Seeking Alpha
Long only, value, newsletter provider, registered investment advisor
Profile| Send Message|
( followers)  
FEI Company (NASDAQ:FEIC) makes and markets nanoscale imaging, analysis, and prototyping instruments. These products are used in a wide range of industrial, manufacturing, academic, and research applications.

They include focused ion beam (FIB) systems and related software, scanning electron microscopes [SEM], transmission electron microscopes (TEM), and DualBeam systems that combine an FIB and SEM. Specific products include the V600FIB, which is used for circuit modification, sample preparation, and failure analysis applications; the Helios NanoLab DualBeam, a nextgeneration system that offers high resolution imaging and contrast; and the EBS3 DualBeam, a product that integrates a DualBeam system with an electron back-scatter defraction detector and advanced automation software.

These products rely on several core technologies including particle beams that can modify the structures in sub-micron geometries to allow for imaging, analysis, and measurement. They also utilize beam gas chemistries to increase the effectiveness of ion and electron beams, and permit etching and deposition of materials on structures at sub-micron levels. FEIC’s systems incorporate several product innovations that improve performance and increase functionality such as the scanning transmission electron microscope system with aberration correction and monochromator technology, which enables sub-angstrom resolution. The advanced environmental SEM detector and immersion lens technology allows for ultra-high resolution SEM imaging at low pressure.

The company’s products also feature automation capabilities that increase system performance, speed, and precision. The DualBeam systems allow for automation of TEM sample preparation, which improves sample consistency and overall throughput. In addition, FEIC’s technologies allow for the automation of 3D process control, which lets customers capture previously unobtainable subsurface metrics directly from the production line.

FEIC 1 Increased R&D spending on nanotechnology research has been a boon for FEIC. Net sales rose 14.1% year-over-year to $479.5 million. The gross profit margin improved to 40.97% from 34.56%. Operating income was $23 million versus an operating loss of $46.6 million in 2005. Net income from continuing operations was $17.7 million or 47 cents per share compared to a net loss of $78.5 million or $2.34 per share. Results in Q4 were especially encouraging with net sales up 40.6% year-over-year and 21.4% sequentially to $140.3 million, and significant improvements in the gross and operating profit margins. Despite strong order activity, sales growth could suffer if bookings fail to meet expectations. This risk is magnified by the high value of the company’s products and the unpredictable nature of the timing of orders.

Furthermore, demand for FEIC’s products could wane if customers who operate in cyclical markets experience a downturn in business conditions. Yet bookings hit a record $171.7 million in Q4. FEIC began 2007 in great shape with product backlog of $305.9 million. This was up $31.4 million from Q3 and $121.9 million from a year ago. Q1 guidance, which calls for at least a 20.4% year-over-year increase in net sales, suggests robust growth ahead. Finally, management expects to see more sales of higher-margin products, which should boost the gross profit margin to around 45% by year-end.

FEC 1-yr chart

FEIC

FEIC 2

Source: FEI Company: Robust Growth Ahead