Israeli Co's Announcing Earnings: Expect the Expected

The fog surrounding the macroeconomic situation in the US will be lifted slightly this week, since it will be loaded with important announcements all crammed into three and a half days of trading. The markets will end the trading week on Thursday, as Americans prepare for the July 4 celebrations the following day.

Employment figures are the really important news and this will be published on Thursday, with an expected 50,000 more jobs lost in June, taking unemployment to 5.4%. Tuesday saw the publication of the Chicago Purchasing Managers Index for June, and due to be published Tuesday is the Institute of Supply Management Survey, which tracks the manufacturing sector in the US.

Over the next ten days leading up to the start of the results season, we are likely to see several companies publish earnings warnings, with Israeli companies who took heavy losses because of the tumbling shekel-dollar exchange rate the most likely candidates. Publishing a warning in advance is not something that is required by law, and in recent years, more and more of the companies that have failed to meet the forecasts have avoided issuing advance warnings of this. BluePhoenix Solutions Ltd. (BPHX), for example, which crashed 56%, actually found itself railroaded into issuing an advance warning by two analysts who couldn't wait and downgraded their forecasts for it before the quarter was over.

Of the companies in my portfolio, tracked by "Globes", Ceragon Networks Ltd. (CRNT) has taken the plunge and announced it would be unveiling its results on July 21, and I presume that despite the harm caused by the falling shekel-dollar rate, it will meet the market's estimate, which stands at earnings per share of $0.13 and $50 million sales for the quarter. Ceragon recently published a string of new wins in the East and in Mexico, something which, I feel, will also ensure it meets the full-year estimate, with expected growth of 25%.

Another company that has already announced a date for its report is SanDisk Corporation (SNDK), but this says nothing about the type of quarter it is likely to unveil, since it is one of those companies which, in principle, does not issue advance warnings, good or bad. SanDisk's share sank to a five-year low on Friday, in response to the collapse in the share price of Micron Technology (MU), which last week unveiled its results for the third quarter in its fiscal 2008.

The signals coming from the market are that SanDisk has no chance of meeting the second quarter estimates and furthermore, there are those who feel certain that it will lower its guidance for the third quarter. So if it does have a surprise in store, the share will stage a strong rebound. SanDisk's advantage over the other NAND chip manufacturers is its safety cushion in the form of $120 million in royalties for the quarter, as well as the highly advanced production capabilities of the fabs it jointly owns with Toshiba (TOSBF.PK), but whether these will be enough this time round, given the ongoing freefall in flash chip prices, is by no means certain.

Another company which, on the other hand, will have no difficulty meeting its guidance for the quarter, is Orckit Communications (ORCT), which is expected to report sales of more than $3 million. The major contract that its subsidiary Corrigent Systems won in February from a business unit of Deutsche Telekom AG (DT), has now reached the deliveries stage, with the first platforms installed at the end-customer, KDG, Germany's largest cable television provider, and the rate of installation will increase from one quarter to the next. Rumors on the market talk of further wins, including initial deliveries, worth an insignificant amount, to new customers in the US and Asia.

In 2009, Orckit is seen reaching a rate of annual sales of tens millions of dollars for the first time since 2006, on the basis of two solid foundations - the contract in Germany and the renewal of procurement by its longstanding Japanese customer KDDI Corp (TSE: 9433), which is rolling out a WiMAX network, among other things. In addition, it will have several small customers worldwide with whom it hopes to grow, and the chance of a third customer the size of KDDI in Canada. One of the major telecom carriers in South Korea, which has already tested and conducted successful tests with Orckit's equipment, is awaiting regulatory approval so that it can substantially expand its IPTV service.

Orckit will hold its annual shareholders meeting this Thursday. It will be an exceptional one, since it will be the first time I have come across a company that is asking for a generous options allocation to its managers, but only if they meet the annual sales targets they were set. For example, the aggregate sales target for 2009-2011 is $250 million, with a threshold of $50 million for 2009. I believe these are minimum targets that are already covered by the contract in Germany, but in the volatile world of today, with the risk of recession just around the corner, nothing can be assumed as a given, and nothing could be more fitting than giving managers an incentive like this to earn their options fair and square.

Disclosure: None

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

 

Comments

[AmesTiedeman]

SNDK looks very interesting here if one has a longer time horizon. Perhaps 3 years.