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Israel-based global specialty foundry leader, Tower Semiconductor Ltd. (TSEM), recently announced a joint venture (JV) with Panasonic Corporation (PCRFY) to manufacture Panasonic’s products.

Panasonic Corporation is a Japanese consumer electronics vendor which develops electronic technologies and solutions for customers in residential, non-residential, mobility and personal applications.

Per the agreement, Tower’s Japanese unit, TowerJazz, will manufacture chips for Panasonic using the latter’s three-chip fabs in Japan. The fabs are located in the northwest of Japan's main island, Honshu. Panasonic will transfer its semiconductor manufacturing processes, capacity and tools of 8 inch and 12 inch to the JV.

Additionally, Panasonic has committed to buy chips made by the JV for a period of at least five years, forging a long-term partnership between the two companies. The JV will also have the option to expand operations in the fabs.

Per the terms, TowerJazz will hold 51% of the joint venture and Panasonic will keep the remaining 49%. This will make Panasonic a minority stakeholder in TowerJazz and the company's largest client.

Management stated that it will rationalize its Japanese business, which may include fab consolidations between Panasonic's factories and the other plant in Japan that TowerJazz acquired from Micron Technologies Inc. (MU - Analyst Report).

In a bid to reduce its loss-making operations, Panasonic has been paring back unprofitable operations, including TVs and smartphones. The company is also in negotiations with an unidentified buyer over the divestment of five other chip plants in Indonesia, Malaysia and Singapore.

The agreement is expected to boost TowerJazz's revenues and reach its target of $1 billion a year in revenues by 2015. The company now expects to post revenues of at least $225 million in the second quarter of 2014, up from $133 million in the year-ago quarter.

Tower Semiconductor manufactures semiconductors using its advanced production processes. In the last concluded third quarter, the company’s earnings of 21 cents missed the Zacks Consensus Estimate by 27 cents. However, revenues of $132.6 million were up 6% sequentially and 18% year over year.

Currently, Tower has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth considering include Amkor Tech. (AMKR), Advanced Photonix Inc. (API) and Cabot Microelectronics Corporation (CCMP). All these stocks carry a Zacks Rank #2 (Buy).

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