Businessmodel of IPG Photonics

Customer Segments

IPG has a niche market business model, with a specialized customer segment. The company targets its offerings at system integrators, original equipment manufacturers (OEMs), and end users that have the in-house capability to integrate its products into their solutions. Its customers primarily operate in the automotive, aerospace, electronics, heavy industry, natural resources, semiconductor, photovoltaic, and medical device manufacturing industries.

Value Proposition

IPG offers four primary value propositions: accessibility, performance, risk reduction, and brand/status.

The company creates accessibility by providing a wide variety of options. It develops low, medium, and high-power amplifiers and lasers, and its products are used in a diverse array of areas, including materials processing, biotechnology, medical, entertainment, and communications applications.

The company has demonstrated strong performance. Its unique technology platform enables its solutions to offer superior beam quality and higher output powers at a lower cost than other similar technologies. Furthermore, its proprietary designs are based on high-performance components and innovative pumping techniques perfected by the firm over 20 years of investment.

The company reduces risk by instituting high standards for its products, which are often used in safety-critical and mission-critical applications. Its main components are burned-in or tested for hundreds of hours, and it only utilizes parts that have met rigorous control requirements. Moreover, IPG is certified ISO 9001:2008, an international quality standard. Lastly, IPG claims to have the best warranty in its sector, with all products repaired or replaced without charge if they demonstrate any defects in workmanship or materials under normal use within two years.

The company has established a strong brand as a result of its performance. It bills itself as the top manufacturer of fiber lasers in the world. At the end of 2013, it was the second-largest producer of laser sources (in terms of total sales). In 2015, success continued, as the company generated a record $901.3 million in revenues, a growth of 17% from 2014. That year, it shipped over 32,800 devices to more than 3,050 customers globally. Lastly, IPG has won many honors, including the Prism Award for Photonics Innovation/ Industrial Lasers (2015), recognition as the “#5 Small Company in America“ by Forbes (2014), and recognition as the ninth fastest-growing company by Fortune (2012).

Channels

IPG’s main channel is its direct sales force, which operates from offices around the world. It also sells its offerings through distributors and independent sales representatives. The company promotes its solutions through its website, social media page, and participation in trade shows and conferences.

Customer Relationships

IPG’s customer relationship is primarily of a self-service nature. Customers utilize its products while having limited interaction with employees. That said, there is a personal assistance component in the form of phone and e-mail support.

Key Activities

IPG’s business model entails designing, developing, and manufacturing its products.

Key Partners

IPG’s key partners are the best-in-class suppliers it uses for its fiber devices. The company selects these companies based on superior products/services on a cost and performance basis, a proven track record, and the capacity to meet customer needs. They must be ISO 9001:2008 certified, be able to respond quickly to production requests, and provide effective technical service and support.

Key Resources

IPG’s’ main resource is its proprietary technology platform, which includes innovative pumping technologies. The company also depends on its human resources, including over 410 research and development employees who have expertise in fiber, optomechanical, and optoelectronic components, as well as laser materials. IPG relies heavily on physical resources such as its manufacturing facilities in the U.S., Russia, Germany, and Italy, and materials processing application centers in those locations as well as Japan, China, and South Korea. Lastly, it places a high priority on its intellectual property, with more than 200 issued and 320 pending patent applications.

Cost Structure

IPG has an “economies of scale” structure, in which it leverages its scale to reduce cost per unit output (and thus product prices) for customers. Its biggest cost driver is cost of sales, a variable expense that primarily consists of manufacturing overhead, direct labor expenses, and the cost of components and raw materials. Other major drivers are in the areas of research and development, administration, and sales/marketing, all fixed expenses.

Revenue Streams

IPG has one revenue stream: revenues generated from the sale of its amplifiers and lasers. Pricing information must be obtained from direct sales staff.