Merriman Curhan Ford downgrades Cree, Aixtron over short-term concerns in LED industry
By APThursday, February 4, 2010
Ahead of the Bell: Merriman downgrades LED cos.
NEW YORK — A Merriman Curhan Ford analyst downgraded two companies in the LED, or light-emitting diode sector Wednesday citing short-term concerns over pricing and capacity.
Analyst Bill Ong downgraded Cree Inc., a maker of LED lightbulbs and lamps, and German chip equipment maker Aixtron AG, to “Neutral” from “Buy.”
Aixtron makes MOCVD, or metal-organic chemical vapor deposition equipment, which is used in making chips for LED devices.
Ong said in a note to investors he is concerned that “extraordinarily strong MOCVD tool bookings” could lead to short-term overcapacity in the industry. This, in turn, could lead to LED pricing pressures, hurting Aixtron and Cree.
“While we remain bullish on the long term LED adoption cycle, we have near term concerns regarding LED demand and supply imbalance,” Ong said.
He added that both stocks look to be trading at a “fair” value, another reason for the downgrades.
Over the long term, however, Ong said he is bullish on the LED industry, saying “we are in the early stages of the LED adoption cycle” that started with electronic appliances and is “now extending into municipalities, corporate settings and eventually into residential homes.”
As for other companies in the sector, Ong has a “Neutral” rating on chip maker Supertex Inc. and a “Buy” rating on Veeco Instruments Inc., a maker of precision manufacturing products. He said while Veeco “is subject to similar LED industry dynamics,” the company’s LED business is only half of its overall revenue.
“Veeco is also trading at a substantial discount to Aixtron and Cree even factoring the non-LED sales portion of Veeco’s business,” the analyst wrote.
