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Fiber laser manufacturer IPG Photonics (NASDAQ:IPGP) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, but sales fell by 21.6% year on year to $234.3 million. On the other hand, next quarter’s revenue guidance of $225 million was less impressive, coming in 3.8% below analysts’ estimates. Its GAAP profit of $0.18 per share was 11.3% below analysts’ consensus estimates.

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IPG Photonics (IPGP) Q4 CY2024 Highlights:

• Revenue: $234.3 million vs analyst estimates of $226.6 million (21.6% year-on-year decline, 3.4% beat)

• EPS (GAAP): $0.18 vs analyst expectations of $0.20 (11.3% miss)

• Adjusted EBITDA: $28.77 million vs analyst estimates of $15.29 million (12.3% margin, 88.2% beat)

• Revenue Guidance for Q1 CY2025 is $225 million at the midpoint, below analyst estimates of $233.9 million

• EBITDA guidance for Q1 CY2025 is $27 million at the midpoint, below analyst estimates of $27.75 million

• Operating Margin: 6%, down from 9.6% in the same quarter last year

• Free Cash Flow Margin: 21.6%, down from 27% in the same quarter last year

• Inventory Days Outstanding: 180, up from 163 in the previous quarter

• Market Capitalization: $2.91 billion

Company Overview

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ:IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, IPG Photonics’s demand was weak and its revenue declined by 5.8% per year. This fell short of our benchmarks and is a sign of poor business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. IPG Photonics’s recent history shows its demand has stayed suppressed as its revenue has declined by 17.3% annually over the last two years.