ORBK

Orbotech Ltd. (ORBK)

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Orbotech Ltd. (ORBK)

Q3 2008 Earnings Call

November 17, 2008 9:00 am ET

Executives

Rani Cohen – Chief Executive Officer

Amichai Steinberg – Executive Vice President and Chief Financial Officer

Adrian Auman – Vice President of Finance and Investor Relations

Analysts

Chuck Murphy – Sidoti & Company

Jim Ricchiuti – Needham & Company

CJ Muse – Barclays Capital

Sergey Vastchenok – Oppenheimer & Company

Andrew AbramsAvian Securities

Irit Jakoby – Susquehanna

Ziv Tal – Oscar Gruss

Presentation

Operator

Welcome to the Orbotech Limited Q3 2008 conference call. (Operator Instructions) Now I will turn the meeting over to Mr. Adrian Auman.

Adrian Auman

Good morning this is Adrian Auman Vice President of Finance and Industrial Relations for Orbotech. Joining me on the call today are Rani Cohen Chief Executive Officer and Amichai Steinberg Executive Vice President and CFO.

I’d like to take this opportunity to inform everyone that management will be presenting at the upcoming SFG Israeli Conference in New York this week on November 19th on Wednesday, at the Barclay’s Capital Global Technology Conference in San Francisco on December 10th, and the 11th Annual Needham Growth Stock Conference in New York on January 7th. You should have all received a copy of the press release which was issued earlier today. If you have not received this release please refer to the Orbotech’s web site at www.Orbotech.com.

Now before starting the call I would like to mention that certain statements that are not historical or forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words estimate, project, intend, expect, believe and similar expressions are intending to identify forward-looking statements and these forward-looking statements involve known and unknown risk and some uncertainties.

Any factors could cause the actual results performance or achievements of the company to be materially different from those that may be expressed or implied by such forward-looking information. Additional information regarding risk and uncertainties associated with the company’s business are included in, but not limited to the company’s reports filed from time to time with the SEC.

With that said I would like to turn the call over to Rani Cohen.

Rani Cohen

A month ago we updated our guidance for the third quarter in light of the rapidly deteriorating economic setting. In the third quarter our PCB business was particularly affected by the high levels of uncertainty currently prevailing throughout the world. Several of our customers deferred deliveries for the company’s PCB systems as they wait to see how the situation develops and also due to the increased difficulties in securing credit facilities for previously confirmed orders.

Since this crisis is largely consumer driven, it is end user products such as computers and cell phones for example, that are being particularly hard hit. Less affected are industrial products including military and medical. I want to point out that the economic crisis that is affecting different customers to varying degrees, the pressure is not universal. Some of our customers are doing better than others. That said there is still very little visibility this obviously makes planning and guidance very challenging.

One bright spot in PCB is the fact that we have recorded initial revenues for our new PerFix the first ever automated optical repair system for bare printed circuit board manufacturing. By automatically fixing short circuit defects, which frequently cannot be repaired manually, the system enables manufacturers to achieve major operational cost savings. Within our PCB bare board division we sold 16 direct imaging systems bringing to 48 the total sold so far this year. At this point we expect to sell approximately 60 systems for the year.

Turning now to PCB assembly, we have decided to scale back operations and will stop marketing our assembly products by the end of the year. As we have been describing for some time this industry is very fragmented. We have sought partners and arrangements in an effort to overcome this problem but without success.

Potential partners have been reluctant to invest money or to sell out. In addition this is an industry in which it is difficult to achieve a sustainable technological advantage. The bottom line is that this is an industry that does not promise attractive enough returns. Therefore we will stop marketing products but we will continue to service and maintain our installed base of systems.

As a result of this decision, we have written down $5.5 million of goodwill on the balance sheet, this is part of our plan to refocus and realign our business.

As we reported in our updated guidance last month, the company has not experienced any major changes in current deliveries, orders or backlog for its FPD products this year and we reported a sequential increase in FPD revenues from Q2 to Q3. We believe that FPD is on track for the fourth quarter of 2008.

However, we believe that our customer’s capacity utilization rates are currently at only 70% to 80%. Their customers are obviously buying less as they look ahead into 2009 panel makers are seeing deterioration in their bookings and falling prices. In response they are cutting production and focusing carefully on cash flow. As a result some future deliveries have been deferred by anywhere from two to nine months. Obviously we are monitoring the situation very closely.

Turning now to our acquisition of Photon Dynamics the transaction closed on October 2nd. Let me remind you that PDI broadens our offerings in yield management and leverages our distribution channels. We believe that PDI will add about $45 million to $50 million in revenues in FPD in the fourth quarter but we can’t estimate what the revenue contribution will be in subsequent quarters. The integration of the two companies is proceeding on schedule and we expect to enjoy about $15 million to $20 million in synergies in 2009.

Read the rest of this transcript for free on seekingalpha.com