Good morning and welcome to IPG Photonics' Fourth Quarter 2022 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG's Director of Investor Relations, for introductions. Please go ahead, sir.

Thank you, Rob, and good morning, everyone. With me today is IPG Photonics CEO Dr. Eugene Scherbakov; and Senior Vice President and CFO, Tim Mammen. Let me remind you that 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 are detailed in IPG Photonics' Form 10-K for the period ended December 31, 2022, and our reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors 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 as of today, February 14, 2023, only. 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, earnings call presentation, and the Excel-based financial data that were posted on our Investor Relations website. We will post these prepared remarks on the Investor Relations website following the completion of this call. With that, I'll now turn the call over to Eugene Scherbakov.

Good morning, everyone. I am pleased to report that we continued to see strong momentum in our focus areas, such as e-mobility, welding, and medical in the fourth quarter and finished the year with revenue above our guidance range, despite a challenging operating environment and currency headwinds. Our strategy to diversify revenue, as evidenced by the performance of emerging growth products and applications, is paying off. As we moved through the year, we continued to see record sales in e-mobility, medical, and welding, including handheld welding applications. Our team has done an outstanding job diversifying the business and finding growth opportunities. Emerging growth product sales were 46% of our total revenue in the fourth quarter. Demand for many of these products was driven by global investments in e-mobility and renewable energy. IPG is well-positioned to benefit from accelerating global EV battery capacity expansion, and our EV sales contributed close to 20% of total revenue in 2022, up from around 10% a year earlier. We believe that the battery capacity build-out will accelerate in North America and Europe and will continue to increase in China in the next several years to support growing EV sales. More recently, customers shifted investments into the U.S. to take advantage of government incentives, which drove higher levels of activity in the region. Our leading position in fiber lasers, with a broad range of solutions including welding, cutting, cleaning, and process monitoring, has allowed us to capture the growth in these markets. We have recently introduced high wall plug efficiency laser drying solutions for use in battery foil manufacturing, the largest CO2 producing process step of battery manufacturing. The solution replaces less efficient infrared bulbs and environmentally unfriendly gas-fired furnaces. It can significantly reduce energy costs and increase drying speeds for our customers. We are particularly pleased with our growth in welding applications in the fourth quarter. Welding now accounts for over 30% of our materials processing revenue and grew approximately 40% year-over-year, surpassing flat-sheet cutting revenue, a milestone for us. This growth was driven by strong demand for our welding solutions in e-mobility and medical device welding, continued adoption of laser welding in general industrial markets, growth in laser-based systems, and a roll-out of LightWELD. EV battery manufacturers have quickly adopted laser welding as it provides high quality and high-speed welding with real-time process monitoring capabilities. The rest of the $20 billion welding market is still early in the adoption of laser technologies, but we are starting to see a more meaningful shift towards acceptance of lasers and believe that this will continue. A large portion of the welding market is still using traditional manual welding, primarily with MIG or TIG devices. Traditional welding is very limited in the types of materials it can join and requires highly skilled welders to do the job. LightWELD addresses many of these challenges with an ability to join a broad range of materials, including hard-to-weld metals such as aluminum alloys, copper, titanium, and thin foils. LightWELD can also increase welding speeds by up to 4x and does not require extensive training. According to the American Welding Society, there is a deficit of 375,000 welders. LightWELD is easy to use and comes with presets for different types of materials, which can result in faster training for unskilled welders required to fill the employment gap. We are working with several training schools to increase awareness and adoption of laser welding. We also continue to build our LightWELD organization and have established distribution partners to support international sales, which should drive growth of our LightWELD sales in 2023. Our laser cleaning solutions have been gaining traction, and we have a strong backlog of customer orders for new systems that are providing fully automated cleaning and can significantly reduce time and reduce the use of harmful materials for surface preparation, as well as rust and paint removal. This process typically uses harmful chemicals such as acids or solvents that are being banned around the world. Our lasers can do surface preparation quicker and with less harm to the environment. Finally, our medical business delivered record revenue in the fourth quarter, finishing a very strong year on a high note. Full-year revenue grew over 60% in medical, driven by higher adoption of our thulium laser used primarily in urology applications. Our consumable fiber business now accounts for a sizable portion of the revenue, and we expect it to increase further as we grow the installed base of the devices. We continue to expand medical sales internationally, and we are working on the next generation of these devices as well as new medical applications for our fiber lasers. While 2022 was a challenging year for IPG, we successfully navigated the choppy waters. We faced continued soft demand in high power cutting in China, currency headwinds due to a strong U.S. dollar, supply chain disruptions, as well as restrictions on shipments of components from our manufacturing facility in Russia. IPG's performance in 2022 is a tribute to the dedicated team of employees and partners throughout the world and their efforts in overcoming supply chain constraints and a complex regulatory environment to deliver products to our customers. And while there is still uncertainty in the operating environment with fears of a slowdown in North America and further weakness in Europe, we believe that IPG is well positioned to benefit from investments in e-mobility, renewable energy, and automation. This is reflected in our record backlog, which gives us reason to be optimistic for the year. We are hopeful to see a recovery in the demand in China this year as COVID-related restrictions are being relaxed. We believe customers are choosing our lasers and systems because they save energy and are more sustainable solutions with less environmental impact than competing processes and technologies. With that, I'll turn the call over to Tim to discuss financial highlights in the quarter.

Thank you, Eugene, and good morning, everyone. My comments generally will follow the earnings call presentation, which is available on our Investor Relations website. I will start with the financial review on Slide 4. Revenue in the fourth quarter was $334 million, down 8% year-over-year due to foreign currency headwinds, which accounted for approximately 7% of the decline. Our divestiture of noncore telecom product lines negatively impacted revenue growth by approximately 2%. We also saw lower sales in general industrial applications in China and Europe, which were nearly offset by strength in emerging growth products. Revenue from materials processing applications decreased 6% year-over-year, and revenue from other applications decreased 23%, with growth in medical offset by weaker advanced application sales and the telecom divestiture. During the quarter, we conducted a review of our Russian operations and recognized significant charges related to inventory, long-lived asset impairments, and restructuring. These charges are a result of the lower level of activity we expect given the increasing limitation of sanctions. GAAP gross margin was 18.2%, a decrease of 2,730 basis points year-over-year due to $74 million in inventory write-downs and other charges related to our Russian operations. Excluding these inventory-related charges, gross margin was approximately 40%. We provide adjusted results in the appendix on Slide 11 of the presentation. Please note that adjusted results are non-GAAP items, and while we believe they may be meaningful, these results should not be considered a substitute for GAAP measures. Gross margin was also negatively impacted by higher inventory provisions in the rest of the world, the strong dollar, scrap, shipping costs, and import duties. These were partially offset by increased absorption of manufacturing costs in the quarter as we continue to build our inventories of safety stock. We are working to offset the impact of changes in the supply chain and manufacturing footprint on our gross margins by investing in automation and by investing in locations with lower costs in Germany and the U.S., such as Poland or Italy. We remain committed to our long-term gross margin target of 45% to 50%. Additionally, both revenue and gross margin were impacted by currency translation headwinds. If exchange rates relative to the U.S. dollar had been the same as one year ago, we would have expected revenue to be $25 million higher and gross profit to be $16 million higher. Foreign currency transaction gains related to remeasuring foreign currency assets and liabilities to period-end exchange rates benefited operating expenses by $7 million or $0.12 per diluted share. GAAP operating loss was $88 million, and operating margin was a negative 26.5%. The net loss in the quarter was $93 million or $1.91 per diluted share. As mentioned above, we had a number of unusual items impacting our operating income and earnings per share in the quarter. There is a $74 million or $1.21 per diluted share impact from inventory-related charges, a $79 million or $1.30 share impact from impairment of long-lived assets in Russia, and other restructuring charges of $10 million or $0.16 per diluted share. There was also a gain on the sale of our corporate aircraft of $10 million or $0.16 per diluted share. Excluding these special items and the discrete tax impact of these items, adjusted diluted EPS was $1.08. Moving to Slide 5, sales of high-power CW lasers decreased 13% and represented approximately 39% of total revenue. Sales of ultra-high power lasers above 6 kilowatts represented 47% of total high-power CW laser sales. The decline was primarily due to lower demand in cutting applications in China and Europe, which was only partially offset by growth in welding applications across most major geographies. Pulsed laser sales decreased 9% year-over-year as a result of lower demand in cutting and marking applications, partially offset by strong sales into solar cell manufacturing. System sales increased 19% year-over-year, driven by growth in laser systems and higher sales of LightWELD. Medium power laser sales decreased 37%, while QCW laser sales were down 20% year-over-year, negatively impacted by lower sales to consumer electronics and general industrial applications. Other product sales were nearly flat, as growth in medical was offset by the divestiture of the telecom business and lower revenue in advanced applications. Looking at our performance by region on Slide 6, revenue in North America decreased modestly by 3%, with growth in cutting, welding, and medical applications, offset by lower sales in non-laser systems, advanced applications, as well as the telecom divestiture. In Europe, sales decreased 21% as a result of lower demand across all major materials processing applications due to weaker macroeconomic conditions. Currency translation also negatively impacted sales in the region. Revenue in China decreased 15% year-over-year, as growth in welding primarily for EV battery applications was more than offset by continued softness in the cutting market, increased local competition, and currency headwinds. We estimate that COVID-related restrictions in China impacted fourth quarter revenue by approximately $7 million and bookings by approximately $14 million. Moving to a summary of our balance sheet on Slide 7, we ended the quarter with cash, cash equivalents, and short-term investments of $1.2 billion and total debt of $16 million. Cash provided by operations was $42 million during the quarter and capital expenditures were $26 million in the quarter. During the quarter, we repurchased shares to a total of $117 million, while continuing to maintain a strong balance sheet. We have returned $500 million of capital to shareholders with our ongoing stock repurchases in 2022, which represents more than half of our total share repurchases since 2016. Our inventories declined due to the inventory write-down in Russia, with some improvements to the electronic supply chain, a decrease in required safety stock as we continue to increase production of components in Europe and North America, and a focus on improving our inventory management. We plan to stabilize and then reduce the investment in inventory during 2023. Our CapEx was $26 million in the quarter and $110 million for the full year. We expect 2023 CapEx to be in the range of $140 million to $160 million. The expected expenditures in 2023 are at a higher rate than we expect long-term, as we are building equipment for production capacity expansion to increase production outside of Russia. CapEx also includes investments in R&D, sales, and service in North America, Germany, and Asia. Moving to outlook on Slide 9, fourth quarter book-to-bill was slightly below 1. We saw continued softness in orders in Europe and China, primarily due to uncertain macroeconomic conditions, which impact demand in general industrial markets. Media macroeconomic indicators for Europe, China, and the U.S. remain subdued, but conditions appear to be more stable in Europe and the U.S., and there is an expectation of increasing activity in China later this year. Additionally, we are benefiting from growth opportunities created by major macro trends such as electric vehicle battery manufacturing and renewable energy. We're seeing continued strong orders in e-mobility and welding applications, which are not being impacted by the economic uncertainty. Furthermore, LightWELD and medical products continue to ramp up, presenting future growth opportunities for IPG. For the first quarter of 2023, IPG expects revenue of $310 million to $340 million. The company expects the first quarter tax rate to be approximately 26%. IPG anticipates delivering earnings per diluted share in the range of $0.90 to $1.20 with approximately 48 million diluted common shares outstanding. We continue to expect currency headwinds and estimate that the first quarter revenue guidance is reduced by about $9 million due to the strength of the U.S. dollar in the current quarter as compared to the first quarter of 2022. As discussed in the safe harbor passage of today's earnings press release, 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 Safe Harbor and the company's reports with the SEC. With that, we'll be happy to take your questions.

Our first question comes from Jim Ricchiuti with Needham & Company.

First question I have is just a general question on the EV-related business that you're looking at in '23. I'm wondering how you would characterize the environment broadly? And maybe also whether you see some benefit in this business in the U.S. as a result of the Inflation Reduction Act? Or is that something you might anticipate being more beneficial in 2024?

Hi, Jim. It's Tim here. We remain very optimistic about the global EV business in 2023 and expect continued growth. While we don't have final numbers for last year, we anticipate a tripling of battery capacity from 2022 to 2025, and then another doubling beyond that. We're confident in these trends. Regarding your second question about the Inflation Reduction Act, we've seen some significant orders delivered in Q4 that went into the U.S., and these could have reached another region if not for the act. Additionally, in the early weeks of this quarter, we've booked substantial EV-related orders in North America. So, there is evidence that the Inflation Reduction Act has contributed to strengthening orders in the U.S., even if not exclusively tied to it.

I would like to add something. For us, the EV application is very important. Why? Because for such kind of applications, our customers are not only one of our secondary products from IPG, no. As a lot of products like different kinds of lasers, CW, QCW, pulse lasers, which are used for different kinds of production, for example, welding, battery, cutting foils, cleaning, and so on. This is why, for us, it's very important because we can present to our customers a different kind of product, again, different lasers, different kinds of subsystems and primary systems.

Got it. A follow-up question relates to China with the reopening there. I'm wondering how much of a benefit you see in the legacy business. Or are you looking at the improvement from reopening being more of a tailwind that comes from the emerging areas of the business in China?

With the reopening, we anticipate some improvement in the legacy business. Our focus remains on the higher end of the cutting market, which isn't solely determined by power. The investments in the general industrial sector have been relatively weak over the past 18 months, but we expect some recovery. Moreover, we aim to maintain strong performance in other applications where we have a clear advantage and face less competition. The most significant improvement is likely to stem from non-legacy areas, while the legacy business will contribute to some extent; the cutting business in China is currently at a very low level in the fourth quarter.

Our next question is from Ruben Roy with Stifel.

Tim, can you provide insight into how cutting is performing as a percentage of your revenue from China? With the reopening of China, I’m also curious about how this relates to the restructuring efforts in Russia. How do you anticipate these factors will influence your results throughout the year? Additionally, how do you expect these elements to affect your gross margin as we move through 2023?

China cutting accounted for less than a third of total revenue in Q4, with cutting revenue representing about 34% of that total. On a consolidated basis, this translates to slightly under 10%. This scenario can be seen as both positive and negative; while we have diversified away from reliance on that market, we would prefer that segment to be stronger as it supports the baseline revenue. Regarding the cost structure and gross margin, there are various factors at play, not limited to the China supply chain. We have already begun supplying a considerable number of lower-powered lasers that are produced in Russia. We are currently delivering medium to lower power kilowatt lasers to China from Europe, and we are advancing toward higher kilowatt options, including nearly 6 kilowatts and eventually reaching 8 kilowatts, which will yield cost benefits. Overall, our analysis of gross margin, despite the challenges faced, indicates that as long as the macroeconomic environment remains relatively stable, we can anticipate an improvement in gross margins going forward, particularly with an increase in revenue. We do not foresee a significant change in the gross margin cost structure due to the operations since the headcount required to replace core products is much less than previously existed. We are beginning to source some products from third-party suppliers, which are of comparable or lower cost than our internal production. Additionally, we are ramping up manufacturing of more labor-intensive components in Poland, where labor costs are competitive with those in Russia. Even on a smaller scale, our Italian manufacturing operation, which excels in producing optical components and finished devices, has a cost advantage over Northern European and U.S. costs, allowing them to produce some lower-cost lasers for China. Furthermore, we plan to increase automation not only for components but also for subassemblies, where we continue to invest. Therefore, I remain optimistic about the future cost structure of this business despite the current crisis.

Thank you, Tim, for that detailed information. It's reassuring to hear. I have a quick follow-up. You mentioned a decrease in activity, which is evident with the operations in Russia. Can you provide an estimate on Russia's current contribution to production? Is there more work to be done? How much further will it decline? Is a shutdown possible? Any insights on the long-term activity there would be appreciated.

No, we can't discuss that in detail right now as we are undergoing a review. The level of activity in that operation will be significantly reduced. This review includes a major restructuring plan, and we have made considerable progress on it over the past eight weeks. The restructuring will continue through the first and second quarters, and we are exploring various options for that business. However, we don't have any options available at the moment because we must complete the restructuring first. The key point is that due to restrictions on activities related to Russia, this business needs to be self-sustaining based on local sales. Currently, they can provide some basic medical devices to certain regions globally. Our overall plan is to establish it as a self-sustaining business driven by local sales. Given the current sales levels, we are optimistic about growth, but adjustments to the total capacity required are underway.

Our next question is from Mark Miller with The Benchmark Company.

I'm just looking at your backlog. Can you estimate what percent of sales are EV related in the backlog?

It wouldn't be dissimilar to our total revenue that we reported last year. So probably about 20% of it. I mean it will depend upon the timing of shipments as well. I know, for example, in the last couple of weeks, we've had a significant order for some EV-related products. So it wouldn't be dissimilar to the total share of EV on revenue last year, Mark.

In terms of how the backlog rolls out during the year, were you expecting an improving margin picture based on the current backlog?

Yes, we continue to expect not only the current backlog but also future order flow. We've mentioned that we anticipate a strong year in EV applications. We are introducing ultra-compact lasers at higher power levels. Given the improvements in our China business, we are optimistic about revenue growth throughout the year. The scale-back in our operations will also contribute to improvements in gross margins. We have various cost reduction initiatives underway, including advancements in automation. Overall, while navigating through these challenges, we've found that the depth of our efforts can lead to a much stronger organization. As we move into the second half of the year, we believe we will see significant improvements in gross margin.

And the emerging products typically carry above-average margins. Is that correct?

Yes, in general, you've got all the AMB, the high-power pulse, green lasers have got good margin. The medical has got good margin. LightWELD margins have improved a lot since the product was first introduced, both with new options and capability on that product and a reduction in the bill of materials. So the LightWELD margin has improved. We expect our margin on our laser systems business, excluding LightWELD to improve. For example, the margin on the cleaning systems, which is a much more standard system, should have an improving margin profile compared to historical one-off type systems that were sold for primarily welding applications. Actually, the other thing out there is that we expect some better performance on advanced applications this year. Last year was a pretty weak year on advanced applications; we got a good pipeline of potential orders there, and advanced applications have a good margin profile to them as well.

Our next question is from Michael Feniger with Bank of America.

Tim, when we think of that manufacturing footprint, the full transition, as you said, will be more clear, it seems like in the second half. Is it ramping up more in Poland, Germany, or the U.S. just speaking about that second half, like how much of a percentage increase are we seeing in those areas versus where we were in Q4 right now by regions? Or any sense to see which one capacity is ramping up higher than where we were a year ago?

About components. First of all, of course, we have transferred production in different areas in Poland, in Italy, and Germany, and also expanding our production in the United States. Comparison is difficult because we are producing different components in different areas. For example, in the United States, we produce components, especially for U.S. markets, for U.S. applications. In Europe, it's much broader because in Italy and Poland, they also produce different kinds of components. It's not the same as in Germany. And from this point of view, of course, we have a good opportunity to optimize production. First of all, taking into account the much more optimal process to introduce a lot of automation. It's one of the primary goals for organizing this production, first of all, components; but also in some cases, final devices. And from this point of view, we have a good opportunity to increase our production outside Russia, in a much more effective, much more cost-effective, and much more productive.

Michael, in response to your question, the advantage of our lower-cost manufacturing in Poland is just beginning to ramp up. We didn't see any significant benefits from that in Q4. We did get some benefit from our expansion in Italy, but that will continue to grow. Initially, much of the added capacity was established in North America and Germany, and we anticipate these regions will contribute more positively moving forward. I want to clarify that we're still undergoing a restructuring of our operations in Russia. The first half of the year may incur some small additional charges, and currently, we are also dealing with some extra costs in Russia. We expect the restructuring process to be completed by around May. Therefore, in Q1 and Q2, I will be able to clearly explain the underlying gross margins. However, there may be some ambiguity regarding the reported margins. By the second half of the year, after adjusting the cost structure in Russia, we will start to see the full advantages of our Polish and Italian operations, along with other cost-reduction initiatives we have implemented.

Very helpful. And just welding in EV is obviously a very strong area for you guys. Can you just help us understand the competitive dynamics there? Has there been any change there in the last one to two years when we think of welding in the EV space?

Certainly. At the beginning, we were able to start introducing our lasers for electric vehicle applications. Our first variety of lasers for welding included our newest development, the adjustable mode beam parameter laser. However, the current situation requires us to provide not just lasers but also our monitoring systems, scanners, and specialized welding enclosures. We are now focused on offering our customers a comprehensive integration solution that includes all these components designed to work together with a unified software platform. Looking ahead, we intend to penetrate the electric vehicle market not just by providing individual components like lasers or other subsystems. Our primary objective is to deliver subsystems and systems focused on welding and cutting applications, as well as promising cleaning solutions for the electric vehicle market. We have a great opportunity to leverage our high-power pulsed lasers and systems based on these lasers for cleaning applications within the electric vehicle sector.

Comparatively, it's really no competition still in China from anybody on the welding side. The company that will compete with most in the EV continues to be the large German manufacturer. So the competitive dynamics haven't changed in that end market. On LightWELD, globally, that's really continues to be a very leading edge product. If you look online, you'll see there are some handheld welders advertised in China, but they're pretty large devices. They've got different cooling requirements. They're not really even equivalent to what we're producing.

They all accept only one important parameter: very low price in comparison to our product.

Perfect. Lastly, you've mentioned that you've been working hard to address various challenges. Are there any products you're considering for the longer term that might involve shifting more of your capacity to the U.S.? Also, regarding the cutting market in low-end China that we discussed earlier, how has your transition away from Russia influenced the types of markets you plan to target going forward?

I didn't fully understand the question, but our diode manufacturing has always primarily been in the U.S. Most of the semiconductor packaging is also done there. There's no specific location for the finished product since it involves assembling different components. We can adapt to changes based on demand. For instance, if we had extra capacity in the U.S. and wanted to supply more lasers to China due to strong demand in Europe, we could easily do that. The finished product aspect is quite flexible regarding where we produce it. The U.S. is currently responsible for producing all the LightWELD products and green lasers used in solar cells and other applications. Some of our newer products are coming more from North America, but we are open to expanding capacity elsewhere for finished products. Our focus has been more on the component side recently to compensate for capacity we've lost in Russia. However, there's considerable flexibility on where we produce finished products.

Based on this visibility, manufacturing fiber lasers and final assembly is a straightforward process. We can easily set up operations at any facility without issues. Our primary expertise lies in the components. This is why we produce specific components in select regions; for instance, diode products are exclusively made in the United States. There is no need to expand this production to other countries because we have established effective automated production, resulting in significantly lower costs per watt compared to others. The same applies to other components. Producing fiber components outside of Germany is not sensible, as we have established stable production and are now implementing automated production for these components.

Our next question is from Jamie Wang with Citigroup Hong Kong.

I have two quick questions here. First, regarding the Russia impairment. Are those impairment and charge one-offs that we won't see these expenses this year or going forward? And second question is regarding China. We recently talked to your corporate partner in China Han's Laser and they said this year it’s likely to go back to 2021 levels, so that's about 15% a year growth. I just want to ask Tim, are you seeing ...

Jamie, could you please speak up? We're having trouble hearing your question right now. I didn't catch either of those questions. Could you talk a bit more clearly? The first question was about ...

Yes. Is it better now?

No, not really but.

Okay. Never mind. Forget about those questions. Sorry, there is something wrong with the microphone. Yes, sorry.

Okay, there’s a problem.

Jamie, are you still there?

Yes. But can you guys hear me well now?

It's a little bit better. Let's try one more time.

Yes. Sorry, yes.

Let's stay with one question first and then the second one after that, yes. So the first question was on ...

Yes. Okay. So Tim, I want to ask. The first question, regarding the Russia impairment, loss impairment charge is one-off, so that we won't see these expenses this year and going forward?

There may be some minor restructuring charges related to severance and similar matters. However, regarding the impairment of long-lived assets and inventory, we believe we conducted a very thorough review, and we do not anticipate any significant charges related to that.

Okay. Thank you. Okay. The second question is regarding the China business. Recently, we talked to your corporate partners in China, Han's Laser. And they say that it's likely, revenue in the industry is likely to go back to 2021 levels. So that was about 15% a year growth. I just want to understand, would you guys are seeing the similar metrics of revenue recovery in China? Yes, just want to understand your follow-up recovery in China.

You're saying Han's has said they expect revenue to go back to 2021 levels?

Yes.

Which is about a 15% recovery from 2022?

They are particularly optimistic about the recovery in high-power laser equipment.

We expect that while we are not providing specific guidance on China, the revenue for China in Q4 and Q1 is currently quite low. As noted last quarter, it was 34% of revenue, totaling less than $100 million. Therefore, our half forecast for the year anticipates a significant increase in China revenue. It seems unlikely that we will return to peak levels due to ongoing competitive dynamics in the cutting business. A lot of our growth is being driven by other applications, and we don't anticipate the cutting segment to account for 40% or 50% of China revenue in the future. However, we do expect to see a recovery in China for the remainder of the year.

Got it. Okay. That's clear. Thank you very much. No more questions from me.

I think Han's outlook indicates that people are optimistic about a recovery in China's economy this year.

Next question comes from Jim Ricchiuti with Needham & Company.

Just a follow-up on the EV market. You mentioned some market data that is quite positive, and your growth in this sector has been impressive. Given your insight into this business, do you believe it is possible for this segment to grow by 25%, 30% or more this year?

I'm not going to provide a specific number, but we are expecting significant growth from that business. This growth will be globally distributed, not only in China, but we also anticipate strong growth in North America and Europe.

Okay. And on LightWELD, I know you made some commentary earlier in the call, but I think you've suggested that it was at the last quarter, I think, of $40 million or so run rate business that you thought could grow 80%. Is that still the kind of expectations you have for the business?

We've got very strong expectations of that business and now rolling it out in Europe more broadly. We're not actually focused really on China on it, but we've got very good demand out of Japan and Korea for that business and continue to expect it to grow extremely robustly going forward.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Eugene Fedotoff for closing comments.

Thank you for joining us this morning and your continued interest in IPG. As usual, we will be participating in a number of investor events in this quarter, and I am looking forward to speaking with you soon. Have a great day, everyone.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.