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Veeco Earnings: Revenue Delay Pressures Shares

Veeco Instruments beats the Street, but a cloudy revenue outlook weighs on shares in after hours trading.

(Veeco earnings story updated for analyst commentary, Tuesday pre-market action)

NEW YORK (

TheStreet

) -- Shares or

Veeco Instruments

(VECO) - Get Report

are sliding in the after-hours session on Monday. The LED equipment maker beat Street expectations for the third quarter, but its outlook included uncertainty over fourth-quarter revenue streams that could be spooking investors.

Veeco shares were down 7% in after-hours trading on Monday and moer than 6% on Tuesday morning before the opening bell.

Expectations were very high for Veeco ahead of earnings, and the LED equipment maker did easily beat in the third quarter, reporting earnings per share of $1.46 and revenue of $277 million. The Street had been forecasting earnings per share of $1.25 on revenue of $274 million.

The slight decline in bookings, and the potential pushback of Veeco revenue to next year and its impact on the outlook for the rest of the year is more important to trading sentiment than the printed numbers.

Veeco bookings were $347 million in the second quarter, and fell to $243 million in the third quarter. LED segment orders, in particular, fell from $260 million to $243 million.

Veeco CEO John Peeler stated in the earnings report, "We have recently experienced rescheduling of tool shipments from the fourth quarter into the first quarter by several customers in Korea and Taiwan."

The Veeco CEO also said of Chinese orders scheduled for the fourth quarter, "While we currently expect that these tools will ship over the next few months, timing of revenue could shift into the first quarter due to customer facility readiness."

Veeco's fourth quarter 2010 revenue is forecast to be between $285 and $320 million. The Street was looking for $310 million. Earnings per share are currently forecast at $1.46 to $1.74. The Street was looking for $1.47 per share. While the low-end of Veeco's earnings outlook for the fourth quarter would be below the Street, that's likely not the trigger for selling.

Investors have been concerned about overheating in the Chinese market where Veeco has a huge presence, and concerned about any pullback in Chinese equipment ordering. Thus, the comment on a push back of revenue from Asia could be viewed as a sign of trouble to come.

Mark Miller, analyst at Noble Financial Group, said it's not a surprise that the shorts would jump all over any sign of weakness from Veeco. The stocks, and its peer stocks in the LED space have been favorites of short investors. Miller, though, noted that it was a record quarter for Veeco in terms of earnings and revenue, and gross margin improvement was a surprise, up near a double-digit percentage. Nonetheless, the LED equipment maker's backlog and bookings were slightly down. "It's still near record levels, but the shorts will pound on it," the analyst said.

The issue for Veeco is whether any weakness in the outlook and in the order backlog is a short-term hurdle before growth accelerates again, or indicative of a peak.

"The type of ramp Veeco has had in its business can't go on forever, and the question is from a peak how far down does it go," Miller said. "It looks like Veeco's business will stay at high levels in the first half of next year, and then general lighting should come on stronger," he added.

The slowdown in the backlighting market for flat-panel televisions which pushed all the LED stocks down in August should not make the commentary from Veeco a major surprise. "I think December will be the peak earnings quarter and maybe the last quarter was the peak bookings quarter, but it's not a collapse," Miller said.

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Shares of

Aixtron

(AIXG)

, which operates in the Asian markets where Veeco said orders may be pushed back, were down 3.5% in after-hours trading and more than 4% before the opening bell on Tuesday. Aixtron doesn't have as much exposure to China as Veeco, but it is a major player in the other Asian markets for LED equipment ordering. Aixtron had more or less already forecast a slowdown in its business during the summer. It doesn't have the high level of sales into China to prop up orders as the other Asian buyers pull off the gas. Analysts expect Aixtron results to be similar to Veeco earnings, and potentially worse.

Cree

(CREE) - Get Report

, the LED industry bellwether, disappointed investors for the second straight quarter with its earnings last week, even as it beat on the bottom line. There were arguments from analysts headed into the Veeco earnings that the Cree disappointment wouldn't reflect the Veeco numbers, and Veeco shares did not sell off after the Cree earnings decline. However, even though investors didn't play Veeco as a derivative trade on Cree, Veeco bulls didn't expect the weakness exposed in the Veeco report either.

Analysts expected Veeco to be the outperformer this quarter, and it was, but had not expected the booking and backlog to decline, and the commentary about revenue delays from the LED equipment maker.

Andrew Abrams, analyst at Avian Securities, who went to a hold on Veeco and Aixtron in August based on the expected slowdown in LED ordering, said the shorts don't have that much room left to run with Veeco. The shorts will have their chance with Veeco until there is resolution to the slowdown in the LCD TV backlighting business. Yet for the most part the Veeco results were in line with expectations, and while any order slowdown is cause for concern in this sector, Veeco's commentary was not a surprise to the Avian analyst.

Veeco shares will move down at the open on Tuesday, but there may be another leg up in shares in the LED space when the LED backlighting business picks up again.

-- Written by Eric Rosenbaum from New York.

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