No, we can't be sure we've seen the bottom, sighs Orbotech (Nasdaq:ORBK) ( ORBK) CFO Amichai Steinberg, which revealed its second-quarter results yesterday.

Actually, in its post-report conference call, the company said the worst was behind it. But the question marks hovering over the industry are unchanged from three months ago, Steinberg says.

Whatever. Orbotech's profit and loss statement showed no signs of an up-trend, though the company did meet its guidance and showed quarter-to-quarter improvement in its bottom line and cash flow which remained negative. UBS Warburg for one doesn't see great change any time soon.

The company more or less met analysts' expectations, after missing in the previous quarter though it met its own guidance then. Lehman reacted to the miss on Tuesday by lowering its earnings estimates, and target price from $30 to $20. But Steinberg expects the third quarter to look much like the second, give or take a million.

"It's important to meet forecasts, but isn't the most important thing," he demurs. "We should also be viewed against the whole technological market, to see our capacity for weathering the protracted crisis, and how we come out of it. For now, I'm satisfied with our implementation of plans, at the domestic level and at the level of keeping ahold of our assets."

"There were no surprises in Orbotech's reports," says UBS's Jonathan Half, who covers the company. Any improvement the company showed for now is more noise in the machine, rather than a fundamental upswing in its industry, he adds.

Orbotech, which develops solutions for the supply chain of the electronics industry, reported that second-quarter revenue sank 29% from the parallel quarter to $54.2 million, up 6% from the first quarter. That was at the upper end of its guidance.

Steinberg says that 85% of its income was generated in Asia Pacific and Japan, in continuation of a trend begun a year and a half ago. In the first quarter, that region was responsible for 70% of the company's income. "The market is advancing toward that geographical region, and we're moving with the market, directing most of our efforts there," he says.

"Our test will be to combine the geographical change with our development plans. Meanwhile we continue to focus on R&D and in reinforcing our contacts with customers. We believe that this strategy, coupled with the company's financial strength, will continue to serve as a platform for future growth."

Inspection kits for flat-panel displays comprised 24.3% of the company's second-quarter income, growing 18% from the previous quarter to $13.2 million. Orbotech has orders not only for this year but through to 2004, Steinberg says.

The market of inspection kits for printed circuit boards, Orbotech's traditional wares, contributed 37% of the company's income in the second quarter, rising 17% from the prior quarter to $20 million. "We were not surprised at the increase, but can't say whether it's the start of a good period, or something transient," Steinberg says.

The company does not see the ratio of FDP and PCB changing, partly because it plans to launch new products for PCB makers that should increase its contribution.

UBS's Half doesn't see the PCB market picking up until telecommunications, PCs and cellular rally.

The rest of the company's income came from assembly inspection kits - $3.8 million, and from services, revenue from which dropped to $15.3 million. Assembly was disappointing, Half says, but no surprise there.

Orbotech can expect a strong performance in FPD in the fourth quarter, he adds, based on orders Asian companies are planning to make from the Israeli company.

The company posted an operating loss of $2.1 million, including one-time charges of $600,000. "We're done with the nonrecurring charges for now," which were part of the company's cost-cutting measures in the last two quarters, Steinberg says. It's hard to predict the future, he adds. "We will shortly begin working on our operating plan for 2003 and may have to make adjustments, change our expenses structure. I hope we won't need another plan," he says.

The company remains with 1,550 employees, half in Israel, after cutting 92 jobs this year.

Excluding one-time charges, Orbotech lost a net $600,000 or 2 cents per share, whereas analysts had expected a 1-cent loss. Half says that by his model, Orbotech could achieve positive operating and net earnings in the third quarter.

Orbotech's negative $1.5 million cash flow in the second quarter was better than the $3.5 million presented in the past quarter. The company has $152 million cash, including long-term investments, down $6 million from the previous quarter. Of that, it explains, $4 million was invested in two privately-held Israeli companies CoreFlow and NegevTech, $2.5 million and $1.5 million respectively.

The model of changing Orbotech into a venture capital fund may or may not work out, Half says. To the company's credit, it is one of the few Israeli firms that diversified its product lines well, and it sees these investments as part of its future diversification strategy. On the flip side, its management could focus more on internal development, or acquisitions of companies with interesting technology. But in any case, $4 million is not an acute step for the company, Half concludes.

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