Last week I added Orbotech Ltd. (Nasdaq: ORBK) to my portfolio tracked by "Globes". Recently there has been a significant strengthening in investments in new LCD screen production lines, primarily for advanced TVs. Orbotech's equipment, as is known, has a near-monopoly in the screen inspection niche.
The final trigger to buy the shares had been the acquisition by Dr. Jacob and Dr. Judith Richter of 1.2 million shares and last week they added another 418,000 shares. Their combined stake is now about 9% of the company. The fact that it was reported on US Securities and Exchange Commission (SEC) form 13D and not 13G shows that this is not just a financial investment, but possibly the option of a takeover.
Orbotech shares touched a floor of $2.90 last October, when the company closed the acquisition of its biggest competitor in the field of screen testing equipment, US company Photon Dynamics. Investors worried then that Orbotech paid in cash a huge amount of $290 million, of which $160 million was financed by a loan from Israel Discount Bank (TASE: DSCT) right before the great crisis, when noone know how or when the world would get out of it.
Today, the share price near $11 represents a sigh of relief by investors. In 2010 at the latest, the consolidated Orbotech will be much stronger than it was before the merger, and this is in an industry which, according to current items, will see giant investments in LCD production lines, until at least 2011.
Regarding 2009, it is still not clear if or when the latest strengthening will be reflected in the revenue line, and that is something we will definitely hear next Monday when the company reports its second quarter results.
Regarding expenses, when the acquisition closed the company said that it will save $20 million this year, although steps that the company took during the crisis will lead to much greater savings.
Among recent news of new investment in LCD lines is the recent item in Friday's edition of Japanese business newspaper Nikkei, according to which Sony (NYSE: SNE) will invest $1.1 billion in a joint venture with the screen maker Sharp, which is already a very large customer of Orbotech. Sharp bought this year testing systems for its most advanced lines G10 (tenth generation) which contributed in the second quarter and will continue to contribute throughout the year. From one plate of G10 sized glass it is possible to make two giant 105-inch screens, or 24 smaller 32-inch screens.
China is one of the markets with the greatest potential for Orbotech in coming years, among other reasons because there is a large awakening in demand with the consistent improvement in citizens' standard of living. In addition, the government significantly subsidizes the production and purchase of screens.
To conclude, I point out that until 2007, Orbotech was a company whose sales came mostly from the printed circuit board market. In the coming years, most of its sales will come from screens. In 2007, of its $361 million in revenue, $167 million were from printed circuit board inspection equipment, and only $50 million were from screen inspection.
Oscar Gruss analyst Ziv Tal, who has a "Buy" recommendation on Orbotech, forecasts that Orbotech will end 2010 with $409 million in sales, of which $212 million will be screen testing equipment, and only $54 million for printed circuit boards.
Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2009
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