 2014 (A)
192.2
16%
Q3 2014 (P)
186
8%
Q4 2014 (P)
190
11%
Q1 2015 (P)
190
11%
Q2 2015 (P)
206
7%
Q3 2015 (P)
206
11%
Q4 2015 (P)
212
12%
75.1
19%
53%
85.4
38%
51%
95.8
42%
56%
100
-13%
59%
100
33%
59%
104.1
22%
54%
111.1
16%
60%
116.0
16%
61%
116.0
16%
61%
120.8
16%
59%
128.9
16%
63%
134.6
16%
63%
3.9
>100
3%
4
6%
3%
126.7
33.3
21%
24%
10.4
9%
7%
9.2
7%
5.8
5%
5.6
>100
3%
3.6
-14%
2%
150.3
40
5%
24%
15.7
41%
9%
9.6
6%
6.2
4%
34.4
-32%
20%
14.2
27%
8%
6.5
>300
4%
2.8
-28%
2%
153.7
8.6
6%
9.9
6%
5.6
43%
3%
3.8
-7%
2%
155.7
28.8
67%
17%
17.5
43%
10%
6.8
18%
4%
8.1
-13%
5%
28.8
-14%
17%
17.5
68%
10%
5.6
44%
3%
3.8
-5%
2%
155.7
6.8
17%
4%
8.1
-12%
5%
32.4
-19%
17%
21.6
38%
11%
8.1
45%
4%
3.1
-14%
2%
169.3
6.7
8%
4%
16.2
69%
10%
30.3
-12%
16%
17.0
20%
9%
7.8
20%
4%
2.5
-10%
1%
168.8
6.8
-22%
4%
10.1
2%
6%
25.3
-12%
13%
21.0
20%
11%
6.7
20%
4%
3.2
-15%
2%
172.3
6.9
1%
4%
10.3
28%
6%
25.3
-12%
13%
21.0
20%
11%
6.7
20%
4%
3.2
-15%
2%
172.3
6.9
1%
4%
10.3
28%
6%
28.5
-12%
14%
25.9
20%
13%
9.7
20%
5%
2.6
-15%
1%
187.5
7.5
12%
4%
11.3
-31%
6%
9.4
20%
5%
2.1
-15%
1%
187.5
26.6
-12%
13%
20.4
20%
10%
7.5
11%
4%
11.2
11%
6%
8.1
20%
4%
2.7
-15%
1%
192.9
22.3
-12%
11%
25.2
20%
12%
7.7
12%
4%
11.6
12%
6%

Cost of revenue
% increase
Gross profit
% Growth
Gross Margin
Operating expenses
Research and development
% of Revenue
Sales and Marketing
% of Revenue
General and Administrative
% of Revenue
Loss (Gain) on foregin exchange
% of Revenue
Total operating expenses
% of Revenue
Operating income
% Growth
Operating Margin
Interest Expense
% of Revenue
Other income (expense)
% of Revenue
Income before taxes
% Growth
Provision for income taxes
Tax Rate
Net income from continuing operations
% Growth
Other
% of Revenue
Net income
% Growth
Net Margin
53.3%
-0.3%
26.0
18.3%
49.5
8.8
6.2%
5.9
4.1%
11.8
8.3%
(0.5)
35.0%
0
0.0%
0
0%
49.5
14.5
29.3%
35.0
66
76
35.0
24.7%
-0.1%
30.0
18.1%
58.8
19%
35.4%
10.5
6.3%
6.8
4.1%
12.8
7.7%
(0.1)
77
17%
89
18%
53.5%
0
0.0%
0
0%
58.8
19%
17.9
30.4%
40.9
0.9%
32.7
19.1%
56.6
-5%
33.2%
10.9
6.4%
7.2
4.2%
13.0
7.6%
1.6
81
3%
89
-4%
52.3%
0.0
0.0%
-1.5
-1%
55.1
-6%
17.7
32.1%
37.4
0.9%
33.0
19.2%
59.8
2%
34.7%
11.5
6.7%
6.8
3.9%
13.2
7.7%
1.6
79
3%
93
4%
53.9%
-0.1
-0.1%
-1.3
-1%
58.3
-1%
17.7
30.4%
40.6
-0.8%
31.5
18.5%
57.7
2%
33.8%
12.8
7.5%
7.2
4.2%
12.9
7.6%
(1.4)
81
0%
89
0%
52%
0.1
0.1%
1.7
1%
59.6
8%
17.5
30.1%
42.1
20%
40.9
24.6%
40.6
23.6%
37.4
21.9%
42.1
20.3%
24.7%
0.2
0.1%
0
0%
64.8
-5%
19.5
30.0%
45.4
12%
0.5%
37.6
19%
64.6
-6%
33.2%
15.6
8.0%
7.8
4.0%
13.2
6.8%
1.0
92
5%
102
53%
0.5%
35.5
18.5%
68.7
19%
35.7%
13.4
7.0%
8.0
4.2%
13.1
6.8%
0.9
88
8%
104
17%
54%
0.2
0.1%
-0.7
0%
68.2
14%
20.7
30.0%
47.5
16%
47.5
16.0%
24.7%
45.4
11.7%
23.3%
0.2
0.1%
0
0%
67.5
1%
20.2
30.0%
47.2
12%
0.5%
37.2
19%
67.3
1%
33.8%
15.9
8.0%
7.4
3.7%
12.9
6.5%
1.0
95
0%
104
53%
0.2
0.1%
0
0%
66.7
3%
20.0
30.0%
46.7
25%
0.5%
38.0
19%
66.5
3%
33.4%
15.9
8.0%
7.6
3.8%
13.5
6.8%
1.0
95
2%
104
53%
46.7
24.8%
23.5%
47.2
12.2%
23.7%
0.2
0.1%
0
0%
77.7
5%
23.3
30.0%
54.4
20%
0.5%
42.1
19%
77.5
5%
34.0%
18.2
8.0%
8.0
3.5%
14.8
6.5%
1.1
108
5%
120
53%
0.2
0.1%
0
0%
73.9
10%
22.2
30.0%
51.8
9%
0.5%
40.1
19%
73.7
10%
34.0%
17.3
8.0%
7.6
3.5%
14.1
6.5%
1.1
103
9%
114
53%
0.2
0.1%
0
0%
80.0
3%
24.0
30.0%
56.0
20%
0.5%
43.4
19%
79.7
3%
34.0%
18.8
8.0%
8.2
3.5%
15.2
6.5%
1.2
111
3%
123
53%
51.8
9.0%
23.9%
54.4
19.8%
23.9%
56.0
20.0%
23.9%