Good Investing Talks - What is the laser technology champion LPKF planning?

Episode Date: November 22, 2022

LPKF is a German company with a focus on innovative laser technology. With this technology, LPKF offers innovative solutions. The company CFO Christian Witt gave us insights into the future plans of the German company.

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And now, enjoy the video. Dear viewers of good investing talks, it's great to have you back. As you might already know, I'm currently looking into some interesting European companies that might be too cheap in this current gas crisis. And one of these companies is called LPKF and I'm very happy to have a representative here,

Mr. Christian Witt. Witt, it's great to have you here. Thanks, Timon. Happy to be here. You're based near Hanover, if I'm right? That's right. We are in Gabson, Hanover. Great.

I'm looking forward to an interesting debate with you about LPKF. And LPKF isn't the easiest company to understand, as I have learned during the preparation for this interview. So maybe you could try to explain to me. imagine I'm a five-year-old guy, like a bit smaller, then I'm usually, and what is LPKF doing? And, yeah, explain it in a very basic way that everyone can understand it. Happy to do so.

I think we're actually not that complicated as a company. What we do is that we are laser specialists for certain laser applications. So we use lasers, laser tools. we develop and commercialize laser tools to have specific solutions for customers. And that can be as small as a prototyping equipment for small PCBs, now, so that any developer who wants to develop a new electronic device or wants to change its electronic device or its components can easily, confidentially and quickly do a prototype of this new PCB, which he wants to produce serially in the future.

And it goes up to a huge solar equipment where we do a structuring of thin film solar panels. And by doing that and doing that with a laser and with our technology, we make sure that we maximize the electricity to be generated from each of these solar modules. And that we, on the other hand, make it more and more affordable to produce these panels on the other hand. hand. So that's a bit the bandwidth of things we do. And within that, we have quite a few fascinating areas. For example, a technology that can make glass bendable, which is one of the many applications, new applications of our glass technology. Are there any products you could give as examples where your technology is in use, maybe everyday products that people can relate to it?

Unfortunately, we're not allowed to really disclose the customer names and thereby their production technologies, but I can assure you that in quite a number of electronic devices, you use every day, there's LPKF technology used in order to produce those devices, either today's technology or yesterday's technology, because LPKF is a company with quite a bit of tradition. And many processes we even developed five or 10 or 15 years ago are still in use by our customers because there are still very good processes to solve their problems. I want to go into history, but first let me ask, what kind of problems are you solving for your customers?

Well, that really depends on the application. I've given two examples in the beginning, like from our development area, to make very quickly produce prototype PCBs when you develop a new electronic device or when you change an electronic device or any PCBs within any other device or the solar panels. So what we saw for our customers there is do it quick and do it, it very confidential without giving your drawings outside. On the other hand, in the solar business, if you produce this so-called thin-film technology modules, which is one of the standard technologies being used, then you need to structure one big panel into many smaller cells to get the

right electricity type of electricity out of there. And by our solution, we maximize the electricity output from the module when you do that. When you use a conventional methodology, then you will lose more space in this panel and therefore produce less electricity. Let me give some other examples when we come to our welding division, for example. Now, welding division, what we do is to join two plastic parts very tightly with a laser beam. And doing that enables us, for example, to have sensors, either in electrical cars or in other areas being sealed into a housing of plastic. And you need that for any type of sensor because none of them wants to be destroyed by water, humidity or anything else.

So you need to house all of them. And when you house them, you don't want to destroy or damage the sensor, the electronics components. when doing the housing process. And what we do with our type of laser application is that we use heat only in very particular areas and not in the neighboring areas. So we neither use heat which destroys or attacks the electronics components, which we are sealing.

And on the other hand, we are also not using electronic vibrations, which can also damage the electronics components. And on the other hand, the connections we do with our laser welding technology, they are incredibly tight. So you can reliably use them for 30 years and they are hard to destroy. And that's very important when it comes, for example, the medical devices which have 100% reliability requirements. Or when we come to automotive, advanced automotive applications, electric driving or digital driving, where these cars should be able to go on any path,

however demanding it is to the components, and not get any faults or cracks or anything like that, and that for 20 plus years. And that's why the technology, for example, laser welding gives the clear benefit to the customer. How do I get this sealed or other connections established in order to do that? A small follow-up question. PCBs, what does it stand for?

PCB, that's printed circuit boards, that is the little devices where you mount all the different electronic components on. The typical color is green and a lot of electric components on one side and all the soldering on the other hand, on the other side in order to connect these components with each other. And what's so specific about these PCBs is that they have the connectors, the connection connections for the different electronic components inside the PCB. So when we do the prototype of the PCB, then there's the design, which the design house has done before,

and then we put that design on that prototype, so that that has the right connections from one piece to the other piece of electronics on this PCB. Well, in the end, when you have any electronics component, you see a green element where all the electronics is mounted on. This green element is the PCB. Okay. About which kind of precision are we talking there with your laser technologies? What kind of, is it centimeters, nanometers, millimeters? It's typically in the nanometer area if you need it.

But that depends on the different type of application. We can do, with our glass technology, for example, we can do small cavities in glass, which have a way you fill with about one billionth of a liter of liquid. So that's the precision and smallness we can have there. And typically it's the nanometer area except for you don't need it. then we can do anything better. And coming back to the solar point you made, what kind of efficiency are you adding by your technology? Like how does a solar cell get better there?

Basically, when the technology was first introduced, the efficiency improvement was about 10%. So you got 10% more electricity out of the module. could be convincing it was convincing for our key customer and it is convincing for nearly all customers worldwide because we have a very good market coverage in that field just a small note if people want to know more about the certain technologies which i'm not diving too much into today there's also capital markets they you recently had the link you can find below but before we but now i I promised we jump to the next point, and that's about your history.

You've come to the company in 2018, if I'm right. Correct. But you also have the chance to talk to people who've been in the company like for 10 or 20 years or even more. What do they tell you about the development of the company? What stories do they tell you how has LPKF changed about like the last 20 or 10 years? Let me start comparing where LPKF started and how it got what it is today

and I think from that you will see what our DNA is. The company started in 1976 with that so-called rapid prototyping with PCB prototyping which I just explained just that it was a very simple device where you had a drawing of the PCB on the one-hand side On the other hand side, you had a little drilling equipment, milling drilling equipment, and then you had a connector.

And when you take a metal pen and take the drawing here, then there's a fixed connection with the drilling equipment and it just copies what you do on one side to the other hand. And on the other side, there is a PCB. So that is the very simple start of the company. And then at some point in time you look into, well, can't we do that with a laser? And when you use the laser, you think about, well, can't we do serial production for production steps with a laser too?

Why? Because we know how to treat the PCB with the laser, and there are certain steps in production where a laser can very well cut some of the material. So that was entering into what we call the paneling business, which is part of our electronics business unit. Learning more about and understanding more about this electronics production process, and on the other hand, having an extensive knowledge about the application of laser in the electronics industry, we were able to develop machines and solutions for stencils.

That is what you basically need to put the soldering paste in the back of these PCBs, because you only see them soldered. But the way how the soldering paste only gets to the right point is with a certain stencil, which is produced in a very vast majority of the globe with LP-KF machines. So you see the evolution. At some point in time, they were talking to people from the university in Erlangen and then got the idea how can we use our knowledge in laser know-how, but also on the mechanics and control of lasers.

in order to do plastic welding. That was the birth of our welding division. And working together with an institute close to the university in Greiswold, then they basically started to do precision mechanics, combining that with laser application technology and what came out of that is our solar business unit. Then we discovered what can we do when the laser hits glass, because we we have some general research department and they thought about what to do with glass because glass is a fantastic material. So we saw that we can find a new way of processing glass which gives glass much better properties. That was the birth of our light technology. And with our light

technology that was actually after I joined the company, we learned that it's not only a solution for parts of the electronics industry, but it's also a solution not only for also display, display solutions, but also for biotech solutions, because it enables us to do these super small, extremely precise holes or wells into a glass carrier to have certain arrays of analytic cells and areas. And that we learned actually from customers that this is a good application. We also heard it from an investor actually, who is a biotech investor, and that made us think about, hey, is that a new field for us? So what we bring is our glass technology, but what we also bring in one of our business units is that we have devices which can very precisely move a device in a small area, change tools,

controls and so forth. So basically when you look at that, you have 80% of the ingredients to build the analytics machine for such a biotechnology application. And when we saw that we have the capability and that there's a market need, we started to go for it, we created a project, we did a prototype, we saw it works, then we started to develop the project, and we will deploy the product to the market to the first better customers in this first fourth quarter of 2022 and then start with large-scale production of the product mid-next year. So what you see is that we never stand still, that we always look, where can we solve a problem for a customer, even though it might not be our customer today, but where do we have a great

technological edge where we have a huge customer benefit and can deploy. a solution to the market. And the way we do that is that we change and expand our face permanently. And that's what fascinates people in the company, together with a very open-minded and positive human way of working, which you need in order to have such a great development and deployment of technology. And to some degree, when you ask, what do we learn from history? How can you see what's LPKF like?

What do people tell me? That's what they told me. That's what I've seen. And that's what's fascinating to many of our employees and also to myself. So the way you use a laser is maybe reminded me a bit of a Swiss knife. Like you have a knife that you can easily use for one thing like cutting. But you also have the knife is where you have. more and more layer. You would have the big Swiss knife with screwdrivers and whatever.

Let's put it that way. Most of our lasers we buy, we are not a laser producer for the vast majority of our products. Our specialty is the application of the laser. And wherever we see, hey, here we have an expertise and there's a market. Then we develop this. And it becomes the product line, a business line, a business unit. And that's how we work. That's where we also consist of a number of medium-sized business units. However, what we are trying to achieve is to see that we identify the best scalable solutions, not only solutions to have more customers, but also to have scalable solutions,

because in the end, to not only provide solutions to the customers, but also to have a good economic benefit from that, you need scaling. And that's why we focus more and more on the scalable solutions within our product range. So your edge is not about the lasers because you buy them from somewhere else, but the laser processing. The laser workflows. Exactly. How does the laser hit the material?

That's one key component, key know-how. How do you control such a machine? How do you evaluate if the process was successful? How do you adjust the process to be successful? How do you measure this? How do you do the correct positioning? Sometimes you have to work with a laser in a micrometer scale. You have to be extremely fast in order to have an efficient process.

But you don't really see. You have to see through certain layers of material and so forth. We know how to do that. And this combination of high precision of laser and material of software know-how and understanding key markets, that's basically our recipe, how we are successful. So your business is then more human research-based business and not like a hard and heavy. asset business where you need a lot of machinery?

Absolutely right. When you look at the business from that perspective, we invest more than 10% of our net revenue each year into R&D because we live of always giving customers the latest edge. The way we produce is relatively simple. We buy the components, we assemble them, and then we make them work. more than 50% of our engineering software anyway and as you said

production facilities we have are assembling, pure assembling you always need to spend this 10% of your revenues in R&D to be that competitive advantaged compared to other players in the field or how do you see this?

It's a combination of it's a combination of always making sure we keep our competitive edge and of building new areas. When looking at light, looking at error lies, that is two new business areas. And to build these, you also need R&D capacity. So they go into both. They go into what we call permanent improvement.

I wouldn't call it maintenance. I would call it permanent improvement of our products. And they go into new initiatives. And that's basically why we develop the company the way we did in the past years. So you're doing a lot of bets on kind of new use cases. How do you like make sure from financial standpoint that these bets are more poised to success than just basic research where you did develop something new and great, but it's not

commercializable? Actually, we have a multi-stage process there and I think that's standard. On the one hand, in the research area, we go broad. We look for opportunities, what things could be, what things might be. But before we go into development stage, we have a very clear business case where we analyze the markets, where we see the clear competitive edge versus existing technologies. And then we select the ones where we see the best opportunity to be successful in order to enter the market with this disruptive technology,

and where we see a good economic potential. So we select relatively early. And when you look at that, also from a CFO's perspective, the timing isn't always too certain. Do things take a year or too longer or shorter? That's hard to tell. But we are very good at telling if we are successful with the technology. With a CSO's perspective on a 10% spent on research and development,

do we have a rough return number over time you have with this spend? Have you ever done such a calculation? We are regularly doing such calculations and we will not publish the results, but we do require a relatively favorable hurdle of our OI in order to do our projects. So, we have our project approval based on certain ROI expectations and figures. Like, laser technology is not like, sounds a bit like information. Like information is everywhere or data, but in industrial processes, laser is more cornered, but it is a bit this comparison.

It might help. And how do you manage this flow of ideas that are coming in and how, like, Like, if someone has a process in another industry where you could use laser, how are you getting this openness and this kind of knowledge flows to you that you can select and filter? Let's take two parts of the question. How do we get the flow from the outside to the inside of the company? And that we do in a number of ways. I think the most important source is probably the conversations with our customers. knowing their roadmaps, understanding the roadmaps, understanding where there might have issues, and we might have a solution.

Number two, when we come to basic research, we are very strong in research projects and connections with other institutes, universities, but also applied institutes or companies. So we do many projects in that sense, which are typically partially funded. So that's not the biggest cost position, but it gives us and maintains us a very good network and always a good flow of new ideas of things which are coming into place. So that's two key things where the ideas, how the ideas come to us, how we get them, how we fetch them. And on the other hand, looking at the inside of the company, on the one hand, we have the organized process of developing a product. On the other hand, what do we develop?

That's more an issue on the one hand of product management. And on the other hand of research department, which is very free in what they think about and what they do. And so by that, we match both directions the innovation could come from. Customer side on the one hand and technological side on the other hand. You have this four different business areas or maybe six depending on your presentation. It's like this. We also will put this slide in here like development, electronics, solar, welding, lighter and error lives. How should we think about these areas? Are they kind of silos where teams work on different problems? with certain industries and customers?

Or is it more like a hand that's connected, but it has some fingers here and here. And sometimes they could work together to grab something and move it together. Development, electronics, welding and solar are the four business units of the company. And in these business units, we also have the new business initiatives

lied inside the electronics business and error lies inside the development business. In general, the business units, they do sales, they do product management, they look for a customer, for R&D, for the development of their products, not R&D, but development of their products and production. So that's the way the business units are currently shaped. There is a common base when it comes to software development, So we use a common own developed, self-developed platform.

We have certain interconnects when it comes to R&D, when it comes to our basic research, when it comes to our technological possibilities, but also when it comes to exchanging production capacities when needed. I think that's some of the key areas. When it comes to customers, where we see the synergies, we use them. but they are not too synergetic between the business units. Because when you look at that, the solar world is a thin-film world

that is a countable number of customers in the world. Development, even if you sell a prototyping, rapid prototyping tool for PCBs into an electronics manufacturer, you deal with completely different people in the labs than you deal with when you sell a piece of equipment into production. So that is basically a separate approach because these customers need a separate approach. So we have parts where it's good to be separate in order to be strong and focused to the customer. And it's areas where you need to work together very strongly. And that also includes purchasing, for example, in order to take the synergies which you can and which we do take from being one company.

in the different units can like talent move like from solar to development if needed or is it more like HR finance purchasing that's typical group functions we have and of course we do a joint career development of course people people can move and do move between these initiatives and areas and I think that's one of the strength we have that we enable that. How do you get the specialized talent for the different sections? What are typical stations before they join you in like maybe solar or welding? That's actually quite different. Sometimes we recruit experienced talent. Sometimes we get new folks either from university for R&D or planning, or we get folks for assembly.

So on the one hand, we have apprentices in the company. We train people professionally in all the different business units. And on the other hand, we work very closely with universities because it's different types of channels for different type of talent. So far, I think hiring, It's not the easiest thing it has been when you look at the last 10 years at this point in time. However, for our key positions in the technical area, we are always able to fill them with really good people because they see what we have to offer as a company as work style and work atmosphere,

also as well as when they see what they would be working with and for, that motivates people. So content and kind of mission in the same way as the human factor of the colleagues they meet when we do the recruiting process. Which parts of your businesses, if you look with an investor and financial lens on them, are the most profitable parts currently? Well, I think when you look at that, look at our financials we publish, structurally, all of these business units have one thing in common. Once you go into volume, profits are something we nearly need to achieve. It's nearly a must. Why is that the case? When you look at our structure and you touched on that in the very beginning.

10% R&D, relatively low production cost. So our material ratio, so the material we spend and percentage of our net sales, is somewhere in the 30th, 30 percentage points. You add some labor, then you get a very interesting gross margin. So whenever you're able to scale the business, and that doesn't vary from unit to unit, that's the same for all business units,

You get into a very nice profitability. So basically, the keep the profitability is mainly driven by the fact if the business unit at this point in time can get a good volume. When you look at welding, they have the worst history in profitability of all business units. They've been lost makers for many, many years in the group. But in recent years, we've been very successful in the welding business unit, and we've been successful because we have combined our expertise with the much better customer focus than we've done that in the past. Doing so enables us to scale at reasonable fixed cost

and then enables us to make the business unit profitable. Development, same thing. Just with a different history, development is from a profitability and constant profitability perspective, the very best business unit we have in the group. When you see scaling, as you see it at the moment, because they have a very, very good trend in terms of orders, of sales and so forth, then you see that profitability comes by itself. So that's just two examples where you can see that very easily. We've had very profitable years in solar. However, last year when we were not able to invoice our finished products in the end of the year, we had a loss, but that's driven by volume. So our profitability is mainly driven by our ability to scale. And that's why I said sometime earlier

in our conversation, we focus more and more on the business where we can scale. And the better we can scale, the better we get to sustain profitability. It's market differentiation and value for the customer on the one hand side and scaling on the other side. With scaling, you also need sales. Sales, if you look at these chart again and you have the different industries here, is consumer electronics, medical, car manufacturing, solar. Yeah. It's, you know, it's, you know, These industries, there you have to be precise and stand certain security tests and really be able to deliver on like 99% of 100 for the production. Maybe I'm doing it too much. You can correct.

At least. And how does a sales cycle work in this and how does sales work in this industries that an investor can imagine it? What are the timeframes? Let me describe you, let me give you three or four examples. And then you see the variety and the character of the different business units. In the development business unit, it is projects where we have an order pipeline which you would measure in weeks. There's an interest in the project, sometimes it's academia, sometimes it's private, and

then they either do a tender or they just do. ask for a quote, and order the equipment, get it delivered. These projects are not customized. These products are not customized. They are basically of the shelf products, so delivery time is relatively short. And the expectation of the customers also to have it quickly in their laboratory. When you compare that with, for example, electronics or welding, their lead times are longer, because customers typically require some specification and modification of a standard product for their production line, for their particular application.

And welding, it's clear because every part needs different tools in order to fix them, fixtures, and then to weld them needs a process for the particular welding product. In electronics, it's not the same, but it's similar. So many of these products have a longer lead time. because first the customer needs to understand, yes, this is what I need for my production process. And it's a production process where, as you said, qualification in these things matter.

But as we are prepared for that, and we are doing that regularly, we know how to do all the qualification tests. And after that, then we will receive an order, do all the specifications within the order in our own development area, and then produce and deliver. So that takes a few months, not too many, but a few months as a typical lead time.

When you come to solar, it's totally different because someone decides to build up a solar factory or to modernize a solar factory, and that's the process where there are suppliers which even have a longer lead time than we do. And it's long-standing customers, long-standing customers. So we have conversations early on. We know what will come. So we know that quite a bit in advance. But the time from order to delivery is nine months plus.

So when the year starts, you know most, very most of what you will deliver within a year. So that's three of the existing business lines, or three, four, with totally different characteristics. When you come to a new technology like Lide, that's even different. because there the first timeline is that the customer typically will change his specs of his next product in order to use the lie technology to get a competitive advantage. There are some cases where they put it as a better process into existing applications, but that is not the majority. The majority of cases here is we want to do a new application, we know exactly what we want to do,

but it's the next product generation where we do a design into that product generation. And inside the customer, there is slower ones and faster ones. There are some customers who say, we want to do this. It's qualified. We start and we do it. And there's others which have, also due to the product, longer testing cycles. And that depends really on the application inside the different area. So you can have anything from, hey, give me a machine in order to improve my current process, six months.

And we've had two of these cases recently this year. And you can have other cases where you start exchanging samples and ideas and possibilities with the potential customer. After a while, you sign a joint development agreement. And then it might take another one, two, three years before it gets into process. production. We have a broad range there. What we do see is that the timing of these is hard to foresee. However, when it doesn't come to pure timing, when it comes to the fact, will we do this project, then we have a very good expertise in foreseeing that. So as I said, timing we are sometimes wrong.

Identifying the right areas and also interesting customers, we are very good at. And when I look back from two years to now, then I would say we have something like a 70, 80% accuracy in this. And for a new technology with a broad range of applications like Light, which has a super broad, really super broad range of applications, that's actually quite good. What range of application is there? Let me give you a couple of examples for the range of light applications. When you go to the semiconductor industry,

you can do a type of MEMS packaging, advanced packaging, in order to use glass as a better material and with perfect properties and processes, even integrating various steps of the packaging in one step. That's something we've implemented. for customer. You can go into other forms of advanced packaging, whether or other areas in that field. You have applications with Thrujasvias where you basically do enable stacks of chips. That is a type of application

a number of customers are working intensely on. And that's a number of customers are working intensely on. And that's just semiconductor. Then you go into display. In display, you have foldable displays, so to make glass foldable, you know, with the help of the light technology, and then creating some cavities and filling the cavities with the polymer, basically. That's the way how it works. Then on the other hand, you can also cut and structure the glass for not. normal applications like watches or smartphones, which have a much better yield and much breaker better properties in terms of stability and non-breakability.

So that's the second type of application in display. The third type of application in display is what's called the back plane. So when you look as a smartphone display, the cover glass is just put on top. You can remove it, you can replace it. Below that is a display. The display has various layers, and normally the very bottom is something which you can also make out of glass, and which you can, or you can do a perforation, for example, metalize the perforation, so you can even nourish LEDs, microleds, or other active elements

on the surface from the back. So that's also an implication which is being put into production. You see just a display it's three type of applications which you are seeing. When you go further, you can do certain mems elements where there is a very, very good potential of different applications within these mems possibilities. And I don't want to go into further detail at the moment. And then there is totally different applications, like the arrays for biotechnology, which I mentioned before, where you can create very precise small holes in order to do single-cell

analysis and not the usual this-size wells you have for current methodology. Besides that, there are small applications, which is drilling small holes, where you you need it without damaging the glass and some vaporizers on the biotech side and other smaller projects, which are not something I would put in the big buckets, no, because they're not big buckets. But that is to just give you an idea of the bandwidth of applications of light. And why is that the case? That's the case because glass is a fantastic material. Just as it's brittle, it is very difficult to work the glass the way you need it. And when you work it, you typically damage it.

And the light process enables us not to damage the glass when having ultra-fine, highly precise structures in there. What kind of total, addressable market do you have in mind when thinking about all those options? Well, Capital Markets Day presentation is pretty clear there. Both light and error lies have very nice 3-digit million euro specific addressable markets. The total addressable markets are much, much bigger, but they are not really relevant. To say I have a 10 billion euro total addressable market and I get 1.5%. That's not the approach. The approach is to understand the specific applications and the specifically address equal market.

And that's how we work. And that's also how we have presented that to our investors. Then we are again at sales or like the relationships you have with potential customers or existing customers. So how are you going about planting these ideas you have with light in your books to plant them in the minds of the potential partners and where you're already good at and where you think you could also improve in this process? I think, how do we do it?

How do you enter these large companies? Because the customers here are all the big players, because of the scale effects in their products and in the technology. So we started actually with going to congresses and presenting the technology and the possibilities. So that's really for the research guys of semi-display and others. Then you have to see that you enter some of these guys and enter them at the right level. So you are able to show them what the technology can do for them. Once that happens and they understand what the technology can do

and they are like ignited a little bit, they go back and they can. come back with a number of other problems we never knew they had, and then we see where we can have a solution. So that going back and forwards is very important in the process. That happens when you, once you are in one of these larger players, and the key larger players are semiconductor and display. How did we get into display? Very simple, because we had our own ideas that we could do a foldable display.

We put the demo at a trade fair in the US, got a price, and then got a lot of attention. That's basically how we came into the display industry, how they learned very quickly about the possibilities. So that's just two examples, how we get there. When you look at the companies we work with on the display side, I think we are in, for the foldables, we are exactly. where we want to be, and I can't say more here. For the outline cutting, I think we are also working with the customers we want to work with. Some are advancing well, some not.

Some monopoly structures of glass production in the back are hindering here. So the OEMs have to remove those, we can't. On the semi side, it is rather longer cycles they usually take. when they understand what they can do with it until that goes into the next generation product. So the ones we are working with is all names, I think some of the names people on the streets would know. Investors will know all the names. And that is not surprising because we need to work with the big players, because only the big players will establish these technologies.

in their future portfolio. And why do they do that? Because, for example, in Semiconductor, when you see that Moore's Law comes to an end, they ask themselves, what's the next step I can take to have a competitive edge over my peers? And then back-end packaging

and the combination and so forth is what comes into play. And that's where we enter the ride. So what do we do well? I think identifying that and that first get in touch phase, there we are not too bad. Where we have had a great addition and we are learning and getting better is in professional business development. And that great addition to the company here was Claus Feidler as our CEO coming basically

from that background of establishing new technologies with these large players. And that is basically where we are improving, where we are learning. a lot from him and with him and I think that's progressing quite well. So how hard is to manage this big tankers to put it in this picture? I have the feeling you have a kind of more speedboat approach in the way you go. While the others are like big tankers, if you think about like the big producers of smartphones or something like this, it's yeah. A very good point. What we are doing is we have built up and are continuing to do that

to have the full professional set we need to satisfy what they need from a supplier. They want the flexibility of a speedboat. That's really good. But on the other hand, they need the reliability of a professional supplier. So in the approach with these customers, we have a combination of being agile, but on the other hand, having very clear established processes when it comes to quality, to inspection, to certain measures, norms we have to fulfill and so forth. There we have taken on board the people and the organization has understood our organization that this is a combination between speedboat on the one hand and a very solid background on the other hand.

And what helps us is that we have provided that to large key accounts in the past, and we've proven that we are reliable. And that helps us a lot because that track record is important for these large consumer electronics, this place, semiconductor manufacturing companies. do they also have certain hurdles in terms of your balance sheet because if you for instance deliver to defense i've heard some companies who deliver security critical things that they

have to be a balance sheet like a fortress um well when you look at our balance sheet it's not that i'm not satisfied with it no i think our balance sheet is very solid and that's important to be in a heavily leveraged position for a technology company is too risky. So our customers value that we have a very solid position, our customers value that we are reliable and have been reliable. When it comes to size, they all look at us with a special eye because we are too small to be a typical supplier of equipment to them, but that hasn't hindered any of them to work with us

and to also do corporate purchase agreements with us because they've seen that we are solid in the way we work and they can rely on us. You're totally right. We are not the typical size of suppliers for these customers, but that's not an issue. When they do the CPAs, the corporate purchasing agreements with us, they do it for a reason because they want the technology

and they consider us reliable. And once you are in there with one of these corporate purchasing agreements and we've seen that recently, you get more business. More business a bit further out but also some business closer in time. And that's good.

We are talking a bit about the learning curves you've gone through over the last year Are there any other learning curves you're currently still in that are sharp or that you already think that they plateaued over the last years? That's interesting to know for potential investors? I think the learning curve we are having with Klaus, how to do the business development better, is in a very steep way. And the other learning curves, I wouldn't say the learning curves are flat.

That's not us. So, yeah, I think we've learned. I was mostly looking for the steep ones where a lot of changes happening. I would differentiate here. There's one area where we have an extremely steep learning curve that's Aralise, because we go into a new sector. So everything we see on the customer side is new. That is for sure the steepest learning curve.

When I look into light, I think the trial. an error learning curve, which we might have had four or five years ago, that is different. But that was also somehow different two, three years ago. But that gets into a more, that I would say is getting more stable in the sense that we do know how to treat the projects with these large customers. There I think we are somehow advanced on the learning curve. And Aralize, as I said, that's probably the steepest part. What are your internal estimates for when these learning curves and these new products like Lide and Aralize will materialize and scale and profitability increases?

When Klaus came on board, he had a very thorough look at the company, markets, technologies, the organization. and he was also looking into a conversation with customers and so forth to form his own view of how he sees the company as a CEO and as the key drive of strategy and future business. And what we've done then is at the point in time where we've, where we had advanced our analysis, we have taken out the previous 2024 guidance. and we have given a clear indication to the market

how we see the company midterm. We have not specified midterm because one of the learnings is you cannot tell if things happen a year earlier or a year later. That's very difficult in these technology processes. But in a midterm perspective, I think we have given a clear idea where we think our new technologies will go,

three-digit million euro sales, and where our core business, our current core business, is going with very attractive growth rates and yielding altogether an attractive profitability in the two-digit range. In the current times, we are really shaped by external factors

like wars and pandemics and stuff like this. In your past experiences, how have this external factors, which can or like in the future if the external factors are happening, which can increase the speed of your success, which can slow to speed of your success? There's a number of things we've seen recently.

When you look at the current turmoil in the supply chain, That has actually helped our development business unit because there is just a bigger need to change designs very quickly, electronics designs. And when that's needed, people love to have our equipment. When Corona came, people didn't go into the labs. They're back to the labs. Once they're back to the labs, they need equipment. And they've had a lower investment level for two years now.

We see that this is going back to normal, even a slight catch-up. So we see a very positive effect there. Same direction is when you look at global tensions, I think the willingness to give designs outside due to spying is decreasing, and that in the other increases the demand for in-house prototyping as we are offering with our development business unit. When you look at electronics, dynamics are different. There's many customers who negotiate deals with us, and then the deals go into the draw. That hasn't happened in that way three years ago, but it does happen now.

So why is that the case? Because they are not sure when they will get components and business. And they won't install a new line when they don't know when they don't know when do I get business, when do I get components? So here we are already in a quite negative position. The question is, if there's more turmoil, what will happen? Can that get worse or can it only get better? Somewhere in the between.

I think things can always go worse. We should never be so narrow-minded to think that we are in the worst point. That's unlikely. I see much more potential upwards than downwards there because we are already in the position where we are in the whole industry. So when you take cycles or super cycles, we are definitely not in the upper part. We are definitely somewhere in the low or lower lower part. When it comes to welding, it's a bit of both.

So we have same in electronics and welding, lots of innovation here in the markets. So serving new medical customers, deploying new applications also in electronics. That's what's fostering our sales at the moment. And for the future that's actually a good base because you get repeat business at some point in time and you still might at some point in time get repeat business for what you sold three years ago. But that won't happen until the curve, the economy goes up. So actually, when I look at those, I'm quite confident medical is not too affected by downturns.

Automotive is, however, they will net jeopardize, they will not jeopardize the digital driving, and they will not jeopardize the electric driving. So whatever we do in these fields, and they are increasingly more important in welding, is likely to be slightly affected. No one is unaffected, but slightly affected. Solar is the total opposite. Solar customers don't care at all about global turmoil. They care about global energy shortage and green energy,

and they do that in the US, in Europe and even in China. So basically what we see there and what we will see there is strong demand, totally independent of any business. cycles. Going to new business initiatives, light, that's a little bit the topic where customers which ask themselves, hey, great new technology, I can improve my product, I can get a competitive edge, start to weigh it against the risk in their supply chain. And when they currently have a risky supply chain, their likelihoods to, or their willingness is to speed and take a risk is just a bit lower than it was two or three years ago.

So that has changed to the negative. That means that things might take a bit more time here, and that is partially a reason why we had to take out the guidance for 224. This delays are slower development than what we expected with new light applications. Aerolyse, too early to tell, all business we do there is new, so it's all growth, that's the question of speed. I would expect that Aurelise is relatively unaffected and independent of business cycles. The only part where we see anything in terms of cycles, we have a slight indication and welding that standard automotive is cautious, but that's not unexpected. How much of your revenue is recurring?

We have 25 to 30% plus minus recurring revenue. Yeah, plus minus. Is this plan to increase in the future or? That will to some degree increase in the future because we are working on that heavily. When I joined the company, the motto was services, We shouldn't afford too much service personnel. Current management board and also previous management board has the attitude that services gold for the customer and gold for us.

Gold for the customer because he's happy. Gold for us because we earn money. So that's why we are increasing here and also increasing workforce. On the other hand, the question might be what grows faster? equipment or service. And typically the service depends on the installed base. And when you sell, when you have a high growth in new equipment, the new equipment could even grow faster than service.

So you have two tendencies. Structurally, it will increase. Thinking of your customer base, is there a risk that if one customer sneezes, you will get the cold in certain areas? So is there a high concentration? solar you just have one customer, for instance? Hey, Tillman here. I'm sure you're curious about the answer to this question, but this answer is exclusive to the members of my community Good

Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to Good Minus Investors. dot net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. Can we maybe jump back to the point on service you made

and give a bit more light on the details of this transformation you're doing? Like from a more machine selling business to the service components, where will service when we come from, What of kind of service models do you do? Let me give you a couple of examples. Traditionally, the company has basically sold products and had to do service or asked others to do service for them. That was not a good idea, but it was done. What we do today is we offer service, we offer service contracts, we offer different categories of service contracts as products, with additional benefits to our customers.

like extended warranties and things like that. This is type of packages. We are offering to our customers, so we sell it proactively. Number two, we have more upgrades, which we have partially already established as a small growing business within our business units, and we are strengthening that further. Upgrades are of great value to the customer, and they can be of great value to us. us. So this is something with strengthening. And in some areas, we can also add features, and call it an upgrade, call it a feature. That's also a way to make money in the after-sales

area. So that's just a few examples which I'm giving. When you look into consumables, that is something we are doing in our development business unit, as this is a process where we need we need some consumables for certain process steps, and we will have it very strongly in the Aurelize field. So Aeroise, contrary to the other fields, is something where you have an equipment business, a service business, and you have a consumables business, which is significant, because the little chips where you do the single-cell analysis with

and other types of analysis, if it's microstructures, it can only be done well with light. That's not because we would prohibit it. That's because it is technologically enabled by light and cannot be done with traditional glass-shaping technologies. So in the future, when it comes to light growth, you will rather see that it's equipment and then service business. When it comes to aerodize, it is equipment business and consumables business.

With service, you already mentioned that you weren't taking service revenues yourself, but outsourcing it. And now you want to take them in your packages. How replaceable are you then on this service side? So is it easy for other companies that you're supplying to take other? service people and if you take then the service or can win them for service how biggest than your Martian potential from the service if you are replaceable? Let's put it that way. In the LDS business, the company had the strategy to educate the customers and to enable

them to do the service themselves or to have it done by third parties. If you do that, you are extremely replaceable because you're asked to be replaced. On the other hand, what we do see is that when we do the service ourselves, we can always give a much better and more competent service to customers than anyone else. And in service, we are not easy to replace. For large sales customers, it's always possible to replace some of it, but we actually don't even see that one. Even with the large OEMs, we mostly do the service. So replaceability, we observe very little. It's totally different from the automotive industry.

We have a huge spare parts market, regulated, and a lot of workshops who can do it. Here it is rather that you need to know how to operate the machine and you need to know what type of things you have to treat in which way. So know-how is key here, and that's why this is. is quite proprietary to LPKF. Margins and service will be above average average average margins, but we'll also not go to the sky because we want to keep the service attractive to our customers.

Is there any market where service doesn't make sense for you because the density of the customer is just too tiny and all the keeping up the level of service that has to make sense is hard, for instance, maybe Australia, I've heard in other companies like 2G energy, they don't have a, they use other stores in Australia to maintain their machines. Absolutely right. In certain markets, we ask our distributors to do the service.

That's a minority in its small markets, not large markets. On the other hand, when you look into the development product portfolio, there is high caliber lasers for 300,000 euros. we do the service typically ourselves, then there is 5 or 10,000 euro machines which go to schools. We cannot do that service ourselves. So we select, but in the volume, service makes sense for our customer and for us. So we do provide it. Is there a history of acquisitions with LPKF? So have you bought other companies to complement your portfolio?

Well, there's some history of acquisitions. When you look, for example, there are a solar business unit that was an acquisition. When you look at LTP, that was also an acquisition originally. However, I think it took too long for us to come to the product to the market. Product is now on the market, but that has taken way too long. When we look into acquisitions, we basically look only into enablers. So we wouldn't add a business unit to have one more. That doesn't make sense.

What we would do is to see can we get some additional speed or power into our existing business to leverage our existing business with an acquisition? That's fields which would be interesting for. us. As my last questions, I want to talk about stocks and insider ownership. Do you, like, maybe you can speak here for the whole management and also the advisory boards. Do you own stocks of the companies? And is it a significant part of your network? Both Klaus Fiedla and myself have phantom share plans of the company. So there is a significant leverage of these phantom share plans on our income here from LPKF.

And I think what I can say is that Mr. Reshaar, our chairman, has not only purchased some stock himself, but has also announced that there's a clear plan to change the current LTI plan, including all around it, and make a proposal for the next AGM for a new LTI plan for the management. Do you have a rough idea in which direction this plan could go?

Yes, but I cannot tell. Okay. No, it's in discussion, yeah, and it's a topic of the supervisory board. However, there's discussions between management and supervisory board on the topic and supervisory board and Mr. Ash has committed in the last AGM that they will go out and propose to the AGM 23 a new generation system with a new LTI scheme. Then we are looking forward to this.

For the end of our interview, I always give the chance for the guest to add something that is of his importance to him that we haven't discussed. So is there anything you want to add? Now, I think we've discussed a lot of important aspects of a company, starting from history and our DNA as an innovator and bringing new innovations to the market where we can really make a difference based on our competencies,

about the different business units and their characteristics, about what drives us, where we have the growth potentials. I think where we haven't talked a lot about is Errolize. And just to give you a quick idea of the potential of Errolize, what do we do there? We enable single-cell analysis. So, analyzing, treating, and recovering single cells. And to give you a quick example, how you can develop cell lines,

if you take 1,000 cells and you see which cell is the best killer cell for tumors. Then you take the top five cells out of that. You re-extract them after they've killed the sumer cells, and you try to replicate them. and thereby find the real champions in these cells. And that you can do to kill tumors, to produce insulin or whatever. So single cell analysis is the best you can use for that. And it's not only much more efficient and faster, it's also much cheaper.

And it's cheaper because the amount of ingredients of consumables you need is currently somehow prohibitive for certain experiments, but when you go with a number of orders of magnitudes, so we are talking three or four orders of magnitude at least in the amounts of chemicals you need there, this is a significant difference also in terms of feasibility of experiments. And that's only one small example, what you can do with single cell analysis with the aerolizer with our cell shepherds. I can just invite you, have a look at our Capital Markets Day presentation. There's some more material in there and we'll deploy the first pieces of equipment in Q4 to our BDA customers and we will start a commercial

launch in spring, February, March, plus minus and then sell the equipment starting mid of the year. We are very happy and we are very proud where we are with this product and what we can offer to the market in the world with this technology. I'm very happy to look into this at the Capital Markets Day presentation again. Beta customers means there could be also like a bit of delay or are you really certain that it goes into scaled productions? What's the strategy of market introduction here?

Number one, when it's beta customers, we want to learn from them, is that exactly how you need the product or do you need more functionality, typically meaning more different software? Number two, these beta customers are research-driven, and we want them to publish papers using the sales shepherd, because that will be our multipliers, that will be our first multipliers in the markets. So that's the reason exactly, because the buyer, tech area is very science driven and it's very paper driven.

So that is the way forward there. It's a different way of selling, but it's a different market. And that's why we hired people to explain that to us and to develop that with us. And that's the path we take. And thank you very much for the very interesting interview and your time. And thank you for the audience for staying till here. Bye-bye. Thank you very much.

Bye-bye. Bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice. So please always do your own work. Thank you very much.