Signs of Recovery Showing Up at Israeli Companies on Wall Street

The global economic crisis dealt a bruising to Israeli companies listed on Wall Street during the second quarter.

The global economic crisis dealt a bruising to Israeli companies listed on Wall Street during the second quarter. Most presented dramatically shrunken revenues compared with the same period in 2008. But the good news is, some seem to be staging a recovery.

There were those like software house Retalix, which managed to muster an improved bottom line in spite of fizzling revenues through hedging the dollar exchange rate.

Others like software firm Amdocs, WiMax company Alvarion, semiconductors maker Zoran and voice-technology maker Comverse pared down their workforce in order to stave off dire consequences.

And now, after that horrible quarter, there seems to be a light at the end of the tunnel. Signs of recovery are beginning to show up in the companies' guidance for the third quarter, though not at all.

Data security company Check Point Software Technologies and the chip maker, Tower Semiconductor are expecting to show better results in the third quarter.

But billing software giant Amdocs and Comverse, on the other hand, depend for their livelihood on a rebound among the world's telecom companies.

These companies have already signed off on their 2010 budgets. Amdocs and Comverse will have to wait longer than their fellow Israeli firms on the Street for revenues to bounce back to pre-crisis levels.

Ziv Tal, technology analyst at Oscar Gruss, says that they remain optimistic on the technology sector, which has generated better than forecasted results. Nevertheless, Tal says, it must be kept in mind that forecasts issued at the end of the first quarter aimed low.

"In general, we draw our optimism from names like Check Point, Amdocs and NICE Systems. Their streamlining is a positive move," Tal says.

Amdocs' revenues fell sharply in the second quarter, but less than market had expected. The company ended the quarter with revenues of $690.3 million, down 15.9% from the comparable period in 2008 - but nevertheless higher than analyst forecasts of $679 million.

Adjusted profits reached $108.6 million, or $0.53 per share, down 18.1% from the same period the year before, but again confounding analyst earnings forecast of $0.48 per share.

How did Amdocs manage it? By slashing costs. It pared down operating costs by 16.4% compared to the same period the year before.

The company has laid off hundreds of workers over the past year, including some from its now defunct Jerusalem facility.

The coming quarters are expected to be weak for the company as well, with the calendar third quarter even weaker than the second. The company expects revenues to rebound to 2008 levels only in 2011.

"Demand conditions remain weak" Baharav said upon the release of the company's second fiscal quarterly report, "particularly for large transformational projects, as our customers manage their budgets tightly. As a result, we anticipate that our revenue may continue to trend down sequentially, albeit at a moderating pace, until we see demand improve," he said.

Amdocs had guided investors to expect revenues of $670 million to $690 million for the third fiscal quarter.

Comverse, on the other hand, has not released audited financial reports since the stock-options backdating scandal that sent the firm's former chief executive Kobi Alexander fleeing the arm of the law to Namibia. While regular reporting is expected to resume only from the beginning of 2010, the economic slowdown has likely affected the company's results as well since it also works with international telecom companies.

Just two weeks ago TheMarker learned that Comverse plans to fire 5% to 10% of its workforce, which means 250 to 500 employees, including workers in Israel. Comverse was forced to lay off some 150 workers world wide, and dozens more in March. With the release of its audited financial reports in 2010 the company's true financial condition will be clearer, but these signs do not bode well.

The integrated circuits industry was hit hard in the second quarter. Zoran, designer of chips for camera, television, DVD and other products, laid off 40 of its 450 employees in Israel two weeks ago after deciding to divert resources from chip development to cellular instruments.

Zoran fired 40 workers from its Netanya development center six months ago and relocated the remaining 50 employees to its Haifa facility. Most of the remaining workers were laid off in the recent round of dismissals.

Zoran ended the second quarter with revenues of $102.7 million, down 20.2% from the same period last year but an increase of 49.9% from the previous three months. The market had forecasted revenues of $88.4 million.

"Zoran transferred its cellular operations to China, and continues to show a strong balance sheet, even during a year of low sales. The company is ripe for the next acquisition," Tal says.

Tower Semiconductor, the foundry from Migdal Ha'emek and the only Israeli company directly involved in chip production (beyond development), had a difficult second quarter. It reported revenues of $60.6 million, up a slight 4.3% from the comparative quarter.

Despite the reported increase, the company in fact suffered a sharp decline, as revenues this time around were consolidated with by Jazz Technologies, which Tower acquired last year.

Tower projects revenues of $73 million to $77 million for the third quarter, an increase of 28% from the comparative quarter.

The data security giant Check Point chalked up record revenues in the second quarter. The firm reported revenues of $224 million, up 12% from the same period last year, after analysts had predicted revenues of $220 million. The company reported net profit of $101 million, reflecting earnings per share of $0.48. That's 9% higher than the comparative period. Analysts had forecasted earnings per share of $0.46 per share.

Check Point's cash and cash equivalents totaled $714 million, up from $542 million at the end of 2008.

With the release of its second quarter financials, Check Point's chief executive Gil Shwed said that the company is now more focused in the past on new acquisitions. "It's good timing, marketwise, but it isn't easy to find good companies," Shwed said.

"Check Point continues to be a leader in the area of organization security, and with the acquisition of Nokia's operations the company could see sales of $1 billion in 2010. The firm is in the midst of revising its revenues model, and moving to a model based on revenues subscriber revenues. The global slowdown actually improved the company's position." says Tal.

One of the companies hurting most from the recession was Syneron Medical. Investments in "aesthetic medicine" companies plunged. The situation was exacerbated by the fact that most of its sales are in from the U.S.

Nevertheless, signs of recovery have begun, although the process could be a lengthy one. Syneron revenues totaled a chilling $14.2 million compared to $38.2 million in the comparative quarter. The company reported a loss of $4.8 million, compared to a net profit of $13.6 million in the same period last year.

Analysts expect 2009 revenues to reach $58 million, and $68 million in 2010, compared to $155 million in 2008.