1 Industrial Laser Supplier Investors Should Consider
The addressable market for lasers continues to grow at a steady 5% annual pace as product costs decline and power, versatility, and reliability increase. The submarket for the newer fiber laser is growing even more briskly at 20% annually . The field is crowded with laser manufacturers, however, so how does an investor know which company to bet on within this enabling technology?
Companies focused exclusively on laser products, especially fiber lasers, are the ones most likely to grab the most market share, as well as the most profitable share. This greatly reduces the field to the four publicly held "pure-play" laser suppliers: IPG Photonics (NASDAQ: IPGP), American-based Coherent , German-based Rofin-Sinar , and China-based Han's Laser trading on the Shenzhen exchange.
These are the companies which have dedicated their resources, expertise, and attention to the one market, and are not distracted by other business lines. They are fully committed to success in their chosen market with no alternatives to fall back upon. As when Cortez burned his ships on the shores of the New World, these companies have deliberately embarked on a do-or-die campaign and are therefore the most motivated to succeed.
Rise of the industrial laser
Europe and Japan were the first to bring industrial lasers into their factories. They were rebuilding those factories from scratch after the devastation of World War 2, so using the latest technology made sense. North American industry, in constrast, was spared from the destruction and continued to use its older industrial tooling as the cost of replacement was deemed too high. Most laser manufacturers, therefore, had been founded in Europe and Japan.
The tide is now changing in both North America and China. North America has become familiar with industrial lasers through their adoption by high-tech industries, while China is entering its industrial heyday and is committed to using the latest technologies. Both regions have seen the founding of additional laser suppliers, intensifying the competition and adding to the investor's dilemma .
In the midst of this shift, a new breed of laser -- the fiber laser -- has emerged with the potential to exceed the four older types of lasers by nearly every criterion that matters to customers . Its markedly higher sales growth comes both from opening up new markets that had not before used lasers of any kind, and from displacing more traditional lasers .
Comparing the laser "pure-plays"
Taking a first-blush look under the hood of the three American-exchange traded companies, the following table lists the fiscal year 2013 sales (in millions of dollars) and year-over-year sales growth of each, along with the percent of those sales reinvested into research & development and capital expenditures.
Coherent was an early entrant into the laser industry. It has expanded its repertoire over the years to all five laser types as the industry diversified and matured. The company's recent sales grew in tandem with the broader laser market, implying steady market share. It also didn't indicate any prioritization of reinvestment to any particular laser submarket .
IPG Photonics has focused exclusively, from its inception, on the faster-growing fiber laser market. Its stronger sales growth was in tandem with the broader fiber laser market, but one third of those sales were in the blossoming China market where the company's many sales offices managed a brisk 38.4% growth. Its sizable reinvestments continue to be fully dedicated to the fiber laser submarket .
Rofin-Sinar also manufactures all five types of laser. Its weaker sales grew more slowly than even the broader laser market, but half of this growth was to "other than Germany and North America" which grew substantially better at 18.1%. The company indicated R&D priorities to three of the five laser types, indicating that it is pursuing the most promising submarkets instead of blanketing them all .
Where to put your money
Only eight of the 18 laser suppliers are pure-play businesses, and only three of those trade publicly on an American exchange. Of these, IPG Photonics is the only one focused exclusively on the rapidly growing fiber laser market whose high growth comes both from displacing non-laser tools in new markets and from cannibalizing the existing markets of the other four laser types. The company also has a successful sales force in China where its sales grew nearly 40% last year. I see this company as the best opportunity for investors wishing to participate in this growth market; and I have put my own money there.
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The article 1 Industrial Laser Supplier Investors Should Consider originally appeared on Fool.com.Erik Eason owns shares of IPG Photonics. The Motley Fool recommends IPG Photonics and Rofin-Sinar Technologies. The Motley Fool owns shares of IPG Photonics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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