YAVNE, ISRAEL, February 14, 2018 | Orbotech Ltd. (NASDAQ: ORBK) today announced that SPTS Technologies, an Orbotech company and a supplier of advanced wafer processing solutions for the global semiconductor and related industries, has received approximately $37M in orders for multiple etch and deposition systems from two GaAs foundry customers. SPTS’s Omega® plasma etch, Delta® PECVD, and Sigma® PVD systems will be used to manufacture radio frequency (RF) devices for 4G and emerging 5G wireless infrastructure and mobile device markets. Delivery of the systems is expected to be split between the first quarter and second quarter of 2018.
“Compound semiconductor electronic devices based on gallium arsenide (GaAs) are the cornerstone of high speed wireless communications,” stated Kevin Crofton, Corporate Executive Vice President at Orbotech and President of SPTS Technologies. “RF devices are entering another exciting phase of growth with the proliferation of 4G mobile communications and preparation for 5G. IDMs and foundries are looking to add capacity to existing fabs to meet the growing demand, while new entrants are establishing new lines to address future demand for the 5G rollout. Our lead customer has been at the forefront of GaAs foundry services for almost two decades, and their repeat orders are a testament to the production advantages that our etch and deposition solutions continue to deliver to their core business.”
Power amplifiers (PAs) are among the most critical RF components in mobile communications and virtually all PAs in a modern smartphone are made from circuits built on GaAs semiconductors. Analysts are predicting that the growth of 4G communications, gigabit LTE (Long Term Evolution) and emerging 5G will be the growth engine to drive the RF GaAs device market from over $8.1 billion in 2017 to over $9 billion by 2021.
“Our latest forecast1 shows that PAs for cellular applications will continue to account for more than half of the RF GaAs device market,” noted Eric Higham, Director of the Advanced Semiconductor Applications service at Strategy Analytics. He added, “Despite smartphone growth slowing, the added complexity in mobile devices to support gigabit LTE and the emergence of 5G points to continuing growth in RF GaAs production.”
About Orbotech Ltd.
Orbotech Ltd. is a leading global supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products. Orbotech provides cutting-edge solutions for use in the manufacture of printed circuit boards (PCBs), flat panel displays (FPDs), and semiconductor devices (SDs), designed to enable the production of innovative, next-generation electronic products and improve the cost effectiveness of existing and future electronics production processes. Orbotech's core business lies in enabling electronic device manufacturers to inspect and understand PCBs and FPDs and to verify their quality ('reading'); pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces ('writing'); and utilize advanced vacuum deposition and etching processes in SD and semiconductor manufacturing ('connecting'). Orbotech refers to this 'reading', 'writing' and 'connecting' as enabling the 'Language of Electronics'. For more information, visit www.orbotech.com and www.spts.com.
Israeli Tax Matters, Audit Committee Review and Cautionary Statement Regarding Forward-Looking Statements
As previously reported, in May 2017, the Company received a best judgment tax assessment from the Israel Tax Authority (the “ITA”) with respect to an audit of the Company for the fiscal years 2012-2014 (the “Assessment”), for an aggregate amount of tax against the Company, after offsetting all accumulated net operating losses for tax purposes (“NOL”s) available through the end of 2014, of approximately NIS 207 million (currently approximately $59 million), which amount includes related interest and linkage differentials to the Israeli consumer price index (as of date of the Assessment). All amounts related to the Assessment are given after application of the Company’s NOLs. Approximately 80% of the amount of the Assessment, assuming that all NOLs are set off against the other matters included in the Assessment, relates to the following two matters: (i) the use of tax exempt income derived from the Company’s approved and benefited enterprises under the Law for the Encouragement of Capital Investment, 1959, in particular in its investments in, or acquisitions of, foreign subsidiaries; and (ii) the purchase of shares of the Company by its foreign subsidiaries during the audit period. The Company has not taken any reserves or provisions related to these two matters because it reasonably believes its positions are more likely than not correct as a legal matter. The Company intends vigorously to contest the ITA’s position on both of these matters and has not, as of December 31, 2017, established, and does not anticipate establishing, a provision related to these matters. The other significant item in the Assessment relates to the Company’s transfer pricing with respect to certain intercompany transactions in the Far East. As of December 31, 2017, the Company’s tax provisions with respect to the tax audit period cover a majority of the remaining 20% of the Assessment. In light of the Assessment and the ongoing criminal investigation in Israel, the Audit Committee of the Board of Directors of the Company (the “Audit Committee”), with the assistance of outside advisors, reviewed the Company’s tax returns in Israel for certain periods since fiscal year 2009. The Audit Committee did not identify any fraudulent or criminal activity in the course of its review. In addition, the Audit Committee and its outside advisors had the full cooperation of management and the Audit Committee did not identify any ‘tone at the top’ issues or any significant issues in the Company’s control environment.
The evaluation of tax positions involves significant judgment. If the Company’s judgment with respect to its tax positions proves to be inaccurate, it may be required to increase its provisions or take a charge in future periods. The amount of the increase and/or the charge against earnings could be material. There is an ongoing criminal investigation in Israel against the Company, certain of its employees and its tax consultant related to tax positions taken by the Company in the tax audit period as well as in prior periods. The Company does not have any insight into the scope or time period of the criminal investigation or the timing of any prosecutorial action related to the investigation which may occur in the coming days, weeks, months or years. Although the Company cannot predict the timing of any prosecutorial action, the Company expects to be summoned to the Israeli prosecutor’s office for a hearing, at which it will have the opportunity to present its positions, prior to any indictments of the Company and/or certain of its employees and/or payment of monetary amounts in lieu of such indictments. The Company has not conducted its own investigation into any matters that may be the subject of such investigation and will only do so once the criminal investigation has been completed. The Company intends vigorously to contest the Assessment in accordance with Israeli law as well as defend itself and its employees in the criminal matter, but it cannot assure investors as to the outcome or timing of completion of either process, including the amount of tax ultimately payable related to fiscal years 2012-2014 and prior fiscal years, or any additional taxes, penalties, criminal sanctions, indictments, fines and other amounts that may be imposed as a result of the Assessment and criminal investigation, which may be material in amount or in adverse impact on the Company’s results of operations, financial position and reputation.
Except for historical information, the matters discussed in this press release are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, future prospects, developments and business strategies and involve certain risks and uncertainties. The words “anticipate,” “believe,” “could,” “will,” “plan,” “expect” and “would” and similar terms and phrases, including references to assumptions, have been used in this press release to identify forward-looking statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events affecting Orbotech and are subject to uncertainties and factors relating to Orbotech’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Many factors could cause the actual results to differ materially from those projected including, without limitation, the risk that the Company may not achieve its revenue and margin expectations within and for 2018 (including, without limitation, due to shifting move-in dates); cyclicality in the industries in which the Company operates, the Company’s supply chain management and production capacity, order cancelation often without penalty; timing and occurrence of product acceptance (the Company defines ‘bookings’ and ‘backlog’ as purchase arrangements with customers that are based on mutually agreed terms, which, in some cases for bookings and backlog, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty), fluctuations in product mix, within and among divisions, worldwide economic conditions generally, especially in the industries in which the Company operates, the timing and strength of product and service offerings by the Company and its competitors, changes in business or pricing strategies, changes in the prevailing political and regulatory framework in which the relevant parties operate, including as a result of the ‘Brexit’ process and political uncertainty in the United States, or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis, the level of consumer demand for sophisticated devices such as smartphones, tablets and other electronic devices as well as automobiles, the Company’s global operations and its ability to comply with varying legal, regulatory, exchange, tax and customs regimes, the timing and outcome of tax audits, including the Assessment process in Israel and related criminal investigation (see above), the Company’s ability to achieve strategic initiatives, including related to its acquisition strategy, the Company’s debt and corporate financing activities; the final timing and outcome, and impact of the criminal matter and ongoing investigation in Korea, including any impact on existing or future business opportunities in Korea and elsewhere, any civil actions related to the Korean matter brought by third parties, including the Company’s customers, which may result in monetary judgments or settlements, expenses associated with the Korean matter, and ongoing or increased hostilities in Israel and the surrounding areas.
The foregoing information should be read in connection with the Company’s Annual Report on Form 20-F for the year ended December 31, 2016, and subsequent SEC filings. The Company is subject to the foregoing and other risks detailed in those reports. The Company assumes no obligation to update the information in this press release to reflect new information, future events or otherwise, except as required by law.
Tally Kaplan Porat