On Tuesday, Small cap Taiwanese light emitting diode (LED) stock SemiLEDs Corporation (NASDAQ: LEDS) jumped over 9% while other LED players like Veeco Instruments Inc (NASDAQ: VECO) moved even higher – perhaps because of reports that demand for LED lighting in the Taiwan market would be taking off in the second half of 2013 along with a positive update from VECO. So might it be time to get back into small cap LED stocks?
What is SemiLEDs Corporation?
Based in Taiwan, SemiLEDs Corporation is a manufacturer of ultra-high brightness LED chips with state of the art fabrication facilities in Hsinchu Science Park, Taiwan. Specifically, SemiLEDs Corporation specializes in the development and manufacturing of metal alloy vertical LED chips in blue (white), green and UV using patented and proprietary MvpLED™ technology allowing for higher performance and longer lumen maintenance. These chips are primarily sold to customers in China, Taiwan and other parts of Asia. Otherwise, SemiLEDs Corporation’s products are used primarily for general lighting applications, including street lights and commercial, industrial and residential lighting.
Meanwhile, US based Veeco Instruments Inc designs, manufactures and markets equipment to make LEDs, hard-disk drives plus emerging applications like concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS) and other so-called next generation devices.
What’s Happening With SemiLEDs Corporation and the LED Industry?
Digitimes has just reported that Taiwan-based LED chip packaging house Everlight Electronics has said that demand for LED lighting in the Taiwan market is expected to take off in the second half of 2013 - with mainstream power of LED light bulbs to rise from 8W currently to 10-12W and sales in 2013 to reach 10 million bulbs. Everlight further noted that LED bulbs are expected to account for 60% of all lighting bulbs for retail sale in Taiwan at the end of the year, but LED bulb prices in Taiwan and China are generally lower than other markets as average prices for models to replace 60W incandescent bulbs are about US$13.9 and are expected to drop further to US$10 this year.
However and when SemiLEDs Corporation reported second quarter earnings earlier this month, shares dropped by a low double digit amount as the company reported a 39% revenue drop to $4.8 million along with a GAAP net loss of $6.0 million verses $7.1 million (cash and cash equivalents were $43.9 million at the end of the quarter). Nevertheless, SemiLEDs Corporation’s Chairman noted that demand has improved, but the pricing environment for the general lighting market remains challenging. Nevertheless, he believes SemiLEDs Corporation is on the right track and is at a turning point while from an execution standpoint, it needs to focus on profitable markets and cost control.
It should also be mentioned that Veeco Instruments Inc gave an update on Monday to report that business conditions were "extremely challenging," but apparently some customers who make LEDs are operating at close to full capacity and have started making rush orders for the first time in two years.
Stock Performance: SemiLEDs Corporation (Plus Veeco Instruments Inc)
On Tuesday, SemiLEDs Corporation rose 9.24% to $1.30 (LEDS has a 52 week trading range of $0.60 to $3.85 a share) for a market cap of $35.81 million plus the stock is up 60.5% since the start of the year, down 66.2% over the past year and up 94.8% since late 2010. For comparison purposes, Veeco Instruments Inc also rose 16.38% on Tuesday and is up 27.2% since the start of the year, up 35.3% over the past year and up 112% over the past five years:
For technicians, here is a quick look at the technical charts for SemiLEDs Corporation and Veeco Instruments Inc:
The Bottom Line. Given the LED industry is showing signs of life or signs of a bottom, investors might want to take a closer look at both SemiLEDs Corporation and Veeco Instruments Inc, but I’d bet on the Taiwanese being able to keep cost down long enough to figure out how to turn things around in a tough industry.