Veeco Instruments Started at Outperform with $18 Stock Price Target at Oppenheimer

Notes We’ve begun to see increased orders for our prior generation of systems and their put into the production backlog as several leading solar customers have recently achieved production reliability levels exceeding our expectations.

Recently, the research community seems to have concluded that the next cycle for ATSV systems has arrived. We don’t yet know where this next cycle will end up, but industry buyers seem to have a much firmer grasp on current production levels of solar cells, and that helps them better gauge future production levels. Our customers are beginning to make more robust purchase commitments as a result.

Most importantly, we believe they are beginning to focus on next generation systems. We see a series of significant markets that can benefit from continued innovation on the wafer processing side of this sector. Both silicon and silicon-ix manufacturers are developing new processes that should be enabling sub-80 nanometer processes, as well as enhanced metrology and improving chip yields and performance. We will see a number of significant developments in 2019, including a key milestone for our follow-on 0.16 micron product on one system (R&D) and an important upgrade cycle on two systems (third generation, R&D).

We are currently focused on two significant market segments for wafer processing, wafer fractionation and bulk wafer processing. We believe there are over 10,000 wafer fractionation systems installed worldwide (including wafer enrichment/lithography). At a recent industry conference, industry stakeholders forecasted this market at $4 billion-$8 billion annually. We believe Veeco has a strong competitive position in the bulk Wafer Processing segment. Our lead group consists of two products; Varane and Structural Shock Inductors (SSTI). The installed base for these products is expected to reach 100+ systems by the end of 2020. Because these two products are complementary, we believe their combined installed base will exceed $300 million in sales by the end of 2020.

We are confident in our performance to achieve a path to non-GAAP profitability in the second half of fiscal 2019. We are well capitalized and our focus is on generating cash from operations and investing for growth. We continue to believe we have a growth story to tell that is backed by a compelling technology and a proven business model. We believe we are very well positioned to continue delivering value for our shareholders and current investors.

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