1111928--3/15/2010--IPG_PHOTONICS

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{customer, product, revenue}

{product, market, service}

{stock, price, operating}

{operation, international, foreign}

{acquisition, growth, future}

{property, intellectual, protect}

{personnel, key, retain}

{cost, regulation, environmental}

{capital, credit, financial}

{stock, price, share}

{product, liability, claim}

{provision, law, control}

{condition, economic, financial}

{system, service, information}

{cost, operation, labor}

Uncertainty and adverse changes in the general economic conditions of markets in which we participate negatively affect our business. Our sales depend upon our ability to penetrate new applications for fiber lasers and increase our market share in existing applications. If fiber lasers do not achieve broader market acceptance or if market penetration occurs more slowly than we expect, sales and profitability may be negatively impacted. Our vertically integrated business results in high levels of fixed costs and inventory levels that may adversely impact our gross profits and our operating results in the event that demand for our products declines or we maintain excess inventory levels. Our manufacturing capacity and operations may not be appropriate for future levels of demand and may adversely affect our gross margins. The laser and amplifier industries are experiencing declining average selling prices, which could cause our gross margins to decline and harm our operating results. Because we lack long-term purchase commitments from our customers, our sales can be difficult to predict, which could lead to excess or obsolete inventory and adversely affect our operating results. We may experience lower than expected manufacturing yields, which would adversely affect our gross margins. We are subject to litigation alleging that we are infringing third-party intellectual property rights. Intellectual property claims could result in costly litigation and harm our business. Our inability to protect our intellectual property and proprietary technologies could result in the unauthorized use of our technologies by third parties, hurt our competitive position and adversely affect our operating results. We depend upon internal production and on outside single or limited-source suppliers for many of our key components and raw materials. Any interruption in the supply of these key components and raw materials could adversely affect our results of operations. We rely on the significant experience and specialized expertise of our senior management and scientific staff and if we are unable to retain these key employees and attract other highly skilled personnel necessary to grow our business successfully, our business and results of operations could suffer. Failure to effectively build and expand our direct field service and support organization could have an adverse effect on our business. A few customers account for a significant portion of our sales, and if we lose any of these customers or they significantly curtail their purchases of our products, our results of operations could be adversely affected. We have experienced, and expect to experience in the future, fluctuations in our quarterly operating results. These fluctuations may increase the volatility of our stock price. Foreign currency transaction risk may negatively affect our net sales, cost of sales and operating margins and could result in exchange losses. We depend on our OEM customers and system integrators and their ability to incorporate our products into their systems. The markets for our products are highly competitive and increased competition could increase our costs, reduce our sales or cause us to lose market share. Our inability to manage risks associated with our international customers and operations could adversely affect our business. Our products could contain defects, which may reduce sales of those products, harm market acceptance of our fiber laser products or result in claims against us. We may pursue acquisitions and investments in new businesses, products, patents or technologies. These may involve risks which could disrupt our business and may harm our financial condition. We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business, operating results and financial condition. We are subject to export control regulations that could restrict our ability to increase our international sales and may adversely affect our business. Our ability to access financial markets to finance a portion of our working capital requirements and support our liquidity needs may be adversely affected by factors beyond our control and could negatively impact our ability to finance our operations, meet certain obligations or implement our operating strategy. Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing. Dr. Valentin P. Gapontsev, our chairman, Chief Executive Officer and principal stockholder, controls approximately 41% of our voting power and has a significant influence on the outcome of director elections and other matters requiring stockholder approval, including a change in corporate control. Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control of our company, even if a change in control would be beneficial to our stockholders. Substantial sales of our common stock, including shares issued upon the exercise of currently outstanding options or pursuant to our universal shelf registration statement, could cause our stock price to decline. If securities analysts stop publishing research or reports about our business, or if they downgrade our stock, the price of our stock could decline.

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1111928--3/15/2010--IPG_PHOTONICS_CORP