Rofin-Sinar's Laser Light Show

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No two ways about it -- this has been a great week for tech. First, Cisco rang that ol' tech bellwether with a pennywide earnings beat. Then three of The Motley Fool's most favoritest of companies launched into an incredible laser-light extravaganza.

First, fiber laser maker IPG Photonics (Nasdaq: IPGP) stunned the critics with a penny-beat of its own. Next up, laser components king II-VI (Nasdaq: IIVI) turned in a near-perfect earnings report. Last but not least, laser maker Rofin-Sinar (Nasdaq: RSTI) yesterday reported its third-quarter numbers. A brief rundown of Rofin's key stats:

• Fiscal Q3 2008 sales jumped 23%, accelerating the pace of growth set earlier in the year.
• Likewise with profits, which leapt 20% to $0.54 per share.
• Inventories grew 33% year over year, and accounts receivable were up 30%.

Criticism ...
Which, dear Fools, is why I have to lump Rofin's results in with IPG's (which I didn't like) rather than II-VI's (which I did.)

Why? Partially because Rofin's operating margin dropped to 15.7% -- narrowing the company's lead over rivals Excel Tech (Nasdaq: XLTC) and Coherent (Nasdaq: COHR), and lagging further behind IPG. But I'm more worried about Rofin's cash flow and working capital management. Like IPG, Rofin isn't very good at the latter, which is hurting the former. GAAP profits notwithstanding, striking rises in both inventories and accounts receivable have caused Rofin to burn cash this year.

Management has yet to provide us a cash flow statement in its release, but on the post-earnings conference, it spilled the beans that free cash flow ran negative to the tune of $4.2 million. Not good.

... and a caveat
Still, there is hope that Rofin will turn things around. Backlog hit a record $149.3 million in June. That's up 31% since June of last year, and faster than sales growth. I find this encouraging because, as II-VI has shown us, fast-growing backlog can predict improved future sales. Such sales could soak up Rofin's accumulated inventories, solving the problem over time.

Fingers crossed.