Veeco's stock was nudging $50/share less than two weeks ago, but in the last five days has lost 19% of its value. Aixtron's lost about 9% during the same period. What's going on? Despite their recent assurances to the contrary, Citi's Tim Arcuri is increasingly pessimistic about a possible change in China's MOCVD subsidies that could send tool orders plummeting in 2011. Officials are becoming "very concerned" about misuse of the funds offered in the program, he said, citing no "smoking gun" but instead "a mosaic of discussions with China LED makers, policy makers, and other sources" within China. TheStreet cites a Chinese newspaper quoting a Yangzhou official that the subsidies will be cut off July 1, and that some companies have applied for the subsidy "that didn't even know the first thing about LED production."
Still, other analysts cited by TheStreet weight that much of this chatter is at the local level and may be part of metropolitan competition. Avian Securities' Andy Abrams points out that to reach its stated goal of 33% share of LED production by 2012, China will need another 500+ tools, on top of the 370 expected installations by early 2011. Chinese LED companies serious about being real players won't cancel orders, he surmises, they'll just find other ways to fund them. The real question, he says, is not whether China will dump its subsidy program -- but whether and how fast the market improves for LED backlighting.
Still bullish on semi capital intensity
Credit Suisse's Satya Kumar raised his semiconductor capex estimates for 2010, and all the way through 2012, believing that NAND, foundry, and Intel spending will more than offset a decline in DRAM capex. He sees 2011 capex now at nearly 9%, vs. flattish, and 2012 capex at $35B, vs. $30B-$32B previously. Shipments should plateau at ~10% levels through 2Q11, which is better than his prior view of this "mid-cycle pause."
Why more bullish? He reiterates his argument that semiconductor capital intensity is only increasing -- from ~5.2% in 2009 to ~10.5% in 2011-2012 (prior peaks: 12.6% in 2007, 15.8% in 2000) -- due to a pushout of 450mm wafer-size transition, accelerating product cycles and penetration, increasing cost/wafer starts per month for new logic and foundry capacity, and a transition in memory spending from shrink to capacity adds.
And industry companies seem to be rallying to the bullish flag. ASML's big bookings hike, a company with long product lead times, "impl[ies] others will see upside eventually," Kumar writes. At its midquarter update NVLS raised its 4Q10 bookings guidance, and VSEA, LRCX, and CYMI "have sounded incrementally more confident," he adds.