IPG Photonics (IPGP) Faces Prolonged Weakness as Industrial Demand Stalls

IPG Photonics (IPGP), a leading supplier of high-power fiber lasers used primarily in industrial applications, continues to face significant challenges as weak demand across key end markets weighs on its financial performance.

The company’s Q4 earnings report revealed another quarter of sharp revenue declines and below-consensus guidance, signaling that the recovery in industrial and e-mobility markets remains elusive.

Shares of IPG Photonics dropped 8 percent following the earnings release, extending a two-year downward trend. The company has now reported ten consecutive quarters of revenue contraction, with four straight quarters of year-over-year declines exceeding 20 percent. The weak performance underscores the ongoing struggles in global manufacturing, automotive production, and industrial laser adoption.

Fourth Quarter Highlights: Another Tough Report

For Q4, IPG Photonics reported revenue of $234.3 million, down 21.6 percent year-over-year, though slightly above analyst expectations, which had factored in an even steeper decline. However, earnings per share (EPS) fell short of consensus estimates, further disappointing investors.

The company continues to be heavily impacted by softness in materials processing, which accounted for 85 percent of total revenue in Q4 but saw a 24 percent year-over-year decline.

This drop was primarily driven by weak demand in welding and cutting applications, as well as inventory destocking by original equipment manufacturer (OEM) customers who remain hesitant to increase orders due to persistent macroeconomic uncertainty.

Industrial Weakness: A Persistent Challenge

The industrial sector, which represents the core of IPG's business, has struggled over the past two years due to a confluence of factors:

1. Slow Recovery in Manufacturing

The global industrial production recovery has been sluggish, particularly in key regions such as China and Europe, where economic growth remains fragile. Capital investment in manufacturing has been subdued, limiting demand for industrial lasers.

2. E-Mobility and Automotive Market Struggles

IPG has historically benefited from the growth of electric vehicles (EVs), given the use of fiber lasers in battery welding, cutting, and assembly. However, slowdowns in EV adoption, production cuts by major automakers, and excess inventory in the supply chain have dampened demand for IPG’s laser systems.

3. Increased Competition in the Laser Cutting Market

Competitive pressure in high-power laser cutting applications has intensified, particularly from Chinese laser manufacturers offering lower-cost alternatives. This has contributed to pricing pressure and market share erosion for IPG, further compressing its revenue base.

Medical Segment: A Rare Bright Spot

Despite the challenges in its core industrial business, IPG’s Medical segment posted a notable recovery in Q4, though on a relatively small scale. Adjusting for the divestiture of its Russian business, Medical revenue saw modest growth in 2024 and is expected to be a stronger growth driver in 2025 and beyond.

The Medical segment represents an important diversification opportunity for IPG, as demand for laser-based surgical and therapeutic applications continues to rise. However, this business remains a small contributor to overall revenue, meaning that its growth is unlikely to offset industrial sector weakness in the near term.

Looking Ahead: Bouncing Along the Bottom?

IPG’s management acknowledged that the company is still “bouncing along the bottom,” meaning it does not expect a significant rebound in demand in the immediate future. However, there are some signs that conditions may gradually stabilize:

- The book-to-bill ratio was close to one in Q4, indicating that order inflows are at least keeping pace with shipments, which could signal a bottoming out of demand.

- Management expects Medical revenue to grow in 2025, with more substantial growth potential in 2026 and beyond.

- The company is focusing on cost control measures and efficiency improvements to mitigate the impact of ongoing revenue declines.

That said, the outlook for Q1 2025 remains weak, with the midpoint of both revenue and EPS guidance falling below Wall Street estimates. This suggests that any meaningful recovery is likely several quarters away at best.

Stock Performance and Valuation Considerations

IPG Photonics' stock has been on a steady decline for the past two years, reflecting the persistent weakness in its end markets and investor skepticism about a near-term turnaround. Shares are down more than 60 percent from their 2021 highs, and with limited signs of demand improvement, downside risk remains.

Despite the stock’s decline, valuations remain a point of contention. Given the continued revenue erosion, competitive challenges, and weak guidance, many investors are hesitant to assign a premium multiple to IPG until a more convincing demand recovery emerges.

Some potential catalysts for a turnaround include:

- A broader industrial recovery, particularly in China and Europe.

- Stabilization in EV production, which could reignite demand for laser welding applications.

- Increased adoption of high-power lasers in new industrial applications.

- Further growth in the Medical segment, which could provide some much-needed revenue diversification.

Final Thoughts: A Challenging Road Ahead

IPG Photonics finds itself in a prolonged downturn, with ongoing industrial sector weakness, heightened competition, and sluggish demand in key markets weighing on its financial results. While the Medical segment offers a potential growth avenue, it is not large enough to offset the broader challenges in the company’s core industrial business.

With Q1 guidance missing expectations and no immediate signs of a demand rebound, IPG remains in a difficult position. While the stock’s long-term potential remains intact, particularly if macro conditions improve, investors will need to exercise patience as the company navigates its way through one of the most challenging periods in its history.

Until clearer signs of an industrial recovery emerge, IPG is likely to remain under pressure, making it a stock to watch—but not necessarily a stock to buy just yet.