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FPA Capital Fund on Veeco Instruments
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Veeco Instruments (VECO), which closed the quarter at $28.60, manufactures equipment used to produce high-brightness Light-Emitting Diodes (LEDs) for TVs and general lighting. VECO has roughly 45% global market share of the tools used to produce LEDs. VECO declined from over $57 to under $25 last year as investors worried about an oversupply of tools and the potential decline in the company’s profitability. We acknowledge the oversupply of tools, but believe the rapid adoption of LEDs for general lighting will absorb most of the excess capacity by the end of next year, if not sooner. Of course we can never have complete certainty about the future, but our analysis suggests that the company can earn over $2.50 in a normal environment, and coupled with the $12 of net cash on the balance sheet we can envision VECO trading back toward the $50 range in the future.
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