Veeco's Core Business Faces A 'Triple Threat,' Market Slowdown In 2018

KeyBanc Capital Markets downgraded shares of Veeco Instruments Inc. VECO, citing a triple threat in the company's MOCVD business: share loss, pricing risk and potential market slowdown in 2018.

The firm said, although Veeco remains a leader in its served markets, it would prefer to monitor execution before creating a new position.

As such, the firm downgraded shares of Veeco from Overweight to Sector Weight. Although no price target was assigned due to the Sector Weight rating, the firm sees near-term fair value in the mid $20s, or 19-20 times its 2018 earnings per share estimate.

At the time of writing, shares of Veeco were sliding 10.83 percent to $19.40.

Analysts Daniel Baksht and Weston Twigg said their checks with competitors and a component supplier for MOCVD equipment have left them worries about the competitive dynamics in the company's MOCVD business. The analysts said this would:

    1. Have a sustainable impact on Veeco's share.
    2. Drive downside risk to pricing.
    3. Set up market-slowdown risk in 2018.

KeyBanc said it is unlikely Veeco can regain share in 2018 up to its 2016 levels with its newly introduced EPIK 868 MOCVD systems, given the price-competitive environment and the recent success of new entrants such as AMEC and TOPEC. These companies achieved more than 50 percent market share for GaN-based MOCVD systems in China in 2017 from low-single-digit share in 2016, the firm added.

The firm said margin upside looks difficult to achieve for Veeco, as it has strived to take on competition by launching a new platform, with twice the throughput. However, the firm doesn't think the company is achieving higher ASP with this.

Citing the oversupplied MOCVD market, the firm lowered its MOCVD unit shipment forecast for 2018 by 15 percent.

"Given Veeco's share loss in MOCVD systems, we believe integrating Ultratech's product line could be increasingly difficult as the Company redefines itself," the firm said.

"We believe improvement will come, but it could take time."

At time of publication, shares of Veeco were down 10.57 percent at $19.45.

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Image Credit: Kevinplong (Own work) [Public domain], via Wikimedia Commons
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Posted In: Analyst ColorNewsDowngradesAnalyst RatingsMoversDaniel BakshtKeyBanc Capital MarketsWeston Twigg
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