Notable Calls

UBS is making a big call on Veeco Instruments (NASDAQ:VECO):

Our discussions with industry contacts in China found that Elec-Tech plans to sign a large purchase order for 100 of Veeco’s MOCVD reactors in 3Q10 with 70 for its Wuhu, China factory and 30 for its Yangzhou, China factory. In addition, we found Elec-Tech plans to order 30 of Aixtron’s MOCVD reactors for its Wuhu factory.

Estimate potential 2011 EPS upside for Veeco & Aixtron at $0.94 & €0.13
Our checks find Elec-Tech is close to signing its 100 MOCVD order with Veeco for $255M, which is $2.6M per MOCVD reactor, while Aixtron’s 30 MOCVD order is for $83M, or $2.8M per MOCVD, reactor (likely the new G5 tool). If Veeco is able to close on this order, we estimate it could add $0.90 to our current 2011 EPS estimate of $4.20, while the Aixtron transaction could add €0.13 to its EPS in 2011E.

Expect these 130 MOCVD shipments to occur from Mar-11 to Dec-11
Our checks find that Elec-Tech expects Veeco’s 100 tools to be shipped in batches by the end of 2011, while Aixtron’s 30 tools should be shipped by Mar-11. We believe these 130 tools for Veeco and Aixtron would not all be recognized as a single order in 3Q10, but instead would likely be staggered as orders thru 2011.

China’s subsidies for MOCVD reactors remain a catalyst through 2H11
We expect Elec-Tech will apply for government subsidies in both Wuhu City and Yangzhou City for about $1.2-$1.5M per reactor after the equipment orders are placed and down payments are made. Given our view of more MOCVD reactor orders in China thru 2H11, we reiterate our Buy ratings on Veeco and Aixtron.

Notablecalls: Note that UBS highlighted 2 Chinese orders back in June & their sales is out with a call that with this 100 MOCVD order included, Veeco's 2011 EPS could reach around $6.00 (consensus is still around $4.00).

This means the stock could effectively DOUBLE from here.

I would not be surprised to see VECO trade up 2-3 pts on this today.

PS: VECO went up 8-9% intraday in June when UBS highlighted the Sanan & NeoNeon orders.

Definitely worth watching. Again, great job UBS Semi team. Chin, Jenkins & Mulholland hitting it out of the park.

Recent shorts are going to get some ol' fashioned belt-in-the-teeth action. 25% short interest in the name.