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
©2008 Veeco Instruments Inc. 3
Veeco Snapshot
©2008 Veeco Instruments Inc. 4
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
©2008 Veeco Instruments Inc. 5
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
©2008 Veeco Instruments Inc. 7
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.
©2008 Veeco Instruments Inc. 8
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
©2008 Veeco Instruments Inc. 9
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
©2008 Veeco Instruments Inc. 10
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
©2008 Veeco Instruments Inc. 11
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
©2008 Veeco Instruments Inc. 12
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
©2008 Veeco Instruments Inc. 13
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
©2008 Veeco Instruments Inc. 14
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
©2008 Veeco Instruments Inc. 15
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
©2008 Veeco Instruments Inc. 17
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
©2008 Veeco Instruments Inc. 18
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
©2008 Veeco Instruments Inc. 19
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
©2008 Veeco Instruments Inc. 20
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
©2008 Veeco Instruments Inc. 22
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
©2008 Veeco Instruments Inc. 23
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
©2008 Veeco Instruments Inc. 24
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
©2008 Veeco Instruments Inc. 25
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.
©2008 Veeco Instruments Inc. 26
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
©2008 Veeco Instruments Inc. 27
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.
©2008 Veeco Instruments Inc. 28
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)
©2008 Veeco Instruments Inc. 29
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)