NEW YORK ( TheStreet) -- Shares of LED equipment makers Veeco ( VECO) and Aixtron ( AIXG) are rising on Friday morning after a Reuters report that LED sector bellwether Cree ( CREE) might make a bid for Aixtron.

Several financial news sites -- citing a story from a Reuters European desk -- reported that Cree was considering a bid of 38 euros per share for Aixtron. The report cited anonymous trader sources for the Cree bid, though the original Reuters international report was not immediately available.

If it's the case -- and an investor should keep in mind that the LED sector is one in which traders have the reputation of planting rumors to drive trading in shares -- Aixtron was not rising to a level that reflected a 38 euro offer.

Aixtron shares were up 3%, to slightly above $40. A 38 euro bid share would value the German LED equipment maker between $49 and $50.

Veeco shares were up by more than 2% in early trading, while Cree shares were flat.

If anything, the M&A rumors in the LED space highlight the fact that there is a logical thesis to be made for some consolidation. Veeco, in particular, has always been rumored as a takeout candidate, but speculation has usually centered on the big players in the semiconductor space, like Applied Materials ( AMAT) and Novellus ( NVLS).

To make a case for Cree buying an LED equipment maker requires some logical assumptions that can be shot down with equally logical counter arguments.

Mark Miller, analyst at Noble Financial Group, who has long believed that there is unlocked value in Veeco shares by way of an eventual takeout, says that as the LED market grows cost becomes a more important factor, and players like Cree will pursue each and every opportunity to lower cost. The LED market is transitioning from a period of explosive growth to a more mature market and in this stage of the industry's evolution, the lowest-cost opportunity becomes more important. More and more low cost LED suppliers from Asia, and in particular from China, are expected to join the market. Cree has acknowledged in recent commentary that driving down cost is a major focus for the company.

Miller says that Cree could be looking for a way to get a competitive edge, and it's possible that Aixtron's tools are more cost effective than Cree's existing in-house technology, by way of generating better yields.

The problem with this argument, though, is that there's no way to know if Cree's in-house LED equipment is any less efficient than the machines made by Veeco and Aixtron. Cree plays it very close to the vest with its proprietary technology.

Andy Abrams, analyst at Avian Securities, doesn't buy the latest M&A rumors in the LED space, though.

"CREE brings down costs by improving their packaging operation and by moving to a 6" line (later this year). The improvement that they would get, if any, from changing to AIXG tools would be very minimal, and having to run the AIXG business and deal with MOCVD customers would be very distracting from CREE's focus on the lighting business. I guess anything is possible, but this one is very far from being a practical idea," Abrams wrote in an email to TheStreet. "Probably one of the last things on CREE's list of acquisitions would be MOCVD equipment vendors. They have been making their own for years and seem very comfortable about it," Abrams added.

Ross Young, an analyst with IMS Research who covers the LED market, also doubted the veracity of the Cree-Aixtron rumors from a logical perspective.

"That would surprise me because Cree would need to continue to sell AIXG tools to get an adequate ROI on the AIXG acquisition. However, AiXG customers would likely be reluctant to buy from their competitor as Cree would gain insight into all their competitors production processes, etc. It would be great for Veeco," Young wrote in an email to TheStreet.

Young did not, however, rule out that Cree might buy some tools from AIXG. Referring to Cree's in-hose production being something of a black box cost-wise, the analyst noted that the return on investment on developing and producing tools for in-house is questionable.

Young said that Cree is rumored to run both sapphire and silicon carbide products and it could be more cost-effective to buy Aixtron tools for their sapphire production, that is, if Cree actually has any. He also suggested that Cree could outsource their tool designs to be manufactured by Aixtron, though considering how closely Cree plays its technology to its vest, this might in itself be surprising.

On the other hand, Veeco or Aixtron might shy away from manufacturing equipment for Cree, given that Cree would just be one customer among many, since Cree could then reverse engineer the LEd equipment maker's process into its conventional designs.

-- Written by Eric Rosenbaum from New York.

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