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Constituent Review
J. Andrew Braswell, Equity Analyst Newbridge Institutional Research Data as of 3-30-07	Quote/News
	Nanotech Tools

Review
1/29/07- VECO issued a press release highlighting the use of its new Caliber™ low-cost, high-value scanning probe microscope (SPM) in universities. More than 25 units have been sold to university and educational customers since the Caliber’s launch in Q3/06. Multi-unit orders were received from two institutions in the fourth quarter: the Public Interest Group for the National Coordination of Micro and Nanoelectronics training in France and the University of Northern Iowa’s Center for Education in Nanoscience and Nanotechnology.

2/5/07- Said that The California NanoSystems Institute (CNSI) at UCLA had purchased $1.7M of atomic force and scanning probe microscope systems and optical profilers for use in its nanoscience labs. The CNSI became the first purchaser of VECO’s new BioScope II Confocal AFM Package, also selecting a Caliber™ SPM, a Dimension™ 5000 AFM, and a Wyko® NT 9300 Optical Profiler.

2/7/07- Announced that it has repurchased $46.0M of its 4 1/8% Convertible Senior Subordinated Notes due 2008. The company’s convertible notes outstanding are reduced to $154M and it expects to record a net gain of $0.6M.

2/12/07- Released Q4 results after the close. Revenue for Q4 was $123.1M, (+9% Y/Y), while bookings were 109.1M (+6% Y/Y), for a book/bill of 0.89. Orders were at the low end of company guidance due to a slowdown in new business from data storage customers. On a GAAP basis, net income was $7.6M, or $0.24 per share, up Y/Y from $2.7M, or $0.09 per share. VECO ended the period with $147M in cash.

For Q1/07, the company forecasts revenue of $95-$100M and orders of approximately 110M. Non-GAAP EPS is seen at $0.02-$0.10, which excludes $4.0M in amortization expense and assumes a 35% tax rate. Consensus expectations for the quarter are currently revenue of $122.0M and EPS of $0.24.

3/9/07- Announced that its new BioScope™ II Atomic Force Microscope is being utilized in advanced biophysics research at the University of Pennsylvania’s Nano-Bio Interface Center. Dennis E. Discher, Ph.D., a professor in the Department of Chemical and Biomolecular Engineering, has found it to be a particularly useful instrument in their study of neurons, the long branched cells that interconnect the nervous system. The BioScope II is engineered specifically for advanced bioscience, enabling novel in-situ techniques for measuring biological samples in three dimensions, spatial identification of protein molecules and cellular structures, investigations of cell response to mechanical stimulation and nano-manipulation, and in-situ pharmacological studies of live cells.

3/21/07- Said that it had received an order for two of its GEN200™ Molecular Beam Epitaxy (MBE) Systems from IPG Photonics Corp. IPG will utilize the systems to expand production of its high-performance gallium arsenide (GaAs) lasers. This new order is indicative of IPG’s satisfaction with its first GEN200, which the company purchased last year.

3/21/07- Repurchased $10M of its 4 1/8% Convertible Subordinated Notes due 12/08. The company paid $9.9M cash for the repurchase, and expects to record a net gain of $0.1M. The transaction reduces VECO’s convertible subordinated notes outstanding to $144M.

Commentary
After two failed breakout attempts during Q1, shares of VECO finished just 4% higher for the period, adding to its moderate 8% gain in 2006. Falling demand from data storage customers, which are coming off of a major capital equipment upgrade cycle, was again cited for the weakness in new orders and March quarter guidance. Having completed its restructuring measures and stabilized cash flow, VECO focused on paying down debt this period. Longer term, we like the company’s focus on developing tools for nanobiology, which has historically proven a difficult field for application of AFM/SPM microscopy. VECO now trades at 1.4x T12 sales and 2.2x book value. Considering the question of what rival FEIC will do with its large and growing cash position, we would not be shocked to it make a bid to acquire the smaller company.