15 Sep 2011
Leading MOCVD equipment vendor Aixtron slashes guidance amid increased economic concern.
Aixtron, the German company that supplies critical manufacturing equipment used in volume LED production, has slashed its sales guidance for 2011 and reduced its order backlog by €100 million, after talks with its Asian customers revealed increasing macro-economic concerns.
Aachen-based Aixtron is the world’s leading supplier of metal-organic chemical vapor deposition (MOCVD) equipment, the pieces of kit used to deposit high-purity layers of light-emitting semiconductors such as gallium nitride on wafer substrates.
It now expects to post sales of between €600 million and €650 million, down from its previous estimate of €800 million-€900 million. With the average cost of a piece of MOCVD kit around €2-2.5 million, the new guidance suggests that Aixtron has cut its shipment expectations for 2011 by as many as one hundreds units.
As a result, earnings before interest and tax will be 25-30%, not the 35% predicted. Shares in Aixtron fell by around 15% immediately following the announcement, while those of rival MOCVD tool supplier Veeco Instruments were down by 6% in early trading.
“This new guidance and backlog adjustment reflects the perceived increase in conversion risk, purchase order delays and deferred system delivery requests into 2012 by several customers, specifically in Asia,” noted Aixtron in its statement announcing the guidance cut.
Despite the dramatically lower expectations for 2011, the company remains positive about the long-term prospects of solid-state lighting, saying: “Management continues to believe that the imminence of an emerging LED lighting industry in conjunction with initiatives such as the Chinese five-year plan continues to support the positive outlook for the LED industry, despite short-term demand adjustments driven by market uncertainty.”
Chip manufacturers are delaying new investments following a period of strong pricing pressure that resulted from the rapid expansion of GaN LED production capacity witnessed over the past two years. That increased capacity has largely fed into the displays market, with PC monitors and televisions featuring LED backlighting now commonplace.
Those rapid price falls are also helping to prompt the early stages of the LED lighting era, but more immediate concerns are behind Aixtron’s announcement. “Recent discussions with Asian customers have revealed an increasing concern about the short-term fragility of the economic recovery, leading to consequent investment caution,” the company said.
“Coupled with evident margin pressures from rapidly dropping end market prices for LEDs, several customers are delaying new purchase order placements and deferring system deliveries into 2012.”
Ross Young, an analyst at IMS Research specializing in the market for LED production equipment, had previously cut expectations for MOCVD tool shipments in 2011 – although not by the magnitude now indicated by Aixtron.
“The magnitude of the drop is a surprise,” Young told optics.org. “It looks like there are even more delays than we thought from 2011 to 2012.” Young also pointed out that the regional subsidies on offer in China for MOCVD equipment purchases are not yet expiring, meaning that there is no urgency for companies to take deliveries before the end of the year. “The companies can wait till market conditions warrant more capacity growth,” Young said.
The analyst also speculates that GCL, one of the Chinese companies thought to be scaling up for volume LED production, may now have pulled back from the market entirely. Aixtron was believed to have won a large GCL contract. Another contributing factor may be a loss of market share to rival Veeco, whose latest tools have been well received. Aixtron has itself acknowledged a general market shift towards Veeco, with the German company’s share of the MOCVD equipment market dropping from 70% in 2008 to around 55% in 2010.