Epitaxial deposition and process equipment maker Veeco Instruments Inc of Plainview, NY, USA has reported selected financial metrics and business highlights for second-quarter 2013 (excluding revenue and earnings, due to the firm's ongoing review of revenue recognition, announced last November).
Compared with first-quarter 2013, shipments were up sequentially for metal-organic chemical vapour deposition (MOCVD) but flat for both molecular beam epitaxy (MBE) and Data Storage. "While [overall] shipments were up sequentially, we continued to experience weak business conditions," commented executive VP & chief financial officer David Glass.
"We are experiencing the most challenging business conditions since 2009, and this downturn has persisted longer than anyone predicted," continued Glass. "Business conditions have been weak across all our end markets for well over a year now." Veeco says that, since there are so few deals available in MOCVD, it continues to experience significant competitive pricing pressure, which is having an adverse impact on margins and the breakeven level. "We continue to focus on carefully managing our operating expenses and we have installed strong inventory and working capital disciplines to continue to fund our R&D at high levels," noted Glass. During the quarter, Veeco's unaudited cash balance fell slightly from $588m to $585m. "We are maintaining a strong financial base [in terms of cash] from which to weather this storm," he added.
"We made only a small backlog adjustment of under $2m during the latest quarter," said Glass. Order bookings were $85m, rebounding by 21% from $70m last quarter (following a 24% drop from $92.3m in Q4/2012). This comprised Data Storage orders of $27m (level with last quarter) and LED & Solar orders of $58m, rebounding by 35% from $43m last quarter (following a 43% drop from $75.4m in Q4/2012). Of LED & Solar orders, $52m were for MOCVD (rebounding by 40% from $37m last quarter, following a 42% drop from $62.8m in Q4/2012) and $6m were for MBE (level with last quarter, following a drop of 51% from $12.6m in Q4/2012).
"MOCVD orders improved by about 42% sequentially to $52m as we won important deals in Korea, Taiwan and China," said chairman & CEO John Peeler. "Data Storage and MBE business conditions remain muted as customers continue to manage their capital expenditures tightly, so second-quarter orders were flat on a sequential basis," he added.
Market trends are still mixed. "In MOCVD, utilization rates at many of our key LED customers [in Asia] are high and stable: 80%, 90% or even 100%," said Peeler. "All the reports indicate that LED lighting is ramping… Many of Veeco's top customers are reporting strong demand for mid-power LEDs for indoor replacement bulbs and high-power LEDs for outdoor lighting. Some customers are optimistic in moving to increase capacity, while others are holding out and waiting before committing more capital… They remain extremely cautious about capacity expansion," he commented. "While orders were up 42% sequentially, they're still relatively weak. MOCVD order patterns are likely to remain choppy because of the timing of large, multi-unit deals, and have a significant impact on our quarterly bookings level," added Peeler.
"In the latest quarter, we had our first multi-unit capacity buy from Korea in three years – one of the world's top LED manufacturers, which is adding capacity to support LED demand growth in tablets and lighting applications," Peeler noted. "We have also booked a multi-unit order from KaiStar [a Chinese joint venture of Taiwan's largest LED chip and epiwafer maker Epistar]. We've performed well in their Xiamen fab, and they have now selected Veeco for their increased capacity needs." Also in July, Veeco booked a large multi-unit deal with China's largest LED maker Sanan. Both KaiStar and Sanan, selected Veeco's TurboDisc MaxBright M multi-reactor MOCVD systems.
Looking ahead, "While our quoting activity has increased from earlier in the year, the conversion process from quotation to purchase order is slow," cautioned Peeler.
In the meantime, during Q2, two customers selected Veeco for substantial MOCVD service contracts. "While business is challenging, we remain focused on all aspects of our strategy to get Veeco growing again," stated Peeler. "We're growing our services business to maintain our edge as the preferred supplier to top industry players."
"In MBE, the production side of the business continues to be slow," noted Peeler. "But on the R&D side of the business, our deal funnel is improving and we booked our first order for new-generation systems for R&D customers this quarter. While we're seeing some customer pull from the research market, it's clear that the US Government sequester is having an impact on our customers' research funding," he added.
"We're seeing signs of life in the market for LEDs and elsewhere, and we continue to invest in next-generation product development, both to expand our strong leadership positions and to enter into new growth markets," summarizes Peeler.
Veeco says that it intends to file its full financial figures for second-quarter 2013 "as soon as reasonably practicable after the accounting matters are resolved."
See related items:
Sanan expands LED production capacity with Veeco MaxBright M MOCVD systems
KaiStar orders multiple Veeco MaxBright M MOCVD systems for its LED manufacturing ramp
Challenged Veeco sees MOCVD orders fall 42% in Q1
Veeco's bookings rise 10% in Q4/2012, driven by MBE during MOCVD overcapacity
Veeco's request for continued NASDAQ listing granted, pending 4 November SEC filing deadline
