Lowering Veeco's Estimates in 1999/2000:
Salomon Smith Barney
July 30, 1999
After the close on Wednesday, Veeco announced an inline 2Q99 in terms of earnings per share ($0.35), but lower than expected sales and orders. While sales were $3 million below expectations, better gross margins (48.8% vs. our 47.0% est.) allowed the company to meet our $0.35 estimate. Sales declined 1% sequentially to $55 million, below our estimate of $58 million. Process equipment drove sales, increasing 30% sequentially to $25 million, while metrology sales declined 18% to $26 million. Sales to Veeco's top 3 customers (IBM, Seagate, and Read-Rite) improved and 7 of the top 10 customers were in Asia-Pacific, which indicates increased penetration outside of the U.S. By region, sales were US - 44%, Europe - 18%, Japan - 17%, Asia/Pacific - 19%, and ROW - 2%. As usual, revenues from data storage accounted for the majority of revenues (61%), followed by research & industrial at 29%, and semiconductors at 10%.
Orders of $54 Million Were A Negative Surprise
We had concerns of the order front and Veeco's orders declined from $65 million in 1Q99 to $54 million, well below our estimate of $60-$65 million. By segment, orders were broken out between process equipment ($25 million), metrology ($25 million), and industrial measurement ($4 million). The decline in bookings was primarily attributable to a decline in etch bookings from $23 million in 1Q99 to $9 million in 2Q99. The spike in etch bookings during 1Q99 was an anomaly and due to 2 US customers who purchased $15 million in reactive ion pole tip trimming systems. This activity ceased in 2Q99 and we expect $8-$9 million will be the "normal" level of bookings. We expect etch to remain flat in 3Q99, with growth being driven by deposition and AFMs.
Lowering Estimates in 1999/2000
Due to low visibility and a lower level of orders, we are lowering our EPS estimate to $1.40 from $1.50 in 1999 and reducing 2000 to $1.82 from $2.01. We are lowering our sales estimate in 1999 to $229 million from $242 million and increasing our operating expense estimate slightly to 32.7% from 32.2%. We look for sales of $58 million (vs. $62 million previously) in 3Q99 and EPS of $0.36 (vs. $0.39 previously). For 4Q99, we are modeling sales of $60 million versus $66 million previously and EPS of $0.37 versus $0.43 previously. In 2000, we are reducing our sales estimate to $275 million from $289 million, lowering gross margins by 30 basis points to 48.4%, and keeping our operating expense estimate of 31.4% unchanged.
We reiterate our 2H (Outperform, High Risk) rating as we believe the stock represent a good risk/reward but stress that patience is required. Until there are positive signs emanating from the disk drive/head sector, we believe Veeco's shares will remain in the current high 20's to low 30's trading range. We are lowering our price target to $41, or 2.5x our 2000 sales per share estimate of $16.5, from $70, or 4x our previous calendar 2000 sales per share estimate of $17.4. |
