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TowerJazz Looks to Restart Growth

By Ken Nagy, CFA

TowerJazz (NasdaqGS:(TSEM)) is due to release it’s 4th quarter and yearly earnings before the market opens tomorrow. Recall that investors saw margin improvement in the 3rd quarter.

Solid Margins, Orders at TowerJazz

On November 15, 2012 the company reported financial results for its third quarter and nine months ended September 30, 2012. The Company reported mixed results with third quarter revenues of $154.594 million, which fell $21.518 million year over year and $14.043 million sequentially. Still, Year over year, GAAP gross margin improved from 9.3 percent to 12.4 percent for the three months ended September 30, 2012.

The improvement in margins are as a result of the efficiency measures that management has executed, including the cost reduction plan in the Japanese facility, with the aim of lowering operating expenses by more than $30 million on an annual basis.

During the second quarter of 2012, Tower executed a cost reduction plan to increase its efficiency of its Japanese facility in Nishiwaki City. The plan is expected to enable improved margins by greater than $30 million on an annual basis and should enable a solid increase in the gross margins produced in this factory as compared to the previous operating expense baseline.

Tower announced its largest single customer manufacturing engagement in the Company’s history, which is multi-year through 2018 and includes advanced flows in the Nishiwaki, Japan factory, and increased activities in both Migdal Haemek factories and the operation of a jointly built epitaxial center for super junction families. 

Furthermore, management believes it continues to make strong progress in growing markets such as Front End Module for mobile communication, power management and high-end image sensors as evidenced by the record number of new masks that have entered Tower factories.

Likewise, the Company is in the final stages of signing a unique contract in Japan, and is in advanced stages of an enabling agreement for one of its strong strategic initiatives.

As a result, Tower anticipates fiscal 2012 fourth quarter revenues to be in the range of $147 million to $157 million. We expect top-line growth in 2013 as the market recovers from weakness during the last six months of 2012. Our feeling is that investment and purchasing managers remained on the sidelines due to the unknown nature of the presidential election and the fiscal cliff.  

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