Asia is Key for TowerJazz - Analyst Blog

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Asia is Key for TowerJazz

Ken Nagy, CFA


TowerJazz (TSEM), the global specialty foundry leader, will issue its second quarter 2012 earnings release tomorrow, August 09, 2012.
The Company's Nishiwaki, Japan factory has 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. The Company anticipates continued growth at a double digit rate in 2012 as a whole and expects to continue to exceed industry growth.

The Company continues to target a $1 billion annualized quarterly revenue run rate within the 2014 year.
Perhaps the recent disconnect in the shares performance versus its operating results lies in the fact that the firm has capital notes and equity options that if converted could increase the number of shares outstanding. (Shares would be much higher if the capital notes are converted at 100% as capital notes are convertible to approximately 400 million shares on a pre-split basis) The notes along with some other equity options may be a medium term headwind for the firm, yet they were given at a time when the firm was questionable as a going concern and was hemorrhaging cash. What once saved the firm now may be holding it back. The notes can be negotiated or bought out, (likely at less than 100% dilution) but that seems to be a longer-term issue for the firm to tackle.

 

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