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Anchored In Oxford

Deals with town, state help keep growing fiber laser maker IPG in Central Mass.

By Matt Pilon
Posted February 6, 2012

Driving down a wooded residential route in Oxford, one might not expect the headquarters of the biggest fiber laser maker in the world to suddenly appear.

But it does. Built in 1999, the 261,000-square-foot IPG Photonics manufacturing plant and offices, which house more than 600 employees, are a point of pride for Oxford, said Town Manager Joseph Zeneski.

“We have the world headquarters for this major laser manufacturer,” Zeneski said. “That’s neat.”

“Neat” might be a modest assessment. IPG is the biggest private employer in town and has paid more than $645,000 in local property taxes since 1999, which has helped Oxford chip away at the high percentage of the tax levy its homeowners pay. In addition, IPG spends $1.4 million each year at local companies and says it also strives to hire locally.

Hiring is something IPG plans to do a lot of over the next three years, and Oxford residents are giving the company a $431,000 tax break to do it. The state is also pitching in an investment tax credit worth $1.7 million.

In return, IPG has pledged to hire 175 more employees and build a 101,500-square-foot addition to boost its manufacturing capacity.

IPG must create the jobs over the next seven years, but says it will take only three.

Sound ambitious? It’s true that companies don’t always follow through on the promises they make in their tax increment financing agreements, also known as TIFs. Some have even cut jobs after receiving state TIFs.

But IPG’s record has engendered trust on the part of state and local officials. The company has already far surpassed its job-creation promises under its original 20-year TIF agreement in 1999, which was amended in October to include the new addition.

Thirteen years ago, the company promised to create 250 jobs by 2019. It has more than doubled that number with seven years remaining on the agreement.

Lynn Tokarczyk, president of Medway-based Business Development Strategies, which worked with IPG to secure the town and state incentives, said the package was one of the most generous she has seen. The state will normally approve a lesser tax credit than companies apply for. But in this case, it accepted the full 10-percent request.

“Based on my experience with the program, it’s probably one of the only companies that was approved for the benefit they applied for,” Tokarczyk said.

And the town’s contribution of a 76-percent property tax discount over the next seven years is also on the high end, she said.

Zeneski, the town administrator, said Oxford didn’t want IPG to expand somewhere else.

On the company’s application to the state’s Economic Assistance Coordinating Council, which weighs applications for Economic Development Incentive Program (EDIP) tax credits, IPG made it clear it was shopping around for locations to expand.

“Without this amendment, IPG will consider other out-of-state locations,” wrote Paolo Sinni, IPG’s vice president, controller and treasurer.

Tokarczyk said most companies that apply for TIFs mention that they’re shopping locations. Is it a bluff? Not in her experience.

“In this global marketplace, they have other real estate alternatives,” she said. “It’s all about the cost of doing business.”

Wooing: Part Of The Territory

In an interview, Sinni said other states have tried to woo the company. He said a common method is to offer a combination of tax incentives and buildings with sewer infrastructure. Connecticut has made such offers. And IPG also looked at potential locations in Germany and Russia, where it already has manufacturing facilities. He said keeping the company’s options open is a business reality.

“We need to keep our costs low to be competitive in the world marketplace,” Sinni said.

But he said the company preferred to stay in Oxford, and that he was pleased the tax incentives came together to help make that happen. The company won’t have to split up any of its employees and it’s more efficient, he added.

And an additional $2.2 million sewer grant from MassWorks was the icing on the cake. The infrastructure means IPG will be able to expand at the property again in the future. “Without it, our expansion would stop,” Sinni said.

Zeneski said he never took IPG’s mention of other locations as a threat. He said the town has benefitted from having IPG.

“It wasn’t ‘Give us a TIF or we’re going to move to Putnam, Conn.,’” Zeneski said. “I felt more in partnership with them than a victim of extortion.”

He said that sense of partnership was exemplified in 1999 by the $300,000 IPG spent to extend a water main to its property to provide fire protection. Extending the main meant educational materials provider Wilson Language Training and precision metal components maker Fabrico had that much less distance to cover for their own water service when they built nearby facilities in 2004 and 2006, respectively.

The three companies are now pitching in a combined $100,000 for the MassWorks grant, which will also provide sewerage to a vacant plot of land, increasing its odds of development, Zeneski said.

The private investment was crucial to getting the $2.2 million grant, which was initially denied by the state, he said. But officials, with the help of State Sen. Richard T. Moore, D-Uxbridge, met with MassWorks, which told them a private contribution would better their chances of getting the competitive grant.

Laser Leader

Dr. Valentin Gapontsev founded IPG Photonics in 1990.IPG was founded in 1990 by Dr. Valentin Gapontsev, a native of Russia who has been called the “father” of the fiber laser industry. The company is bullish about its future. CFO Timothy Mammen said at a conference in New York City last month that he expects 25 percent compound annual growth through 2015. Revenues have been on a steady climb for the past six years, reaching $299.3 million in 2010. The company will release its 2011 earnings this month, but had already surpassed its 2010 annual revenue mark by the third quarter of 2011.

Avinash Kant, an analyst with D.A. Davidson & Co., wrote in a recent report that fiber laser penetration is still in its early stages and that IPG is in a “clear leadership position.”

The laser market is expected to grow 10 percent this year, he added.

Olga Levinzon, an analyst with Barclays Capital, said IPG remains the dominant player in the growing $600 million laser fiber market, with more than 75 percent market share.

“That number has been fairly consistent, essentially since they started,” Levinzon said. “I would say their technology leadership is still very much intact.”

IPG’s biggest line of business is materials processing. Its lasers can cut, weld, mark and braze metals and other materials.

Levinzon predicted that it could take several years for IPG to grab big market share in other areas, but until then she predicted “strong growth” for the company.

And thanks to public tax incentives, that growth is going to happen in Oxford.