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27 October 2009


LED backlighting drives Veeco’s return to profit

For third-quarter 2009, epitaxial deposition, process, and metrology equipment maker Veeco Instruments Inc of Plainview NY, USA has reported revenue of $98.9m. This is down 15% on $115.7m a year ago but up on $72m last quarter (and well above the July’s guidance of $80-88m).

LED & Solar process equipment revenue was $53m (up 66% from $31.9m last quarter, due mainly to an increase in demand for high-brightness LEDs for backlighting applications). Data storage process equipment was $21.5m (down 22% on last quarter, due to customers continuing to tightly control capital spending). Metrology was $24m (down 7% on last quarter, due to the slowdown in data storage, semiconductor and industrial markets).

“Our third quarter performance exceeded guidance on every metric,” says CEO John R. Peeler. “Veeco has quickly returned to profitability [following four consecutive quarters of losses].”

Veeco’s restructuring actions have cut operating expenses by 19% from $46m a year ago to $37.4m. “We completed our factory consolidations ahead of plan and achieved our $80m breakeven target [after generating cash through the down-cycle],” says Peeler.

Compared to 39.8% a year ago and 33.9% last quarter, gross margin has rebounded to 41.4%. This is attributed to material cost savings, manufacturing and overhead cost reductions from staff cuts and outsourcing, and a favorable product mix. In particular, LED & Solar gross margin has risen from 36% a year ago to 41.7% (due to increased sales volumes, better product pricing, and improved product costs from outsourcing and improved purchasing related to the MOCVD high-brightness LED tools).

Compared with a loss of $2.4m a year ago and $14.7m last quarter, in Q3 Veeco reported net income of $1.3m, due to the higher-than-forecasted sales.

During the quarter, Veeco’s cash balance grew by $12m to $109.4m. Capital expenditure was just $1.5m.

In Q3, orders were a quarterly record of $225.6m (up 150% on $90m a year ago and 129% on $99m last quarter). Of total bookings, 80% were for LED & Solar ($179.2m, more than triple $57m last quarter and a seven-fold increase on just $25.8m a year ago, and above the forecasted $125-175m). “We are proud of the progress we are making winning important business in MOCVD, CIGS solar and in MBE systems,” says Peeler.

“We have seen an unprecedented demand from LED manufacturers in China, Korea and Taiwan for our TurboDisc MOCVD systems as they ramp production for laptop and TV backlighting,” says Peeler. In MOCVD, Veeco has been chosen as the supplier of choice for an important Korean TV maker. Meanwhile, the firm’s MOCVD systems have also been selected by two leading US LED makers (Philips Lumileds and Bridgelux) to ramp production for general illumination. In total, Veeco received multi-unit orders from eight LED makers. “We believe Veeco is gaining share [reckoned to be about 30%] by penetrating key accounts around the world, particularly in China and Korea,” says Peeler.

Also, momentum has continued in Veeco’s CIGS PV business, with a second key customer win from China worth $15m for the FastFlex web coating system and a repeat multi-million dollar order from a leading US CIGS PV maker for thermal deposition components. Also, a 27% sequential improvement in Metrology orders was driven by new product success and a modest pick-up in activity from both research and industrial customers.

Order backlog has hence risen from $160m to $286.5m (including $239m in LED & Solar). “We continue to experience positive business trends in our MOCVD business, with a high level of demand for our K465 MOCVD system,” says Peeler. “While it is challenging to predict quarterly bookings trends in this dynamic environment [given the large number of potential MOCVD multi-tool orders], it is clear to us that MOCVD quoting activity remains well above historic levels [with a large number of customers evaluating the purchase of multiple systems],” he adds.

“We are also seeing strong interest in our thermal deposition systems for manufacturing of CIGS solar cells, and believe that Veeco is well positioned to capture share in this market [which is reckoned to be worth more than $600m in 2011],” says Peeler. “Our thermal co-evaporation approach for the CIGS absorber layer will help drive lower materials costs and reduced capital costs for CIGS manufacturers,” he adds.

In addition, overall business conditions in Data Storage and Metrology appear to be improving from the trough levels experienced earlier this year.

For fourth-quarter 2009, Veeco therefore expects revenue to rise 33-44% to $120-130m and bookings to be more than $130m (a positive book-to-bill ratio). Due to the increased sales volume and improved mix, gross margin should rise to 43-44% (approaching Veeco’s longer-term goal of 45-46%).

Veeco has hence raised its full-year 2009 revenue guidance from $310-325m to $353-$363m. This is still down 18% on 2008, but a “very respectable performance” during an unprecedented economic downturn, believes Peeler.

“Veeco is at the beginning of a multi-year MOCVD tool investment cycle as LEDs increase their penetration in laptop and TV backlighting and gain momentum for general illumination,” he comments. To satisfy demand, the firm is hence ramping up manufacturing capacity to be able to ship more than 30 tools in Q4 and more than 45 in Q1/2010 (and more beyond that). The average analyst estimate for the MOCVD market estimates more than 350 tools in 2011 (worth nearly $1bn), says Veeco. “With our customer list including over 80% of the world’s key LED makers, Veeco is extremely well positioned to capitalize on this sizeable growth opportunity,” believes Peeler.

“We are managing our slot plans and customer delivery schedules to ensure that our lead times remain under six months and we have sufficient capacity coming on line to keep them within this timeframe,” he says. “We have 100% on-time systems delivery for MOCVD systems on a year-to-date basis,” Peeler adds. “The variable model we have designed with two outsourced partners gives us a lot of flexibility to scale manufacturing up and down as required by the market without bringing a lot of additional cost directly to Veeco.”

*Veeco has announced a public offering of up to 5 million shares of its common stock. The offering includes a 30-day option for the underwriters to purchase up to 750,000 additional shares to cover over-allotments.

Veeco intends to use the proceeds for general corporate purposes, including potential acquisitions.

See related items:

Veeco orders double on booming MOCVD system demand

Veeco’s revenues fall 43% after pause in bookings

Despite record MBE orders for solar, Veeco expects 36-46% sales dip in Q1

Veeco hits third quarter revenue guidance, but bookings take a tumble

See: Veeco Company Profile

Search: Veeco