Tuesday, December 14, 2010

As Veeco Tumbles 15%: "VCs May Be Too Late To LED Lighting; Big Money Needed, Exec Says" (AIXG; CREE; VECO)

Cree closed down 4.25%, Aixtron 4.18% and Veeco 15.57%
From TheStreet:
Downgrades of Veeco(VECO_) and Aixtron(AIXG_) have put the brakes on a recent rally in LED lighting stocks. 

Citigroup downgraded Veeco , one of the two core LED market equipment companies, while Kaufman Brothers downgraded shares of Axitron. The ratings changes were from a buy to a hold on Aixtron and Veeco, though the reasons behind the downgrades were two-fold.

All the LED stocks were down and trading volume was elevated for the entire sector. All it takes -- especially after a rally, which has been going on for over a month -- is for a major Street firm to step up and renew everyone's worst fear of policy change in China, and the LED stocks will be under the gun once more.
Citigroup is stoking renewed debate about China slowing its subsidy support for the purchase of the MOCVD equipment sold by Veeco and Aixtron.

Veeco has a larger business selling to Chinese LED companies that have benefited from the subsidy support. For at least half a year the argument has raged as to whether the Chinese government wants to take a breather from the pace of expansion in the LED market.

Veeco shares were down 5% at the open and late in the morning that loss almost doubled to near 9%. Aixtron shares were only down between 1% and 2%.

Kaufman Brothers is making a straight valuation call on Aixtron in its downgrade to a hold. This straight valuation call, as opposed to a call on changing industry dynamics as in the case of the Citi downgrade of Veeco, might account for the big selloff in Veeco, while Aixtron is only down slightly....MORE
And from peHUB:
Startups making next generation LED lighting may be hot investments again in 2011, but venture capitalists could be too late to the market with their cash, according to one industry executive.

I ran into Bridgelux Inc. Chief Executive William Watkins last night at an event in San Jose, Calif., and he offered this warning. LEDs, or light emitting diodes, hold big promise for saving energy and pricing is falling rapidly, which will make them more competitive.

But big technology giants, such as Samsung and LG Group, are pouring billions of dollars into production. Keeping up will be a gargantuan task for an early stage startup.

Entrepreneurs with big ambitions may be wiser to turn to private equity firms for enough cash to begin rolling up, or consolidating, small production facilities and components shops, said Watkins (pictured). The market may be past the VC stage.

“It’s not about $50 million investments,” he said. “This is about hundreds of millions. You’re going to have to start deploying big capital.”

Watkins clearly has a point. LED lighting will be big as high quality bulbs regularly drop below $20 and then $10 over the next couple years or before. But the winners will be the low cost producers, and manufacturing scale is going to be the weapon of choice.

Many VCs view components expertise and creative management software as a startup’s differentiation. But Watkins didn’t seem entirely convinced....MORE