Camtek Ltd (CAMT) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Camtek's first-quarter 2007 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 May 24, 2007.

I would like to remind everyone that the conference call 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 for our products; the timely development of our new products and our 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.

If you have not received a copy of today's release and would like to do so, please call GK Investor Relations at 1-866-704-6710. Or 972-3-607-4717.

I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin?

Thank you. I would like to welcome all of you to Camtek's first-quarter 2007 results conference call and like to thank Camtek's management for hosting this call. With us today on the line are Mr. Rafi Amit, Camtek CEO and Mrs. Ronit Dulberg, the Company's Chief Financial Officer. Mrs. Dulberg will start the call by giving an overview of Camtek's performance in the first quarter of 2007 and then summarizing the financial results. She will also discuss recent developments within the company and in the market and discuss the guidance. We will then open the call to the investor question-and-answer session.

I would now like to hand the call over to Ronit. Ronit, please.

Thank you, Kenny. Hello everyone and welcome to our first-quarter conference call. On behalf of Camtek management, I would like to thank every one of you for your interest and for joining us today. Camtek operates in three different sectors, each with their own particular trend and cycles. At the moment we face weakness and lower demand in two out of the three sectors, the semiconductor and IC substrate market.

Camtek like other equipment suppliers this past month has felt the impact of a relatively weak semiconductor industry. Taking this into account, we began assessing our business activities and spending quarterly. We are also focusing on maintaining our competitive position to enable us to realize future market growth as our market sectors pick up again and gain momentum.

Our final revenues for Q1 were $14.5 million with a net loss of $4.3 million. The two main factors affecting our revenue performance during the first quarter were the weak semiconductor market and the holiday season in Asia. In our PCB business, as the result of the short period between the Chinese New Year and the end of the first quarter, we couldn't complete the selling cycle of several large orders from a number of PCB manufacturers. Therefore, we couldn't meet the accounting [criteria] for recognizing revenue from them. We are already halfway through the second quarter and have seen improvement in the PCB market.

In our semiconductor business after three high growth quarters in 2006, we began to feel the effects of the weakening semiconductor industry. The softer market began at the end of last year and continued into the first quarter of this year. We have seen orders in businesses being pushed out for the second half of 2007 from customers in these markets.

In spite of the decrease in cash flow, we continued to maintain a strong net cash position of $16.3 million which provides us with more than enough working capital to maintain our current level of operation while investing in our future through a new product development. I will now provide more detail on the various sectors of our business during this first quarter.

First the semiconductor and packaging market. During the quarter we generated a total of $6.2 million in equipment -- in revenues from the semiconductor manufacturing and packaging sector. This is 38% below our revenue from this sector for the same quarter last year and were 42% of our total revenue in this quarter. The semiconductor sector is characterized by its cyclicality which is amplified in the [back end] sector where we operate although we expected a (inaudible) in correction to the strong proprietary increases we saw last year. The recovery is taking longer than we originally had anticipated.

We haven't seen order cancellations on these (inaudible) to the latest quarters. Most of our customers believe that we'll increase capacity in the coming quarters. We also see several of our customers moving the bulk of their production from United States to Asia where we have strong (inaudible) and will be able to support them well. We are confident that we can maintain our strong market position. We are working closely with our existing customers to ensure that they remain pleased with our systems. We also continue to pursue opportunities to acquire new customers.

And now this is for the PCB and (inaudible) market. During the quarter we generated a total of $7.1 million in revenue from the PCB manufacturing sector. In the IC substrate sector, we generated a total of $1.2 million in revenues which is 8% above our revenues from the same quarter of last year and were 8% of our total revenue in this quarter.

As I mentioned, our sales in the PCB market were strongly impacted by delays due to the Chinese New Year and the temporary softening in the market. Accordingly, Q2 already looks stronger. As in our semiconductor division, we are concentrating on maintaining our technology leadership and strong reputation for service, which we believe is one of our key assets.

During the last quarter of 2006, we introduced the Pegasus 200S, a new model in the Pegasus product line for finished high-density interconnect substrate. We believe that this new model increases our competitive advantage and opening new market opportunities. While we are seeing strong interest in the Pegasus 200S, sales cycles are taking longer than we originally expected. This is due to the overall weak IC market which affects the IC substrate sector as well.

Toward the end of 2006, we introduced and began delivery of the new generation of Dragon and Orion systems for the PCB market. These new systems present a completely new approach to the way users operate with the [LY] equipment. With them even a basic level operator can easily optimize the systems (inaudible) profile to his or her specific applications and preferences. To date these new lines of Dragon and Orion models have met with positive customer response.

I would now like to go over the financials. Revenue for the first quarter of 2007 were $14.5 million, 41.8% below the $24.9 million reported in the first quarter of 2006 and down 31.1% sequentially from $21 million as reported in the last quarter of 2006. The equipment revenue break down in the first quarter -- sorry -- the revenue break down in the first quarter of 2007 was 49% PCB, 8% IC substrate, and 43% semiconductor manufacturing and packaging products.

Our geographical break down of the revenue for the quarter was USA 6%; Europe, 19%; and the total Pacific Rim 72%, which consists of Japan 2%; China 31%; Taiwan 20%; and the rest of Asia 19%. Rest of the world was 3%. We recorded operating expenses of $10.4 million in the quarter compared with $8.7 million in the first quarter of last year and slightly below the $11.2 million of expenses recorded in the previous quarter. We are closely monitoring our expense levels and adjusting them to our current and respected level of activity.

Operating loss for the first quarter of 2007 was $4.4 million. This is compared with an operating income of $4.4 million in the first quarter of 2006 and an operating loss in the previous quarter of $2.4 million. Finally, first-quarter net loss was $4.3 million or $0.14 per share compared with $4.4 million net income or $0.16 a share in the first quarter of last year. Net loss for the previous quarter was $2.2 million or $0.07 per basic share.

Now turning to the balance sheet, our net cash and equivalents at the end of the first quarter stood at $16.3 million compared with $23.3 million at the end of 2006. We had a negative operating cash of $5.9 million in the first quarter. Our DSOs increased to 174 days, up from 128 days in the previous quarter mainly because of longer payment terms.

Our guidance is as of today and we make no commitment to update our guidance on an ongoing basis. Based on current information we expect to report revenue in the second quarter of between 15 and $17 million.

Looking toward the rest of 2007, Camtek offers a leading set of inspection solutions for the semiconductor manufacturing and packaging, PCB and IC substrate industry. We are committed to investing in vast technologies and solutions that will provide us with long-term competitive advantages. We are committed to continue developing leading products. We are confident that these products through our worldwide organization will carry out through this weaker time and help us carve out a stronger company as we have done in the past.

On that note, we will be happy to take any questions that you may have. Operator?

(OPERATOR INSTRUCTIONS). Mahesh Sanganeria, RBC Capital Markets.

Thank you very much. Can you give us an idea how should we look at the whole year? And you said -- you talk about second half being stronger but on the semiconductor side back in -- (inaudible) so far (inaudible) quarter that they are seeing some upturn and if there is an upturn, what kind of growth are you looking into in the second half?

I presume you are trying to connect what happened in the back end to what happened with the wirebonding tools, right?

Yes.

I have a clue why. There is no pure statistics that actually connect between the wirebonders or the process to the back end. There is some logic behind having this connection because of the production of the wafer takes about three months or so. You can say that if there is some upside with the (inaudible) tools, you probably should expect an increase with the back end. But we cannot say for sure.

This is an explanation that I heard from others but we cannot commit if (inaudible) report some increase but the meaning of this is that the activity in the market, in the IC market is higher as this is a good sign. But we cannot say how long it will take to feel it fully -- we will see in the back end an increase.

Okay. How about the PCB market? What kind of -- what is the timing you are looking to, December quarter or later than that?

With the PCB, we see an improvement already in Q2 because what happened in the first quarter was not something that is usual. And as we said we see there's a temporary decline. In this market, the cycles right at the moment at least are not so big and you can say that they are quite stabilized, not exactly the reason and some differences or gaps between the quarters but there is no big differences.

I would like to add something because we don't see a direct connection between the PCB and semiconductor. And I have showed that the main reason is PCB is no stock, no (inaudible). So PCB actually represents the amount of end-user product and we feel much more comfortable with the PCB because we can see Q2 and Q3 also is going up. In the semiconductor, we get a lot of (inaudible) information from customers talking about waiting for next quarter or pushing order for next quarter. But except in the last quarter so we don't always (inaudible) if this is going to be in Q3 or when exactly will be this timing.

Okay but on the PCB market, do you have a sense of when you will return to your normal levels sort of close to 14 and $15 million. Is that something you'd see that happening in Q3 or Q4?

Let's say that in the PCB if we look on the activity of the authorization of equipment, it seems that end of Q2, Q3 is going to be very normal regarding the amount of revenue also, it's related to competition, to price, whatever. So I cannot guarantee right now it will be 15 more or later. But from the customer point of view, it seems that they return to normal activity.

So the fact that the PCB is going in Q2, you are saying that semiconductors actually go down in Q2?

As I said, I cannot give you exact -- we cannot find the direct correlation between the two industries. Especially for (inaudible) because every machine the sale price is a few times more than PCB machine. So sometimes a few orders can change the picture. So we cannot take a small number and give you an indication on the market (inaudible). So it looks like at this moment it is not, this industry, the semiconductor I would say a small technology driven -- that capacity driven. So we don't see a requirement for machine because of increasing capacity. We can see small for special technology or special demand.

How is your competitive situation in the semiconductor market? Is there specific application which really are better suited than competition? And is the competition mainly Rudolph?

I don't know exactly but I believe that what we can say -- what we win, what we lose. It's not like it about the same. We feel very comfortable that we keep our position. There are sometimes some special segments like [bump] inspection or maybe some special requirement that may be they are stronger than us or they can get maybe more orders. But I don't -- I would say that in general I believe that our competitor feel about the same as we do.

So moving to the expense side. How are you planning your expenses at this time? Do you do -- see the expenses staying flat or going up from here?

The expenses level, we try to of course to minimize and to adjust it to the level of revenue. And we do it in many ways. Sometimes it takes a few months from the decision time until we start to see the effect. But definitely in the next few quarters we see the effect of the monitoring -- tight monitoring of expenses.

So does that mean the expenses go down from here?

Definitely.

Okay. Can you give us some idea on how to model -- I mean that's -- is it going down to the last year -- early last year's level?

If you measure it by quarterly level of expenses, our targets now would be to reduce the target level of operating expenses and cost. I cannot give you right now the numbers for 2007 -- total for the models of 2007. But it absolutely will be -- we are working on reducing the expenses.

Okay, thank you very much.

(inaudible)

Thank you, Rafi and Ronit. Ronit, a follow-on question on the OpEx reduction. Can you quantify the expected reduction in OpEx on a quarterly basis?

Not at the moment.

Not at the moment, okay. Now looking at the revenue guidance for the next quarter, I understand that the sequential growth in revenues should arrive from the PCB segment? Is that correct?

Right.

A question on gross margin, can you share with us some of your thoughts on that for the next quarter and also for the remainder of the year? And what are the dynamics that you are saying there?

Yes. Our gross margin in this quarter was around 42% and of course, we are trying to do everything we can to increase it. It seems a little bit difficult at the moment to talk about yearly percent but by quarter-to-quarter basically it should be -- we should increase this level of gross margin. As you obviously remember in a much higher revenue level we can get to a much higher percentage.

So we should expect sequential improvement in that?

Yes.

Okay. Now aside for the reason that you mentioned in your intro statement for the weakness in the PCB business, do you seen any change in the competitive conditions or -- is there any particular lack of demand that you are seeing now? If you can elaborate on that, that will be helpful.

It's hard to say before we don't see any major change in our competitive position in the market even though that when the demand -- when the market is slow, the competition is tougher. And this is the situation at the moment. As you probably know, Camtek knows how and they had an experience with the PCB market. We know our competitors and we know exactly how to manage our customer relationships. And we maintain our market position especially with the machines that we have now and we have as an offering now and with the new systems we are offering to the market, we feel very strong with our competitive position.

And the new models, the new Dragon model, would that have a higher gross margin than the older solutions that you are selling there?

I would say that sometimes -- when the environment and the industry -- although the PCB as I mentioned seems okay but in general semiconductor is also affected because the environment is a little but slowed down, naturally the competitors or vendors sometime reduce the prices and it has affected the gross margin. So this is why it is very difficult for us to mention exactly what is going to be percentage. We can monitor expenses. We know how to. We can reduce our cost but sometimes the price of the system is not easy to predict in such times.

So this is why we cannot feel very comfortable to give you the right number about the gross margin at this moment. We have to follow it to see how other competitors manage their business and based on that, we can give more idea about the gross margin.

Okay, and two last housekeeping balance sheet related questions. First of all, do you expect a reduction in DSO for the next quarter? Second, what do you expect the run rate to be in the second quarter?

Okay, with the DSO, we cannot comment. As we said, the competition now actually brings us in -- brings competitive situation of 174 days. And we don't see at the moment any change with the semiconductor industry which should improve this number, since the payment terms are much better in this industry. And as for cash flow, we are not focusing any cash flow numbers.

Okay. Okay, these are my questions. Best of luck going forward.

[Sergei Vaschenek], CIBC.

I would like to ask you how you feel about the pricing pressure both in the PCB and semiconductor business? Do you feel -- has this gone lower? Do you see some changes? What are the change in the ASP (inaudible) products in Q1?

Of course you know, as I mentioned before, when the market is (inaudible) situation, the competition is tougher and definitely we can see that average selling price is sometimes less than we expected. We can see it as temporary. We always experience this a few times in the last few years. But I couldn't say the collapse of the selling price, but we can see some reduction of prices just to the competition.

And what is the average selling price for (inaudible) configuration right now?

And we are not giving this information, Sergei.

Okay.

You know the competitors would like to hear about it.

Okay, okay. But you plan to be competitive? You are trying to -- going to the same price or you are still charging a premium price as compared to competitors?

Camtek is doing its best to sell every sale and every deal and we are doing everything that's needed to keep our competitive position in the market.

Okay. Regarding the gross margin, actually I'd like to know, based on what (inaudible) sensitivity? And in Q4 you were down $5 million, the margin was down around 1000 basis points. Now you are down almost 300 basis points from much higher decline in revenue.

That is correct.

The question is, what are the factors which (inaudible) the efficiency measures, your (inaudible) and where the improvements in gross margin will come in the future?

We are taking some efficiency from this side of the employment costs. In the product we will see improvement in next quarter. We don't see the margins (inaudible) it takes time to see at the full effect of the -- and the activity that we are taking. And as you well know, with the high inventories that we have, the improvement will not come from the materials.

Yes. Okay. And it's mainly -- your pricing power was with the supplier?

And also don't forget if when the revenues will have higher levels of revenues, of course the fixed cost will -- as a percentage will be less.

Okay. So you feel the gross margins have bottomed and will improve going forward?

Yes.

Okay. Can you comment on the calendar impact on -- let's say a Q1 figure? How much (inaudible) dollar has hurt your bottom line?

We were well covered by hedging activities. So there is no major influence.

Okay. So you are still doing hedging premiums?

Yes.

In Q2. And so the last question regarding the OpEx. R&D actually was pretty stable versus Q4 which was a record quarter in R&D activity. Are you planning the figure to come down as you know with the shekel appreciating much higher (inaudible) is laying off people. So how are you going to handle?

We are doing everything as needed to adjust the expenses to our revenue levels. And I cannot say -- give you the list of all the activities that we are doing in order to do it. But there are some activities that we are doing that do not involve employees. And also we are taking another step to hedge the currency. So of course you don't see it in the R&D line but you are supposed to see it in the financial income line.

Okay. Thank you, good luck.

Mary Brixie, Avian Securities.

Hi. Thanks so much. Most of my questions have been answered. But I have a couple of questions that I'd just like to dive a little bit deeper on. It's surrounding the level of the push out. You guys are pretty much halfway through the quarter now. Has the level of push out that you've seen from the beginning of the quarter to now, has it come down or is it continuing at the same level as where you saw it at the beginning of the quarter?

The number of push outs in this quarter is less than the number that we had in the previous quarter, if this is what you would like to know.

Great --

So there is some yet. But I'm not sure that this actually changed something about the market. It is maybe because people are more cautious with orders. Already because it takes time. So I'm not sure it says something but yes the numbers are lower.

Well, maybe you could give me some clarity here. From the first quarter to now or even from the beginning of the second quarter to even now, when your customers come to you and push it out, can you give me an example of the timeframe that they are pushing it out into? Is it one quarter? Is it two quarters? Are they giving you that much clarity? And has that changed?

I would say that most of them talk about Q3, Q4 right now. (multiple speakers) (inaudible) machine, they said okay, originally we intend to order four machines but now we order one, and the next two, three machines we will opt for delivery in Q3 or Q4. But they don't give any directive, just give us a lead or as an information.

Okay, I think. All right, thank you very much.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Before I ask Mrs. Dulberg to go ahead with her closing statement, I would like to remind participants that a replay of this call will be available in three hours on Camtek's website, www.camtek.co.il. I would like to turn over the call to Mrs. Dulberg. Please go ahead.

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 look forward to speaking with you again over the next few quarters. Thank you and goodbye.

Thank you. This concludes Camtek's first-quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.