Veeco Investor Presentation John Peeler, CEOlibrary.corporate-ir.net/library/11/111/111487/items/274665/... · Selected Veeco LED customers 0 1000 2000 3000 4000 5000 6000 7000 8000

Veeco Investor Presentation

John Peeler, CEO

January 8, 2008

©2008 Veeco Instruments Inc. 2

Veeco Investment Themes

We possess leading positions in our Process Equipment and Metrology market segments

#1 or #2 in every technology we make

We have several high-growth market opportunities…will commit additional resources to capitalize on them in 2008

HB-LEDSolarNanotechnology - tools provider for material science, life science and 3D in-fab metrology

We are focused on executing a financial turnaround that will take multiple quarters

’07 revenue and earnings performance disappointing due to dramatic slowdown in HDD and semiconductor end marketFocus on improving efficiencies and operational excellence across our diverse business model


Veeco Snapshot


Veeco Snapshot

Metrology$109M

32%

ProcessEquipment

$227M

68%

HB-LED/ Wireless/Solar

35%

ScientificResearch

26%

Data Storage

31%

Semi-conductor

8%

NA36%

APAC32%

Europe19%

Japan13%

9 Month 2007 Orders $336.7M9 Month 2007 Orders $336.7M

Orders by Product Orders by Market Orders by Region

LED Now Largest %

Veeco Has Unique Diversification of Product & Markets and Global Opportunities


Two Pronged Strategy To Improve Performance

Increase Top-Line Growth

Align R&D to best growth opportunitiesNew product launches to support ’08 growthStrengthen management teamImprove global field sales and service organization

Profit Improvement Activities

100 person reduction in force Consolidation of certain HDD engineering & marketing groupsReal estate initiatives Travel & Expense control Restructuring of global finance and IT organization

Process Equipment Growth Drivers


Veeco’s LED Market Opportunity

LED Industry OverviewLEDs being adopted for energy savings, quality of light and lifetime benefitsBroad applications – laptops, automotive, displays, architecturalIndustry 17% CAGR through 2011…signs and displays 42% CAGRPenetration into SSL is happening through architectural and retail lighting

Veeco Market PositionA leading supplier of critical MOCVD technology (GaN and AsP deposition) – 35-40% share of new ordersMOCVD is >50% of LED fab capexMOCVD technology critical to LED manufacturers’ lm/w successCurrently Veeco’s fastest growth market: orders up 45% through 9 months ‘07

Selected Veeco LED customers

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2006 2007 2008 2009 2010 2011

$M

Mobile/Signals/Auto/Other Signs/Displays General Illumination

Strategies Unlimited LED Growth Forecast

TEKCORE Co.


HB-LED Adoption Occurring in Broad-Based ApplicationsLaptop Backlighting

13” – 15” by Apple and HP Mobile devices

Sony Ericsson, SamsungCamera flash in cell phones

AutomotiveHead lamps

Audi R8 and Lexus 600hCadillac Escalade 1st SUV with a full LED headlamp

Daytime running lights, Stop lightsEmerging Markets:

China – Beijing Olympics$269B spent on lighting China’s national highways (DigiTimes)

Big Screen TVsSamsung Electronics recently launched a 40-inch, 52 inch, & 70 inch LED TV


TurboDisc K465 GaN Advantage

TurboDisc K465 GaN modular platform produces highest margin for HB-LED manufacturers

Only automated, high capacity system delivers highest throughput

Next generation TurboDisc technology produces excellent yield

Extendable platform for long capital life

45-120% More Throughput with TurboDisc K465 GaN

9030Competitor B

13842Competitor A

20245TurboDisc K465 GaN

Wafers/Day

2” Wafer Capacity


TurboDisc E475 AsP Advantage

15% More throughput than our E45030-40 % More Throughput than the

CompetitionUpgradeable on Production Proven E450 2,2112,9054” wafer

8,01011,0382” Wafer

Competitor –Wafers/month

Veeco –Wafers/month

Production proven E475 produces the highest margin for ROY HB-LED manufacturers

Temperature control assures accurate process reproducibility

Flow Flange™ enables excellent uniformity and repeatability

Vacuum loadlock minimizes idle time

Low maintenance TurboDisc®

technology enables highest uptime


Veeco’s Emerging Solar Market Opportunity - $15-20M 2008

Crystalline Si Thin Film

Mono-Si Poly-Si a-Si CuInGaSe2(CIGS)

CdTe(Cad-Tel)

III-Vs(Multi-Jct.)

Deposition Sources

MOCVD

Strong Q3 Solar Orders >$5M MOCVD, CIGS deposition sources, Metrology


E475 As/P TurboDisc platform capable of providing high volume, low cost III-V solar cells with the highest solar cell efficiency

Highest production throughput using robotic transfers

In-situ process controls for excellent repeatability and yields

Excellent uniformity

Superior crystal quality to provide the required high efficiency

Flexible control of nucleation techniques and high purity epi layer films assures maximum solar cell performance

III-V Solar Cells Provide Lowest Cost for Satellite Solar Cells & Terrestrial PV

World’s Highest Efficiency III-V solar cells produced using Veeco MOCVD systems – 40.7%

> 50% more throughput than the competition


Providing Reliable, Proven CIGS Deposition Sources

Only supplier of production-scale CIGS sources, reducing total

components by >60% andtotal capital costs

by >25%

Veeco provides thermal deposition sources for 2-30MW glass and flexible substrates

•Demonstrated supplier experience•Reliable, proven thermal deposition sources•Repeatable, consistent results•Fastest time to market•Lowest capital costs•For R&D and Production-Scale CIGS


Veeco’s Data Storage Market OpportunityHDD Industry Overview

Industry consolidation: TDK/Alps; HGST site consolidationMaturing customer base…greater efficiency Flash memory makes in-roads into low-capacity storage market… but, does drive HDD technology investment

Veeco Market PositionLeading supplier of equipment & metrology to create TFMHsBroad-based portfolio of products across wafer and slider (front and back-end) steps#1 or #2 in every technologyKey customer relationships and partnerships

Veeco HDD Customers

HDD & Platter Unit Growth (IDC)

8% CAGR

M

500 M

1,000 M

1,500 M

2,000 M

2,500 M

2006 2007 2008 2009 2010 2011Heads Platters


CAPEX Drivers in a Maturing Industry

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2005 2006 2007 2008 2009 2010

Year

Ado

ptio

n [%

]

-350

-250

-150

-50

50

150

250

350

450

550

GB

SI

PMR

Areal Density Trend

TMR

2nd and 3rd Generation PMR

HDD manufacturing cost reduction is driving lower cost-of-ownership tool sets and processesPVD for Alumina and Metals

8” wafer format allows a 50% increase in sliders/wafer…without investment in facility expansion

Larger wafer format requires retooling in >50% of the process steps to achieve comparable yields

Areal density growth continues at 30-40% per year…drives tech spending

New materials, new processes – PVD and ALD

Technology Cost of Ownership

Capacity

Metrology Growth Drivers


Veeco’s Nanoscience Opportunity

Industry OverviewUniversities and institutes, engaged in materials science and life science researchWorldwide government and private spending continuesNanotech centers adding equipmentResearch institutes demand leading-edge tools

Veeco Market PositionWorld leader in AFM and SPM technology; optical interferometry and stylus profilersNano-scale and micro-scale technologiesNew products to fuel future growth

Selected Veeco Research Customers

2006 Global Nanotechnology Spend $5.8B

Thousands of Customers Worldwide

N.A32%

APAC/Japan29%

Europe36%ROW

4%

+9% Y/Y


New Products Driving Growth

Innova Scanning Probe Microscope Lower cost SPM option for university researchers

Dektak 150: High-performance research/ industrial metrology stylus profilerHigh repeatability, low noise, large scanning range

Wyko NT9100: “More affordable” table-top optical profilerBroad applications – optics, solar, biomedical, automotive

Innova SPM

Q3 Scientific Research Orders up 17% sequentiallyand 9 month orders up 20% versus last year

Wyko NT 9100


Veeco’s Semiconductor Market OpportunitySEMI Market Overview

3D Metrology Challenges at 65nm and below

Key Issues:Accuracy

Optical CD model development

Tool to Tool matching

Not adequately addressed by CDSEM & OCD

Veeco Market PositionWorld’s leading supplier of automated AFMs – 350 tools wwQ4’07: New InSight 3D AFM Addresses industry critical CD metrology challenges:

Accuracy

Applications not being adequately addressed with CD-SEM and OCD

Tool to Tool matching

Selected Veeco Auto AFM Customers

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

Thousand Wafer Starts Per W

eek

Wafer Starts Below 75nm


New InSight 3DAFM: Improved Performance Expands our TAM

45nm node measurement capability with 32nm roadmap

Industry highest AFM depth & CD throughput with 30 wph, 9 sites

<1nm Measurement uncertainty

Production based metrologySignificant ease of use enhancementsImproved reliability for production worthyImproved ease of use

10x improvement in probe lifetimes – better CoO

Financial Highlights and Summary


2007 A Disappointing Year…Business Has Stabilized

$390.4$410.2

$441.0

$400.0

2004 2005 2006 2007F

$13.9

$28.8

$39.7

$10.0

2004 2005 2006 2007FEBITA*($M)SALES

($M)

*Earnings before interest, taxes, amortization, and certain items ($M)

Disappointing 2007; Driven By Downturn in Data Storage & Semiconductor End Markets

EBITA Impacted by Weak Volume & GM Declines in PE and M&I

2008 Goal to Get Back on Track toRevenue Growth and Improved Profitability


Q4 ’07 Outlook/Guidance (10/22/07)

Q4 ‘07 Revenues $104-$112 million Q4 ‘07 EPS ($0.26)-($0.14) per share; Non-GAAP EPS $0.00 - $0.06, excluding amortization of $1.9M and restructuring charges of $5.0 million, using a 35% tax rate Q4 ‘07 Orders expected to be between $105-$115MQ4 ‘07 Operating Expenses will decrease as a % of sales to approximately $40-$41MGross margins should improve to a 40% level (high 30% in PE and mid 40% in Metrology)First half 2008 revenues start out slow – (similar to 2H ’07) impact of Q3 HDD orders having 9 month lead times


Performance Improvement Goal to Get Back on Track to Trough and Peak Models

$65M+

38-40%

Equipment

Trough Quarter

$35M+

45%

Metrology

Revenue

EBITA

Operating Expense

Gross Margin

40-42%

38%

$100-105M

2-4%

TotalVeeco

$82-$90M

42%

Equipment

Peak Quarter

$43-45M

52%

Metrology

45-46%

32-34%

$125-135M

11-14%

TotalVeeco

Q4F

39-40%

36-38%

2-4%

$104-112M

Note: GMs are very sensitive to Process Equipment vs. Metrology Mix


Veeco Improved Balance Sheet

December 31, 2006September 30, 2007(in millions)

$281.8$280.4Shareholder’s Equity

209.2151.9Long-Term Debt

589.6527.4Total Asset

73.569.5Fixed Assets

248.1201.4Working Capital

$147.0$108.4Cash and Investments

•Convertible debt reduced $56M to $144M in 2007•Term of $118M of convertible debt extended through April 2012•Approximately $25.2M of “Old Notes” remain outstanding due end 2008 •The 2007 transactions have significantly improved Veeco’s capital structure.


Veeco Investment Themes

We possess leading positions in our Process Equipment and Metrology market segments

#1 or #2 in every technology we make

We have several high-growth market opportunities…will commit additional resources to capitalize on them in 2008

HB-LEDSolarNanotechnology - tools provider for material science, life science and 3D in-fab metrology

We are focused on executing a financial turnaround that will take multiple quarters

’07 revenue and earnings performance disappointing due to dramatic slowdown in HDD and semiconductor end marketFocus on improving efficiencies and operational excellence across our diverse business model


Safe Harbor Statement

To the extent that this presentation discusses expectations or otherwise make statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These factors include the risk factors discussed in the Business Description and Management's Discussion and Analysis sections of Veeco's Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and current reports on Form 8-K. Veeco does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

In addition, this presentation includes non-GAAP financial measures. For GAAP reconciliation, please refer to the reconciliation section in this presentation as well as Veeco’s financial press releases and 10-K and 10-Q filings available on www.veeco.com.


Q3 ‘07 GAAP Reconciliation Table

2007 2006 2007 2006Operating (loss) income ($4,187) $4,969 ($3,459) $12,215Adjustments:Write-off of purchased in-process technology - 1,160 (1) - 1,160Amortization expense 1,959 4,025 8,236 12,029Restructuring expense 529 (2) - 1,974 (2) - Earnings (loss) before interest, income taxes and amortization excluding certain items ("EBITA") (1,699) 10,154 6,751 25,404Interest expense, net 665 1,056 2,256 3,583Gain on extinguishment of debt - - (738) (3) (330) (4)Adjustment to exclude gain on extinguishment of debt - - 738 330 Earnings (loss) excluding certain items

before income taxes (2,364) 9,098 4,495 21,821Income tax (benefit) provision at 35% (827) 3,184 1,573 7,637Noncontrolling interest, net of income tax provision at 35% (80) (785) (313) (785)Earnings (loss) excluding certain items ($1,457) $6,699 $3,235 $14,969Earnings excluding certain items per diluted share ($0.05) $0.21 $0.10 $0.48Diluted weighted average shares outstanding 31,100 31,393 31,319 31,100

NOTE - The above reconciliation is intended to present Veeco's operating results, excluding certain items and providing income taxes at a 35% statutory rate. This reconciliation is not in accordance with, or an alternative method for, generally accepted accounting principles in the United States, and may be different from similar measures presented by other companies. Management of the Company evaluates performance of its business units based on EBITA, which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management of the Company believes EBITA reports baseline performance and thus provides useful information.

Three months ended Nine months endedSeptember 30, September 30,

(1) During 2006, the Company purchased a 19.9% interest in Fluens Corporation. During the third quarter of 2006, the Company finalized its purchase accounting for Fluens determining that Fluens is a variable interest entity and the Company is its primary beneficiary as defined by FIN46(R). As such, the Company has consolidated the results of Fluens' operations from the acquisition date. As part of that acquisition, the Company acquired $1.2 million of in-process technology, which was written off as of the acquisition date. (2) During the second quarter of 2007, the Company incurred $1.5 million in expenses for personnel severance costs associated with its restructuring plan. During the third quarter of fiscal 2007, the Company incurred an additional $0.5 million of these costs.(3) During the first quarter of 2007, the Company repurchased $56.0 million aggregate principal amount of its 4.125% convertible subordinated notes. As a result of these repurchases, the amount of convertible subordinated notes outstanding was reduced to $144.0 million, and the Company recorded a gain from the extinguishment of debt in the amount of $0.7 million.(4) During the first quarter of 2006, the Company repurchased $20.0 million aggregate principal amount of its 4.125% convertible subordinated notes. As a result of this repurchase, the amount of convertible subordinated notes outstanding was reduced to $200.0 million, and the Company recorded a gain from the extinguishment of debt in the amount of $0.3 million.

Veeco Instruments Inc. and SubsidiariesReconciliation of operating (loss) income to earnings (loss) excluding certain items

(In thousands, except per share data)(Unaudited)


Q4 ‘07 Guidance Reconciliation Table

High EndLow End

1,9005,000

1,9005,000

Amortization expenseRestructuring expense

4,000750Earnings before interest, income taxes and amortization, excluding certain items (“EBITA”)

900900Interest expense, net

3,100(150)(Loss) earnings excluding certain items before income taxes

(1,085)120

53120

Income tax benefit (expense) at 35%Non-controlling interest, net of income tax provision at 35%

$2,135$23Earnings excluding certain items

$0.06$0.00Earnings excluding certain items per diluted share

33,00033,000Diluted weighted average shares outstanding

Note: The forecasted income tax expenses for the three months ending December 31, 2007 high end and low end guidance is $1.1 million and $1.2 million, respectively.

NOTE: The above reconciliation is intended to present Veeco’s operating results, excluding certain items and providing income taxes at a 35% statutory rate. This reconciliation is not in accordance with, or an alternative method for, generally accepted accounting principles in the United States, and may be different from similar measures presented by other companies. Management of the Company evaluates performance of its business units based on EBITA, which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management of the Company believes EBITA reports baseline performance and thus provides useful information.

$(2,900)$(6,150)Operating loss

Guidance for three months ended December 31, 2007 (in thousands)

Documents

Veeco Investor Presentation John Peeler, CEOlibrary.corporate-ir.net/library/11/111/111487/items/274665/... · Selected Veeco LED customers 0 1000 2000 3000 4000 5000 6000 7000 8000