The day after Mobileye announced the shutdown of its aftermarket division and the termination of 90 Israeli employees, American company KLA informed over 100 workers at Orbotech in Yavne on Tuesday that they were being laid off due to the closure of the flat panel display (FPD) division, which specializes in test systems for flat screens. This division is one of the two main divisions of the Israeli company, Orbotech, which was acquired by KLA in 2019 for $3.4 billion.
Orbotech, founded in 1992 through the merger of Orbotech and Optrotech, is recognized as one of Israel’s pioneering high-tech firms. The closure of this division and the subsequent layoffs are regarded as significant events highlighting the company's decline since its acquisition.
"The sharp decline in demand for consumer electronics severely weakened the Israeli site, and employees in Yavne have been describing an empty production floor for over a year," sources at the company said. According to estimates, Orbotech's local workforce has not only failed to expand since the sale but has been shrinking over the years, affecting local senior personnel who have also departed.
Employees describe a gradual shift of management responsibilities in marketing and sales to the company's headquarters in the United States, accompanied by a rise in bureaucratic procedures and a decrease in the Yavne center's autonomy. Orbotech, headquartered in Yavne, specializes in developing testing systems for printed circuit and flat display manufacturing machines. Its clientele primarily consists of chip and electronics manufacturers in East Asia. Following its acquisition by KLA in 2019, Orbotech experienced rapid growth, employing approximately 3,500 individuals, including about 800 in Israel.
KLA intends to cease operations of the division by the end of 2024, although the final count of affected employees has not been disclosed yet. On Tuesday, over 100 workers at the Yavne offices received immediate termination notices. It is estimated that there will be further layoffs before the year's end. KLA anticipates writing off inventory worth approximately $70 million and incurring termination expenses ranging from $50 million-$70 million upon the division's closure. Notably, before KLA acquired Orbotech, the company had no involvement in the flat panel display systems sector.
"KLA announced today a strategic decision to close the equipment division for flat panel display manufacturers due to a continuous decline in this market and the cancellation of a project with a major customer. We are committed to providing continued support to existing customers, as we have already informed them. We maintain our full commitment to our business activities in other divisions and to the demands of the electronics, advanced packaging and components market," KLA said on Sunday in a statement.
In recent quarters, KLA has suffered from a slowdown in its overall business, which has already led to workforce reductions. Still, Orbotech’s traditional activity has shown particularly significant weakness in recent quarters. The company's activity in the field of test systems for printed circuits and flat panel displays accounted for only 3% of KLA's total revenue and amounted to $283 million in 2023, falling by 48%. Together with revenues from services in Orbotech's traditional field of activity, the annual turnover amounted to half a billion dollars, but even this was after a decline of 34%.
In 2023, flat displays accounted for approximately $150 million, or 1.5%, of the company's total sales, which amounted to $10 billion. However, this sector's profitability lagged behind the company's overall performance, prompting the decision to halt operations. Since its acquisition by KLA, Orbotech's activities have not only failed to grow but have contracted. In its final independent year of 2018, Orbotech boasted annual revenues of $1 billion and maintained profitability.
Several factors contribute to the weakness in Orbotech's traditional core business. First, the flat panel and printed circuit board market exhibit cyclicality, persisting even during Orbotech's era as an independent entity. Additionally, geopolitical tensions between the U.S. and China have exacerbated challenges. Furthermore, Apple's decision last year to transition to in-house production of screens, abandoning its reliance on suppliers like Samsung – previously a client of Orbotech – resulted in substantial revenue loss and a ripple effect across the supply chain. Moreover, the classification of precision testing equipment for printed circuits and flat displays as strategic by the U.S. has heightened export restrictions to Asian factories, adding to Orbotech's challenges.
It is possible that, if Orbotech remained an independent Israeli company, it would have been less affected by the trade war between the U.S. and China. Estimates suggest that export restrictions to China, which apply to American companies in the chip field, cut almost $1 billion from KLA's revenues in 2023. KLA currently employs 1,500 people in Israel and, beyond Orbotech, it also has had a plant in Migdal HaEmek since the 1980s. Last year, it began promoting the establishment of a new plant in Zippori National Park in the Galilee.