Veeco lowered on fab delays, but GCL not a good reason
Today, UBS downgraded Veeco‘s price from $51 to $47, citing lower orders from GCL. The GCL delay story is old news. A couple of months ago, it became clear that they weren’t going to install 100 tools in 2011 as originally planned as the fab wasn’t finished. They have been hiring epi engineerings from Japan and Taiwan, but the building won’t be completed until the end of 2011. In fact, we believe they only recently placed their initial orders of 10 tools to Aixtron for delivery in Q1’12. Furthermore, rather than 100 tools, it appears they will only install 25 tools in 2012, which is down from our July forecast of 35 tools. However, the first tool deliveries went to Aixtron, so it wouldn’t be a surprise to see all initial GCL orders go to Aixtron. So, why is Veeco getting downgraded?
Veeco is actually on a roll right now as its new MaxBright system takes share. As indicated in our 8/15 press release, if all the MaxBright reactors that shipped were recognized, Veeco would have overtaken Aixtron for the first time in Q2’11 with a 50% to 48% share advantage. Furthermore, our interviews of LED manufacturers indicate that Veeco’s share will continue to rise in Q3’11 and remain over 50% of the market in 1H’12 although losing share to Aixtron in Q4’11.
However, we do continue to hear about delays in China due to tigher credit, fabs not being completed, market conditions, etc. Interestingly, this has resulted in shorter MOCVD leadtimes. While lead times were 6+ months a year ago, they are now as short as 3 months allowing for an order and a delivery to take place in a single quarter in some cases.
As stated in our 8/15 release, 2H’11 delays are boosting 2012 deliveries and result ing in a smaller drop off. Even after reducing GCL from 35 to 25 tools, we still see 2012 at over 580 tools with a couple of additional deliveries slipping from 2H’11 to 1H’12. At the same time, there are 14 new entrants with others likely to enter as well targeting the significant opportunity in lighting. However, as pointed out in the previous blog, the growth in LED lighting is of limited duration, meaning that from 2018, LED lamp revenues will start to decline and the market will likely begin to consolidate. So, those new entrants better hurry if they want to run a profitable business as prices will collapse in the second half of this decade.