Sunday, April 24, 2011

Veeco Instruments Inc. (NASDAQ: VECO): Q1 Earnings Preview 2011

Veeco Instruments Inc. (NASDAQ: VECO) is scheduled to release its first-quarter earnings after the closing bell on Monday, April 25, 2011. Analysts, on average, expect the company to report earnings of $1.21 per share on revenue of $246.68 million. In the year ago quarter, the company reported earnings of 49 cents per share on revenue of $163.23 million.

Veeco Instruments Inc. designs, manufactures, markets and services enabling solutions for customers in the high brightness light emitting diode (HB LED), solar, data storage, scientific research, semiconductor and industrial markets. In its LED and Solar segment, Veeco designs and manufactures metal organic chemical vapor deposition systems that are used to make HB LEDs or solar cells made of III-V compound semiconductors. In its Data Storage segment, Veeco designs and manufactures equipment used in the production of thin film magnetic heads that read and write data on hard disk drives.

In the preceding fourth quarter, the Plainview, New York-based company's net income was $197.16 million, or $4.70 per share, compared to $18.75 million, or $0.50 per share, in the year-earlier quarter. On an adjusted basis, the company earned $1.62 per share in the fourth quarter. Revenue jumped to  $300 million from $119.14 million a year ago. Analysts, on average, expected the company to report earnings of $1.61 per share on revenue of $302.17 million.

At its last earnings call in January, Veeco said forecast first-quarter earnings per share in a range of $0.94 to $1.31, and adjusted earnings in a range of $1.02 to $1.39 per share. The company also said that it expects revenue for the quarter between $215 million and $265 million. Veeco also said that it expects fiscal year 2011 adjusted earnings per share to be greater than $5.00 and revenues to be greater than $1 billion. 

The LED industry has been growing rapidly, primarily due to the proliferation of LEDs in backlighting for TVs, smartphones and notebook displays. In addition, LEDs are on the verge of overtaking both incandescent and fluorescent light bulbs in terms of use as governments, businesses and consumers seek to curb emissions. The customer base (largely Korean, Taiwanese and Japanese) essentially stopped investing in new capacity during the downturn and has been playing catch up ever since. The Chinese government in particular is subsidizing 50% the purchase price of MOCVD tools in an effort to grow its domestic LED industry. The Chinese government is also stimulating demand by changing local building codes to mandate LEDs in street lights and commercial buildings in certain cities.

The biggest part of Veeco's business is the sale of their MOCVD machines to LED and solar cell manufacturers, based primarily in the Pacific Asia region. In China, there have been subsidies to manufacturing companies to help develop that industry in their region. However, shares of the company have been hit hard by talk of Chinese subsidies coming to an end. China is expected to make changes to its subsidy program, yet the timing and nature of the changes remain unknown.

In February, Veeco's Chief Executive John Peeler said that the company aims to supply at least half the global market for LED tools in 2011. Peeler says he expects the China subsidies to continue at least through the first half of the year, arguing that there is "a huge, really strong sense of urgency on the part of Chinese customers to try to build up a substantial business before these subsidies end."

Among other developments, Veeco was awarded $4.8 million by the U.S. Department of Energy, or DOE, to speed up the research and development and commercialization of its Copper, Indium, Gallium, Selenium deposition systems. The award was granted as part of the DOE's "SunShot" High-Impact Supply Chain R&D Program, the company noted.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 12.60 and PEG ratio (5 yr expected) of 0.71. In terms of stock performance, RadiShack shares have gained nearly 12 percent over the past year. 

Full Disclosure: None.
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