Good morning, and welcome to IPG Photonics' second quarter 2020 conference call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to James Hillier, IPG's Vice President of Investor Relations for introductions. Please go ahead, sir.
Thank you, Stacy, and good morning, everyone. With us today is IPG Photonics' Chairman and CEO, Dr. Valentin Gapontsev, Chief Operating Officer, Dr. Eugene Scherbakov, and Senior Vice President and CFO, Tim Mammen. Statements made during the course of this call that discuss management's or the company's intentions, expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include the impact of the COVID-19 pandemic on our business and those detailed in IPG Photonics' Form 10-K for the period ended December 31, 2019, and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the investor section of IPG's website or by contacting the company directly.
You may also find copies on the SEC's website. Any forward-looking statements made on this call are the company's expectations or predictions only as of today, August 4th, 2020. The company assumes no obligation to publicly release any updates or revisions to any such statements. For additional details on our reported results, please refer to the earnings press release and Excel-based financial data workbook posted to our investor relations website. We will post these prepared remarks on our investor relations website following the completion of the call. With that, I'll now turn the call over to Valentin.
Good morning, everyone. Despite the continued challenges to our business from the COVID-19 pandemic, we delivered second quarter results above our guidance range. Our strong performance was driven by better than expected performance in China and strength in new products. Before discussing the latest trends in our business, I want to provide you with an update on our ongoing efforts to deal with COVID-19 pandemic. The well-being of our people, our customers, and our partners remains our highest priority. We are continuing to manufacture and service our solution in all regions, having employed additional distancing, cleaning, and air purification and disinfection procedures while providing all employees with masks to wear in our offices.
With the state of Massachusetts now in phase III of its reopening plan, it has allowed us to bring additional employees back into our headquarters, so that staffing levels in the U.S. will be more commensurate with our facilities in Germany and Russia. Our commitment and support of workforce health and safety extends to COVID-19 response efforts in local communities worldwide. In addition to donation in China, Russia and Europe, we have donated essential pallets of face masks to MGH Boston and one of the local county hospital. Also, we have recently made a sizable financial contribution to the Worcester Educational Development Foundation to purchase Chromebooks for online education programs this fall. IPG is committed to supporting economic empowerment and diversity efforts in our local communities.
Further, we believe that cultivating of diverse and inclusive work environment, one that fosters a culture of mutual respect, help ensure our growth and success in the marketplace. 30 years ago, when I founded IPG, our vision was to create a company that would redefine our industry and whose day-to-day operation were committed to improving our communities and our society as a whole. Since that time, we have demonstrated a commitment to fostering, cultivating, and preserving a culture of merit, where our greatest ideas and innovations have come from the diverse collaboration of experiences and backgrounds of our people. Turning to our results, we continue to benefit from signs of industrial demand recovery in select regions, most notably China. In particular, demand for high-power CW pulse laser for cutting and battery processing application remains robust.
Global demand trends remain very uncertain at this time, and we have seen continued push-out and delays in select welding and system projects in Western Europe, North America, and other parts of Asia. This uncertainty continues to make forecasting of our business very challenging in the near to medium term. We continue to believe that our large, diverse, advanced materials and components technology platform, very efficient R&D model, and as well as strong balance sheet and free cash flow, provide us ample flexibility to respond to business disruptions and emerge from the pandemic in a stronger competitive position. The demand environment remains mixed. We are demonstrating good progress in our core markets, thanks to our technology differentiation and low-cost production capabilities.
In the cutting market, we delivered strong sequential growth in both our rack-mounted 1 to 4 kW lasers for the high volume market, and our ultra-high power lasers for leading-edge cutting systems. With the launch of our new ultra-compact YLR-U series of lasers, IPG is once again raising the bar for leading-edge performance in the high volume cutting sector. The YLR-U has essential extended optical performance, the smallest size, and lowest weight in the industry. At first time for their range of devices, it's fully protected against dust and humidity penetration, delivering unmatched performance in a ultra-compact form factor with a record power to volume ratio. At the high end of the market, we expect to benefit from the substantial increase in order volumes for our 30 kilowatt lasers and ultra-high power optical heads.
These lasers not only enable 50%-100% faster cutting speeds than 15 kW devices, but are capable of processing material with 20-50 mm of thickness or even greater. This improvement in both productivity and flexibility is driving the replacement, at first time, of plasma cutting machines and the lower power laser solutions, particularly in the machine shops and construction industries. Moreover, these lasers provide the superior beam parameters, record wall-plug efficiency, and unique high reliability that are the hallmarks of our solutions, which drive superior return on investment to our customers. Our Adjustable Mode Beam laser continue to gain traction in the welding industry, most notably in electrical vehicle battery welding. Our AMB products produce superior speed and weld quality. Our competing solution tends to broadest range of beam tunability, which enables spatter-free welding.
During the quarter, we again note the double sales of high power Nanosecond Pulse Laser used for foil cutting and other electrical vehicle battery processing application, and we expect strong growth in this application to continue during the second half of the year. Product innovation remains core to IPG's success. During second quarter, emerging product and application sales were one quarter of total revenue, increasing nearly 20% sequentially, despite softer demand trends in several new product categories due to the COVID-19 pandemic. Sales of medical laser increased more than 150% year-over-year as we continue to sell our now already gold standard thulium laser solution and consumable fibers to urology and other soft tissue applications. Advanced application revenue increased more than 40% year-over-year in Q2, driven by strengths in government, semiconductor, and the resumption of cinema projection system shipments.
Unfortunately, the COVID-19 pandemic limited our ability to make further progress selling our green, ultraviolet, and ultra-fast pulse lasers into emerging microprocessing applications, given the restricted travel and shutdown of customer sites and application labs during the quarter. We continue to target more than 50 new projects for these lasers across a wide range of applications. Processing glass, ceramic, composite materials, numerous crystals, circuit boards, OLED films, batteries, and solar cells. We're continuing investment in a number of next generation solutions that we plan to launch over the next 6 to 12 months with significant disruptive potential. This includes our newest outstanding Handheld Laser Welding. I underline handheld, it's first time. It's the newest product, very serious market chance. Multi-channel CO2 CW lasers for spot welding applications and kilowatt-scale pulse lasers for ablation and cleaning applications. At first time, multi-kilowatt thulium and Green Fiber Lasers.
Beyond materials processing, we continue to develop new soft tissue medical treatments, Mid-Infrared Lasers for molecular beam resolution, molecular level resolution, online spectroscopy, inspection, sensing, and biomedical research application, new high-speed transceiver for the telecom and datacom market, as well as new ultra-high-power single-mode Lasers and amplifiers for different application. I want to conclude my remarks by thanking our people for their strong execution, our one of the most challenging period in our company's history. I remain confident that our technology and manufacturing leadership will enable us to accelerate growth out of this COVID-19 and deliver on our mission to make our Fiber Laser technology the tool of choice in mass production. With that, I'll turn the call over to our COO, Eugene Scherbakov.
I will begin my remarks by discussing the effect of COVID-19 on our production. All three of our major production facility in Germany, the United States, and Russia remain open. We have increased production at our facility in Massachusetts as the state continue to progress on its reopening. Our facility in Germany and Russia are operating on largely normalized basis, albeit with the social distancing and enhanced cleaning and filtration measures in place.
I want to reiterate that safety of our employees, their families, our business partners, and community remain our highest priority. We continue to benefit from our vertical integrated product model, which enables key technology and cost advantages over the competition while minimizing supply chain disruptions. The current constraint on our business primarily relate restrictions on travel that affect our sales and application development efforts, as well as our shipment of products around the world.
Shipping costs were again elevated this quarter while we saw delay in and push out in project-based work due to COVID-19 pandemic. We continue to believe we have ability to meet the near-term demand for our products. We continue to benefit from cost reduction actions we undertook in the second half of 2019, as the total manufacturing operating expenses increased approximately $2 million sequentially, while revenue increased $47 million quarter-over-quarter. Examining our performance by region, revenue in China decreased 11% year-over-year, but more than double sequentially represented approximately 49% of our total sales. We benefited from strong sequential improvement in sales into cutting, welding, and battery processing, driven by a pickup in order activity in March and April that continued through the latter half of Q2, albeit at more moderate pace.
We continue to face aggressive competition in the region, but we continue to maintain share at key accounts while anticipating a strong mix of lasers at 10 kW or greater in the second half of 2020. In Europe, revenue decreased 24% year-over-year due to effect of COVID-19 on many countries in the region. Similarly, revenue in North America decreased 60% year-over-year, with strong growth in medical lasers and advanced applications more than offset by declines in laser and system sales for material processing. Sales in Japan decreased 60% year-over-year. While COVID-19 infection in the region are low, other countries, the continuous stopping and restarting of economic activity has delayed many significant projects with our welding and cutting businesses in the region. Sales in Korea decreased 33% year-over-year as economic activity in the region remain subdued.
Sale in Turkey decreased more than 70% year-over-year as the COVID-19 pandemic severely affected cutting sales in the region. With that, I will turn the call over to Tim to discuss financial highlights in the quarter.
Thank you, Eugene, and good morning, everyone. Revenue in the second quarter was $296 million, which declined 19% year-over-year, but increased 19% quarter-over-quarter. Revenue from materials processing applications decreased 21% year-over-year, and revenue from other applications increased 36%. Sales of high-power CW lasers decreased 26% year-over-year and represented approximately 53% of total revenue. Sales of ultra-high power lasers at 6 kW or greater represented more than 50% of total high-power CW laser sales. Pulse laser sales increased 4% year-over-year, with growth in high-power pulse lasers partially offset by lower sales of lower power pulse lasers for marking applications. Systems sales decreased 37% year-over-year as growth in systems for medical device manufacturing was offset by lower sales of other IPG laser systems and Genesis non-laser systems.
Medium power laser sales decreased 31% on continued softness in additive manufacturing and the transition to kilowatt scale lasers and cutting, while QCW laser sales decreased 14% year-over-year, but increased 39% quarter-over-quarter from sequential improvement in consumer electronics applications. Other product sales increased 21% year-over-year, driven by growth in medical laser sales. Q2 gross margin was 46%, which declined 350 basis points year-over-year. Compared with the year-ago period, the decline in gross margin was driven primarily by less favorable absorption of fixed manufacturing expenses. In addition, increased shipping costs were partially offset by lower inventory provisions compared with the year-ago period. Second quarter GAAP operating income was $47 million and operating margin was 16%.
During the quarter, we recognized a foreign exchange loss of $13 million, primarily related to revaluation of US dollar cash and other assets in Russia, given the appreciation of the ruble versus the US dollar. In addition, we incurred a charge of $1 million, which includes the non-cash write-off of machinery as well as other charges for severance and lease termination relating to our strategic decision to exit the submarine networking business. Foreign exchange loss and other charges reduced Q2 operating margin by approximately 470 basis points. Q2 net income was $38 million, or $0.71 per diluted share. The previously referenced foreign exchange loss and charges for restructuring and asset impairment reduced EPS by $0.20. The effective tax rate in the quarter was 23%.
If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $8 million higher and gross profit to be $4 million higher. We ended the quarter with cash equivalents, and short-term investments of $1.2 billion and total debt of $40 million. Strong operational execution resulted in cash provided by operations of $73 million during the quarter. Capital expenditures were $20 million in the quarter. For the full year 2020, we now expect capital expenditures of approximately $100 million, below our prior target of $115 million-$125 million. During the quarter, we repurchased 131,000 shares for $16 million. Second quarter book-to-bill was greater than one, with strong bookings growth in China offset by weaker order trends in other regions.
As expected, the pace of order growth in China moderated in the second quarter as the quarter progressed, while we have seen modest improvement in order trends in other regions. Visibility into a recovery in global demand remains uncertain at this time. We continue to benefit from near-term growth opportunities in ultra-high power cutting, electric vehicle battery processing, and systems and devices for the medical industry. We believe that the strides we are making in higher power products within our core materials processing business and new solutions will enable us to emerge from the pandemic in a stronger competitive position. For the third quarter of 2020, IPG expects revenue of $280 million-$310 million.
Company expects the third quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.70 to $1.00, with 53 million basic common shares outstanding and 53.5 million diluted common shares outstanding. Financial guidance provided this quarter is subject to greater risk and uncertainty given the COVID-19 pandemic and its associated impacts to the global business environment and government policies. As discussed in the Safe Harbor passage of today's earnings press release, actual results may differ from our guidance due to factors including, but not limited to, goodwill and other impairment charges, product demand, order cancellations and delays, competition, tariffs, trade policies, health epidemics, and general economic conditions. Our guidance is based upon current market conditions and expectations, assumes exchange rates referenced in our earnings press release, and is subject to risks outlined in the company's reports with the SEC.
With that, Valentin, Eugene, and I will be happy to take your questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from James Ricchiuti with Needham & Company. Please go ahead.
Hi. Good morning. A couple of questions. Just on the other applications area, you referenced that 36% growth, which is certainly a strong growth rate, but sequentially it was down. I just want to maybe square some of that with the commentary you made about the momentum from new products. Was there some COVID related impact that sequentially affected that? Was it just more macro related?
No, it wasn't really either of those things, Jim. First of all, the medical product for the lithotripsy application was launched in Q2, and we had very strong initial sales as the customer in that area built the inventory to launch the product. I had stated on the Q1 call that revenue from that application would still continue to be strong on a year-over-year basis, but the total demand would moderate a bit compared to that initial product launch. Interestingly, that customer, the launch has gone very well, and we actually received an increase in the total orders that we've got on hand during the quarter, additional $4 million. That's more just timing of product launch rather than anything COVID or macro related in particular. The second thing is that defense and other advanced applications, including instrumentation and others, had a very strong first quarter.
We shipped 100 kW laser in the U.S. Again, it's more timing of orders for some of those other advanced applications, which performed, again, well in the second quarter, but just relative to Q1, some of the unevenness around revenue was exhibited. Interestingly, we're working on several more orders for high power Single-Mode Lasers in the U.S. We have an order to be delivered to Asia in the second half of the year. There's a little bit of uncertainty around the timing of that delivery. The backlog around some of the advanced applications continues to be big. The telecom business in Q2 was a bit weaker, and that was COVID-19 related demand there. I think that clarifies for you.
It does.
I can add for medical. Penetrate medical market revenue growth, depends strongly from FDA approval. First, number one, it's very successful in urology now. It become gold standard now, recognized gold standard, new in this urology application. Only at first. Please remember, we receive FDA, for example, here and also some in China. In Russia, we receive only a few months ago in only start of sales because before it was only for tested, so on. Sales in this urology application only starting. Secondly, we developed new product not only for urology but for up to 10 other application, medical application. Some of the devices finish it, so on, also methodic develop well. We still stage of certification to get FDA in other country, similar approval. We could not sell this in the market.
We expect next year, two years, we receive a lot of approval, and then we will open really to grow the market, attack the market from many position, from many application. Medical business, we expect will grow very fast next two, three years.
Thank you. Just a follow-up on the guidance. I'm wondering if you're seeing any stronger demand in the consumer electronics market. There's some companies that have demonstrated some pickup in demand in this area, and I'm wondering, is that at all factored into your guidance?
Yeah, we saw some demand even in Q2, Jim, with the QCW improvement. For us, the total demand environment for consumer electronics is certainly much more moderate than it's been historically. There's a bit of a benefit there for sales into consumer electronics primarily in Asia. It certainly hasn't got the momentum behind it that we've historically seen on the materials processing type applications.
Thank you. I'll jump back in the queue. Thank you.
Thanks.
Thank you. Our next question comes from Tom Diffely with D.A. Davidson. Please go ahead.
Yeah, good morning. First, wondering what the relative strength in the pulsed business is coming from?
That was really on the high power pulse. It's electric vehicle battery applications, including foil cutting, cleaning applications as well. The ultra and the higher power pulse lasers that we have have a significant competitive advantage in the market for those types of applications. There may even be some limited amount of welding being done with those higher power pulse lasers alongside the QCW as well.
Okay.
Cleaning, for example, very important. Cleaning started to grow very fast. For this, we need many hundred-watt, even kilowatt power pulse from laser. We have all this set of lasers. It's not available from practically any other sources today. low power , like 20 to 50 W for marking applications, always practical. Our sales in China stopped because they sold crazy prices, like for old marking system, like only a couple thousand dollars. Not serious at all. We withdraw from this market in China. In other country, we still selling this marking laser, but in China, not possible at all. They kill this market.
Yeah. Okay, that makes sense. I'm curious, how important is the auto industry, the global auto industry for you for recovery, and what is your view of the auto recovery over the next several quarters to a year?
Automotive industry continues to be an important part of IPG and laser usage. Many European auto manufacturers are almost exclusively using IPG products, so some recovery in main body applications and closures would help both on the welding and even the cutting market. One of the primary growth areas we see on automotive outside traditional will be continued investment in electric vehicle manufacturing all around the world, and that continues to have some particular strength behind it. Overall, some of the welding applications for automotive, even on the traditional side, were reasonable in Q2. For example, one of the main Japanese manufacturers is continuing to roll out some of their specialty welding applications using IPG lasers.
Okay. Thank you.
Take amount, all the practical way, the most, even all the Tier 1, these automotive customers, they use IPG lasers. The question, not we penetrate. We have the proof they use this not only in Germany, also in Japan, for example, in the U.S. and so on. Total demand now very low due to many problem with the automotive market, also due to COVID, many other reasons, but total demand for laser very low. When they're looking for a laser solution, they're buying from IPG. It's a regular car, but electrical car, that situation. Tesla, for example, our customer sold that.
Thank you. Our next question comes from Joe Wittine with Edgewater Research. Please go ahead.
Hey, thanks. First off, I wanted to try to bridge to the third quarter sales guide, which is flatter sequentially at the midpoint. You have a benefit of a full quarter of activity in the West versus the second, with April essentially being a lost month. Is there anything that's an offset there that's worth noting that's more of a headwind sequentially?
I think we're seeing some moderate improvement in order trends outside of China in particular. Moderate improvements in North America, in Europe, and not quite the same. China's still got some strong demand to it, but it hasn't got quite the same momentum in China that you had coming out of the crisis at the beginning of last quarter. We've said that total order flow in China had moderated a little bit. We've got a lot of backlog in China, and some of that is actually also scheduled to ship in Q4 rather than Q3. I can't know anything in particular. I think you're dealing with an environment that's not exactly strong and have a lot of momentum behind it anywhere, right? You're in a situation of recovery and reasonable demand trends where we've guided to not particularly strong demand trends.
Okay. Makes sense. Tim, the gross margin was impressive. The only favorable comment I caught in your prepared remarks was smaller inventory reserve. Is there anything else worth noting in that uplift, which was almost 500 basis points, and any context with that on how you're looking at gross margin in the second half?
I think the most pleasing thing about gross margin is that despite prices coming down, the gross margin that we're achieving off a product bill of material has actually stabilized and even gone up a bit. That's been the main benefit. That's even before we launch the smaller, the YLR-U rack-mounted lasers. There'll be some additional cost benefit coming in from those as well. I think the most pleasing thing is that despite continued pricing pressure in the market, IPG continues to execute very well around reducing cost of product and has further cost reductions coming through in the second half of the year. In the second quarter, our guidance range for gross margin ranges from about 43%, 44% up to 47%. A reasonable level.
Okay. Maybe I'll squeeze in one more just on that topic, on the new rack mounts, the YLR-U. Any comments on how you're envisioning the curve of adoption going forward? How quickly, how much you think that could be an above-trend benefit from a competitive perspective in the 1-3 kW China market? If you're able to quantify any kind of corresponding impact to gross margin or how you're thinking about that from a bill of materials perspective, that could be interesting as well. Thanks.
Valentin, do you want to take the new YLR-U product adoption and cost?
We only introduced the market starting to sell in volume, manufacturing volume this quarter, but it's a great laser, much greater than current laser we sold before, and not comparable at all in quality with Chinese product. Very important, the cost of manufacturing the laser also essentially less. We hope that will go. Now we define the policy, price policy for this laser in the market. It takes some time estimation also, but we hope this product will replace many Chinese at all, because they could not more absolutely, not comparable. Very reasonable would be, we hope the price also competing price for this product. Now our market share this year in numbers, we're again growing in sale. First quarter, we grow in sale more than 20% to compare to last year, so in numbers. Due to price drop, we see some drop in revenue.
We hope now the numbers increase more on second half of this year, we return our revenue also share in the market with this low power 1 kW - 4 kW. 4 kW not available at all from Chinese up to now. Any 4 kW in rack mounted, only 3 kW maximum. We increase our this also this second half of the year, we increase our this rack mount into series up to 8 kW. It's fantastic, unique laser at all. We hope this, we return our position seriously in this low power market also. High power, absolutely no chance to other people to compete with us in this.
Helpful. Thanks a lot.
Our next question comes from Michael Feniger with Bank of America. Please go ahead.
Hey, guys. Thanks for taking my questions. Tim, just to flesh out a previous question about seeing the midpoint of your guide with flat sequentially. I'm just trying to get a sense if there's been a breakdown when we think of the PMIs and general manufacturing activity and your business. I think in July, we saw the PMIs recover, actually go above 50, indicating some expansion. Usually in that environment, you guys kind of see sequential growth. I'm just curious how much of it is conservatism because we don't know, obviously, what could happen in August and September. Did you guys see at least that improvement that matched those PMIs? Just any help more that you can kind of flesh out around that?
I think we're just in a phase of recovery from very slow economic activity in the second quarter. I agree that PMIs have improved a bit. We've also seen some improvement in order flow outside of China, as we said, in other countries in Asia, in Europe and the U.S. It's just not that it's rebounded in quite the same way that it did in China initially. I don't think there's necessarily a big disconnect from this. I think we actually performed very well in Q2, in fact. Perhaps the expectation of going to a stronger sequential growth is a bit more muted because of that underlying strong performance in Q2 relative to Q3. I'm not really seeing any fundamental dislocation between where the economic data is and where our revenue numbers are.
I think there's a little bit more optimism out there, but I can't claim that it's tremendously strong at this point in time. The other thing you've got to factor in is a little bit that even though things are being shut down, Q3 in August is always very slow in Europe, for example, just with the summer vacations and mountains views, and maybe people work harder this year because they haven't been in the office. I said, "I think they're going to still want to get up and go on holiday." I don't see a big dislocation.
That's good to hear. The gross margin, this is the second quarter surprising to the upside. I think you might have mentioned before pricing stable. It looks like your inventories are back under control. You have cost savings coming through. I guess, Tim, if we get back, and this is a big if, but if we get back that $350 million revenue run rate, is there any change you see in your gross margin range?
First, price, it's not stable. It's not true. Now we have all messages, information we get in China, for example, again, Raycus and Maxphotonics claim again they drop additional price for their mid-power laser one, two kilowatt, additional like 15%, 20%, they drop price, promise to drop price against the first quarter of this year. It's crazy talk, but it's the situation. I don't think it's their own will. They're pushed by Chinese government within this market. It's really policy, country policy. It's not just company commercial policy, but it's the situation. How we can compete with this? It's very serious. It's a revenue drop and destroys the market segment also. Regarding the sales in U.S., for example, now the American officials help also in way to market again. For example, now, only now, Professor Fogarty in this New England introduced new rules again, the commercial bot.
We could not go, especially with new product. We can go, they require more and more meetings to help installation, training the customers, and so on. We're not able to go at all inside of the U.S. All the block now again stop. We have to wait. We could not work with customers. With service also, it's so on. It's a serious damage again. Very serious damage again. It's how to work, we don't know. We could not receive even now many case, what we purchased. We could not because trucks, driver of trucks refuse to go to Massachusetts from other states. Yeah, they refuse it all. They don't understand situation. They refuse to deliver what we purchased. We're waiting for parts, components, and so on, materials. We could not get these materials. New England now full closed.
Thanks for that. Just to sneak a question in on reshoring. I'm just curious if you guys are hearing anything of customer signaling this in North America or your other regions. If this is an opportunity, is it more on the welding side? The argument against reshoring has always been it's cost prohibitive, which is why automation would have to play a part. I'm curious if you guys have any thoughts on that or see any early signs of that type of theme. Thank you.
Mike, just coming back to your other question. I think at the moment, we're happy with the range of 45%-50% on gross margin. We get back to sort of $350 million of revenue, we'd be hoping to be much more closely towards the top of that range. We're not going to be changing that range at this point in time to see how things plan out. On shoring, I think it's a longer-term trend, and if and as it happens, it's going to have to be driven by improvements in productivity and ensuring the cost of manufacturing product onshore is low, and that plays into utilizing more lasers and automation. I don't think there's been any huge announcements by companies onshoring.
I've heard of maybe one semiconductor company starting to do more onshore in the U.S., I think if the geopolitical situation continues in the way it will, it's probably likely to become a longer-term trend.
Thank you. Our next question comes from Nikolay Todorov with Longbow Research. Please go ahead.
Hey, guys. Thanks. Good morning. I just want to ask first, you mentioned seeing some signs of lasers displacing plasma cutting machines. I think you were specifically talking about the 50 kW lasers that you're selling, I wonder if you can provide a little bit more color on that dynamic, not also in that super high power lasers region, but also if you're seeing any of that happening in the more traditional 10-15 kW laser space. Yeah, that would be my first question.
Okay. 15 kW is not a limit. We already get some orders from our two or three OEM customers for 20 kW lasers for China, Japan, and other countries. Recently we received the first order for 30 kW lasers, also for cutting applications. From this point of view, we see the good potential for our high-power lasers, definitely, because no competition and performance of our lasers in any case is superior. This is a trend. It's not only to substitute plasma cutting machine. It's one of the goals. Because based on these 20 and 30 kW lasers, our customer can provide absolutely new approach to cutting applications with much more higher speed, much more reliable cutting machine, and also much more productive machine. Finally, with much more lower price for cutting applications. This is much more important.
Okay.
I can remind you, only a few years ago, a lot of the even companies who produce CO2 lasers cutting, the same analytic, so on, walked with price of fiber laser only for cut very thin metal, like two, three, five millimeters only. We develop technology to cut 50 mm. They said never more than 10 mm would be possible to cut with fiber laser. We resolve this question. We develop this technology. It's not only machine, 30 kW laser, optical heads, but also technology how to cut very thick metal sheets. The practical cover all needed to cut metal. We drilling now in one meter metal sheets. One meter metal sheets we success with good speed. We drilling holes. We can cut even one meter. We demonstrate in our methods. Nobody believe it possible at all.
This plasma cutting is now don't have any chance for future at all, not only plasma cutting. Next step is cutting not only metal cutting, metal sheets cutting, and so on. Next step is cutting all other materials, like glasses, like ceramic, like any other. If we develop this technology for cutting all this also, it's very serious new market. When real steel cutting are used only for very thin, like one, two millimeters, for example, for sapphire or glass for iPhone, so on. We develop technologies and receive even patent for thick material, ceramic, all this, glass, and so on, which cut up to many tens millimeters sheets. If nobody use up to now this technology at all, don't have that.
We have the technology, have patent in developing and use market new family of machines to cut all such materials, for construction glasses, for architectural glasses, and so on. It's huge market. All this cutting, 3D cutting still not very well distributed, only two players in market. Practically, it's TRUMPF and Prima Industrie and so on. Now a new innovative opportunity, 3D cutting is also next generation, where it would be used much larger scale and larger applications range.
That's helpful. Thank you. Thank you, Valentin. Just as a follow-up, you mentioned that, I guess guidance implies that China revenue is going to be more flat to down sequentially. You mentioned you're not seeing any disconnect economically. I guess, can you comment on the competitive environment a little bit? You mentioned that you're seeing fields like seeing aggressive price action. We also heard that some of the competitors there have some really high hopes for share gains, particularly in the 6 kW and above lasers. I guess, do you see that as feasible? How do you plan on combating that? The competition hasn't really changed fundamentally. It's still the same players there. Of course, at the lower end, there's been fierce competition.
I think we're responding to that with the new product, which Valentin articulated was way ahead of where they are in terms of efficiencies, form factor, electrical efficiency, sorry, reliability. Yes, of course, at higher power levels, the competition is trying to get share there. We've referenced before that they see a lot of power degradation in their lasers, even at lower power levels. That power degradation becomes more of an issue as you go up to lasers with six, eight and 10 kW.
More power, more high degradation, much more danger, and so on. If they still could not resolve for one, two kilowatt degradation. Degradation Chinese laser 10x higher than our laser, 10x higher. It's enormous difference, and so on. At higher power, degradation is much more danger than a lower power. It's number one . Number two, we introduce now this year into market, last year, end of last year, this year, of the new version of not only YLR-U, but also YLS-U. YLS-U is a laser from four, 5 kW up to 15, 20 kW. Absolutely new of the solution, much more again, more perfect and more compact and cheaper in cost, much cheaper in cost. For this lasers, we don't have any problem with gross margin and so on.
It's so competitive in both in not only quality but in cost, in the pricing. It's clear they don't have any chance, our opinion, to compete, penetrate in serious in this market Chinese today.
Got it. Thanks. Good luck.
Our next question comes from Mark Miller with The Benchmark Company. Please go ahead.
You mentioned strength in emerging products, up 20% sequentially. I think you said cinema, I'm not sure if you include that in emerging products, but if you could break out some of these emerging products that are showing healthy demand.
Mark, we don't go into that granular level on those. They include things like the higher power pulse for the cleaning applications and EV battery processing, which had strong sales. Includes green lasers for solar cell and non-metal processing, edge deletion, ablative processes, ultra-fast. UV has got many different types of projects we're working on there with higher power. The systems, beam delivery, and some of the defense and Single-Mode applications are included in that. We just don't get down into giving a granular breakdown between each of those individually.
Only this year, second half this year. In first half next year, we introduce on the market some 10 new products. Most of them don't have any analogs. Only this next 12 months we introduce in the market so many new products. Now, delayed due to COVID, because any new product, you have to work very tightly with customers. You have to meet with them, have trained them, have install. Now with all the border closed, we're very limited this, in delay penetration introduction the market. It will go and so on. This situation will resolve. My product practically ready. In our qualification process, ready, so on, with so much production. It's a lot of new innovative products. Some 10, not one, two, three, five, some 10 products or different application we introduce only now in the market.
Okay, any further penetration in terms of lasers in the automotive industry replacing spot welders? That was kind of a cost issue before.
Yes. Recently we installed for our German customer, 16 LSS system for automotive production. From this point of view, we see the good potential for our system, not only for one application, but different kind of applications. It's also for EV, electrical vehicle, but we also see some opportunity for other. Also, I would like to mention that such kind of system now we use it not only for automotive. Agriculture, for example, one of the big our customer in the United States, also in Europe, they start to use our system for production their machine. It's the first time they start to use the laser systems, and the first result is very good. This very important that we are not shipping only this small system, but we are shipping the complete production line for such kind of application.
Thank you.
Also, now we introduce next this, I will be press release this month. We introduce now very interesting new product which automotive use in many, not many 10,000, but even 100,000 unit they use in the assembly facility. We introduce a new solution, extremely interesting, much more higher quality weld and so on solution we introduce in this market. We believe that it would be accepted very fast by the most cutting automotive companies. Also from point other, in transportation, for them, we're working very closely to develop technology of cutting and welding technology for rail car manufacturers. We ship them in our three system. We're working in the fourth system prototype, and they're very happy customers, so we hope to distribute this experience. It would be also serious additional business in cutting and welding application.
Thank you.
We've run out of time. I would like to turn the floor over to James Hillier for closing comments.
Thank you for joining us this morning and for your continued interest in IPG. We look forward to speaking with you over the coming weeks, and we'll be participating in a number of virtual investor conferences this quarter. Thank you, stay safe, and have a great day, everyone.
This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.