Eltek posts Q2 net loss as supply chain and currency pressures weigh on margins
The Israeli electronics firm cites transitional manufacturing costs and a stronger shekel for its second-quarter results, while outlining plans to expand capacity through new plating lines.
Eltek Ltd. has reported a net loss for the second quarter of 2026, attributing the result to a transitional phase aimed at stabilising manufacturing operations and expanding its human infrastructure. According to the earnings call summary published by Yahoo Finance, revenue levels in the first half of the year remained below the threshold required to fully leverage fixed operational expenses, preventing the company from reaching its historical profitability potential.
Despite the bottom-line loss, gross margins improved from the first quarter, driven by higher revenue volume and a gradual adjustment of average selling prices to reflect a higher cost environment. However, management noted that the appreciation of the Israeli shekel against the U.S. dollar significantly impacted gross profitability and contributed to increased financial expenses.
The company faces significant supply chain headwinds, particularly for fiberglass-based materials, due to intense competition for supply from the rapidly growing AI infrastructure industry. Raw material costs are subject to extreme volatility, with some suppliers implementing allocation quotas that make securing necessary materials increasingly difficult. To address operational capacity, Eltek is integrating 15 foreign employees, with plans to add approximately 15 more to improve production efficiency.
Strategic diversification efforts continue to focus on medical and high-end industrial markets to balance the existing defence-heavy portfolio. The first new PCB plating line is expected to begin official qualification in the third quarter of 2026, with full commercial production anticipated several months later. A second plating line is scheduled for delivery and installation by the end of 2026, supported by contractual penalties for potential supplier delays.
Profitability recovery depends on the gradual replacement of older backlog orders with new contracts priced at current, more favourable exchange rates. Approximately one-third of the current backlog consists of long-term purchase orders fixed at historical exchange rates, which continues to weigh on overall profitability. Management expects the implementation of a new ERP system to provide the necessary foundation for scaling operations and improving management oversight.
Future financial performance relies on the successful conversion of a record-high backlog into shipments while navigating raw material allocation quotas. Management expects improvement to be gradual, contingent on increased production volume, better capacity utilisation, and the ramp-up of new lines. Profitability is also tied to securing new orders at pricing that reflects current raw material and overhead costs, a challenge given a competitive environment with both local and foreign rivals.
