In contrast with many companies, about which the analysts are unwilling to commit themselves concerning their business outlook, even for the first quarter of 2001, practically all the analysts are unanimous on Orbotech’s performance in the near future. The clearer the picture is to the analysts, the more optimistic their evaluations and recommendations become.
The most recent addition to the list of those recommending Orbotech is the Investec investment bank. In a survey published yesterday, analyst Matthew Pearson noted that Orbotech’s core business, automated optic inspection and control systems for the printed circuits market, will continue at full strength, powered by increasing demand in the Far East and Japan. Investec believes that the fall in demand for electronic assembly testing systems is likely to pose a great opportunity for Orbotech. Future growth in this market is likely to be 30-40% in the long-term, as more electronics manufacturers make their products through outsourcing.
The Oppenheimer investment bank notes that the printed circuit board (PCB) testing field continues to provide most of Orbotech’s revenues – about 70% in 2000. The PCB testing market consists mostly of the communications and computer industries, which use more printed circuits than in the past, at a higher level of complexity.
Oppenheimer forecasts a more modest growth rate than Investec – about 15% next year. This growth is attributed on the one hand to the naturally growing demand by the electronics industry and on the other to the highly complex products, which require more scanning time. In addition, direct imaging (DI), a new field, designed to streamline the PCB manufacturing process, also contributes to Orbotech’s revenues. As of now, the company is selling 3-4 machines per quarter. This technology, critical for PCB manufacturers, has great potential and is expected to continue its market penetration during the year.
Besides its traditional growth engine of PCB testing, Orbotech is moving to penetrate a new growth engine – the assembled PCBs market. The market for testing PCBs after the chip is assembled, which is just beginning, has huge potential. The testing is currently performed visually and manually; only 5% of the manufacturers in the market have machinery. There are a number of players in the field, but Orbotech’s global deployment and access to customers gives it a relative advantage.
Salomon Smith Barney analyst Victor Halpert assesses that even if the PCB testing industry suffers a slowdown, the assembled PCB testing market will do relatively well, since as the electronic consumer products and cell phone industry progresses, the demand for multi-layered circuits will rise accordingly. A report by the BPA research company indicates that manufacturing of assembled PCB has grown significantly. Orbotech also benefits from this trend, since the optic testing systems are an inseparable part of the assembled PCB market.
Another future Orbotech growth engine is the flat-panel display (FPD) market. Investec predicts that the negative attitude among electronics manufacturers, particularly PCB manufacturers, is not expected to significantly affect Orbotech’s activity; Orbotech’s FPD division is forecast to continue growing, since these panels will soon replace the existing computer screens. The demand for these panels is expected to be stable, due to demand from manufacturers of palm pilot small screens, together with demand from manufacturers of various electronics products, including the cellular market.
Oppenheimer is willing to be a little more definite, assessing that the FPD market will continue to show high growth rates, with revenues for 2000 expected to show a 145% increase. Oppenheimer notes that Orbotech currently dominates the FPD market, with a market share of about 90%. The growth in the market stems from the greater number of FPD end-user products, such as mobile computers, TVs, cellular devices, and palm pilots, which increase the demand for Orbotech’s testing and scanning products. This is a young, growing market, which Oppenheimer forecasts will grow 25% yearly over the next three years.
The Piper Jaffray investment bank believes that Orbotech has a complete orders backlog for the first half of the year and is also receiving orders for the second half of the year. The bank assesses that the feared oversupply in FPD manufacturing is likely to work in Orbotech’s favor, since the low prices will help FPDs penetrate to additional applications and lead to greater demand for the company’s systems.
Besides growth in these three production lines, Orbotech also benefits from an expansion of its customer base. Investec notes that no single customer currently accounts for more than 5% of Orbotech’s sales. This gives Orbotech a certain degree of security in its revenue flow and reduces the company’s dependence on a single customer.
Investec forecasts that Orbotech will post 32% growth in 2000, in comparison with 1999 (sales of $367 million), with a $2.36 profit per share. Investec predicts revenues of $481 million and a $3.09 profit per share for 2001. Salomon Smith Barney notes that Orbotech is an island of stability in a sea of economic stagnation, forecasting revenues of $440 million and a profit per share of $2.59, with a target price of $70 per share, compared with Orbotech’s current share price of $37.5.
Published by Israel's Business Arena on January 11, 2001