The second trading week of the new year will be strewn with announcements from the 2012 international CES (Consumer Electronics Show) in Las Vegas, and there will also be some fourth quarter financials, most importantly from JP Morgan on Friday. More relevant to us is a gathering of more than twenty managers of Israeli technology companies, who will present at a large growth companies conference being held in New York by Needham, which is represented in Israel by Clal Finance.
Israeli technology companies hardly have a presence in Las Vegas, because they mainly deal in infrastructure equipment and systems of different kinds, and in the chipsets that one way or another support, or depend upon, the success of the end-user products that will be exhibited at CES this week. Here and there, Israeli companies have in the past tried their luck on the electronics products front, and it has generally ended very badly, such as with the telephones from Eli Reifman's Emblaze Ltd. (LSE: BLZ), and Dov Moran's Modu. On the other hand, Moran succeeded hugely with the disk-on-key, perhaps because it's more of a chip than an electronic product.
Among the Israeli companies in my portfolio, eight will present at the Needham Growth Conference: Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), Radware Ltd. (Nasdaq: RDWR), Orbotech Ltd. (Nasdaq: ORBK), Ceva Inc. (Nasdaq:CEVA); LSE:CVA), Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), Camtek Ltd. (Nasdaq: CAMT; TASE:CAMT), AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC), and Alvarion Ltd. (Nasdaq: ALVR; TASE: ALVR). Orbotech's management will be very attentive to the news from Las Vegas, because they are directly dependent on what is launched there: from smartphones to tablet computers, from Ultrabooks to televisions.
The more complicated the better
At Orbotech, they always say that they are dependent, for better or worse, on the world of electronics, on quantities sold, which rise and fall in days of boom and bust, but also on the degree of complexity of the leading gadgets. In recent years, ever since the dizzying success of iPhones, iPads, and their imitators, Orbotech has been doing well in printed circuits, and will continue to do well, because not only are the quantities rising at a very fast rate, but the degree of complexity of these products grows from one generation to the next.
The market knows that Orbotech is just about the only company with the technological know-how to develop inspection, repair, and production systems that can cope at the same time with large quantities and with the complexity of the circuits and their operating environment. For example, it is known that Prior-tech Group unit Amitec, which with great success manufactures chip carriers in China, mainly for smartphones, buys Orbotech machines, despite the longstanding rivalry between the latter and Amitec's sister company Camtek Ltd. (Nasdaq: CAMT; TASE:CAMT). It is likely that today's announcement that Chinese funds will invest $36 million in Amitec's venture in China promises more orders for Orbotech.
The more smartphones, tablets, and thin laptops launched in Las Vegas, and the greater their capabilities, the more Orbotech's printed circuit business will benefit, and the company is constantly expanding its range of products in that field, so that, in a few years' time, its target market will be several times larger.
Apple (AAPL) will not be at Las Vegas, but its subcontractors in the East are buying, and will buy, Orbotech's platforms in advance of the launch of the next generations of iPhones and iPads.
Weakness in televisions
In its other business, televisions, Orbotech is currently coping with a market in a slowdown that will perhaps only end in the summer, and so its sales will probably be hit this year. Screen makers will invest very little in buying new machines, but, as I have pointed out, Orbotech also benefits from the complexity of the products. In Las Vegas, new television models will be launched with innovative, complex screen technologies. It is not clear whether they will succeed in the markets, but what is certain is that the manufacturers will have to adapt the machines they have bought from Orbotech in the past with new software, and that will contribute to Orbotech's profit line.
Tension will be high in the television market all year, as it awaits the launch of the Apple TV, probably just before the next festive season. This is according to the rumor mill, but the rumor is supported by some serious analysts. The latest rumor has it that Japanese television manufacturer Sharp, a large Orbotech customer, has been selected as one of Apple's main subcontractors. Analysts believe that Apple will invest up to $1 billion in constructing Sharp's production infrastructure, and if that is true, then it is likely that Orbotech will also be invited to the party.
Published by Globes [online], Israel business news - www.globes-online.com - on January 9, 2012
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