Veeco Instruments Inc aims to supply at least half the global market for LED tools this year and expects the Chinese subsidies that underpin demand to stay intact through the first half of 2011, Chief Executive John Peeler said on Friday.
LEDs, or light-emitting diodes, are used mainly to light consumer electronics such as mobile phone and television screens and have enjoyed explosive growth in recent years. But they are also poised to unseat incandescent and compact fluorescent light bulbs as governments, businesses and consumers seek to cut energy use.
Veeco, which along with Germany’s Aixtron AG, is one of two global suppliers of equipment to manufacture LEDs, increased its share of that market to 45 percent last year from 30 percent in 2009.
This year, Peeler said growth would continue, albeit at a slower pace.
“We’d like to get over 50 percent and stay over 50 percent,” Peeler said, noting the company already had more than half the Chinese and South Korean markets.
Regarding a Piper Jaffray estimate from earlier this week that calls for the company’s share to reach nearly 60 percent in two years, Peeler said there “is a reasonable chance we can get to 60 percent.”
LED lighting is widely expected to become a booming business and Peeler said that portion of the market would make up well over half the company’s business in 2012.
“Our objective is to keep lowering the cost of making LEDs so that this whole lighting adoption gets sped up,” Peeler said, adding he expected to see a $10 LED lightbulb on the market in the next year.
“We’re hearing from Chinese companies that they are planning to provide those,” Peeler said.
Industrywide, 800 LED tools were shipped last year. That number could grow to as much as 1,000 this year, depending on the rate of growth in China and South Korea.
“It might be 900, it might be 1,000,” Peeler said. “It’s really going to depend on how the growth continues throughout the year.”
Sense of urgency
In recent years, Chinese local governments have subsidized at least 70 percent of the price of LED tools, prompting dozens of companies to start fabricating the semiconductor light sources. As a result, well over half of Plainview, New York-based Veeco’s business comes from China, Peeler said.
Market fears about the end of those incentives have at times plagued shares in the LED sector, but Veeco shares have gained 12 percent so far in 2011, compared with a nearly 5 percent rise in the Nasdaq.
CLSA analyst Mark Heller downgraded the stock to “underperform” on February 14, citing its recent run-up and it has since pulled back about 8 percent. Heller wrote he would wait for more clarity on 2012 LED tool demand, as well as signs of successful factory starts from Veeco’s China customers before recommending the stock again.
Peeler expected the China subsidies to continue at least through the first half of the year, with regions scaling back one by one.
“We believe they will end at different times in different places,” Peeler said, adding that there was “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.”
South Korean demand for LED manufacturing equipment should restart in the second half of this year after falling off in 2010, Peeler said.
Also a player in the burgeoning market for equipment that makes solar power products, Peeler said modest-sized portion of its business will one day grow to around $200 million or $300 million.
The company earlier this month was awarded $4.8 million by the U.S. Department of Energy to spend on the commercialization of its solar equipment, which makes copper indium gallium selenium (CIGS) solar cells.
Veeco shares closed up 10 cents at $48.40 in afternoon trading on the Nasdaq.
