Camtek Ltd (CAMT) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek Ltd. third-quarter 2006 results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded November 9, 2006.

I would like to remind everyone that the conference may contain projections or other forward-looking statements regarding future events or the future performance of the Company. These statements are only predictions and may change as time passes. Camtek does not assume any obligation to update that information.

Actual events or results may differ materially from those projected including as a result of changing industry and market trends, reduced demand of our products, the timely development of our new products and their adoption by the market, increased competition in the industry, and price reductions, as well as due to risks identified in the documents filed by the Company with the SEC.

You should have all received by now the Company's press release. If you have not received it, please call GK Investor Relations at 1-866-704-6710. I would now hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin?

I would like to welcome all of you to Camtek's third-quarter 2006 results conference call, and thank Camtek's management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek's CEO; Mrs. Ronit Dulberg, Chief Financial Officer; and Mr. Yuval Attias, Director of Finance.

Mrs. Dulberg will start the call by giving an overview of Camtek's performance in the quarter; followed by Mr. Attias, who will summarize the financial results. Finally, Mrs. Dulberg will discuss recent developments within the Company and in the market, discuss the guidance; and then Rafi, Ronit, and Yuval will be available to answer questions from participants. I would now like to hand the call over to Ronit. Ronit, please.

Thank you, Kenny. Hello, everyone, and welcome to our third-quarter 2006 conference call. On behalf of Camtek's management I would like to thank every one of you for your interest in Camtek and for joining us on this call.

2006 is unfolding to be an outstanding year for Camtek. In only three quarters we have already reached $79 million in revenues compared with $63 million for the whole of last year. Additionally, we are showing an EPS so far this year of $0.47 without the fourth quarter's contribution, compared to only $0.10 for the entire 2005.

Now, with the third-quarter results in hand, and [exceptional] fourth-quarter revenues within 5% of the third-quarter revenue level, we can reaffirm this guidance and narrow the range. This guidance represents [year-over-year] growth of 65% to 70%.

What is even more remarkable than this growth [by itself] is the fact that we were able to achieve it without giving up our profitability. Naturally, turning Comtek (indiscernible) into a $100-million-plus Company required (indiscernible) recruitment and capacity building. Still, we maintain (indiscernible) margins and a positive cash flow as well as continually investing in R&D, as you will hear later on.

The highlight of our activity this quarter was we sold out our first Falcon to Samsung Electro Mechanics, a top-10 semiconductor manufacturer. With Samsung, Camtek's now counts among its customers eight out of the 10 members of this lucrative group. Cassio Computers, the Japanese electronics giant, ordered its first Falcon from us.

We received a supply order for multiple PCB inspection systems, [two] which we have already reported came from Nan Ya and Gold Circuits, two major Taiwanese-based manufacturers for their plants in mainland China and Taiwan.

We have been developing and are getting ready to introduce new products for the PCB and HDI-S markets. I will talk more about the markets in which we compete in later. But I would now like to turn the call over to Yuval to go through the financials. Yuval?

Thank you, Ronit. Revenues for the third quarter of 2006 were $26.3 million, 48% above the $17.7 million reported in the third quarter of 2005 and down 6% sequentially from $27.9 million as reported in the second quarter of 2006.

The revenue breakdown in the third quarter of 2006 between the sales of PCB, HDI-S, and the semiconductor manufacturing and packaging products was 55%, 5%, and 40%, respectively.

Our geographical breakdown of the revenues for the quarter was USA, 15%; Europe, 6%; and total Pacific Rim, 79%, which consisted of Japan, 5%; China, 38%; Taiwan 13%; and the rest of Asia, 23%.

Gross profit for the third quarter of 2006 was $13 million representing gross margin of 53.2%. This compared with $8.5 million or a gross margin of 48.2% as reported in the third quarter of 2005 and $15.2 million or gross margin of 54.6% as reported in the previous quarter.

We reported in the quarter operating expenses of $9.5 million compared with $7 million in the third quarter of previous year, and slightly below the $9.8 million of expenses we recorded in the prior quarter. We continue to maintain tight control over our expenses, and we have completed building our global organization and product capacity to support our expected growth.

Operating profit for the third quarter of 2006 was $4.5 million, representing an operating margin of 17.2%. This profit represents a growth of 198.2% compared with operating income of $1.5 million in the third quarter of 2005. Sequentially, we have a slight decrease of operating profit from previous quarter by 17.1%.

Finally, third-quarter net income was $4.2 million or $0.13 per share, which is net margin of 16%. This represents sequential decline of 19% from second quarter of 2006, net income $5.2 million, which was $0.17 per share, and net margin of 18.6%.

We had an increase of 175.3% of net income from the third quarter of 2005 net income that was $1.5 million or $0.06 per share.

We recorded a positive operating cash flow totaling $4.5 million since the beginning of the year. We managed to increase our cash reserve along with extending the organization, allocating funds for evaluation machine and building inventories to enable quick deliveries.

Turning to the balance sheet, our net cash and equivalents at the end of the third quarter of 2006 was $29.3 million compared with $14.7 million at the end of the third quarter of 2005. We had a positive operating cash flow of $1.5 million in the third quarter of 2006.

Our DSO increase to 109 days, which is within our target range, down from 111 days in the previous quarter. With that let me return the call back to Ronit.

Thank you, Yuval. Camtek has established a leadership position in the technology driven market. We have established a substantial customer base and sold well over 100 systems worldwide.

Maintaining and expanding this achievement requires ongoing investment. We continued to increase our R&D efforts. We are making enhancements to the Falcon, providing it with a better ability to handle more complex three-dimensional applications and increase its throughput, further advancing the Falcon's position as the leading system for three-dimensional metrology of bumped wafers.

Implementing [sector] support enabled the Falcon to communicate with [factor information] environment via this industry's standard communication protocols. This compatibility is a prerequisite by many fabs. We have proven it in several successful installations and believe that completing its implementation opened the door to new customers. The market for Falcon remains healthy with significant long-term growth potential.

The PCB and HDI business continues to show solid demand. While our revenue from HDI-S remains comparatively small, we anticipate significant growth over the next several quarters, as we believe that this market segment is growing in size. Its need for advance inspection is increasing, and we have differentiated capabilities to offer.

Specifically, we see growing interest in inspection of finished high-density substrate and high-density PCB. The new Pegasus 200-S model for inspection of finished high-density substrate is currently in advanced stages of customer evaluation and is showing a promising result. We expect record sales of the new model in the first quarter of 2007.

We anticipate our revenues from this industry to grow significantly over the next quarters. In addition, we plan to launch new model of PCB inspection systems in the next few months. We expect this model to advance our competitive advantage and open new market opportunities for us.

Another point worth mentioning is that we learned that BPA, the market consulting firm that covers the PCB industry, has conducted a survey among several major PCB manufacturers as part of their study of the AOI market for [bell] PCB. In this survey, AOI users from those companies ranked Camtek as the top AOI supplier.

To summarize, we are pleased with our performance so far this year. In the third quarter, we maintained our strong margin and cash flow from operations, [entirely] to continuing [spending] the organization. We continue to invest significantly in the research and development, and we aim to maintain our technological advantage. We are proud of the substantial improvements that we have made in our business in the past 24 months, and we are energized by the opportunities in front of us.

Finally, I would like to mention our investor relation activities in the coming quarters. Certainly, we will be presenting Camtek at the [market] annual investor conference in Tel Aviv on December 4 and (indiscernible) Israeli equities conference in New York on December 13.

Secondly, during the second week of December, I will be in New York and Boston meeting institutional investors. Please contact our IR team if you would like to schedule a meeting with us.

The trade shows we will exhibit at in the current and next quarter are HKPCA in South China in December; SEMICON Japan, Tokyo, in December; SEMICON Korea, Seoul, in January. On that note, we will be happy to take any questions that you may have. Operator?

(OPERATOR INSTRUCTIONS) Stuart Muter of RBC.

I guess the first question is, Q3 revenues came in right at the low end of the range of guidance. Could you talk about what is driving that? What occurred?

Yes. First of all, as we always say, Stuart, and you know, it is very difficult to predict the real time of every deal. Especially with the semiconductor system, when we have changed from quarter-to-quarter, the impact on the result is major. Even one deal could be major for the results. So it is very difficult to [track] the quarters. This is why it happens.

If you are asking about what happened in the market, so, the market is not like we used to have at the beginning of 2006. We see some flatness. But with this flatness, as a technology-driven Company we target more complicated applications in this market. [We are] not always impacted by the flatness of the market.

Okay, but you are also guiding for revenues to decline in Q4, right? So could you talk a little bit about which market? Is it semiconductor, is that what is weakening, or PCB? Could you talk a little bit about why you are now forecasting revenues to decline in Q4?

We didn't forecast any decline in Q4. We talked about roughly plus-minus 5%, which is a flatness, not a declining. We are taking cautious steps right now, as you heard probably from all our competitors, about some flatness in Q4. Also, taking into account that the last quarter now could be shorter because of the holidays in Europe and in U.S., that they could impact our final results. But again, we didn't say that we are going to have any reduction right now.

Ronit, it is Rafi. I would like to add one remark about this. When we predicted about Q3 and Q4, by that time we estimated the new product, the Pegasus, would be ready earlier. This product by its sales could bring some, I would say, for the current quarter, additional 1 to $3 million if it was on time.

But as you know, R&D always they have some delay. Eventually, this product now is ready. But even if we start seeing some selling this quarter, I believe that we start to record these sales on Q1 and not in this quarter.

But this is, I think, one of the major factors that make it flatness; and we can't see or we don't predict any growth this quarter.

Okay, Rafi. That's helpful. Then a question on R&D spending. It went up a fair bit in Q3. How do you see that in Q4?

Unfortunately, we cannot, even if we want to increase the R&D effort, it is not so easy. It takes a lot of time to hire employees and to put them in the circle. So it takes some time. I can't see from quarter-to-quarter a dramatic change with the R&D expenses. So I believe that it may grow a little bit, but not any dramatically growth from Q to Q.

Okay, thank you.

Rami Rosen of Oscar Gruss.

Ronit, hi. Maybe I missed that from the things you said in the opening comments. But can you provide the breakdown between the PCB sales and Falcon sales during the quarter?

The breakdown between the product lines for the quarter was PCB $14.5 million; microelectronics, $10 million; and what we call the HDI-S is $1.3 million, approximately.

Okay, and for the fourth quarter, do you expect any change in that breakdown?

Not a major change.

Okay. Do you expect similar gross margin level achieved in the fourth quarter?

Yes.

Okay. Now regarding your PCB activity, do you see any different trends in this market? Trends in the ASP for your applications and so on?

Ronit, maybe I will answer. Okay; the trend that we can see is more demand for inspection of finished product. As far as we know, in the PCB industry, most of the demand, most of the use of AOI, is for what we call in-process inspection, increasing the yield during the process.

Right now, we can feel more and more demand from [ankler] and other suppliers to make 100% inspection before delivery. In the advanced substrate, in what we call HDI-S, this demand started maybe years ago. But right now, they would like to increase it, and we start to see the same demand in the PCB industry.

In these two segments, in the first one we have already [come] with a new product, and within the coming few months we come also for the PCB [final] inspection with another product. So these two products we believe will make some change during the 2007 and they will enter us to new markets.

Okay. Another question regarding guidance. I know it is kind of early to discuss first-quarter '07 numbers. But do you think that there is going to be some kind of seasonality characterizing your performance in that quarter?

Okay. I'm sorry, about 2007, it is a little bit too early to give a guidance. But in principle, what we do -- especially this time, in this period of the year -- we prepare our working plan for 2007. The way how we do it is bottom-up. We search all the customers; we collect all the information, their budget, their prediction; and we start to build it bottom-up.

All the material we just got now when we start to prepare it, in general, I would say it [seemed] a positive year, all over. All the information that we are collecting. So from the market point of view, it looks like a positive year.

From our position -- advantage, the competition, and other things like that, we feel very comfortable. Because we come with new product. We made a lot of improvement with our existent product. So the positive market environment look, plus the new product and features that we just developed, together give us a very comfortable feeling about 2007.

Okay, guys. Thank you very much for that; and good luck going forward.

Sergey Vastchenok of CIBC.

Can you comment on the visibility for Falcon product? What level of interest do you see from your customers? How do we see it going into the next quarters?

Ronit, do you want me to answer this on that?

Yes.

Okay. As Ronit mentioned, right now I would say our strategy with the Falcon was to use our technology advantage. Most of our customers choose Camtek, [to] the Falcon due to the [really] to technical benefit the Falcon can perform. So with this advantage, we build our segment, our customer base, and we can have better vision with this type of segment.

But of course, we continue looking for more segment and market, for maybe some more standard applications. So we believe that we also can do better penetration in other segments.

Regarding the visibility of the Falcon, I would say that what we can see now, that many many customers, not as in the past, start to place their order very late. Although they approve the budget, the yearly budget, but in many companies they start to release the budget only for the current quarter.

Since we and maybe some other suppliers can provide product within four weeks, six weeks, eight weeks, so we can see more and more orders that are coming with very very short delivery time. This limits our visibility for more than I would say one or two months in advance.

So we have to get our leads and the view of the market by searching and visiting customers. And based on that, we can build our current quarter program. This is about how we can predict in the Falcon. But as I mentioned, due to the face that we have some very, very, I would say advantage, we can have a better prediction about the current quarter.

Can you comment on backlog? How many Falcons you have in your backlog right now, how many Falcons have been sold this quarter, and how many is installed?

Ronit, do you want to give your comments?

We don't give (multiple speakers) information, Sergey, as you know. But from all the questions you asked, actually I can't answer any one of them. What we can just say is that we have systems in backlog; and we have systems in evaluation in both segments.

ASPs, you have seen some pressure this quarter on Falcon?

There is a pressure from Rudolph on prices, but we don't see a major impact right now in the Falcon on our ASPs.

Okay.

Of course, if you look at the ASPs [as] every country, because if you have -- there are [countries] that the prices are higher than in other countries. So if you compare country to country, still we don't have a major reduction in the Falcon.

Your book-to-bill was more than 1, or less than 1?

Again, we never publish this data. So we have to consider it for next time in.

Okay, fair enough. Can you comment on your competitive landscape? Is there some change? You mentioned Rudolph is pressing on ASPs. Actually Rudolph has completed the acquisition of August Technology, which you took some market share from. Can you comment if you see them more aggressive in Falcon market? You see some pressure from them? (multiple speakers)

By the way, right now, we are not -- in I would say most of the systems that we have sold, we are not head-on in competition. Because as I mentioned, we are more concentrated in more technology-driven; and Rudolph [are] concerning in I would say the high-volume or the standard application.

So if they will try to go to more technology-driven segment, or we go more to the standard application, I believe that we can face more tough competition. But right now, it doesn't happen so aggressively.

Okay, okay. So what was the market you are targeting? Can you quantify your target market for high-end applications?

Yes, it is high (indiscernible) applications, definitely. For example, all the 3D we do, Rudolph still don't provide any system with metrology, for example. We do some MEMS; and they don't provide any dedicated for this. So there are many special applications that we get a lot of experience and by working together with customers; this is, I would say, our benefit right now.

Some questions on OpEx side. Your SG&A were actually down $1 million versus the Q2. What was the reason for this? Is this level sustainable going forward?

The main reason is some provisions that we are doing in the quarters. In this case, it is mainly due to bad debt that we have to [reverse] some previous provisions that we did. (indiscernible) So actually, this is the main reason.

The selling and the other things are, you know, related expenses to the sales, like shipping and agent commissions.

So what is the level for SG&A in the next quarter? 6.5, this level? Or more likely 7.5?

No.

I think you should look at it as a percent, Sergey. It will be (indiscernible) because we have a lot -- from these expenses that are not fixed costs. For example, the commissions. So we believe that we will keep it around the 24% (indiscernible) SG&A.

Okay, also in '07?

In '07? I would prefer not to comment on '07 right now. Because we are still working on the annual plan, and we probably will have some changes. It is too early for me to comment on 2007 level of expenses in the model that we are building.

Okay, fair enough. Some question on balance sheet. Your receivables and inventory were up. Actually, it is the third quarter sequentially it is moving up. You [rose] the inventory around $15 million year-over-year, and your revenue is pretty flat over '06. So the question is, what are the reasons for the inventory build? When do we see it coming down?

Okay, let's start with the inventory. In the inventory, we have built some structures to -- first of all, we have the issue of the new products that we are building inventory to sell. We are also building some structures to be able to provide systems to customers.

The demand from the customer lately is getting harder and harder; and we are facing demand to supply the systems earlier than we used to before. So the supply curve is shortening. [Because while] we have to adjust our inventory level in order to be able to supply and not to lose any deals in the market.

In addition, we have the new models and new products that we had to build some inventory in order to be able to supply them. (multiple speakers)

Ronit, I would like to add some fact about the result of -- why the inventory is the result of the sales activities. As I mentioned before, AOI is all the visual inspection, automatic optical inspection. Actually they are in the food chain, maybe come by the end of all the ordering of equipment.

Because usually customers start with all the infrastructure equipment. If it is plating, if it is all the very heavy and expensive machines. All the visual inspection and AOI, they come by the end of the purchasing procedure.

So most of the customers start to ask for machine when they get orders; when they see that they need more capacity; or when they find that they need some special technological answer using our machine to solve this problem. So in most of the cases, they realize that they need these machines when they find that the capacity is not enough, or when they feel that they got some order.

And as I mentioned before, because all the delivery time all over the industry start to be more and more shorter, eventually the vendor has to adapt their capability to ship the machine in much shorter than in the past.

Today, in the PCB in many cases we have to ship machine within one week, two weeks, three weeks, four weeks, maximum. In semiconductor in the last year, we get a lot of orders with the condition if you can do it within two weeks, three weeks, four weeks, you have the order. If not, you're going to miss the order.

So this is one major parameter that we have, that all the [ordering] of ordering change and we have to adapt our [sales], and the result is increasing the inventory.

Another reason is for example the Pegasus. The Pegasus is the new line. Just now, we finished to develop this product and with a very successful result. But most of case, an order for Pegasus comes with multiple orders. It is never one system. It is five systems, sometimes 10 systems in one order. If I cannot ship to customers the whole amount of systems, I maybe can lose the order.

So there are some minimum inventory if we want to come directly from developing to start to sell. We need the minimum order to deliver to customers.

Take all this together, and you get the answer why we have increased our stock. But I would say that all this stock is, I would say it is a good stock. Because we feel very comfortable that we are going to sell it, and it is a fresh stock with finished goods.

Okay, what part of inventories are finished goods?

Finished goods is about [$16] million.

16? So it is -- okay, and --?

Finished and WIP. You have take the WIP as well.

It is another $5.5 million, the WIP.

Okay, okay. Can you break down the inventory by product line? Say, how much of this inventory is Pegasus machines and which part is PCB?

I can tell you that a major part of our inventory increase is because of the Pegasus new product.

Okay.

Definitely. A new product, if you want to sell it, you have to put it in customers for evaluation. So under evaluation, it means inventory. So if you want to go very aggressively, you can install maybe even 10 systems in 10 different customer names. So immediately you get 10 multiple the cost, the bill of material cost, of the Pegasus.

On top of that, you have to keep in your stock. If they said it is fine; now give me five, 10 machines -- where you get these machines? So this usually -- if you really want to move from developing to aggressive sales, this is about the cost of doing it in the short term.

Okay, thank you very much. Good luck.

Ali Irani of AI Capital Management.

There is no question that the third-quarter revenue level and the fourth-quarter outlook are still disappointing. I am hoping you can give us some elements, give us confidence in terms of the outlook. Do you see your customers hesitating on the timing of Falcon order releases? Is it a timing factor, that has been pushed out from third and fourth quarter to the first quarter? Or do you see this as an event at this point for which you don't have any visibility? Can you add some color for us, please?

Rafi?

I think there are several answers for that. Okay, some customers, we have found, for example a key customer I would mention, due to the softening in the market they maybe put their budget, the yearly budget on hold. But it does not mean that they don't purchasing or they don't giving any ordering. But in general, they have more control of how many machines, the timing, and where to give it.

So we can see this type of a little bit hold. But eventually, we get the order. So it may be a little bit delayed, but eventually we got the order.

If I go, let's say, six months ago, so I think more fabs were more free to order. Right now, we see more control from headquarters, from top management, before they release orders. So this is one signal that we can see from the market.

Other places, I would say today that we see orders coming. As I mentioned, due to technological demand; or if maybe it's because the 3D, they need metrology; or they need some I would say for test; or they get some requirement from the end-user to get [1]% inspection.

So we have today leads, we have machines under evaluation. So if we take all this together, as I mentioned we feel quite comfortable with it.

But when we talk with most of the customers, none of them mention any long-term softening. Most of them feel that this may be a little bit slow, but not more than [a peak]. So in general, as I mentioned, we feel from the market some positive environment. Not something that right now it is in hold, and maybe come next quarter. No. We are in touch with them, and we can feel more comfortable.

Now some customers, like we just mentioned Samsung, we just entered with the first machine. When the customer learns our machine and sees the advantage -- when you want to expand, if you need more systems, now our door is open, because we already qualified. The fact that we have made a few installations with SECS/GEM opened the door to other key customers that we're already there but not for the high volume, because we are not ready with the SECS/GEM protocol. Now, we are ready. Again, we get more market potential.

So the SECS/GEM, the enhancement of our 3D capability, MEMS applications, if I take all this together and all the key customers that we are already there, as I mentioned, take all this together we feel quite comfortable definitely for Q4, and I would say even for Q1.

Do you think, Rafi, that at this point, when you do your bottoms-up in the model that you used to as you started the Company, when you look at the bottoms-up, is there a potential for pull-ins in the fourth quarter at this point, based on (multiple speakers)?

I am sorry, I can't hear you. Could you repeat, please?

I'm sorry, I am saying is there a potential based on your bottoms-up for pull-ins into the fourth quarter? Meaning, could your forecast for the top line prove conservative?

As a second question, I am hoping you could again give us some more detail on Pegasus. It seems you have missed some revenues as a result of timing of that tool. What is it exactly that was late? Can you give us some color on where you stand exactly with that tool now? Thank you.

Okay, so regarding the Pegasus, as I mentioned it is -- already it's -- you know, R&D, gives some estimation about the time. And because Camtek is not anymore a small company, customers expect from us to deliver small mature systems to the market. We cannot deliver to the market a machine that is not ready and working perfectly.

So it took about I would say -- about two months late in when we predict to start on August. Only now I can say that the machine working perfectly and it is ready for sale. So, this delay moved everything with Pegasus.

Because in this industry, a customer needs evaluation for a few weeks. After the evaluation, then he qualified that the machine is good for him. Then he starts to place orders. At the beginning he places a few systems. When you get good experience, you get more. So this process takes some time. If we delay, everything moves a little bit.

So we predict the Pegasus to contribute, as I mentioned before, between 1 to $3 million in Q4, and now it is moved at least one quarter ahead. So this is the main reason why in Q4, we feel flat and we don't see the growth as we expected a few months ago.

Regarding the Falcon, it always in between; we never know exactly the amount. When we do it bottom-up, it can be between X and 1.5X. Many parameters can change the timing. The way how we record our revenues, only after installation. Sometimes we can miss a few days by delivery or by shipping or finished installations; so we cannot record it. So this is roughly the way how we play.

But when we go bottom-up, usually we call it -- we have three columns; what we called pessimistic, realistic, optimistic. Sometimes it is more for one point (indiscernible) factor [two]. So we can make 10, we can make 20 and in between. So I would say it is (indiscernible) when we try to predict the quarter.

Another, just about your first question, Camtek revenues in the guidance that we provided for Q3, and we also -- our revenue are for the nine months, $79 million. If you look at the yearly guidance, we are in the yearly guidance of between 100 to $110 million, which was provided in the beginning of the year.

The result is -- actually we are focusing for 2006 is to be between 65 to 70% above the 2005 revenues. So we don't feel disappointed.

Okay, thank you very much.

[Nathan Pollar] from Pollar Investments.

I have a question again concerning the inventory. First of all, having to maintain an increased level of inventory, does that imply carrying more risk and maybe carrying in the future obsolete inventory?

We don't see high-risk inventory level at the moment, since we don't have items that will be obsolete in the foreseen future, let's say. We plan to use almost all the inventory that -- actually all the inventory that we have in place. We are planning the new model launching by the level of inventory that we have.

So you do not anticipate having to increase your level of inventory even more, concerning your sales level?

Can you repeat the question, I'm sorry?

Looking forward, you think the inventory level you reached right now in proportion to your sales level will be maintainable over the future? Or you will have to carry even more inventory?

It depends if we will add the new products or not. If we are talking about growth [engine] with a new areas or new products, probably this will increase. But if you are talking about the propulsion to ourselves, so yes, we are planning to keep it and even to decrease it.

Another question I have, something that really struck me when I look at the Accounts Payable number. It went down from like $17 million to $14.7 million between Q2 and Q3. Your inventory level rose like by $6 million. How do you explain this?

We pay money to the suppliers.

It depends on the mix of the suppliers. It's depends on the mix of the suppliers that we have in the current balance sheet. So if, for example in the previous quarter, we had a different mix with some heavy supplier there, the number is higher.

The answer that we have in -- we had in the last quarter a high level of balance for a supplier that we had to pay quicker than others. So it was -- we paid it within the quarter.

Then are your payment terms getting like more stringent?

No changes in payment terms.

No changes?

Nothing changed in the last quarter or even more than that.

Okay. The last question I have is, if I look at the financial income number, which is a negative $200,000, looking at your cash level and virtually or very little financial debt, how do you explain this negative number?

This is -- it consists mainly due to exchange rate exposure that we have in our balance sheet. As an Israeli company, we have a lot of expenses in Israeli shekels here, like salaries and local suppliers here. Those balances are exposed to fluctuation due to exchange rate changes. This is the main reason.

We are trying to hedge this by maintaining equivalent balances from the other side, but we are not succeeding all the time. We are planning to use some [advance] tools in the future to prevent that.

Thank you. (inaudible)

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Before I ask Mrs. Ronit Dulberg to go ahead with her closing statement, I would like to remind participant that a replay of this call will be available in three hours on Camtek's website at www.camtek.co.il. Mrs. Dulberg, would you like to make your concluding statements?

Thank you. Ladies and gentlemen, on behalf of Camtek and the rest of the management team, I would like to thank you for your continued interest in our business. We very much look forward to be [continually] posting positive results to you over the next few quarters. Thank you and we look forward to speaking with you again next quarter.

Thank you very much. This concludes Camtek Ltd. third-quarter 2006 results conference call. Thank you for your participation. You make go ahead and disconnect.