Fiber laser manufacturer IPG Photonics (NASDAQ:IPGP) missed analysts' expectations in Q1 CY2024, with revenue down 27.4% year on year to $252 million. Next quarter's revenue guidance of $255 million also underwhelmed, coming in 6.6% below analysts' estimates. It made a GAAP profit of $0.52 per share, down from its profit of $1.26 per share in the same quarter last year.

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"In the first quarter, we continued to generate strong cash flow from operations, reduce inventory and control manufacturing expenses, in spite of the challenging conditions. We also remained focused on our strategy to unlock additional growth opportunities for fiber lasers such as welding, cleaning, heating and medical, which would allow us to diversify our revenue away from highly competitive markets," said Dr. Eugene Scherbakov, IPG Photonics' Chief Executive Officer.

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

IPG Photonics's revenue has been declining over the last three years, dropping by 1.9% on average per year. This quarter, its revenue declined from $347.2 million in the same quarter last year to $252 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

IPG Photonics had a difficult quarter as revenue dropped 27.4% year on year, missing analysts' estimates by 0.7%. This could mean that the current downcycle is deepening.

IPG Photonics may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 25% next quarter, analysts are expecting revenue to grow 2.5% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, IPG Photonics's DIO came in at 254, which is 39 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from IPG Photonics's Q1 Results

The quarter was mixed, with revenue missing while EPS beat. The company's revenue and EPS guidance for next quarter both missed analysts' expectations and its operating margin shrunk. Management tried to put a positive spin around things, saying that "Despite a challenging first quarter, our book-to-bill was slightly above one for the first time since the first quarter last year, which may indicate that industrial demand is stabilizing and could start to improve modestly later in the year." Overall, this was a mediocre quarter for IPG Photonics. The company is down 4% on the results and currently trades at $85 per share.

IPG Photonics may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.