This Israeli Company is being made Rich by China’s Bid for Tech Dominance


07/10/2016



Companies like Orbotech Ltd. are helping ensure billions are well spent for Chinese companies as questions arise about whether China has bitten off more than it can chew when it comes to making chips.
 
As factories pump out increasingly complex chips for smartphones and tablets, Orbotech makes inspection and repair tools that help factories avoid errors. IN a market capitalization that has not been seen since the dotcom era, the market capitalization of the company surpassed $1 billion in March. Compared with a 5.7 percent gain in the Philadelphia Stock Exchange Semiconductor Index and a one percent drop in the Nasdaq Composite Index, the company stocks has rallied 18 percent this year.
 
As the Chinese government tries to build a homegrown industry that can make chips and screens -- components of the phones and tablets it already exports to the world, it has also become a booming market for Orbotech. the strategy of the government there helps to lessen its reliance on U.S. companies and allows it to replace costly imports.
 
For the development of chips, China has said it plans to invest as much as 1 trillion yuan ($149 billion) over 10 years.

Capitalizing on this opportunity, Israel is using its tech know-how to cultivate closer trade ties with the world’s second-largest economy. Israel’s own semiconductor accounted for $3.2 billion of its exports last year and it had began to flourish in the 1990s.

“This drive to build up China’s tech manufacturing base is going to be a huge windfall to companies like Applied Materials and Orbotech. It doesn’t matter if the tech plants already exist, they want them to exist in China,” said Tim Call, who manages $350 million, including Orbotech shares, as chief investment officer at Capital Management Corp. in Glen Allen, Virginia.
 
Capital equipment that allows manufacturers of chips, printed circuit boards, and flat panel displays to avoid costly defects during production is made by Orbotech, whose revenue jumped 29 percent to $809 million last year.
 
Flat-panel displays for smartphones, tablets and televisions is what most of its China business it tied to. OLED (organic light-emitting diode) technology, which is poised to displace the LCD technology used in most TV’s because of better picture quality, has also become a source of getting business for the Israeli company.
 
Much of the revenue from flat-panel bookings to show up in the second half of 2016 is expected by the company, said Chief Executive Officer Asher Levy said in a May 4 conference call. Citing a regulatory quiet period, no comment was made by Rami Rozen, director of investor relations at Yavne, Israel-based Orbotech.
 
Buoyed by chipmakers upgrading production technology, Applied Materials Inc., has rallied 34 percent this year. The company makes machinery to produce semiconductors.
 
Analysts are most bullish about its 2014 acquisition of U.K.-based SPTS Technologies even as China’s investment is driving demand for Orbotech’s products. SPTS Technologies specializes in advanced packaging for semiconductors. To allow chips take up less space inside electronic devices, this technology allows chipmakers to closely connect different chips. Wayne Loeb, an analyst with SG Cowen & Co. in San Francisco said that new demand is being stimulated by innovation to create flexible printed circuit boards.
 
“It’s now a growth story, not a boring or cyclical business,” Loeb said.
 
(Source:www.bloomberg.com)