Orbotech Ltd.

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Orbotech Ltd.

P.O. Box 215
Yavne
81102
Israel
Telephone: +972 8 942 35 33
Fax: +972 8 943 87 69
Web site: http://www.orbotech.com

Public Company
Incorporated: 1981 as Optrotech
Employees: 1,382
Sales: $305.3 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: ORBK
NAIC: 333314 Optical Instrument and Lens Manufacturing; 334513 Instruments and Related Product Manufacturing for Measuring, Displaying, and Controlling Industrial Process Variables; 334516 Analytical Laboratory Instrument Manufacturing

Orbotech Ltd. is the world's leading developer and producer of automated optical inspection (AOI) and related imaging and computer-aided manufacturing systems. The company's imaging tools are used in the manufacturing of bare printed circuit board (PCB), flat-panel displays, PCB assemblies, and IC packaging, among other applications. These systems aid manufacturers by providing highly accurate, high-speed, and automated optical inspection, allowing faster production speeds with less waste and at lower cost. Orbotech, through its predecessors Optrotech and Orbot, which merged in 1991, pioneered the AOI market and remains its dominant player, with a global market share of some 50 percent. The company's headquarters and main research and manufacturing facilities are located in Yavne, Israel. The company also operates manufacturing and research facilities in the United States, as well as a network of some 30 sales subsidiaries in Germany, Japan, Belgium, Taiwan, and elsewhere. Founded in 1981, Orbotech has been listed on the NASDAQ since 1984. Optrotech founder Shlomo Barak remains company chairman, and Arie Weisberg serves as CEO. In 2004, the company posted revenues of $305 million.

Inventing an Industry in the 1980s

The development of computer and electronics technologies faced a number of obstacles into the early 1980s. Among these was the need to inspect printed circuit boards (PCBs) as an integral part of the manufacturing process. Yet inspection, which required human operators using microscopes, remained a roadblock in the production process. At the same time, the rapid miniaturization of electronic components presented a still larger future obstacle; before long, PCBs were to become so small that manual inspection would become impossible.

Shlomo Barak had been working for Israel's Electro-Optical Industry Ltd., helping to develop laser and fire-control systems and other electro-optical systems. These were targeted, in large part, at military applications, but saw commercial use as well. Barak recognized that the company's technology could be adapted to provide automated visual inspection applications. The PCB market promised to be particularly receptive to this technology.

In 1981, Barak led a team of fellow engineers at Electro-Optical in the formation of a new company, called Optrotech. Financial backing for the start-up came from Elron Industries, a leading Israeli holding company with interests in a number of industries, especially the electronics industry. Among Elron's other holdings were Elbit Computers, a manufacturer of computers and electronics for military and other markets; Fibronics, based in the United States, which manufactured and sold fiber optics systems; and Elscint, a company that developed and produced medical imaging systems.

Optrotech began developing its automated inspection technology. After 18 months of research and development, the company was finally ready with its first-generation product, dubbed the Vision 104. Although a number of other companies also had been working on their own automated inspection systems, Optrotech became first to market.

Success was immediate. As the first to market, the company was able to maintain its frontrunner status into the middle of the decade. Overnight, Optrotech had helped transform the PCB industry, enabling companies to begin the first of a series of dramatic productivity improvements. The faster production times and greater volumes helped drive costs down, and the steadily dropping prices of PCBs provided still further stimulation for the development of the global electronics and computer industries. The simple existence of an automated optical inspection system made the Vision 104 indispensable to PCB producers.

Yet the appearance of new rivals, such as fellow Israeli company Orbot, created in 1983, and rival technologies, forced Optrotech to continue to invest heavily in its research and development effort. Despite the success of the Vision 194, Optrotech found itself strapped for cash by 1984. Although still a young company, Optrotech turned to the stock market that year, placing its listing on the NASDAQ. As former Optrotech and Elron Chairman Uzia Galil told Electronic Business: "There was no better alternative to bring $10 million into the company. They would have lost the time window." Elron nonetheless retained a major stake in the company.

The initial public offering (IPO) allowed Optrotech to begin development of its next-generation AOI technology, while continuing to refine its initial technology. In 1984, the company launched a new system, the Vision 104X, which was followed by the Vision 105 in 1985. The company also launched an effort to diversify its market, beginning development of its first CAD/CAM system, the Image 2000. This technology targeted the front-end phases of the PCB production process, providing automated capacity to the artwork generation stage.

Heightened competition, however, forced Optrotech to defend its market in 1986, and in that year the company rushed its new-generation AOI system, the 206, to market. The 206 departed from the company's earlier systems, which employed reflective technology, by using a nonreflective imaging technology. The initial release of the 206 proved faulty, however. As Barak told Electronic Business: "There was misjudgment of the difficulty in introducing this technology. It was a long way to solve the problems and clean up the machine." During this time, Optrotech found itself outpaced by rival Orbot, which took over as AOI market leader in 1986.

Merging Market Leaders in the 1990s

The loss of its top position allowed Optrotech to shift its focus away from a reliance on core AOI technologies to include more diversified front-end technologies. As such the company added competence in related areas, including artificial intelligence, machine vision, and systems engineering. By the late 1980s, the company featured two strong product lines: Vision, for its AOI technologies; and Image, for its front-end businesses.

Optrotech also continued to invest heavily in research and development. This led the company to seek additional capital toward the end of the decade. In 1989, the company turned to Canadian-owned Claridge Israel Inc., which agreed to acquire 22 percent of Optrotech for $16 million.

The capital injection provided Optrotech with a new opportunity. At the start of the 1990s, rival Orbot began experiencing its own financial difficulties. Orbot had grown strongly in the late 1980s, in part through the 1988 launch of subsidiary Orbot Instruments Ltd., which developed AOI systems for the booming semiconductor market. Orbot's growth was further supported by its close relationship with IBM, which remained a major customer throughout the decade. At the same time, Orbot developed an early international strategy, looking beyond the U.S. market to target Japan and other Asian markets as early as 1985. In 1990, Orbot hoped to go public in an effort to inject new capital. Yet the collapse of the stock market, and especially the IPO market, forced the company to reconsider.

Instead, Optrotech and Orbot entered talks to merge their complementary operations. Initial discussion failed to find an agreement between the two companies. By 1991, however, the slowdown in the global AOI led the two market leaders to try again. At last, in August 1992, Optrotech and Orbot reached a merger agreement, in which Optrotech absorbed Orbot. The resulting business was then renamed Orbotech.

Orbotech started out as the clear dominant player in the global AOI market; into the late 1990s, the company continued to command some 70 percent of certain market segments. Orbotech also continued to seek new areas for growth. In 1995, for example, the company adapted its technology to provide automatic check reading capabilities for banks and other check processing customers, marking the launch of the company's expansion beyond its focus on the electronics industry. Closer to the electronics field, in 1997, Orbotech launched a new imaging and process control system for use as part of the manufacturing process. In this way, Orbotech's AOI products spanned the range from PCB design to production to testing and inspection.

Global Leader in the 2000s

Into the 2000s, Orbotech launched a new acquisition-based growth strategy. This led the company to form a joint venture with Jenoptik AG, which had developed its own laser-based direct imaging system used for the production of PCB prototypes. Launched in 1997, the partnership came under full ownership of Orbotech in 2000. The company boosted its presence in Japan in 1998, acquiring Toyo Ink Manufacturing's PCB sales and marketing operations.

Company Perspectives:

Orbotech develops and produces the world's most advanced hi-tech equipment for inspecting and imaging circuit boards and display panels—the backbones of today's cutting-edge electronic products.

Orbotech's innovative automated optical inspection (AOI), imaging and computer-aided manufacturing (CAM) technologies enable customers to achieve the increased yields and throughput essential to remaining at the forefront of electronics production.

By then, Orbotech had emerged as the leading producer of AOI systems for the fast-growing LCD industry. The purchase of KLA Acrotec in 1999 allowed Orbotech to firm up its leading position in that market. The acquisition of the Japan-based company cost Orbotech $13.6 million and gave Orbotech as much as 80 percent of the LCD AOI market. By then, Orbotech also had added operations in Europe, with the 1997 acquisition of the AOI business of Germany's W. Schuh GmbH. That company specialized in the production of post-solder inspection equipment.

Orbotech also sought to provide a seedbed for future technology developments. To this end, the company set up a new subsidiary, Orbotech Technology Ventures Ltd., in order to invest in technology start-ups. At the end of 2003, the company had invested nearly $9 million. Among the companies that received investment capital from Orbotech was Negevtech, majority held by Clal Industries and Investments Ltd. In 2004, Orbotech and Clal agreed to transfer ownership of Negevtech to Orbotech for $14.1 million.

Orbotech also continued to attract new customers. After reaching a cooperation agreement with Korean giant Samsung in 2004, the company scored a new sales success with a large-scale order for several AOI systems from Quanta Display Inc. That deal solidified Orbotech's position as a global leader in AOI systems for the LCD market. With sales of more than $300 million in 2005, Orbotech expected to continue to dominate the market it had created just 25 years earlier.

Principal Subsidiaries

Frontline P.C.B. Solutions Limited Partnership; Frontline P.C.B. Solutions Ltd. (50%); Laser Imaging Systems GmbH & Co. KG; Orbograph Ltd. (91%); Orbotech Asia Ltd.; Orbotech B.V.; Orbotech Holding GmbH; Orbotech Japan Ltd.; Orbotech Medical Solutions Ltd.; Orbotech Pacific Ltd.; Orbotech S.A.; Orbotech Schuh GmbH & Co. KG; Orbotech Singapore Corporation Pte. Ltd.; Orbotech Technology Ventures Limited; Orbotech, Inc.

Principal Competitors

Canon Inc.; 3M Co.; Krasniy Gigant; Olympus Corporation; Nikon Corporation; Citizen Watch Company Ltd.; Magna Donnelly Corporation; Hoya Corporation; Showa Electric Wire and Cable Company Ltd.; NeoPhotonics Corporation.

Key Dates:

1981:: Shlomo Barak leads a team of engineers to found Optrotech to produce AOI systems for the PCB industry.
1983:: Orbot is founded as an AOI specialist.
1984:: Optrotech lists stock on the NASDAQ.
1985:: Orbot launches international operations in Japan and the Far East.
1986:: Orbot becomes the AOI market leader; Optrotech diversifies into the CAD/CAM market.
1991:: Optrotech and Orbot agree to merge, forming Orbotech.
1995:: The company launches automated check reading systems for the financial industry.
1997:: A joint venture is formed with Jenoptik; the company acquires W. Schuh in Germany.
1998:: The PCB sales and marketing business is acquired from Toyo Ink Manufacturing of Japan.
1999:: The company acquires KLA Acrotec in Japan.
2000:: The company acquires full ownership of the Jenoptik joint venture.
2001:: Orbotech launches a venture capital subsidiary, investing in Negevtech, among others.
2004:: The company agrees to acquire Negevtech from Clal Industries.