Timothy Mammen: Yes, we expect to see that, basically, as we sort of absorb the fixed cost base better. Yes, Poland and Italy have made tremendous progress in getting their manufacturing and scale of their manufacturing increased. Germany’s also made a lot of progress on that, and so has the U.S. I’ll leave Dr. Scherbakov to talk about some of the cost reductions that we’re introduced on some of the high-power lasers with new designs there.
Eugene Scherbakov: Yes, not now, but last quarter, we also installed the development of the new technological electromechanical platform for our mid-power and high-power lasers. One of the goals, of course, it was a cost reduction, dramatically cost reduction. Our evaluation, and we will confirm when we’ll start to ship to our first customer this quarter, our evaluation, this cost reduction will be up to between 15% and 20%. But it’s only initial evaluation, and maybe it will be much, not much more, but a little bit more. And this is why one of our cost reduction and optimization, our gross margin in the future, also for laser-like components, but also we start to produce a new, for us, a new product. It means a semi-integrated solution.
It means we are proposing today to customers not a list of a set of components, like laser, scanner, LDT monitor, and a special integrated box. We are proposing to our customers now solutions. For example, if customers have problems with copper welding, we definitely provide by our subsystem. We guarantee that customers will get the optimal result with copper solution, the same for aluminum solutions, the same for other materials. For us, it’s a new experience, and we would like to propose to our customers in the future such kind of product. Semi-integrated product with final solution to customer processes. This is our main goals, from one side, to optimize development of our product, to minimize the cost. From other side, to propose a new product for our customers.
Ruben Roy: Understood. Thank you, Dr. Shcherbakov for all that detail.
Operator: Thank you. As a reminder, that’s star one to be placed into question queue. Our next question is coming from Scott Graham from Seaport Research, your line is now live.
Scott Graham: Yes, hey, good morning, and thank you for taking my question. I actually have several of them. Would you guys be able to tell us what your pricing was for the quarter?
Timothy Mammen: We historically have given some guidance on high power laser pricing in particular, which has been more sensitive. Pricing has been very stable, Scott, for the last 18 months or so and we didn’t see any significant change in that in the fourth quarter.
Scott Graham: So when you say you saw significant competition you weren’t referring to pricing you were just referring to volume?
Timothy Mammen: No we’re referring to the fact that we’ve had a lot of Chinese competition around the cutting market for several years now. We choose not to compete with them on pricing which has resulted in a loss of share for IPG within the Chinese cutting market. So the Chinese competitors will price at a significant discount to IPG but we choose to focus on the premium aspect and performance of our product and price it appropriately in that regard.
Scott Graham: Got it. Thank you for that clarification. What would you see? I think you mentioned that the impact on gross margin quarter over quarter was about 400 basis points for the production shutdowns. Is that kind of going to stay with us in the first quarter? Is that a again using the third quarter as the baseline? Is that a reasonable proxy for what’s impacting the first quarter gross margin?
Timothy Mammen: Yes we’ve given gross margin guidance to 37% to 40%. So some of that is just well whether it’s you’re trying to take inventory down or you’ve got a lower level of revenue it’s an impact on the absorption of the fixed cost base. In conjunction with that we are closely managing expenses within the business so we’re taking down things like overtime very dramatically looking at trying to optimize the cost of the business and also the cost of the product. Basically whether we’re trying to get inventory down or in the first quarter coupling that with the relatively low level of revenue the gross margin guidance is kind of in-line with where we reported Q4 at the top end a little bit better.
Scott Graham: Right I guess and I get that. I guess what I’m getting to is that if you did not have that item weighing down the gross margin in the first quarter it actually looks like your gross margin would be up year-over-year and I just wanted to see why that would be the case?
Timothy Mammen: No on a year-over-year basis growth even with this level of revenue gross margin would not be up in the first quarter compared to the first quarter of 2023 when I think gross margin was 42%. You can’t just add 400 base sorry I think I get what you’re saying you can’t just add 400 basis points back to the range that we’ve given you. It’s a combination of the lower revenue in the first quarter as well as probably a bit more moderate decreases in inventory in the first quarter than we attained and targeted in the fourth quarter. You can’t just add 400 basis points to our range I see what you’re saying.
Scott Graham: Nope I see and I see what you’re saying I completely follow. Last question, a lot of questions about the outlook for Germany particularly, on the industrial side. I know you had a an up quarter however it was of course against a fairly easy comparison. I’m just wondering what you’re seeing in Germany as we start the year?
