Over the decades, Japan's electronics industry has been a global technology spearhead. Japan is found throughout the electronics products food chain, on the buyers side, among the vendors and partners, and as customers. Consequently, most Israeli companies that target the high-tech market are exposed to Japanese trends, and its economic condition or a natural disaster can affect - adversely, but sometimes also favorably - the business of Israeli companies.
Israel has a long list of companies with ties to Japan. Most of these are engaged in hardware, telecommunications equipment, semiconductor production equipment, and storage equipment. Some companies, especially public companies, have large sales to Japan. "Companies that rely on components manufactured in Japan are liable to be hurt," says Harel Hertz Investment House CEO Eran Harel. "But it is also possible that recovery will be faster than expected."
Israeli start-ups with direct or indirect ties to Japan include Altair Semiconductor Ltd., Amimon Ltd., and ASOCS Ltd., all of which develop wireless telecommunications components and have partners, customers, or distributors in Japan. Red Bend Software Ltd. has an important Japanese mobile phone carrier customer, NTT DoCoMo Ltd. (TSE: 9437; NYSE: DCM; LSE: NDCM).
Among the public companies, the emphasis is on companies that develop semiconductor production equipment - Orbotech Ltd. (Nasdaq: ORBK), Camtek Ltd. (Nasdaq: CAMT; TASE:CAMT), and Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI) - all of which have some level of business in Japan. Japan accounted for 11% of Obtotech's sales in 2010, or $60 million; and it accounted for 12% of Nova's sales in 2009. The companies say that it is premature to know exactly what is happening, or how they will be affected, if at all.
Other public companies are on the supply side of processors for electronic products include Zoran Corp. (Nasdaq: ZRAN) (23% of sales in Japan) and DSP Group Inc. (Nasdaq: DSPG), as well as telecommunications equipment vendor Orckit Corrigent (Nasdaq: ORCT; TASE: ORCT). Sapiens International NV (Nasdaq: SPNS; TASE: SPNS), for which 22% of sales come from Japan, is also on the list.
There is nothing new about an earthquake in Japan, and the country's factories are built to withstand them. Factories of electronics giants such as Fujitsu Ltd. (TSE: 6702), Hitachi Ltd. (TSE: 6501; NYSE: HIT), Toshiba Corporation (TSE: 6502; LSE: TOS), which manufacture a substantial proportion of the components that go into electronic products, were little damaged, if only because of their distance from the epicenter. In general, compared with the large semiconductor companies, such as Intel Corporation (Nasdaq: INTC) and Samsung Semiconductor Inc., the Japanese have not invested heavily in new production lines in the past couple of years, resulting in low dependence of Israeli suppliers in this industry.
The problem is that at the factories of the Japanese electronics giants, every little delay is liable to cause strong demand for components of which the inventory is used up, which could cause problems along the food chain.
But there might also be a positive side. For example, in the Flash NAND and DRAM memory chips components sector, a shortage in Japanese supplies could cause Korean and Taiwanese competitors to ramp up production, leading to increased demand for production line automation. Furthermore, Japan's recovery effort and investment could have positive effects for companies that provide technologies for telecommunications infrastructures, to mention one example.
Published by Globes [online], Israel business news - www.globes-online.com - on March 14, 2011
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