Being a long-term investor isn't always easy. A case in point is Veeco Instruments (NASDAQ:VECO). Earlier this week, the maker of semiconductors and scientific equipment announced that it's trimming its third-quarter earnings and sales expectations because some of its data-storage customers delayed shipments of equipment.
The delay forced management to revise its projected sales for this quarter down from $125 million-$130 million to $111 million-$114 million, and earnings per share were recast from $0.23-$0.29 to $0.10-$0.14.
Obviously, any company would prefer to have money coming through the door sooner rather than later. But is the setback enough to warrant the 6% hit that Veeco's stock suffered over the past two days?
I don't think so. First, the orders were merely delayed, not cancelled. This means that Veeco will still be getting the money; it'll just be a few months later than originally expected. Secondly, third-quarter revenues are still expected to be up more than 10% from the previous year's quarter. (Results will be released on Oct. 23.) This isn't stellar growth, but it isn't exactly shabby, either.
The company's real problem may have been caused by the revised estimates for its fourth-quarter sales, which are now expected to come in at around $120 million, well below analyst projections of $133 million. Company officials further noted that the softness in the data-storage industry will be a "multiquarter" event, meaning that some Q4 revenues will be pushed into next year.
So is this adjustment cause for concern? Again, I don't believe so. In fact, I would argue that it represents a buying opportunity. First of all, the $120 million figure still represents a 15% increase over 2005 levels. Furthermore, as my fellow Fool Dan Bloom has noted, Veeco services a number of very cyclical industries, including the semiconductor, LED, and data-storage sectors. Often, when one or two of those industries are doing well, another one is down.
The most recent example is the data-storage industry. In the first two quarters of 2006, Veeco's sales to that industry reached record levels and contributed more than 50% of the company's overall revenue. This extraordinary growth was the primary reason Veeco's stock jumped from $17 in January to $27 in May.
The flip side is that the data-storage industry's capital expenditures began to slow late this summer, and that has been the primary reason the company's stock has plummeted by more than 30% since Sept. 1.
This constant market turmoil -- what one Veeco official describes as "industry lumpiness" -- makes projections difficult to accurately forecast. These temporary fluctuations are a reality that Veeco, FEI (NASDAQ:FEIC), KLA-Tencor (NASDAQ:KLAC), and other companies that supply equipment to these sectors will simply have to deal with.
Long-term investors, however, can profit from the turmoil by understanding these trends. The market often incorrectly assumes that such drops are a stronger indicator than they actually are of permanent changes in the marketplace.
The trick is to discern the difference between what is temporary and what is permanent. My assessment is that both this week's drop and the larger drop since September are temporary. Since 2003, Veeco's year-to-year annual growth into the data-storage industry has clocked in at almost 30%, and I believe this positive growth trend will continue because of the data-storage industry's push into perpendicular recording -- a technology that requires Veeco's equipment.
If that still doesn't provide long-term investors much comfort, I would add that even if Veeco's Q4 revenues come in at the low end of projections, its year-to-year growth between 2005 and 2006 will still be in the range of 10%. What's more, the continued growth of the company's other three markets -- semiconductors, LEDs, and scientific research -- still looks strong for 2007 and beyond.
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Fool contributor Jack Uldrich is the author of two books on nanotechnology, including Investing in Nanotechnology: Think Small, Win Big. He owns stock in both Veeco and FEI. The Fool has a strict disclosure policy.
