Cuộc họp công bố kết quả kinh doanh Q3 2026 của IPG Photonics (IPGP): Doanh thu tăng 15%, mảng Giải pháp Nâng cao tăng trưởng 33%

IPG Photonics (NASDAQ: IPGP) đã báo cáo quý thứ tư liên tiếp đạt tăng trưởng doanh thu ở mức hai chữ số trong quý 3/2026. Các ứng dụng hàn, bán dẫn và quốc phòng là động lực chính thúc đẩy mức tăng này, trong khi triển vọng quý 4 của ban lãnh đạo phản ánh sự hạ nhiệt trong việc mở rộng công suất pin tại Trung Quốc.

Điểm tin chính

• Doanh thu quý 3 tăng 15% so với cùng kỳ năm trước và tăng 3% so với quý trước lên 288 triệu USD, với mảng Giải pháp Công nghiệp và Giải pháp Nâng cao đều đóng góp vào đà tăng trưởng.
• Doanh thu Giải pháp Công nghiệp tăng 12% so với cùng kỳ năm trước, dẫn đầu là mảng hàn và sản xuất bồi đắp. Mảng Giải pháp Nâng cao tăng 33% so với cùng kỳ năm trước và tăng 15% so với quý trước, chủ yếu nhờ các ứng dụng quốc phòng và bán dẫn.
• Biên lợi nhuận gộp điều chỉnh đạt 41%, bao gồm lợi ích ròng 5 triệu USD từ tiền hoàn thuế quan giúp đóng góp khoảng 170 điểm cơ bản. EPS điều chỉnh đạt 0,61 USD và EBITDA điều chỉnh đạt 52 triệu USD.
• Doanh thu từ ứng dụng bán dẫn đã tăng hơn gấp đôi so với cùng kỳ năm trước. IPG cho biết công ty đã đạt tiêu chuẩn cung cấp cho các công cụ quang khắc, đo lường và kiểm tra thế hệ tiếp theo tại một số nhà sản xuất thiết bị wafer hàng đầu.
• Tỷ lệ đơn đặt hàng trên doanh thu (book-to-bill) đạt khoảng 1. Ban lãnh đạo ghi nhận nhu cầu ổn định trên hầu hết các thị trường nhưng dự báo sự hạ nhiệt trong ngắn hạn đối với việc mở rộng công suất pin tại Trung Quốc.
• Đối với quý 4/2026, ban lãnh đạo đưa ra dự báo doanh thu từ 265 triệu USD đến 295 triệu USD và EPS điều chỉnh từ 0,30 USD đến 0,60 USD. Triển vọng này không bao gồm bất kỳ đóng góp nào từ thương vụ thâu tóm Lumibird Medical đang chờ xử lý.

Kết quả tài chính cốt lõi

Kết quả kinh doanh và hoạt động

Giải pháp Công nghiệp

Doanh thu Giải pháp Công nghiệp tăng 12% so với cùng kỳ năm trước và 1% so với quý trước. Hàn là động lực tăng trưởng chính, nhờ nhu cầu từ sản xuất pin, thị trường công nghiệp chung và thiết bị điện tử tiêu dùng.

Ban lãnh đạo cho biết các giải pháp hàn pin của công ty hỗ trợ xe điện và hệ thống lưu trữ năng lượng cố định, bao gồm cả hạ tầng phục vụ các trung tâm dữ liệu. Tuy nhiên, công ty đang nhận thấy sự hạ nhiệt trong ngắn hạn đối với việc mở rộng công suất pin tại Trung Quốc sau nhiều quý tăng trưởng mạnh mẽ.

Mảng sản xuất bồi đắp cũng tăng trưởng khi khách hàng ứng dụng công nghệ định hình chùm tia và đa chùm tia của IPG trong ngành hàng không vũ trụ, thiết bị y tế và điện tử tiêu dùng. Công ty đã giành được hợp đồng kinh doanh mới tại châu Âu mà ban lãnh đạo kỳ vọng sẽ đóng góp đáng kể vào doanh thu sản xuất bồi đắp vào năm 2027.

Mảng cắt đã trở thành một phần nhỏ hơn trong Giải pháp Công nghiệp. Ban lãnh đạo cho biết họ không kỳ vọng vào sự tăng trưởng đáng kể ở mảng cắt, mặc dù nhìn thấy các cơ hội tiềm năng trong năm 2027 và 2028.

Giải pháp Nâng cao

Doanh thu Giải pháp Nâng cao tăng 33% so với cùng kỳ năm trước và 15% so với quý trước. Các ứng dụng bán dẫn và quốc phòng là những nhân tố đóng góp chính.

Doanh thu mảng bán dẫn đã tăng hơn gấp đôi so với năm trước. IPG cho biết nhu cầu này đến từ các khoản đầu tư vào quy trình tiên tiến cho GPU, tính toán hiệu năng cao và bộ nhớ băng thông cao. Ban lãnh đạo kỳ vọng mảng kinh doanh này sẽ trở thành một phần quan trọng hơn trong Giải pháp Nâng cao theo thời gian khi các thiết kế đã giành được trước đó mở rộng quy mô và công ty tham gia vào các chương trình thế hệ tiếp theo của khách hàng.

Doanh thu mảng quốc phòng hưởng lợi từ việc giao phần lớn đơn hàng cho Lockheed Martin đối với hệ thống năng lượng định hướng CROSSBOW. Các đơn vị còn lại dự kiến sẽ được giao trong quý 4. IPG đang tìm kiếm thêm các cơ hội mới và đã mở rộng dòng sản phẩm với CROSSBOW SE, cung cấp tầm hoạt động xa hơn và đối phó với các máy bay không người lái lớn hơn.

Doanh thu mảng y tế tăng nhẹ so với cùng kỳ năm trước và cải thiện đáng kể so với quý trước khi các sản phẩm mới và một khách hàng mới bắt đầu gia tăng sản lượng. Mảng vật tư tiêu hao cũng đạt kết quả tốt. Ban lãnh đạo nhắc lại kỳ vọng rằng mảng kinh doanh y tế hiện tại có thể tăng gấp đôi trong 2 đến 3 năm tới.

IPG dự kiến sẽ hoàn tất thương vụ thâu tóm Lumibird Medical trong quý 4. Ban lãnh đạo cho biết sự kết hợp này sẽ mở rộng tổng thị trường có thể tiếp cận (TAM) trong mảng y tế lên hơn 2 tỷ USD, bổ sung vị thế dẫn đầu trong ngành nhãn khoa và tiết niệu, đồng thời gia tăng lợi nhuận trong năm 2027.

Kết quả theo khu vực

• Bắc Mỹ: Doanh thu tăng 33% so với cùng kỳ năm trước và 14% so với quý trước, dẫn đầu là mảng hàn và quốc phòng, cùng sự đóng góp theo quý từ mảng y tế, làm sạch, cắt và sản xuất bồi đắp.
• Châu Âu: Doanh thu giảm 1% so với cùng kỳ năm trước nhưng tăng 4% so với quý trước. Doanh số bán hàng năm ở mảng cắt và hàn giảm một phần được bù đắp bởi sự tăng trưởng của mảng sản xuất bồi đắp và bán dẫn.
• Châu Á: Doanh thu tăng 14% so với cùng kỳ năm trước và đi ngang so với quý trước, chủ yếu phản ánh sự tăng trưởng của mảng hàn.

Dự báo của Ban lãnh đạo

Ban lãnh đạo không dự báo có lợi ích hoàn thuế quan đáng kể trong quý 4. Dự báo này cũng không bao gồm bất kỳ đóng góp nào từ Lumibird Medical.

Giám đốc Tài chính Tim Mammen cho biết biên lợi nhuận gộp điều chỉnh khoảng 39% là điểm tham chiếu hợp lý trong ngắn hạn nếu không tính tiền hoàn thuế quan. Ông nói thêm rằng các diode công suất cao hơn, kích thước sản phẩm nhỏ hơn, hiệu quả sản xuất và mức độ sử dụng công suất được cải thiện có thể mang lại mức tăng biên lợi nhuận gộp rõ rệt hơn vào năm 2027.

Rủi ro và điểm cần theo dõi

• Việc mở rộng công suất pin tại Trung Quốc đang hạ nhiệt sau nhiều quý tăng trưởng mạnh, tạo ra thách thức trong ngắn hạn vốn đã được phản ánh vào dự báo quý 4.
• Doanh thu quốc phòng có thể vẫn không đồng đều do các đơn hàng và lô hàng CROSSBOW không diễn ra liên tục.
• Lợi nhuận quý 3 hưởng lợi từ 5 triệu USD tiền hoàn thuế quan ròng, trong khi dự báo quý 4 giả định không còn lợi ích lặp lại đáng kể này.
• Việc hấp thụ chi phí cố định thấp hơn đã gây áp lực lên biên lợi nhuận so với cùng kỳ năm trước, và ban lãnh đạo cho biết tiến trình hướng tới mức cải thiện tiềm năng vài trăm điểm cơ bản vẫn diễn ra chậm rãi.
• Giao dịch Lumibird Medical vẫn chưa hoàn tất, và dự báo quý 4 giả định không có đóng góp từ thương vụ thâu tóm này.
• Chi phí hoạt động dự kiến sẽ tăng nhẹ khi IPG tiếp tục đầu tư vào nhiều sáng kiến tăng trưởng.

Điểm nổi bật trong phiên Hỏi & Đáp với chuyên gia phân tích

Ban lãnh đạo cho biết tỷ lệ đơn đặt hàng trên doanh thu (book-to-bill) tổng thể vẫn duy trì ở mức khoảng 1 mặc dù sự mở rộng công suất pin tại Trung Quốc hạ nhiệt trong ngắn hạn, nhờ sự hỗ trợ từ nhu cầu ở các thị trường và khu vực khác.

Về mảng Giải pháp Nâng cao, IPG kỳ vọng các cơ hội bán dẫn, y tế và quốc phòng sẽ hỗ trợ tăng trưởng dài hạn bất chấp những khoảng trống tiềm ẩn giữa các đơn hàng quốc phòng lớn. Các chiến thắng thiết kế bán dẫn được đánh giá là đặc biệt hấp dẫn vì chúng có thể duy trì gắn liền trong các nền tảng của khách hàng và gia tăng giá trị theo thời gian.

Về biên lợi nhuận, ban lãnh đạo chỉ ra rằng biên lợi nhuận gộp điều chỉnh quý 3 sẽ đạt khoảng 39,3% nếu không có tiền hoàn thuế quan. Mức trung vị quý 4 là 38,5% chủ yếu phản ánh dự báo doanh thu thấp hơn và không còn lợi ích hoàn thuế.

Ban lãnh đạo đã xác định y tế, quốc phòng, bán dẫn, gia công vi mô, hàn và sản xuất bồi đắp là các sáng kiến tăng trưởng chính. Đầu tư tự thân vẫn là ưu tiên phân bổ vốn hàng đầu, được bổ sung bởi các thương vụ thâu tóm bổ trợ có kỷ luật và mua lại cổ phiếu. IPG còn 100 triệu USD trong hạn mức mua lại cổ phiếu hiện tại.

IPG có kế hoạch tổ chức Ngày Nhà đầu tư tại Thành phố New York vào ngày 2 tháng 3 năm 2027, nơi ban lãnh đạo dự kiến sẽ đánh giá chiến lược sâu hơn và đưa ra các mục tiêu tài chính dài hạn.

Toàn văn cuộc họp báo cáo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good morning, and welcome to IPG Photonics Third Quarter 2026 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to your host, Eugene Fedotoff, IPG's Senior Director, Investor Relations, for introductions. Please go ahead with your conference.

Eugene Fedotoff

Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin; and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our third quarter results as well as the overview of demand environment and then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details.

Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in these forward-looking statements. These risks and uncertainties are detailed in our Form 10-K for the period ended December 31, 2025, and other reports filed with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, November 1, 2026, only, and the company assumes no obligation to publicly release any updates or revisions to any such statements.

During this call, we will be referencing certain non-GAAP measures. For more information on how we find these non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures as well as additional details on our reported results, please refer to the earnings press release, earnings call presentation and the financial data workbook posted on our Investor Relations website. We will also post these prepared remarks on our website after this call.

With that, I'll now turn the call over to Mark.

Mark Gitin

Thanks, Eugene. Good morning, everyone. Our third quarter revenue increased 15% year-over-year making it the fourth consecutive quarter of double-digit revenue growth with both Industrial Solutions and Advanced Solutions contributing to the results. Our adjusted EBITDA and adjusted EPS also improved. This reflects continued progress in executing our strategy, driving sustainable, profitable growth through technological leadership, product innovation, operational excellence and disciplined capital allocation.

Customers continue to adopt our differentiated solutions across several strategic growth markets. We saw strong growth in our Industrial Solutions particularly in welding applications, where our laser technology, beam delivery, process monitoring and applications expertise provide meaningful competitive advantages. We remain focused on helping customers improve productivity, quality and manufacturing economics to advanced laser-based integrated solutions. We've also made good progress in advanced solutions driving our laser and photonics technologies into attractive high-growth markets.

Let's look more closely at revenue by application and the meaningful progress we are making in our strategic growth initiatives. Starting with Industrial Solutions. Revenue increased 12% year-over-year, driven by strong growth in welding and additive manufacturing applications. Across these and other markets, we are strengthening our leadership by expanding laser adoption, displacing incumbent technologies and moving up the value chain with differentiated subsystem and system solutions. Our welding revenue benefited from higher demand in battery manufacturing, general industrial and consumer electronics in the third quarter.

The production of advanced batteries for electric vehicles and stationary energy storage systems involves a range of demanding welding requirements that significantly impact battery performance, safety and manufacturing efficiency. Our solutions are critical for high-capacity battery applications used in energy storage, supporting global electrification and growing energy infrastructure build-out, including for data centers. We are a leader in this space and are excited about the long-term trajectory for battery growth.

At the same time, we are encouraged by the strong growth in our welding solutions in other areas such as consumer electronics and industrial markets. In additive manufacturing, we saw increasing momentum as customers continue to adopt this technology for industries such as aerospace, medical device manufacturing and consumer electronics. Our beam shaping and multi-beam technologies, high-beam stability and applications expertise are delivering improvements in throughput and cost per part. This quarter, we secured new business in Europe that we expect to meaningfully contribute to our additive manufacturing revenue in 2027.

Moving to Advanced Solutions. Revenue improved 33% year-over-year and 15% sequentially as we continue to expand our technology leadership into attractive, high-growth markets focusing on medical, defense, semiconductor and micro-machining. Revenue growth in semiconductor and defense applications were the major drivers behind our results this quarter. In semiconductor applications, revenue continued to accelerate and more than double year-over-year. As device complexity increases and feature size decreases, semiconductor manufacturers are investing in advanced process technologies to meet growing demand for GPUs, high-performance computing and high-bandwidth memory. With our differentiated laser solutions, we are a critical supplier to a number of top-tier wafer equipment manufacturers where we are qualified for the next-generation lithography, metrology and inspection tools.

Defense revenue was also a large contributor in the year-over-year growth in Advanced Solutions in the third quarter as we ship most of the Lockheed Martin order for CROSSBOW. The remaining shipments will be delivered in the fourth quarter, and we are actively pursuing multiple additional opportunities. We remain encouraged by customer engagement and the growing recognition of our expanded portfolio of CROSSBOW directed energy systems as an effective, ready to ship and cost-efficient solution for countering evolving UAS threats.

While this market remains in its early stages and revenue can be lumpy in the short term, we believe our technology leadership decades of directed energy laser expertise and commercial laser and systems manufacturing capabilities enable us to establish leading positions in these opportunities. Moving to Medical. Our business continued to perform well during the quarter, supported by strong customer demand, new product shipments and ongoing adoption of our technologies across multiple applications. We are building on our long history of medical innovation and laser expertise by expanding our leading thulium fiber laser platform, with next-generation systems for urology applications.

Last quarter, we announced the acquisition of Lumibird Medical, an important milestone in the execution of our strategy to expand our business in attractive high-margin medical markets. The addition of Lumibird Medical creates a scaled medical laser platform with leading positions in ophthalmology and urology, expands our medical addressable market to more than $2 billion, enhances our Advanced Solutions portfolio and strengthens our long-term growth and profitability profile. The acquisition is expected to close in the fourth quarter. We are pleased with the initial integration planning and preparation and are excited about the long-term opportunities to leverage our complementary technologies, applications expertise, commercial capabilities and innovative culture to drive future value creation. I look forward to working with the Lumibird Medical team to accelerate growth and innovation across our medical business.

In summary, we achieved another quarter of double-digit year-over-year growth, above the midpoint of our guidance range. Customer demand for our unique solutions has strengthened across most markets. Orders also remained strong with book-to-bill of approximately 1. We continue to make meaningful progress on our strategic objectives, delivering profitable growth and creating sustained long-term shareholder value. Finally, I'm pleased to announce that we plan to host Investor Day on Tuesday, March 2, 2027, in New York City. We look forward to sharing a deeper review of our strategy and long-term financial targets. Details will be announced soon. Please mark your calendars and plan to join us for this event.

With that, I will now turn the call over to Tim.

Timothy P.V. Mammen

Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation, which is available on our Investor Relations website. I will start with revenue trends by application on Slide 4. Industrial Solutions revenue increased 12% year-over-year and 1% sequentially in the third quarter, driven by growth in welding and additive manufacturing applications. Advanced Solutions revenue increased 33% year-over-year and 15% sequentially on strong growth in defense and semiconductor applications. Sales of our emerging growth products accounted for 52% and of our total revenue in the third quarter, down from 58% in the prior quarter due to product mix.

Moving to revenue performance by region on Slide 5. North American revenue was up 14% sequentially due to increased sales in defense, medical, cleaning, cutting and additive manufacturing. Revenue increased 33% compared with last year, primarily on growth in welding and defense applications. European sales declined 1% year-over-year due to lower cutting and welding revenue, partially offset by increased revenue in additive manufacturing and semiconductor applications. Revenue was up 4% sequentially, driven by improved cutting and welding revenue as well as continued growth in semiconductor applications.

Revenue in Asia was flat sequentially and increased 14% year-over-year, driven by growth in welding.

Moving to a detailed review of financial performance on Slide 6. Total revenue was $288 million, up 15% year-over-year and 3% sequentially. Foreign currency benefited revenue by approximately 1% this quarter compared to the same period in the prior year. GAAP gross margin was 40.7%, and adjusted gross margin was 41%, above the top end of our guidance range. We recorded a $5 million net benefit from tariff refunds that had a positive impact on gross margin of approximately 170 basis points in the quarter. Lower cost of products sold helped margins in the quarter, was offset by lower fixed cost absorption on a year-over-year basis due to a significant build in inventory last year. Total adjusted operating expenses were $91 million, below our guidance range. While we are focused on controlling expenses, we still expect operating expenses to increase modestly going forward due to our continued investments in multiple growth opportunities.

GAAP operating income in the quarter was $21 million, and GAAP net income was $20 million or $0.40 -- $0.47 per diluted share. Adjusted operating income was $27 million, and adjusted net income was $26 million, with adjusted earnings per diluted share of $0.61. Adjusted EBITDA was $52 million. Both adjusted EPS and adjusted EBITDA came in at the top end of our expectations but also benefited from the $5 million in net tariff refunds. Excluding the tariff refund, both adjusted EBITDA and adjusted EPS improved year-over-year and sequentially and were above the midpoint of our guidance.

Moving to a summary of our balance sheet and cash flow statement on Slide 7. We ended the quarter with $926 million in cash, cash equivalents and short-term investments, with no debt. Cash flow from operations continued to improve, reaching $46 million in the third quarter. We spent $17 million on capital expenditures in the quarter, bringing year-to-date CapEx to $54 million. Our CapEx remains elevated this year due to investments in our major fiber manufacturing facility in Germany. Excluding the German investment, we expect CapEx to be at about 5% of revenue going forward.

Moving to our outlook on Slide 8. For the fourth quarter of 2026, we expect revenue of $265 million to $295 million. While we are seeing some moderation of battery capacity additions in China, after several strong quarters, we are very pleased with demand trends across other markets and regions, which are reflected in our book-to-bill of approximately 1. Adjusted gross margin is expected to be between 37% and 40% as we are not anticipating a meaningful benefit from tariff refunds. We estimate adjusted operating expenses in the range of $91 million to $94 million. For the fourth quarter, we expect to deliver adjusted earnings per diluted share in the range of $0.30 to $0.60, with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $33 million and $50 million. This guidance does not assume any contribution from the acquisition of Lumibird Medical.

In summary, we are pleased with our third quarter results, with growth in revenue and bookings as well as improvements in EBITDA and adjusted EPS. We believe that we are well positioned to continue improving our performance. We're seeing solid long-term demand trends across our markets and are gaining traction on initiatives to expand margins even as we continue to invest in the growth opportunities ahead.

I'll now turn the call back to Mark.

Mark Gitin

Thanks, Tim. We are pleased with our performance through the first 3 quarters of the year, driven by growth in both Industrial and Advanced Solutions. Our recently announced acquisition of Lumibird Medical accelerates our strategic evolution and considerably expands our advanced solutions portfolio into higher growth and higher-margin medical applications. We continue to execute our growth strategy, supported by operational excellence and an innovation engine that unlocks significant areas of opportunity. As we continue along this path, I'm increasingly confident in our ability to achieve above-market growth, expand margins and deliver lasting value for our customers and shareholders.

With that, we will be happy to take your questions.

Operator

[Operator Instructions] Our first question comes from Ruben Roy with Stifel.

Phần hỏi đáp

Ruben Roy

Tim, let's start with the comment you made on moderation in battery capacity additions in China. You've had several strong quarters, as you mentioned. Can you start with maybe talking about welding or total revenue related to China battery today? And how much of that sort of slowdown is built into the midpoint for Q4? And I guess, sorry, one more on that is, would you say the book-to-bill was above 1 outside of the China battery moderation?

Mark Gitin

Yes, I'll take that, Ruben. Good to hear from you. So after strong growth over the last several quarters, we're seeing some moderation, as mentioned in the China battery capacity additions. We see that as a near-term effect. We're not breaking it out specifically, but we have factored this into the guidance for Q4. Longer term, we're excited about the growth opportunity. And we certainly still see a lot of capacity to be added there. We've talked about the market drivers there before, the electric vehicles, but also stationary storage, where that drives great electrification. Of course, data centers are a key driver there. And we have a very strong competitive position there with our technology solution. And as was mentioned in the prepared remarks, overall, we're seeing strong growth across most of our markets and regions, and that's giving us still a book-to-bill of 1.

Ruben Roy

Okay. Understood, Mark. On the Advanced Solutions, it sounds like you shipped most of the Lockheed across the order in Q3. You've got some coming up in Q4. Are you expecting a little bit of a gap? I know you mentioned this is a lumpy business, obviously. But how are you thinking about defense in general for the first half of '27? And I know you have other opportunities in semiconductor and medical. Do you think you'll see growth in Advanced Solutions despite potentially some lumpiness post the Lockheed orders?

Mark Gitin

Yes. So first of all, as you said, we did ship much of the Lockheed order in Q3. And I want to say also we're shipping from production. We're completing the rest of the shipments this quarter. As you mentioned and I did, it's lumpy but very attractive longer term. We're seeing continued strong customer engagement and pipeline there. I want to say also that if you didn't see, we did launch an extension of the product line, it's called the SE, and that has longer range and addresses longer -- larger drones as well. We're very excited, and we have very strong momentum on the customer side there and see good future there going forward.

As far as the rest of Advanced Solutions, we've talked about that. Semiconductor is a very strong area for us now. It's smaller, but it's growing quite fast. It doubled year-over-year. We have very good engagement with Tier 1 sub equipment players where we're being designed into their products, solving really key problems there. And that, of course, has the drive of data centers and AI, and that's an area I love also because the winds are sticky and they stack on each other over time. So that's a key one.

Medical, we've talked about urology, the urology platform and the growth that we're expecting there. New customer came on last year. We have a great platform for growth there. And remember, we've talked about that, that business doubling over the next 2 to 3 years. Medical is very strong. Of course, we're bringing Lumibird in, finishing that acquisition. We're really excited about what that will bring. The combination of the 2 brings some significant growth. And remember that Lumibird will be accretive in 2027 in the first year. There's new products that have already been announced, the first new product from Lumibird. So lots of exciting things going on there, in our Advanced area. So we're expecting growth in both our Advanced and our Industrial Solutions over time.

Ruben Roy

Okay. Just one more for Tim. On the gross margins, if we take out the tariff refunds in Q3, it looks like adjusted gross margins would have been around 39.3%. Your midpoint for fourth quarter is 38.5%. So can you talk about what accounts for the other 80 or so basis points lower on the gross margin? Is that mix absorption, et cetera? And is sort of the 39% level the right starting point to think about as you get into 2027?

Timothy P.V. Mammen

Yes. So your math is very good. I would say 39.3% is the adjusted excluding tariff. That reflects revenue that was [ $287 million ], right. So at the midpoint, our revenue is $280 million, and that actually -- the 38.5%, sorry, ties right in with what was reported on the third quarter Ruben. And yes, I'd say we're sort of more consistent here at this kind of like 39% range, and there's a tremendous amount of work that's continuing to be done in note -- 3 of the areas that I've talked about where it's optimizing the value of the product that we're delivering, continuing to get cost reductions with our new higher power diodes, which change in turn the form factor of the product, right? We're starting to roll those out more meaningfully.

And then there's a lot of work continuing on optimizing manufacturing efficiency, utilization, looking at lower cost areas to make some parts, and that we want to drive improved absorption we still see several hundred basis points of gain that we can get from that. So we're making good progress. It's a bit slow to get there, but I think we're starting to get to the point where more meaningful gains in gross margin should materialize in 2027.

Operator

Our next question comes from James Ricchiuti with Needham & Company.

James Ricchiuti

I wonder if you could -- you may have given it the medical growth in the quarter. How big a contributor was that to the overall growth in Advanced Solutions? Because as I recall, I think you were anticipating a pickup in the second half, maybe that's [indiscernible] the new customer.

Timothy P.V. Mammen

Medical increased slightly year-over-year but improved significantly sequentially, which would be the pickup in the second half. We're starting to see the ramp on some of the new product introductions and the new customer. The consumable business is also performing well, and we're expecting that, obviously, to continue into Q4 for both the hardware and the consumable. And then as Mark said that we expect medical to be a nice growth driver for Advanced Solutions next year, Jim. So yes, we're seeing that pick up in the second half of the year that we thought we would.

James Ricchiuti

Okay. Got it. And just on the Industrial Solutions, nice growth there. And I'm wondering, the bigger part of that I think, is still cutting, and correct me if I'm wrong, but what kind of growth did you see in cutting? I assume modest versus what you described in welding and additives. But maybe if you could frame that a little better for us.

Timothy P.V. Mammen

The main application is really welding these days that drives the underlying Industrial Solutions. There is still a cutting business there, but it's, we've said before, I think last year, less than 20% of total revenue. It's very small in China. The other main applications that are still material would be the additive manufacturing, which globally is doing quite well. That's both in Asia, Europe. And North America, we've had good performance out of that. We're continuing to get good traction and make progress on cleaning applications. There is actually a marking engraving business, which is still a reasonable size, that can perform well when different markets are stronger there. And then, yes, the cutting is a smaller part of the business and not one where we expect any meaningful growth on it, although we're actually defending our position there and have got some opportunities in '27 and '28 that could be a little bit more positive.

Mark Gitin

Just to remind you, Jim -- go ahead.

James Ricchiuti

No, I was just going to say that the growth that you saw in China was really driven for the most part welding and additive. And cutting, as you described this as a much solar part of the business, but that was really the driver. You showed pretty healthy growth. It looks like year-over-year in China.

Timothy P.V. Mammen

Yes, it's primarily welding. Additive manufacturing in China. Margin can be good at. The cutting is a small part of that business. The flat metal cutting is very small in China. .

James Ricchiuti

I'm sorry, Mark, go ahead. .

Mark Gitin

We covered it there.

Operator

Our next question comes from Scott Graham with Seaport Research Partners.

Scott Graham

So kind of like 140,000 footer free you. Mark, you got a better set of industrial -- general industrial end markets, obviously, certainly in the U.S., maybe not as much in Europe, but that's supposed to improve. I'm just wondering, with that general industrial being your sort of your largest vertical, how are you approaching getting customers to trade up to fine, right? You talk about a couple of elements of how the market may be starting to move up. But how are you showing a value proposition there? This is just a significant runway here for you guys on this. And it's just been very slow in the coming. So how are you approaching that?

Mark Gitin

Yes. So Scott, good to hear from you. Yes, we're very encouraged by the growth that we're seeing in the Industrial Solutions. Areas that we're seeing growth, Tim mentioned some of this. Certainly, we're seeing growth in welding, additive manufacturing, cleaning. Those are all areas that are strong and growing in the U.S. in that industrial space. On the welding, a lot of this comes down to the applications expertise. We are world experts in applications. We have a large number in the U.S., and globally, we have nearly 100 applications engineers. That piece is really critical, especially for welding, developing the key applications there. And then being able to get the solution to the customer, whether it's a laser or a subsystem or a system, is part of our growth expertise there. And that's on the whether it's welding, whether it's cleaning.

And then if you look at additive manufacturing, there, the customers are moving to additive manufacturing because we're helping to drive the cost per part. So if you look at additive manufacturing, we develop lasers with special modes. You've heard us talk about a ring mode and also with multiple outputs. When those are incorporated into the additive manufacturing systems, it drops the cost per part and allows expansion into new areas, where a lot of that started in areas of defense and aerospace. Now that's expanding into areas of medical devices and even into consumer electronics. So the application piece that we're working and then using that in really a virtuous cycle to drive the development of the lasers, subsystems and systems and being able to provide solutions to the customers is really what's driving our growth, and we'll continue to drive that at an outsized level.

Scott Graham

That's a very comprehensive answer. Just the other one was about inflation, and maybe this is more for you, Tim. What was pricing in the quarter? What was inflation? And how are you looking at that heading into 2027 with inflation so elevated, not just on materials, but also on freight?

Timothy P.V. Mammen

Yes. I mean, on freight, actually in term -- yes, let me step back a bit. There's always inflationary pressures every year that you have to deal with and you have to pay for, for example, merit increases. We got halfway through the year. So our costs actually went up a little bit in Q3 in relation to that. The material costs, 20% of our revenue is on material. So you have to deal with the inflationary cost there. We actually have a couple of things that we look at. We're obviously looking at how we optimize the value proposition of what we deliver to customers, right, and that involves the pricing. We are, in turn, as I mentioned, moving to higher power guidance, so that means for each dollar of output power, we need fewer diodes.

We actually can also then change the form factor of the laser. Like a 10-kilowatt laser today is much, much smaller than a 10-kilowatt laser was even 2 or 3 years ago, right? So you got less material going into that. And then we actually run programs internally where we call it "A Profit In Cash" program, where we're actually looking and how we can drive cost savings across different areas. Some of those are in operation. Some of these are in SG&A, OpEx. And we use those to try and fund some of the inflationary impacts of the business that are kind of imitable from each year.

Operator

Our next question comes from Keith Housum with Northcoast Research.

Keith Housum

Mark, I know asking you to pick your favorite as [indiscernible] me to pick your favorite children. But if you think about growth initiatives in the next 2 to 3 years, what do you think are the top 2 or 3 growth initiatives that I kind of -- are your favorite, that you think will have the biggest impact on IPG as we look going forward? .

Mark Gitin

As you said, difficult to pick among the children, but let me just say that we're excited about growth opportunities in both the Industrial Solutions and the Advanced Solutions. I'll start in Advance. Of course, we've talked about the medical and the great roadmap that we have there in urology. We picked up a new customer last year. We have a great road map for growth, and we've talked about that doubling over the next 2 to 3 years. Remember then, we're in the midst of cleaning the acquisition of Lumibird Medical, and Lumibird Medical is going to add to that. That's accretive in the first year, has great growth potential on that piece. And certainly, the combination of Lumibird Medical and our urology, that expands the SAM significantly. So that's above $2 billion and gives us a great platform to grow on.

The other piece, again, I'll name a couple. We've talked about defense. We're making great progress with the CROSSBOW. I mentioned that we have the new product line that's addition that we have, the SE, which gets us long range and crosses into drones, and we have great customer interest from that product line and certainly have good expectations for that area. Semiconductor, that's going well. Again, we have great -- we've been embedded now in key customer programs and products now in major front-end players in metrology, inspection and lithography. We're seeing the benefits there. And we've built out the capability there not only in the technology that we've always had, but now in the quality systems and manufacturing systems to be able to drive that forward. So excited about that area.

And then at micromachining, we have great products in process there, great technology to get us into the shorter pulses and into some of the exciting areas in microelectronics and micromachining and medical devices. Those are all real key areas that we see for growth there in the advanced. And then I don't want to forget the areas that we're driving also in the Industrial Solutions. We have great programs there, and we're seeing some of the benefits that we've talked about, not only in welding, but also in additive. I talked about that a bit earlier. So overall, I see great opportunities for growth for the company going forward on these new areas that we're driving.

Keith Housum

Great. Great. And I know Lumibird acquisition hasn't been closed yet. So many of my questions are premature. But how are you guys thinking about M&A from here? Do you need to take a pause as you guys integrate Lumibird? Or is it still an active process that you guys want to do more here, quickly?

Mark Gitin

Yes. So happy to talk about that. First, let me just step back and frame it with our capital allocation strategy here. First and foremost, it's investing in our organic programs, it's the ones that we talked about here in both Industrial and Advanced and the opportunities that we have to grow with organic programs. And then the inorganic piece, right, tuck-in or bolt-on acquisitions that can get us there faster or augment the markets. And we've seen success with that with clean laser, a fantastic integration team there, and that's really paying back very well now, with great new products combining the road maps of both [indiscernible] and our laser ronapps, having cleaning systems that are size and COGS.

And then Lumibird Medical, as you mentioned, great -- we've talked about the great fit there and how that's going to allow us to grow. We've got a really strong integration team on that. Now and all the integration planning there, we'll continue to look for opportunities, but we'll be very disciplined in our approach, but we have our arms around that. And then just to complete the capital allocation, we always balance that with with share repurchases. We did $1.5 billion over the past several years, and we have another $100 million authorized. We're just excited to have such a strong balance sheet and you see the free cash flow continues to be strong, and we've got great flexibility and optionality going forward.

Operator

[Operator Instructions] Our next question comes from Jim Ricchiuti with Needham.

James Ricchiuti

I just had a follow-up question on semi. I know it's a small part of the overall business. I'm guessing, what, less than 5% or so. But as we think about the [indiscernible] market in '27 and looking out to '28, we're talking, I guess, the numbers being out, thrown at [ 35% ] or so growth in [indiscernible] in '27. Is this a business, Mark, that you see becoming a more meaningful part of the Advanced Solutions revenue base going forward?

Mark Gitin

Yes, Jim, graduate that. I have to say I'm very encouraged by the progress that we're making in semi. I mean this is something that I really focused on when I came in because of my experience in that area. And this is an area where the technology was always there. We have some neat technologies in the company that the [ WFE ] players were interested in. But what we've been able to do now is transition that into design wins in the programs because we put in the other key pieces that you need there, the quality systems, the manufacturing systems, to be able to really engage and supply that market. And that's why we're seeing it.

As the numbers you talked about are -- it is, again, a smaller piece, but you can see that we've now doubled that year-over-year. And we see good opportunity to continue to grow that business, both in the areas that we have design wins now from the growth of the markets, as you talked about, driven by AI and data centers and those things. We're in those newer programs, and we continue to work with these companies on next-generation area. So longer term, I think this can become a more meaningful part of the business for sure. It's a great area. The technology is there, and we're making that crossover.

James Ricchiuti

And maybe just on that topic of crossover that you raised. As we think of -- I don't want to front run your Analyst Day coming up in early next year. But as you think about CROSSBOW and the opportunity in Defense, is there any color you can provide or maybe just broad expectations as to how we should think about that business looking out to '27 and '28, recognizing, right now, it's small, it's lumpy? But how should we think about the potential for CROSSBOW from what you've seen so far? I mean, obviously, you're shipping -- finishing the big order with Lockheed. But beyond that, how do we think about it?

Mark Gitin

Yes, Jim, I'm really optimistic about the CROSSBOW business. As I mentioned, we have very good engagement. We have -- as I mentioned, we've now extended the product line. So that's the next piece of the product line with the SE product. That now gives us both longer range and crosses over into some of the larger drone classes as well. We're shipping from production, which is really key as well because we can react quickly. And I would say that the customer engagements are very, very good and the programs that we're discussing and working with their large programs, and we're excited about where that can go. The product is working. It's been tested in multiple environments, as I talked about. And again, we're excited about where that can go.

Operator

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

Eugene Fedotoff

Thank you for joining us this morning and your continued interest in IPG. We will be participating in several investor events this quarter and are looking forward to speaking with you again soon. Have a great day, everyone. .

Operator

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