Two leading technology companies, Oracle (ORCL) and Research In Motion (RIMM), will report results for their quarter this week, which ended in August. Many smaller companies, including several Israeli ones, will present at investor conferences. Rodman and Renshaw is holding its annual global investment conference in New York, with several hundred companies participating. Among the Israeli firms which I hold in my portfolio tracked by "Globes" that will be there are Orbotech Ltd. (Nasdaq:ORBK), AudioCodes Ltd. (Nasdaq:AUDC), Allot Communications Ltd. (Nasdaq:ALLT), Camtek Ltd. (Nasdaq:CAMT), Nova Measuring Instruments Ltd. (Nasdaq:NVMI), Radware Ltd. (Nasdaq:RDWR), Ceva Inc. (Nasdaq:CEVA), and Orckit Communications Ltd. (Nasdaq:ORCT).
Of those firms, the ones that especially interest me are Orbotech, Audiocodes, Nova, and Camtek.
As far as I know, all four are enjoying excellent business momentum, but the stock market must have decided that something bad is happening with them. Otherwise, it is difficult for me to understand why the four lost tens of percentage points from their record share prices during the year.
I expect to hear from Orbotech if the slowdown in global sales of LCD televisions since the end of the World Cup led to a postponement of orders of inspection systems, which were already in a backlog that grew considerably this year. This slowdown is apparently also reflected in a drop in production capacity at several of its customers, mostly Taiwanese screen makers.
If that did not happen, and executives confirm increased guidance figures that were given only a month ago, then it appears that the market again was quick to draw conclusions from the macro environment, and erred in the micro of Orbotech.
Nova stood out, especially with the collapse which it experienced in a very short time. Just a month ago, after it reported record quarterly revenue and profit and significantly raised its full-year guidance, the share price rose to close around $6.70. On Friday, the share closed at $4.60, a collapse of 31%.
Just a month ago, Roth Capital analysts raised their profit forecast for the next year to $1 per share, which gives it a P/E ratio now of 4.6, which generally shows a deep recession around the corner.
Despite the fact that more than a few analysts have been warning for a long time already about a slowdown in the chip sector, including the equipment industry which Nova is part of, I do not believe that Nova CEO Gabi Seligsohn will solve the riddle of the share's collapse with explanations of a slowdown or imminent recession.
Since the tremendous optimism that he broadcast just a month ago with the results, I have not heard of even one chip facility whose construction has been frozen because of the slowdown. On the contrary, I actually heard about increased investments at giant companies like Samsung (OTC:SSNLF), Toshiba (OTCPK:TOSBF), and many others who are customers of Nova.
In addition, the metrology systems sector, which is Nova's expertise, became more critical over the past year for many chip manufacturers. Through cutting production geometries, they are producing many more chips from each piece of silicon. The minimization demands more complicated inspections, that platforms made by Nova and two of its rivals can handle.
While Nova's share sank 30%, its direct competitor, Nanometrics Inc. (Nasdaq: NANO), which also reported strong results and guidance a month ago, rose 30%. That leads me to conclude that we're not talking about a slowdown, but self-destruction of Nova's share.
Teuza - A Fairchild Technology Venture Ltd. (TASE:TUZA) and Clal Industries and Investments Ltd. (TASE: CII), who were among Nova's founders, announced a month ago their intention to continue to sell shares. It is nearly certain that at least one of them is behind the collapse of 30%.
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2010; Reprinted on Seeking Alpha with permission © Copyright of Globes Publisher Itonut (1983) Ltd. 2010