Veeco Instruments has to restructure its MOCVD systems business, as the downturn continues to take its toll on the wider semiconductor industry. At Veeco Q4 earnings call, John Peeler, CEO of the company, has announced its MOCVD systems operation in New Jersey would be hit by the latest move. He said their MOCVD systems business would go to a fully outsourced model by the end of the year. He also outlined a number of wider measures to cut costs, including a 26% reduction in workforce. Veeco will employ less than 1000 employees by the end of 2009.

Demand for MOCVD and other epitaxy equipment, predominantly for HB LED and multi-junction solar cell fabrication, remained strong through the closing months of 2008, however. Korean LED maker LG Innotek ordered four of Veeco's K465 MOCVD tools, while another multi-system order was received from an unspecified maker of multi-junction solar cells. Of $110 million sales in the final quarter of 2008, LED and solar applications accounted for $37.6 million.

Total equipment sales for LED and solar applications, which includes thermal sources for CIGS deposition, reached $166 million in 2008, representing 43% of overall Veeco sales and replacing data storage as Veeco's single biggest application market.
Orders for LED and solar cell equipment also jumped 69% sequentially to $44 million in the last three months of 2008, helped substantially by the LG Innotek placement. And although some LED manufacturers, particularly those in Taiwan, have delayed delivery of MOCVD equipment in recent weeks, Peeler does not believe that this will lead to substantial order cancellations.

In any event, those customers will have paid large deposits on their orders. MOCVD systems manufacturing had already been largely outsourced from the Somerset, NJ, site that was previously owned by Emcore prior to the sale of its “Turbodisc” division to Veeco back in 2003.

Peeler estimated that more than 60% of manufacturing at the site has already been taken on by partners in the US, with the full switch to an outsourced model set to be completed by the end of this year. With the LED and solar sectors now the largest within the Veeco business, Peeler is hopeful that the shift to larger wafer sizes for LED chip manufacturing, combined with what he described as “good traction” with new customers, will boost the firm's profitability towards the end of 2009 - once the current overcapacity seen in Taiwan is used up.

Overall, Veeco posted full-year 2008 sales of $442.8 million, up 10 % on 2007 but resulting in a net loss of $71 million due largely to an asset impairment charge of $73.3 million. First-quarter revenues will be hit by both the delayed orders from LED customers and a sudden decline in demand for Veeco's data storage equipment sales, with the company anticipating sales of only $60 million-$70 million.