Good morning, and welcome to IPG Photonics’ fourth-quarter and year-end 2008 conference call. Today's call is being recorded and webcast. At this time, I would like to turn the call over to Angelo Lopresti, IPG’s Vice President, General Counsel and Secretary, for introductions. Please go ahead sir.

Thank you and good morning everyone. With us today is IPG Photonics’ Chairman and Chief Executive Officer, Dr. Valentin Gapontsev, and Vice President and Chief Financial Officer, Tim Mammen. Statements made during the course of this conference 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 known and unknown 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 include those detailed in IPG Photonics’ Form 10-K for the year ended December 31, 2007 and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investor Relations section of IPG’s website at www.ipgphotonics.com or by contacting the company directly. Any forward-looking statements made on this call are the company's expectations or predictions only as of today, February 24, 2009. The Company assumes no obligation to publicly release any updates or revisions to any such statements. We will post these prepared remarks on our website after the completion of the call. Please go to www.ipgphotonics.com to review these remarks. I’ll now turn the call over to Dr. Gapontsev.

Good morning. And thank you for joining us today. We are very proud of our accomplishments in 2008, which was a year of financial, strategic, and operational achievements. Our 2008 revenue grew 21% to a record $229 million. In terms of end markets, key growth drivers for the year included general manufacturing, automotive, electronics and solar. The aerospace, research, scientific and telecom markets were all stable. The applications that were key to our success in 2008 included cutting, welding, marking and engraving, printing, annealing, and drilling for microelectronics. Earnings outpaced revenue, increasing 23% to $36.7 million. Diluted earnings per share grew to $0.79 from $0.65 cents in 2007. Our full-year performance was driven by our success in the materials processing market, our largest market. We grew 34% year over year in materials processing due to the recognition of the value of our fiber lasers compared to the traditional lasers and other tools, as well as to the broad diversity of uses for our products. We are very proud of IPG’s ability to generate cash. In fact, cash flow from operations increased more than 200% to $34.7 million in 2008. An essential achievement for 2008 was breaking into metal cutting. IPG now has numerous cutting OEM customers. Last year, laser cutting represented 22% of industrial laser unit sales, and is even larger than laser welding, which was 12%. 2008 also was a year of exciting new product development. Last year, we substantially increased our R&D spending and we are proud to discuss with you the results of our efforts. These include our recently launched green pulsed and CW fiber lasers, new high energy pulsed lasers, 5 kilowatt single mode lasers and an improved generation of our multi-mode kilowatt lasers, called the YLS family, as well as new powerful diodes. These lasers…

Thank you, Valentin, and good morning everyone. Capping the strong year that Valentin just reviewed was a solid fourth-quarter performance. We reported our ninth consecutive quarter of year-over-year revenue growth since we’ve been a public company – growing sales by 6% to $58.2 million and meeting our guidance. Our primary driver for the quarter continued to be the materials processing market, which increased sales by 16% over last year’s fourth quarter. This is a testament to the transformative power that our lasers have, and their ability to provide valuable productivity gains to our customers at a time when everyone is looking to lower costs. Despite a difficult global economic environment, we also met our guidance on the bottom line, reporting a 9% increase in net income to $9.1 million, or $0.20 per diluted share. Our gross margin continued to improve year-over-year. Gross margin was 45.6% for the recently ended quarter, and improved by approximately 3 percentage points over the fourth quarter of last year. Now let me provide you with some information about how we performed in the four markets that we serve. Materials processing, which is IPG’s largest market, contributed 78%, or $45.6 million, of the revenue we reported in Q4, and grew by 16% year-over-year. Materials processing encompasses diverse end-markets, including general manufacturing, automotive, aerospace, heavy industry, consumer, semiconductor, electronics and solar. The advanced applications market represented 15% of total revenue during the fourth quarter. Sales of these laser systems decreased by 10% compared with the prior year, but increased 65% compared with Q3 2008. Advanced applications include test & measurement, instrumentation, sensing and defense applications as well as scientific research & development. Order flow has been historically less predictable in this market. While the year-ago quarter benefited from large sales for a U.S. government project, last quarter…

(Operator instructions) and we will take our first question from C. J. Muse with Barclays Capital. C. J. Muse – Barclays Capital: Good morning. Thank you for taking my question. I guess first question, Tim, when you look at your guidance, the mid point, you are down about 10% year over year versus many of your competitors in the laser space, down 26% I guess on average or worse. And I guess the question first off is, as you look to 2009, do you expect that that kind of performance for IPG can continue and if we are seeing, it is sort of a down 30% for the overall laser market that you will be more like down 10%?

Yes. And I think clearly we expect to outperform the overall market and the way you are framing, what we are targeting I think is very reasonable. I think within the fiber laser market, we felt we have even made better gains over the last year. And I think that is a very reasonable way to look at it. C. J. Muse – Barclays Capital: Okay. And then I guess secondly, on the cost side, when you look at the planned OpEx savings, when should we see the full benefit of that? And I guess, can you put numbers around that? I know you did about $11.7 million in OpEx in Q4. Do we get down to the sort of $10 million run rate by March or June?

Yes. I mean, we are going to see most of that come through in the first quarter. So if for example, the reducing bonus accruals is immediately effective coming into the end of January, we are managing overtime very, very closely and obviously, some of the benefit on legal and litigation expenses will already be in there, since they have come down since the first quarter of a year ago. We have got specific numbers in each of those three areas and those ranges add up to like $4 million to $6 million in each of those. And they are not insubstantial amounts. C. J. Muse – Barclays Capital: Okay. And then I guess last question. When you look out to 2009 in the advanced side of things, particularly around the high power segment, could you provide any color on – I guess, how that could change as a percentage of overall sales, just sort of any framework to help us understand how that will proceed throughout the next year?

I think that in general, we expect advanced to grow this year. We are definitely on track. I think we have talked before about trying to sell a couple of ultra high power lasers. And I think we are optimistic that that will continue to happen. And even if at the single mode level, as we go from 5 kilowatts to 10 kilowatts, there is tremendous interest in that laser family. I think Valentin perhaps can provide more color on the advanced areas as well as its expectations. He is more closely involved with the technical side of it.

(inaudible). C. J. Muse – Barclays Capital: Perfect. Thank you.

And we will take our next question from Antonio Antezano with Macquarie Capital. Antonio Antezano – Macquarie Capital: Good morning. Just a follow-up on the prior question in terms of your outlook by each of your four markets. If you could expand in terms of the guidance for the first quarter, what do you expect for each of those four businesses?

We don't give a lot of guidance by product line or business area. But I think that I mean, right now obviously there is a lot of volatility around industrial segments and materials processing but there are – we look at our pipeline, a huge number of opportunities that exist out there. We believe that particularly at the high power level, where the value add of our lasers obviously to consume more power or process. Deep and thicker metals really start to translate into higher productivity gains. We believe that – for example, in North America, our competitors are getting very few orders for high power lasers, and that the orders that are coming out are coming to IPG. So there is a sort of little bit of uncertainty right at the beginning of the year, on that I think that hopefully if we get to some stability within the credit markets, we will see that industrial laser business pick up. I think there is definite optimism around advanced applications for the year. That can be volatile quarter on quarter, and our telecom group is actually pretty optimistic about some of the projects they are working on with major OEMs. So we would actually expect telecom in Russia and North America to grow for the year. The medical business will continue to remain a little bit volatile this year; I wouldn't expect a huge amount out of medical, particularly in the first half of the year. Antonio Antezano – Macquarie Capital: Right. And then in terms of your gross margin, you said that it would decline in Q1. Will you provide a range at least on what kind of level we should expect for gross margins?

The top of our revenue range, we expect to be relatively stable. The problem is that the bottom end of the range is that some of the benefits that we are talking about coming through on products, lower accessory costs will be offset by lower absorption. So the range we will give is about sort of 41% to 46% in the first quarter. But it is really the lower fixed cost absorption at the bottom of the range with some benefit coming through on, ultimately hoping Q2 and later on on the diodes and sort of the other accessories, which really should start to save significant amounts of money on the high-power lasers. Antonio Antezano – Macquarie Capital: Thank you. I will go back to the queue.

And we will take our next question from Ajit Pai with Thomas Weisel Partners. Ajit Pai – Thomas Weisel Partners: Good morning. Just sort of addressing the gross margin question again, I think you talked about the low end and the high end of the range. But a lot of the sort of product innovations you have talked about, you know the 30 watt laser, diode as well as the (inaudible), a lot of these new facilities, I think are going to be driven – the economies of some of this integration as well is going to be driven by scale. So is it fair to assume that you will still be able to capture on flat revenues sequentially over the next two or three quarters of revenue, stay at this current level, but you would have seen a gross margin improvement, even though volumes aren’t really ramping that rapidly as far as some of these initiatives, or do you think that you would still be able to capture significant improvement in your gross margins over time by these vertical integration as well as some of the new innovations?

To answer the first part of the question, absolutely and even a stable revenue environment, say coming off the fourth quarter, we would have seen an improvement in gross margins driven by the lower costs related to these accessories. So we wouldn't really require additional scale to get those gross margin improvements. When we get back into a phase of growth hopefully, we will see that leveraging and the benefit from the lower accessory costs drive to the gross margin line and I would expect to see those gross margin starts pickup again quite nicely. So I think the answer to the question is yes, Ajit. Ajit Pai – Thomas Weisel Partners: Got it. And then the second question, looking at the pricing front, so far, I think IPG has been a price leader, the one that has actually been sort of setting the price for fiber laser in the market. Have you seen any change in that trend, are you seeing your competitors respond in a way that has been different for the past couple of years as far as pricing, either with fiber lasers or even competing technologies in any of your vertical markets?

Yes, we see some trends, some of the competitors trying to save their predictions of market cutting the prices for their products, sometimes even according to our information, even below the court. But they could not go the direction a long time. So we have, up to now, as normal it is there in our price and we have to dictate price in the markets, saving a very good gross margin. Ajit Pai – Thomas Weisel Partners: Got it. And then the last question would be just sort of the quality of your backlog. I think you talked about a modest fall in backlog, but it is still greater than your quarterly revenue. So what is the timeline for the shipment of the current backlog and has there been any change in the – any cancellation that you have seen in that backlog that contradicted to the drop off, mainly shipping being greater than orders?

We haven't had any cancellations, but we had some order deferrals. We have scrubbed that backlog number pretty clean. I think it is a pretty high quality number. So you know we have gone through some of that and we have seen if we want frame agreements with customers, but haven't been calling them off. We have called those customers and said that these orders continue to be active. So we put a lot of work into that. I think the backlog provides us with good visibility into Q1. Obviously, order flow is, given the economic environment – is not as great as it was in the fourth quarter last year as it was a year ago. So we are managing the business within those challenges. But I think we really have put a lot of work into ensuring that backup number is a good number. I think part of it was the decline in China, we are really making some good progress with one of the major laser manufacturers there, that we hope to sell our pulsed lasers to instead of selling those pulsed lasers to a lot of the smaller companies. We're trying to develop a deeper relationship with them as well on the high power, as well as targeting a lot of single-unit high power sales in China to universities and R&D institutions as well as the auto industry in China, where there continues to be investment. In Japan, very good-quality backlog there with all the high-power lasers. The marketing business will be a bit volatile. And even in India I think in the last couple of weeks, we have had some indication that once we get through the difficulties with the narrow marking engraving, the second half of the year we may see some orders from them as well. So it is a good solid backlog, not as high as we would love to see it, but I think we're doing pretty well. Ajit Pai – Thomas Weisel Partners: Got it. Thank you.

Valentin had additional commentary there.

(inaudible).

And we will take our next question from Jiwon Lee with Sidoti & Company. Jiwon Lee – Sidoti & Company: Good morning. First off, what areas where the other than your segments there are predominantly –

Geographically or by product or by – Jiwon Lee – Sidoti & Company: Geographically please.

Geographically, just the rest of the world, we have made progress in sort of the Mediterranean parts of Europe, we have had some sales, not in Q4 in South Africa. That was earlier, some little sales in South America and Israel as well. Jiwon Lee – Sidoti & Company: Okay. And could you talk a little bit about if we combine welding and cutting sales together, roughly what percentage of your sales would that be?

We have actually done a little work on getting some more granularity on this. I don't plan to talk about it in a lot of detail. I recall that, welding and cutting now are getting up to the – probably about 30% of sales is all. Jiwon Lee – Sidoti & Company: Okay. And similarly, what about the auto exposure?

Auto exposure is not that bad. Everyone is very worried about it. I think we have got, obviously in Q4 with the large order to BMW, the total sales were about 20% at auto, but specifically identified auto sales for the year were actually about just below 15%. And the important thing to understand about that auto industry is it is not just the traditional auto applications we are working on. Some of those sales are coming out of hybrid battery welding, battery welding for hybrid vehicles and fuel-cell welding, some of the other – maybe battery and fuel-cell are some of these. But also cutting high strength steel is very important and the fiber lasers are high strength steel cutting are also a key driver, replacing dies. Jiwon Lee – Sidoti & Company: Okay. And lastly, following on your Boeing comment, could you talk at all about any of the similar prospects there?

There just continue to be numerous advanced application prospects. I think there are ongoing qualifications and tests with customers at the moment that I think we will be able to report on at the end of this quarter. But we made progress not just in the US with some of these advanced applications but also in Europe as well.

(inaudible). Jiwon Lee – Sidoti & Company: And one last question please. Where do we stand in terms of your litigation with Imra?

That case is still currently stayed and the patent is continuing to be reviewed by the patent office. There is no further update to give to that. We hope that we will have not much activity on that case for the year. Jiwon Lee – Sidoti & Company: Okay, fair enough. Thank you.

And we will take our next question from John Harmon with Needham & Company. John Harmon – Needham & Company: Good morning. A couple of questions please. First of all, regarding your minority interest, you said at one point I think you expected about 80% of that to come out and it looks like it was down about a third in December. So is that kind of roughly correct, about a third of it came from the business that you bought back in Italy; and maybe there is another 50% more to come out in Q1, is that looking to the numbers correctly?

Not really quite, because of the timing of when these acquisitions took place. If you look at the total minority interest for the year, about $1.4 million of that would have not been incurred had all of these transactions been completed during 2008. John Harmon – Needham & Company: Okay. But the rest will be done – you expect in Q1 and –

Yes. It will be finished in Q1 on Russia. So the only minority interest that is left out there is a small amount in Korea and a small amount in Japan. John Harmon – Needham & Company: Okay, thank you. And regarding your expense reductions, it sounds like the majority of what is going to hit the cost of goods sold line is there and how should we look at R&D spending for the year? We think you have a lot of projects going on, do you expect R&D spending to be up or flat or down a little?

First off, most of it is there. It is not really reflected. If you mean by there then we are ready to start introducing these components and develop them, that is correct. So they should start to benefit 2009. R&D expenses I think in absolute terms will track relatively flat with the fourth quarter of 2008. John Harmon – Needham & Company: Okay, thank you. And just a comment or question here, your guidance range seems pretty wide with respect to you just having a month left in the quarter. Are there a couple of big orders that could go either way, Q1 or Q2 or why is the range so wide?

It is really significant orders that are swaying it, but I think that now along with the sort of economic uncertainty out there, we want to be appropriately cautious and not over said expectations. I think on the bottom end of the range on the earnings side, there is tremendous volatility out there on exchange rates at the moment. And we're trying to factor in some of that. So we still have reasonable good gear. We've got reasonable visibility into the quarters orders based upon backlog, but it is an appropriate time to be measured I think right now. John Harmon – Needham & Company: Sure and then just finally, please confirm for me – I believe your green laser is shipping and when do you think you might start to book revenues for your CO2 laser?

(inaudible). John Harmon – Needham & Company: Does that mean you are delaying production of your CO2 laser or –

We are ready to produce but we build for these (inaudible) we’ll see market demands from such plans today. It is not –

I think it is fair to say, John, that we are much better off focusing sales, resources and personnel on where the real market opportunity is in this difficult environment and you might have to employ a separate CO2 sales guy or divert those hired in each group into selling CO2s, which right now in the environment is not going to provide us with the best return on money. I think it potentially could be opportunities when the market stabilizes there. On green, we haven't actually got any orders in-house. We expect to have probably a few orders in Q2 and demos going out to customers, so we have built a number of units and then hopefully see some more meaningful revenue on the green coming into the third quarter. John Harmon – Needham & Company: Great. Thank you very much.

We will take our next question from Mark Douglas with Longbow Research. Mark Douglas – Longbow Research: Good morning. In your quarterly guidance, I know you talked about the full year. What are your expectations right now on currency, assuming no changes from today?

We have basically forecast at the word the dollar-euro and ruble-dollar rates are. Those are the two main ones, and also Japanese yen-dollars. So we use the exchange rates to last week. And if you are going to ask me to predict what is going to happen to the exchange rates, because I'm willing to do that. Mark Douglas – Longbow Research: No but in your guidance, did you update minus 5% currency, minus 3%.

We said the dollar-euro, whatever it was last week. So as you put it off, the average for the year to date and we took the ruble to whatever it was the average year to date. So I don’t think it is. We don’t bake in like further currency swings. We give out guidance over – effective as of whatever the currency was for the period to the quarter to date. Mark Douglas – Longbow Research: Right. Okay. Can you repeat for me the sales by application again?

Our script will go up on our website. It is probably not the most best use of time today with those numbers now, but you will have access to the scripted all the data through in a couple of hours time. Mark Douglas – Longbow Research: Okay. It is still not up yet. Okay. The BMW sales; when do you expect the sales to start flowing through? Any of them included in the 1Q guidance or is it going to be –

We shipped a large order to BMW in Q4. We had another order for one order in Q4 and we have got another order for one unit for this brazing application. So that is going into like preproduction and R&D testing. So we booked the major part of the revenue from BMW in the fourth quarter. Valentin was alluding to new projects that we are being qualified on and it is not clear as to when we will see significant order flow from BMW for that. Mark Douglas – Longbow Research: s:

This year, but second half, we discussed about the – not only was BMW, now practically working with all German car makers. We now manufacture for all German auto industry, now come to fiber laser. Mark Douglas – Longbow Research: Right. So your comments on getting a lot of product up for the end of the fourth quarter, was that necessarily talking about BMW or just kind of across the board with the high-power lasers?

It was across – BMW was obviously a large part of it, but there were significant other orders as well that were high power that were shipped in early December and through December. Mark Douglas – Longbow Research: Okay. Any idea if any of those were in order to take advantage of the depreciation for the end of the year?

No, in Germany, the tax rule – Mark Douglas – Longbow Research: These are all German?

Not all of them; but that rule is not benefitting the German and other European sales. So I don’t think that anybody who has certainly bought stuff at the end of Q4 that we are aware of that was simply just taking advantage of that tax benefit. Mark Douglas – Longbow Research: Right. And finally, what tax rate are you assuming right now?

About 32% effective rate for this year. It would be pretty similar. Mark Douglas – Longbow Research: Similar. Okay. Thank you.

We will take our next question from Tom Bishop with B. I. Research. Tom Bishop – B. I. Research: I am interested in the high-powered military laser trials and these are big dollars and some orders could really help revenues. Could you expand a little on the recent trials? I mean, have they just only shot down unmanned aircraft or were they missiles yet?

No, the Boeing Avenger was an unmanned aerial vehicle, a UAV. So a relatively small vehicle, but the important thing to understand about that is that the tracking and beam optics technology was developed to enable the laser to track a moving object. And I think some of the other trials that are underway, we are obviously limited on what we can say about them but coming into the end of this quarter, I think we will have more information to provide on those. Tom Bishop – B. I. Research: They were not yet tried on missiles?

No, they have not tried yet.

We can mention only published results, but of these tests and so on, unpolished is not discussed. Tom Bishop – B. I. Research: Okay. How likely is IPG to be part of the solution to make the auto industry more competitive, especially in the near term, I mean I know they have near-term problems but are they all of a nature to solve them that would not be – where the solution would not be to order your lasers or are you part of the solution to help them out of there?

I think there are numerous examples where we are already helping with improved productivity in the auto business, whether it be cutting of the new high strength steels, which basically people were using dies for before, or other cutting technologies. They were wearing out the dies very quickly. The flexibility of our optical delivery system, the ability to attach it very cheaply to a robotic arm and cut irregularly-shaped parts, it has helped the auto industry on welding and cutting side. People have replaced CO2 lasers, where their use of helium as a process gas was prohibitively expensive and if you couple that in, they were getting to pay back in extremely short periods of time. In terms of welding speeds, there are numerous studies out there now where compared to a make welding station, fiber laser is actually cheaper. And there are numerous examples of all of these projects that are actually not full cost sale, but have already made some impact. I think obviously given the tremendous instability in the auto industry, particularly in the US around the major players, we have seen some deferral of orders, even for products where we are already qualified, because people just don’t know whether some of these entities are going to be around. And maybe better unfortunately, if some of them bankruptcy, because then we actually get to some coherent recovery plans and some of our best customers in the auto industry have been those who are in chapter and are looking to implement new technology. So, there are many, many examples where we have already made good progress. Tom Bishop – B. I. Research: Thanks. And finally, you mentioned some I thought a 20 kilowatt laser which is not quite as big as the 40 watt laser the military is using. What are 20 kilowatts used for?

Similar applications, as well as other industrial applications. On the industrial side like deep penetration welding, but also they are used on the military side of things, where lower power levels are required.

We have (inaudible) such kinds of lasers are used. (inaudible) they are used for some of the cases. Tom Bishop – B. I. Research: Okay, thank you.

.: Antonio Antezano – Macquarie Capital: Have you provided, I don't know if I've missed this, but any comment in that merchant diode business and then secondly, if you could expand on your expectations for cash flow this year, maybe talk about the actions that are being taken on what can be done.

Valentin, you want to talk about merchant diodes first and then I will talk about cash flow?

If you look at the Q1 guidance for diodes, we are looking at how best to continue to execute on that market. We sold last year probably $200,000 or $300,000 worth of – $600,000 worth of PLDs and similar type products. On the cash flow side, I think that, you know, first of all, cash flows are primarily driven by the profitability of the company and we are very committed internally to ensure that we remain profitable through 2009, even though in fairly difficult – at a difficult time, we have run a lot of sensitivity now. We are looking at other ways to reduce costs. So first of all, maintaining profitability, obviously ensuring that the sales you are generating, you are collecting the cash on that. So it is very important to manage the working capital side of receivables. And potentially, whilst we are in a more turbulent time in terms of revenue, managing inventory, maybe a little bit of the expense obviously of gross margin, that we are committed to try to generate some cash out of the inventory. Overall even in a – we have won sensitivities where revenues are down; operating cash flow will be positive and strong. And then if you come to the fact that we are going to cut CapEx by more than 50%, we believe that we can actually generate free cash flow. In the event that the economy really takes even a worse turn, as difficult as it may be to imagine, I think that a lot of our CapEx projects are very discrete items, so there is no item out there that is like a $10 million project. And we can turn these projects on and off depending upon how the company is performing. So if necessary, we are also targeting – potentially looking at some of those other CapEx products and delaying them to 2010 and the operations people and the finance people are actively reviewing that. So to summarize, we have got to maintain profitability throughout the year, manage expenses, manage working capital. I think the two key components of working capital are receivables and inventory, and then very closely monitor CapEx during the year. Antonio Antezano – Macquarie Capital: Thank you.

At this time we have reached the end of the Q&A session. I will now turn the conference back over to Mr. Valentin Gapontsev for any closing or additional remarks.

Thank you everyone for joining us today. We ended a year of excellent performance with solid results in Q4. We continue to execute on our strategy and we are confident that the investments we have made in our technology and our infrastructure will serve us well as we seek to meet the challenges presented by the worldwide economy and capitalize in opportunities across diverse markets around the world. We look forward to speaking with you again in the first quarter. Thank you very much.

That concludes our conference call. Thank you for joining us today.