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Tower’s Nishiwaki Plant Powers Growth in Asia

Ken Nagy, CFA


On May 17, 2012, Tower Semiconductor Ltd., (towerJazz) (TSEM) the Israel based global specialty foundry leader, reported financial results for its first quarter, ended March 31, 2012.

The Company reported solid first quarter revenues of $168.013 million, up 39% year over year from $120.620  million but down $6.571 million sequentially from $174.584 million for the three months ended December 31, 2011.

It should be noted that year over year first quarter growth significantly outperformed the foundry industry as a whole and firmly cemented Tower as the number one specialty foundry provider.

Still, Tower reported a first quarter 2012 GAAP net loss of $19.317 million, down year over year from a net loss $5.411 million for the first quarter 2012 and from a net loss of $16.701 million during the fourth quarter of 2011.

The year over year decrease in GAAP net loss was primarily due to lower margins.

Year over year, gross margin dropped sharply from 25.3 percent to 13.5 percent for the three months ended March 31, 2012.

Still, gross margin for the first quarter increased firmly from 10.1 percent for the three months ended December 31, 2011.

Based on a weighted average number of ordinary shares outstanding of 318.599 million, GAAP basic net loss per share resulted in a net loss of $0.06 per share during the first quarter of fiscal 2012.  This compared to basic loss per ordinary share of $0.02 on a weighted average number of ordinary shares of 317.106 million during the three months ended March 31, 2011.

Still, non-GAAP first quarter 2012 gross profit was $58.754 million representing gross margin of 35 percent while non-GAAP net profit was $32.024 million.

This compares to Non-GAAP gross margin of 44 percent and a non-GAAP net profit of $31.524 million for the first quarter ended March 31, 2011.

Tower Semiconductor’s balance sheet improved to $158.226 million in cash, short-term deposits and designated deposits and working capital of $124.702 million for the period ended March 31, 2012.

This compares to $101.149 million in cash, short-term deposits and designated deposits and working capital of $35.830 million for the period ended December 31, 2011.

The increase in cash, short-term deposits and designated deposits was driven by the creation of $34 million of positive cash flow from operating activities (excluding debt related payments) and $80 million from long term bonds fundraising, which was offset by $27 million of debt payments on account of principal and interest and $30 million of Cap-Ex investments.

Working capital improved mainly as a result of the $57.077 million increase in cash, short-term deposits and designated deposits and a $16.623 million decrease in trade accounts payable.

Similarly, the improved cash, short-term deposits and designated deposits and decrease in trade accounts payable helped improve Tower’s current ratio to 1.61 as compared with 1.16 as of December 31, 2011.

Likewise, it is important to note that the Company engaged GE Capital for a $50 million credit line for the Nishiwaki, Japan facility for loans at Libor + 2.6% per annum.

Management further stated that it continues to see increases in market share.

The Company’s Nishiwaki, Japan factory met or exceeded all of Tower’s forecasted metrics since the acquisition and management continues to anticipate the same trend happening throughout 2012.

Furthermore, the facility greatly expands Tower’s geographic reach and distribution capabilities enabling the Company to take advantage of increased interfab efficiencies in manufacturing which resulted in a 2 percent sequential increase in gross margin in the first quarter 2012 over the fourth quarter 2011.

The Nishiwaki facility has also enabled and management believes will continue to empower significant growth throughout the Asia region.

In Korea, Tower has now grown from one image sensor customer in 2010 to over 40 active engagements.

In Japan, three tier-one integrated device manufacturers (IDMs) are now actively qualifying Tower’s flows in the Nishiwaki, Japan factory with production targeted for the first half of 2013.

Along the same lines, one of these tier-one IDMs is doing multiple transfer projects.

Another Japanese IDM is in advanced stages of qualification at the Migdal Haemek, Israel facility and there have been pre-wafer engagements with a multiple number of other Japanese customers for manufacturing in Nishiwaki, Migdal Haemek or Newport Beach, California.

As a result, Tower anticipates fiscal 2012 second quarter revenues to be in the range of $163 million to $173 million.

The guidance would represent just over a 20 percent year over year growth in revenues at the midpoint of the projected range for the quarter.

Furthermore, management foresees growing orders and strength in the second half of the year and continues to prepare operationally for that scenario.

Likewise the Company anticipates continued growth at a double digit rate in 2012 as a whole and expects to continue to exceed industry growth.

Similarly, the Company continues to target a $1 billion annualized quarterly revenue run rate within the 2014 year.

Finally, management reiterated that a recently announced signed India MOU offers Tower a low cost entrance into an emerging market at the 300mm wafer size, 90nm analog technology and companion chips in deep submicron technologies (65-45nm), should the government accept the Company’s proposal.

 

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