Nova Measuring Instruments, Inc. (NASDAQ: NVMI, Stock Forum)
Industry – Semiconductors
Price as of September 8 – $1.45
Long-term target – 2.20 to 2.45 

A provider of diversified metrology solutions for the semiconductor industry, Nova Measuring Instruments Ltd. is an innovative company with a huge cash position, improved operations, and no long-term debt. The company recently improved its cash position and announced an encouraging outlook. In addition, NVMI unveiled its new optical CD platform and that the platform, in independent testing, achieved the "Holy Grail" of Optical CD throughput.

From time to time, you may recognize a company that has been profiled before; although PeterLeeds.com profiled NVMI in May, the company continues to be a good, undervalued opportunity. While other newsletters focus on variety, PeterLeeds.com focuses on opportunity.

Semiconductor metrology instruments are designed for wafer and thin film in-line inspection after semiconductor processing. Today, semiconductor manufacturing follows very strict standards and must accommodate very small dimensions.

By using semiconductor metrology instruments, manufacturers can facilitate semiconductor inspection, reduce manufacturing costs, and shorten the product development cycle.

Business profile

Nova Measuring Instruments trains its optics on things invisible to the naked eye – but on a microscopic rather than a stellar scale. The company develops advanced integrated and standalone metrology solutions for the semiconductor manufacturing industry.

Metrology systems measure various thin film properties, critical circuit dimensions, and layer-to-layer circuit alignment, during various steps in the semiconductor manufacturing process, allowing semiconductor manufacturers to increase quality, productivity, and yields, lower their manufacturing costs, and increase their profitability.

The company's products also include optical topography systems for use in post copper chemical mechanical polishing applications, optical critical dimension systems for lithography and etch, and overlay systems for lithography and etch applications.

It supplies its metrology systems directly to semiconductor manufacturers, process equipment manufacturers, and end users in the United States, Japan, Taiwan, Singapore, Europe, and South Korea. Of the 20 semiconductor manufacturers that had the highest capital equipment expenditures in 2005, 18 use the company's systems.

Customers include Applied Materials (NASDAQ: AMAT, Stock Forum), Ebara (OTO: EBCOY, Stock Forum), Lam Research (NASDAQ: LRCX, Stock Forum), and Novellus (NASDAQ: NVLS, Stock Forum). Clal Industries & Investments owns about 24% of Nova.

Fundamental analysis

On August 5, NVMI announced its financial results for the second quarter ended June 30, 2008. Total revenue for the second quarter of 2008 were $11.1 million, a decrease of 25% relative to the second quarter of 2007.

The company reported ($1.3 million) net (loss) in the second quarter of 2008, or a loss of seven cents per share. This compares to a net income of $1.1 million, or five cents per diluted share, for the second quarter of 2007.

The company generated $1.6 million in positive cash flow from operating activities during the second quarter of 2008, and total cash reserves at the end of the second quarter of 2008 increased to $21.5 million.

“In view of the downturn being experienced by our industry, our ongoing cost control measures continued to prove their effectiveness in the current quarter,” said Gabi Seligsohn, President and CEO.

“We are continuing to make progress with our penetration of the Stand Alone Optical CD market. During the quarter we concluded successful stand alone evaluations at two different Fabs, and we are now beginning to recognize revenues from the sales of these systems.”

“In parallel to this success, proving the strong capabilities and the growing interest for our stand alone metrology products, we placed new evaluation systems at two additional customer sites.”

A tough economy has put pressure on NVMI, but that has simply positioned the shares at prices which would not otherwise be available. Look for Nova to continue to execute on its game plan, and benefit as the economy strengthens, while continually increasing sales. We expect the share price to follow that lead.