Camtek Ltd (CAMT) 2007 Q4 法說會逐字稿

Hello everyone and welcome to our fourth-quarter and full-year 2007 results 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 fourth quarter again showed a significant sequential improvement. We are pleased to report that for the second quarter in a row we improved our revenues, net income, and cash flow. Our revenues grew 4% over the prior quarter, reaching $21 million on improved profitability, in particular our gross margins.

We managed to achieve these goals based on the more efficient cost structures that we have successfully implemented over the past few quarters. In fact, it is very clear even that we achieved a $0.25 million net income without the impact of FIN 48, compared with the $2.2 million net loss of our fourth-quarter 2006 on exactly the same revenue level.

We continue to look for additional avenues to further reduce our cost base. One such avenue is (inaudible) procurement and subcontracting to China. In parallel, we adhere to our strategy of investing in ongoing R&D (technical difficulty) into a continuous improvement of our technologies and products. We feel that by engineering systems with long life cycles we are delivering better return to our customers on their investments.

In 2008, we plan to introduce additional products both for the PCB and the semiconductor industries and expand our market coverage. Based on information available to us, we have maintained our strong position in our sales markets.

Despite the ongoing weakness in the semiconductor market, we have been recording a healthy order stream for our wafer inspection systems during the quarter. This level appears to be substantial at this point, at least through the first quarter of 2008. Our sales of PCB inspection equipment remained solid throughout the second half of this year. We see it as an indication of market acceptance of our new generation of products, as well as an improvement of our position in these markets.

I will now provide more details on the various sectors of our business during the quarter. First the semiconductor and packaging markets. We generated a total of $7.2 million in revenues from the semiconductor manufacturing and packaging industries. This is significantly above the $4.1 million we reported last quarter.

We assume that the reason behind the growth is mainly technological, the [process] performance advantages. For example, in 2007 we introduced further productivity and detection enhancement to our Falcon line.

In addition, by working closely with our customers on developing answers to their specific needs, we developed new features and capabilities and implemented them across the model line.

In some cases, the Falcon line's broad range of capabilities enable us to provide solutions for applications outside the semiconductor mainstream. It is reasonable to expect that this coverage of the wide applications base will drive additional growth when the industry returns to normal purchasing patterns. Until then, we are relying on our technological advantages and intensive customer support to help balance the effect of the potential continued slowdown.

During the quarter, we generated a total of $11.6 million in revenues from the PCB and IC substrate industries, contributing two-thirds of our total revenue. This was 15% below the $13.7 million reported for the third quarter and 9% below our revenues of $12.7 million for the same quarter last year.

The decline relative to the previous quarter resulted from a smaller portion of IC substrate and high density inspection systems, which carry higher margins.

In the second half of 2007, we have seen a recovery in demand for PCB inspection systems from the decline reported in the first half. The majority of this demand came from China and Taiwan.

We believe that our performance in this sector was assisted by the market acceptance for our new [version] of the system we recently released. The new technology we implemented in this system elevates our products to an even better level of productivity and detection performance specifically adapted to each individual application. This technology enables operators an unparalleled ease of setup and operations, minimizes the required training level, and provides a very good system and reliable detection.

Now, I would like to summarize the financials. Revenue for the fourth quarter of 2007 was $21 million, level with the revenue reported in the fourth quarter of 2006 and up 4% sequentially from $20.2 million reported in the prior quarter. The revenue breakdown in the fourth quarter of 2007 was 66% PCB and IC substrate and 34% semiconductor manufacturing and packaging products.

Our geographical breakdown of the revenues for the quarter was USA 3%; Europe 10%; the total Pacific Rim 86%, which consists of Japan 4%, 45% China, Taiwan 17%, the rest of Asia 20%. The balance of 1% was the rest of the world.

We recorded operating expenses of $9 million in the quarter compared with $11.8 million in the fourth quarter of last year. This improvement is the contribution of the cost reduction measures we have been taking in the recent quarter. Our operating expenses in the prior quarter were $7.4 million.

Operating income for the fourth quarter of 2007 was $127,000. This is compared with an operating loss of $2.4 million in the fourth quarter of 2006 and operating income of $219,000 in the prior quarter.

Finally, fourth-quarter net income without the impact of FIN 48 was $247,000 or $0.01 per share compared with $2.2 million net loss or a loss of $0.07 per share in the fourth quarter of last year. Net income for the previous quarter was $85,000.

Revenue for the fiscal-year 2007 was $70.9 million (sic -- see press release), down 29% compared to revenues of $100 million in 2006.

Operating loss of the year was $7.2 million compared with an operating income of $11.9 million in 2006. Net loss without the impact of FIN 48 for the year was $7.5 million compared to a net income of $11.6 million in 2006.

Loss per share in 2007 was $0.25 compared to earnings per diluted share of $0.39 in 2006.

Now turning to the balance sheet, our net cash and equivalents at the end of the fourth quarter stood at $18.6 million compared with $15.3 million at the end of the prior quarter. Our DSO was 102 days, compared with the 109 days that we reported in the previous quarter. Finally, we reported a positive operating cash flow of $2.7 million in the quarter.

Looking ahead, we are aware of the industry analysts who forecasted a decline in the wafer equipment market, in particular in equipping new fabs for memory chips. However, based on our current stream of incoming orders, both in the semiconductor and packaging and the PCB markets, we believe that our diversified customer base across the industry makes us less sensitive to fluctuation in one sector or another.

Assuming that our current incoming stream of orders proceeds along the same pattern, we can expect revenues in Q1 2008 at a similar level of that which we reported today.

We are very pleased with our achievement of growing our profitability, and especially with our strong growth in semiconductor revenues despite the ongoing weakness in the semiconductor.

The PCB side of our business has again proven its value as a relatively solid source of revenues, enabling us to maintain our stable position while we continue to support our customers with [very proved] competitive capabilities for the next market recovery.

We will now open the call for questions. Operator?

(OPERATOR INSTRUCTIONS) Sergey Vastchenok with Oppenheim.

Nice quarter. Can you specify, please, what were your sales for substrate business?

Again, Sergey? Hi, Sergey. I didn't understand the question. What was our (multiple speakers)?

You specified how much you have sold in semiconductor business. Can you specify the other types of businesses, HDI substrate and PCB and the services?

We are not providing this information usually at this forum. And usually we are not providing this information at all.

Okay, last quarter you provided the HDI revenues of $3.6 million. So it was below $1 million, can I assume, this number?

Yes, it was below $1 million this quarter.

Okay. How do you see it going forward? What do you expect this business to be in '08?

Rafi, do you want to answer this question?

For the IC substrate?

Yes.

I assume that the IC substrate is follow the semiconductor. It look like as long as the semiconductor will be under slowdown, I think the IC substrate will follow this trend. So when we see some change in the semiconductor, I assume that we will see the same change in the IC substrate.

Okay. So basically you have seen a record quarter in semiconductor, which is -- for the first time it is picking up for the last couple of quarters. You see it as a trend? Or it was just several orders coming into Q4? What is your visibility here on the Falcon slide?

I would say it like this. We see a good positive sign from the semiconductor, but I couldn't say that this belongs to increasing capacity. As I mentioned, the relation between the semiconductor, the IC substrate, is almost the same. But because we don't see all the coming orders or the increasing demand we can see, I would say that it is due to technology driven and not to capacity driven.

So, most of our orders today with the semiconductor is because customers change technology, making some [wire] in the wafer or doing some more dense pads so they need more inspection. All this type of application, I would call them improving technology and not capacity technology. Not capacity, I'm sorry.

Okay. In general terms on the semiconductor business, what type of revenues do you expect for '08? Is it flattish versus '07? It is going to be up versus '07? What is your guess on this side?

Okay, look, we cannot see for the whole year, but it seems that for the first half, I would say we see better demand from the market for our product. Most of the demand, as I mentioned before, are due to technology.

But if we said about our revenue, I would say that we can expect a higher revenue from semiconductor.

Okay, okay. I had a pretty decent increase in operating expenses this quarter, around 20% sequentially. Is it driven by investment in new product? What was the impact for the dollar-shekel? What is your estimate for a shekel impact for the next quarter on the OpEx side?

Yes, first of all, yes, there is an increase in R&D, and the increase is a result of increasing effort on the R&D projects.

Also, of course, there is some impact of the change of the Israeli currency versus the dollar rate. Even though we have some hedging plans, but we can see it only as a financial income and not as -- in the -- the expenses is higher but you see a better financial income.

So we have a hedging plan, but still there is an impact under operating expenses of the change of the dollar rate.

Okay, so actually the OpEx is expected to go up in Q1 '08?

No, we expect it to stay about the same.

Okay, fair enough. Thank you.

(OPERATOR INSTRUCTIONS) Mahesh Sanganeria with RBC Capital Markets.

This is [Sandeep Shiansukar] calling in for Mahesh Sanganeria. Congratulations on a strong quarter. I guess both the gross margins and revenues have been better than what we expected.

One question I had was can you give us more idea in terms of like how you expect your OpEx for 2008 for the whole year?

Actually, we provide guidance only on revenue. As I said before, we do not expect to see a major change in the operating expenses in the next -- in 2008 quarters.

Oh, in all the four quarters?

Yes.

Okay, thanks.

Of course there [are] variable expenses in the sales and marketing that will be changed according to the revenue.

Okay. So the other thing I was interested in finding out was -- the gross margins improved sharply this quarter. Was it primarily because your semiconductor revenues went up and PCB revenues came down? Or was there gross margin improvement in both sides?

There was actually two reasons. One is the mix of the products, as you say. The higher semiconductor product in the mix actually improved our margins, because the gross margin of semiconductor products is higher.

And another reason is that the prices, the average selling price, went up this quarter as a result of a better competition environment.

Is that -- that held true for both PCB and semiconductor?

That's right.

Okay, okay. So going forward, can you give us some more idea about your tax implication that you discuss in your earnings statement? The income tax?

The problem is we cannot give the -- we are still in the process of review of FIN 48 impact at the end of the year of 2007. So we still don't have this number.

In any case, it will be a one-time impact on our report. If there will be an impact, it will be a one-time. Of course there will not be any cash result for this act.

Okay, no cash impact.

No, and not future impact either.

Great. For Q1 '08, do you expect your gross margins to stay at the same level as Q4 '07? Or do you expect it to change with the mix?

As you know, our visibility is very limited. But still as we see it right now, we don't see any reason for decreasing the average selling price. [The opposite.] It seems like the competitive environment is the same in Q4.

Also, as we said, the semiconductor industry is looking quite good, so we don't see any decrease in semiconductor revenues. So we at least will keep our gross margin levels.

Okay. With the macroeconomic weakness right now, do you expect that to impact your PCB sales in 2008?

Rafi?

Yes, I would say if -- we always say that the PCB industry actually follows the economic situation worldwide. Definitely, if there will be some slowdown worldwide regarding the economy, it definitely will affect the PCB business.

But right now, it is not so clear; and we can't see it in Q1. But we have to see what is going to be in the other quarter.

Okay, thank you. Can you reconfirm? Do you expect your split between PCB and semiconductor to stay more or less the same for Q1 as Q4?

Okay, Ronit, are you going to answer?

Yes, right now, as we said, we see the semiconductor industry in an improving trend. And we for the -- to be conservative, we will say that it will stay the same.

Okay, thank you. I guess that's all I have for now. Thank you very much.

(OPERATOR INSTRUCTIONS) Ralph Marash with First Manhattan Company.

I just wanted to double check. Your Asian revenues are in dollars, US dollars?

Yes.

Europe is in Euros?

Europe is in Euros.

Thank you.

(OPERATOR INSTRUCTIONS) Sergey Vastchenok with Oppenheim.

Hi guys. I just wanted to get some clarification on an issue you raised in your press release regarding a tax liability in Israel. Can you specify the amount of the payment you are required to pay?

In Israel?

Yes, the tax liability.

We don't have -- you know that the tax liability that we pay in Israel is very low, because we are an approved enterprise in Israel. So the implication of the FIN 48 is not in Israel, let's say, (multiple speakers). Okay?

Okay, so how much is -- you are required to pay on this application?

We didn't say that we have to pay. We are checking if there is any exposure that we have outside of Israel right now. We didn't finalize this review.

So it is not that we know that we have a liability and we didn't disclose it; we don't know if we have any liability.

Okay, okay. A question regarding the ARS exposure on your balance sheet, can you comment on this one?

Yes, sure. The ARS, as all of you probably know what happened last week I think was that the auction sale -- we don't have major holding of these [auction rate securities] actually. We don't see any problem right now.

As you know, it was an event after the date of the financial statement. We didn't have any impact of the ARS in our report. What we did with the securities that we have, we actually presented these as a long-term asset and not as a current asset. This is what we did in the moment.

We don't see a real risk here because, as you know, it is a AAA securities and we don't see any risk here.

Okay. So what is the amounts of this class?

About $1 million.

$1 million? Okay. Thank you very much.

It is not major risk here.

Yes, absolutely.

(multiple speakers) the current level of cash that we have.

Yes.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this point, so I would like to turn back the call of [Ehud Helft] 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, that will conclude today's conference call. You may now disconnect.