Coherent Q1 revenue impacted by slowing materials processing sales in China

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US laser manufacturer Coherent has reported net sales of $383.1 million and net income of $35.6 million for its first quarter of fiscal 2019. These results compare to net sales of $477.6 million and net income of $41.9 million for the same period in fiscal 2018.

The reported decline is in part due to a slowdown in materials processing sales in China, which, according to president and CEO John Ambroseo, were impacted by a combination of tariffs, rising consumer debt and eroding consumer confidence and spending, which he said have taken a toll on the Chinese economy.

 

Materials Processing sales made up 27 per cent of the firm’s total quarterly revenue, corresponding to approximately $103.4 million – a drop of approximately $20 million from the previous quarter.

In addition to the macro factors mentioned, a price war in certain fibre lasers, which last quarter were reported to be between 1-4kW in power, continues to further exacerbate the challenges for the laser industry in China, Ambroseo added.

The decline in sales was partially offset by wins in Tier 1 automotive with Asian and European suppliers as well as an uptick in medical device manufacturing.

‘Our focus on automotive applications is yielding results. We received significant orders for electromobility projects in Asia and Europe,’ Ambroseo confirmed. ‘The automotive market continues to perform well and we expect bookings to grow for battery, powertrain and body-in-white projects over the remainder of FY19. We were also pleased by a bookings increase in medical device manufacturing, including a record 10 per cent contribution from China. The Chinese medical device industry is expected to grow by as much as 25 per cent, so this may provide a partial offset to the broader Chinese materials processing market.’

Asia accounted for approximately 55 per cent of reported revenues for the fiscal first quarter, while the US accounted for 22 per cent, Europe 19 per cent and rest of the world 4 per cent.

Orders were reported to have risen for PCB cutting and redistribution layer structuring, while a record order was also booked for ultrafast lasers used in thin film scribing for solar panels. The respective customer anticipates to further expand its capacity over the next four quarters, according to Coherent.

The flat panel display market, where Coherent’s excimer lasers are used in annealing applications, is in line with industry expectations, according to the firm. Kevin Palatnik, Coherent’s CFO, added that one customer in South Korea related to large flat panel display manufacturing contributed more than 10 per cent of the firm’s fiscal first quarter revenues.

For its fiscal second quarter Coherent expects revenue to decline again, to between $360 to $380 million, with the slowdown in China likely to continue affecting sales throughout the year.

‘The question on everyone’s mind is what will 2019 look like?’ Ambroseo said. ‘The risk associated with China has increased over the past quarter as we’ve learned more about the evolving underlying situation, particularly their domestic challenges. Based upon these and other factors, it would be understandable to have a more dour outlook.’

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