I was born in Moscow in the early days of the Second World War when my country’s very existence was in great jeopardy. In 1941, my family was evacuated to Ural, where we were rescued by German peasants who had been exiled there as enemies of Soviet authorities. My father was an artillery captain who joined the military in Belorussia in the first days of the war.
We reunited with my father in 1944 after he rejoined Soviet troops following a year and a half in a concentration camp. In 1946, we moved to Lvov in western Ukraine, where I spent the next 20 years of my life. I learned from my father the importance of being strong in the face of adversity. I can think of no more important lesson for someone starting a business today.
I became interested in science in school, and went on to receive a master’s degree in electronics from Lvov Polytechnic Institute. I spent three years working at a high-tech company in Lvov, and then returned to receive my PhD at the Moscow Institute of Physics & Technology. My first real taste of R&D as a career was in developing systems for a Soviet satellite program.
Although I was able to use my background in electronics, the more time I spent in this first job, the more I felt the need to move on to something more exciting. I then had the good fortune to get involved with the Soviet Academy of Sciences (SAS).
When I arrived, the SAS was an impressive network of science institutions. The SAS was like a cross between the Bell Labs, Caltech, MIT, and NASA. It was an amazing organization, home to some of the world’s most outstanding scientists and Nobel laureates. This was a place that welcomed me into the field that would become my life’s work: the fundamental physics of light and laser technology. The SAS was also a place of freedom and autonomy from tough bureaucratic regulations.
I started at the SAS in 1964 as a post-graduate student, working hard to strengthen my knowledge of basic physics and the laser science industry. In 1972, I received a PhD in laser material science, concentrating on the development of new solid-state laser materials and research of nonradiative processes of multiphonon relaxation and energy transfer between rare earth and transition metal sites in laser glasses and crystals. I became known throughout the world as an expert in the field, publishing more than 200 papers and receiving numerous Soviet and international patents with my colleagues.
However, after more than 25 years, I began to see declining opportunities at the Russian Academy of Science (RAS), the successor to SAS. The RAS had become overcrowded and research funding was progressively difficult to obtain for working scientists. As a result, the scientific yield per scientist at RAS was increasingly falling behind our western colleagues. With the few thousand dollars I had saved, in 1990 I set off on my own and started the private enterprise that today is IPG Photonics.
Starting a business gave me independence, but it also presented tremendous risks. After a career 100% focused on laser material physics, I had never even managed a business—much less started one from scratch. Unlike many other technology companies emerging in Europe and America at the time, my business did not have financial support from government contracts or grants. In addition, conventional wisdom is that successful entrepreneurs start young, but I was 52. Most important, the political disorder in Russia led to a kind of economic chaos that was far better at generating threats to small business than opportunities.
IPG started in the basement of a small laboratory in the Institute of Radio Engineering in Fryazino, near Moscow. The team included only a few students. My partner, Alex Schestakov from the Industrial Laser Institute, joined me with a group of laser specialists. In the beginning, we made and sold customized glass and crystal lasers, wireless temperature meters for hyperthermy and laser components.
In parallel, I began to develop new high-power lasers based on fiber optics. During that time, fiber lasers became very popular in western scientific circles, but the achievable power didn’t exceed 10 mW. Moreover, nobody could imagine that a micron-sized fiber could emit more power. I was the first to forecast and demonstrate experimentally that it was possible to make 10 W fiber lasers.
Working night and day, and on a shoestring budget with just a handful of close associates, we quickly made the first prototypes. It became clear that fiber lasers could become a major development and we had a great chance for success. On the other hand, our intensive efforts toward marketing more conventional solid-state and glass lasers didn’t give us much commercial success. The Russian market was completely frozen, and the western market did not demonstrate any opportunity for similar technologies. Our only chance was to introduce a new disruptive technology: high-power fiber lasers. In 1992, I began to focus all my limited resources in that direction.
Finally, good fortune struck and we won our first research contract from the large Italian telecommunications carrier Italtel to develop our first marketable product, a high-power fiber amplifier. It didn’t take long after that for us to win two more research contracts from the same customer. In total, the three orders were valued at $750,000—a lot of money for a small Russian company.
Following this success, we developed erbium fiber amplifiers, which used new innovative pump schematics and fiber solution. Italtel wanted to introduce our technology in the market immediately, but their business model couldn’t accept the risk of working with a small supplier from Russia. So they convinced me to transfer the component production to Italy. I proposed to open an IPG subsidiary in Europe, and they agreed.
In 1994 it was not easy for a Russian scientist to walk into another country and build a new manufacturing operation, but with perseverance—and some luck—we succeeded. We met another serious customer in Germany, DaimlerBenz Aerospace (Dornier branch). They needed a compact and efficient eye-safe laser transmitter for a helicopter obstacle warning system quickly. I proposed a new fiber solution, and they agreed to fund the development if it was made in Germany. As a result, we opened a second location in Berlin. One year later we bought a small facility near Frankfurt, where IPG built a high-grade research and manufacturing plant.
During the next few years, we raised IPG’s reputation as a highly regarded engineering company and a pioneer in advanced high-power fiber lasers and amplifiers. We developed hundreds of unique products for various applications. We sold them at an annual run rate of about $5 million to customers in Japan and the United States, as well as in Germany and elsewhere in Europe. However, it was clear that we could not grow without mass production. In 1997, we registered our first large OEM customer sale in fiber amplifiers. The contract was for high-power multi-port amplifiers from Reltec Communications, a manufacturer for broadband fiber-to-the-home systems being deployed by BellSouth in the United States.
The Reltec contract vaulted IPG to the status of a high-quality OEM supplier and, most importantly, transformed us into a global telecom active component manufacturing company. To satisfy demand from Reltec and BellSouth, and to serve a growing number of U.S.-based customers, we opened manufacturing facilities in Italy and the United States in 1998.
By 2000, IPG had grown into a profitable $52 million company. Our customer list included Alcatel, Fujitsu, Lucent, and Siemens along with Marconi (Reltec). We had just raised $100 million in exchange for less than 10% of IPG’s equity from a consortium of investors, and we were preparing to go public.
In spite of great success in the telecom arena, we developed and distributed a variety of other fiber lasers for diverse applications in additional markets. During this period we received exciting results in the development of our present flagship technology, the multi-kilowatt diode-pumped fiber lasers.
Risk and Reward
However, it didn’t take long for things to change for the worse. By the end of 2000, telecom capital spending had evaporated. Most of the large- and mid-sized telecom hardware and components manufacturers lost 70% to 90% of their business and many others shut their doors. Our revenue was down nearly 60% and yet our suppliers weren’t budging on pricing or terms.
With our future on the line, I thought back to the times before when following the principles of freedom and self-determination had pulled us through. When other companies in our market, even cash-rich companies, had frozen investments and started to cut their staff, we made the critical decision to invest in our future. We invested nearly all of our remaining capital in the development of advanced high-power products, advanced mass production lines and, most importantly, in a high-volume production facility to make our own high-power pump diodes. This facility enabled us to cut our dependence on sole source suppliers and radically cut production costs.
In making this investment, we were effectively betting the company on the competitive benefits of vertical integration. If we could manage the price, quality, and quantity of our components, I knew we could accomplish this goal.
We manufactured everything from the diodes, which pump the amplifiers and lasers, to the various specialty optical fibers that generate and transmit the laser emission, as well as many other optical and optoelectronic components. We believed that with a vertically integrated supply chain we could produce higher-quality diodes for up to 90% less than we paid to our suppliers.
After only three years, we developed world-class pump diodes that exceeded the power, brightness, and reliability of those produced by the leading supplier. But the main benefit was our ability to dramatically reduce manufacturing costs. Moreover, IPG built and deployed the world’s largest pump laser diode production line and manufactured more diodes than all our competitors put together.
The availability of high-quality and low-cost pump diodes opened up an opportunity for IPG in 2003. We introduced to the market a revolutionary new generation of super power multi-kilowatt fiber lasers that, in a short period of time, completely changed the competitive landscape in the metal cutting and welding market segment by displacing conventional crystal and carbon gas lasers. At the same time, working closely with our customers, we have spurred the emergence of major new markets for lasers. After hitting a low point of $22 million in sales in 2002, we have grown to more than $143 million in 2006.
Looking back at the past 15 years, there are very few things I would do differently. Although I may have wanted to become an entrepreneur earlier in my career, it would not have been possible in the Soviet Union of that era. With hindsight, we would have been better off if I had reacted more quickly to the telecom meltdown, but I was not alone in thinking the downturn would be brief and shallow.
Looking forward, my dream is to see lasers—like computers—become a tool of choice in mass production, rather than being viewed as a last resort in many applications. I intend for IPG Photonics to play a pivotal role in realizing this dream, and being sure to maintain our independence along the way.
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IPG Photonics, Going Public
IPG Photonics went public at the end of 2006. As a company dedicated to controlling its own destiny, the decision to move forward with a public equity offering was not easy for us. By 2006, however, the potential benefits of an IPO were too compelling to ignore.
Reports from the marketplace told us that it would be hard to increase our penetration much further without providing customers with the financial transparency and broader awareness that publicly held companies enjoy. Going public also was the most reasonable way to provide our long-term investors with the liquidity they deserved.
While we experienced some small changes after becoming a public company, in spirit we are still very much the company I founded in a small lab in Moscow more than 15 years ago. A company dedicated to scientific discovery and technology innovation. And a company willing to risk anything to preserve the freedom we cherish.
Valentin P. Gapontsev
Valentin P. Gapontsev founded IPG Photonics
in 1990 as a small optics company in the Soviet Union. Since that time IPG has become a leading developer and manufacturer of high-performance fiber lasers and amplifiers for diverse applications and markets, reporting revenues of $143.2 million in FY2006. The company now operates manufacturing facilities in the United States, Germany, Russia, and Italy, as well as sales offices in Japan, China, Korea, India, and the United Kingdom. Major developments in IPG’s history include moving to a vertically integrated manufacturing model in 2000 and going public in 2006.
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