Camtek Ltd (CAMT) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Camtek Ltd. third-quarter 2007 earnings conference call. For your information today's conference is being recorded. At this time I would like to turn the conference over to Mr. Kenny Green of GK Investor Relations. Please go ahead, sir.

Thank you. I like to welcome all of you to Camtek's third-quarter 2007 results conference call and I'd like to thank Camtek's management for hosting this call. With us on the line today are Mr. Rafi Amit, Camtek's CEO, and Ms. Ronit Dulberg, the Company's CFO.

Before we start, as a reminder this 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 results or events may differ materially from those projected including as a result of changing industry and market trends; reduced demand for the product; the timely development of 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.

Ronit will start the call by giving an overview of Camtek's performance in the third quarter of 2007 and summarizing the financial results. She will also discuss recent developments within the Company and in the market and then discuss the guidance. We'll then open the call and Rafi and Ronit will be happy to answer your questions. I would now like to hand over the call to Ronit. Ronit, go ahead, please.

Thank you, Kenny. Hello, everyone, and welcome to our third-quarter conference call. On behalf of Camtek's management I would like to thank every one of you for your continued interest in our business and for joining us today. The third quarter showed a significant improvement in all indications.

We are happy to report that revenue, operating profit, net income and cash flow were all better than in the previous quarter. We managed to achieve these goals and to match our cost tracked to this current level of business in spite of the ongoing weakness in the semiconductor industry.

Our revenues grew 32% over the third quarter reaching $20.2 million. This growth resulted primarily from sales to the PCB industry, mainly to China and Taiwan which together accounted for nearly 70% of our business. We believe that the increased demand is a combined result of a stronger activity level in the PCB industry in the China/Taiwan region together with the market preference for our new 3G line of AOI systems.

Our sales to the semiconductor manufacturing and packaging industry remained soft in this quarter, continuing the industrywide softness that began in late 2006. We observed an increase in incoming orders during the quarter among which are the five (inaudible) we reported in August as well as other orders from new and existing customers. We expect to recognize revenues from these orders in the fourth quarter, yet it is too early to say as this point if this segment of our business is already in recovery.

Over the last several quarters we have successfully implemented a thorough organizationwide cost restructuring plan. This quarter is the first in which we have fully realized the contribution of this plan. This new cost structure enables us to cross our breakeven point even given the current weakness in our semiconductor inspection business and achieve a positive operating cash flow of $2.9 million. The gross profit margin recorded this quarter was 38%, somewhat below the 41% of the previous quarter; contributing to the sequential decline was a shift in our product mix.

I'll now provide more details on the various sectors of our business during the third quarter. First, the semiconductor and packaging market. We generated in the third quarter a total of $4.1 million in revenues from the semiconductor manufacturing and packaging sector. This is 15% below last quarter and 60% below our revenues from this sector for the same quarter last year. It was 20% of our total revenue in this quarter.

While competition has intensified as we expected, we continue to win evaluations thanks to the differentiated performance of our Falcon line. In (inaudible) we continue to develop dedicated capabilities of our customers' evolving needs. And now is of the PCB and IC substrate market.

During the quarter we generated a total of $16.1 million in revenues from the PCB and IC substrate industry. This was 53% higher than last quarter and 1% above our revenues for the same quarter last year. It made up 80% of our total revenue in this quarter. This quarter we saw a recovery in demand for PCB inspection systems relative to the decline reported in the first half of 2007. The majority of this demand came from China and Taiwan. We believe as our revenue grows from sales to this segment was assisted to a large extent by the enthusiastic welcome customers gave to the new technologies in our 3G line. Let me expand on that a little.

A couple of years ago we began observing a paradigm shift in customer preferences from (inaudible) to other (inaudible) of productivity. This shift is typical to many types of capital equipment. It indicates a state of maturity where the margin and contribution of additional throughput diminishes in comparison to other factors. Such factors include the ease of setup and operations, minimizes the required training level, and the consistency and reliability of detection.

In the third generation of this (inaudible) family we implicit several new technologies that will elevate the system into what we see as a new class of productivity while still maintaining optimal performance specifically adapted to each individual application. You can find more details on our website.

I would now like to go over the financials. Revenue for the third quarter of 2007 was $20.2 million, 23% below the $26.3 million reported in the third quarter of 2006 and up 32% sequentially from $15.3 million reported in the prior quarter. The revenue breakdown in the third quarter of 2007 was 62.1% PCB, 17.5% IC substrate, and 20.4% semiconductor manufacturing and packaging products. Our geographical breakdown of the revenue for the quarter was U.S. 85%, Europe 7% and the total Pacific Rim 87% which consisted of Japan 3%, China 48%, Taiwan 19% and the rest of Asia 17%, rest of the world 1%.

We recorded operating expense of $7.4 million in the quarter compared with $9.5 million in the third quarter of last year and below the $9.4 million of expenses recorded in the previous quarter. This improvement is a contribution of the cost reduction measures we have been taking in the recent quarters.

Operating income for the third quarter of 2007 was $0.2 million; this is compared with an operating income of $4.5 million in the third quarter of 2006 and an operating loss in the previous quarter of $3.2 million. Finally, third-quarter net income was $85,000 compared with $4.2 million net income or $0.14 per diluted share in the third quarter of last year. Net loss for the previous quarter was $3.5 million or minus $0.11 per share.

Now turning to the balance sheet. Our net cash and equivalents at the end of this quarter stood at $15.3 million compared with $15.5 million at the end of this quarter. We had a positive operating cash of $2.9 million in the third quarter. Our DSO's were 109 days, below the 132 days reported in the previous quarter. Our visibility is still quite low, but as this point, given our current booking and the intentions expressed by our customers; we expect a slight increase of revenues in the fourth quarter.

We are content with our achievement of returning the Company to profitability even during a period of weakness in the semiconductor segment. Again, the PCB (inaudible) business has proven its value as a relatively solid source of revenue enabling us to maintain our stable position while we continue to support our customers and prepare competitive capabilities towards an expected market recovery. We will now open the call for questions. Operator?

(OPERATOR INSTRUCTIONS). Sergey Vastchenok, CIBC World Markets.

Congratulations on the return to profitability.

Thank you.

I wanted to ask what was the particular reason for the decline in the gross margin. It's declined for the last quarter, it's had a very deep decline this quarter -- actually it came back to the levels of '03. How do you explain it, what was the reasons for this decline?

One of the major reasons to this decline is the product mix. As you see, the semiconductor [and packaging] is only 20% of the revenue and this is why we're returning to the situation before we had this activity and this is the reason for the decrease in gross margin. But as I said before, we expect it to change when the semiconductor market will pick up and we will see a higher percent of revenue coming from this segment.

Okay. Actually semiconductor is down probably $100,000 from last quarter -- the margin is down about 300 basis points. The question is if you've seen some ASP pressure in the PCB business. I assume the gross margin level would come from PCB primarily?

We see pressure in the PCB with the pricing on the PCB. But again, we expect improvement in gross margin to come from the semiconductor business.

Okay. Do you have a timing for a rebound in semiconductor, when do your clients expect the market to rebound?

I think -- Rafi, go ahead.

This is a big question. I think that it's not easy to predict. All of us actually are reading the same article and the same survey and most of them believe that it might happen during 2008, maybe the second half of 2008. But we can recognize some segments of market that have some specific products that they need right now system. And this is why we mentioned that in Q4 we see more leads in the semiconductor. But I couldn't say that these leads can represent the total industry or the recovery of the total industry. Too early to take such a decision.

Okay, fair enough. The last question is regarding substrate -- HDI substrate business. It looks like it's pretty strongly up from the last quarters. Do you see this as a trend? Have you seen traction in this business and what to expect going forward, say Q4?

The substrate, actually it followed the semiconductor. It is about the same. One substrate and one chip, one die of chip are about 1 to 1. So the semiconductor industry is (inaudible) a little bit slow and the IC substrate, it is about the same. So when the semiconductor industry starts to change corrections to an upturn I assume that we will see the same in the substrate -- IC substrate business.

Okay, sorry to (inaudible) early indication for trends in the semiconductor business?

Yes.

Okay, okay. Thank you. Good luck.

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

Thank you very much and congratulations on a good quarter. A question on PCB. How should we look at PCB revenues in 2008 compared to 2007? Can you give us some idea to model that one?

Okay. Again, we are about in -- I would say if you listened to the previous question regarding the visibility, it is not so easy. But in principal I would say that we can see a trend of a lot of projects in China, they're building a huge facility in phase one and two and three. And some of them today are ordering multiple systems, could be 50 systems, 20 systems. And we have never faced such an amount of systems in this period.

So, it is not so easy to predict how this can affect the 2008, but based on our customers, on their projects and the way how they build their facility, in seemed 2008 will be I would say similar, maybe a little bit slightly less in 2007. But direct I would talk like about the same.

Okay. And on the operating expense side, is it -- how should we look at it going forward? Is this quarter a good base to model the operating expenses going forward?

Okay, regarding the -- if you talk about the PCB, I would say that what can change, actually the key is the price, average price per system. When the mix of products are based on many orders, each customer orders two, three systems; the price usually is higher than if the mix is one or two customers that order multiple orders of 20 or 30 systems.

So it can change from quarter to quarter, so we cannot control exactly the average selling price because it changes from quarter to quarter. From the operational point of view, the operation is about the same. I believe that today we are very efficient. We reduced our cost quarter to quarter, but if we talk about percentage of the revenue, of course it's depending on the average selling price.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS). If we have no further questions at this time, I would like to turn the conference back over to Ms. Dulberg for any additional or closing remarks.

Ladies and gentlemen, on behalf of Camtek and its 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.

Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation, you may now disconnect.