Tower of power

July 18, 2015 09:00 AM

Through the first half of 2014, global semiconductor sales reached record levels and demonstrated consistent, across-the-board growth, with the Americas region continuing to show strength. The industry posted its highest-ever second quarter sales and outperformed the latest World Semiconductor Trade Statistics (WSTS) sales forecast. Worldwide sales of semiconductors reached $82.7 billion during Q2 2014, marking the industry’s highest-ever second quarter sales total.

As an industry, the semiconductor business is known for destroying the value of shareholders. However, there are a few companies that build both shareholder value and economic profit.

Founded in 1993, with the acquisition of National Semiconductor’s wafer fabrication facility located in Migdal Ha’emek (Israel), Tower Semiconductor (TSEM) is a pure-play independent specialty foundry dedicated to the manufacture of semiconductors. The company, along with its fully owned U.S. subsidiary Jazz Semiconductor and Japanese fully-owned subsidiary TowerJazz Japan, collectively operate under the brand name of TowerJazz. It also owns 51% of TowerJazz Panasonic Semiconductor (TPSC), the newly established partnership with Panasonic Corporation that should drive annual revenues beyond $1 billion by 2016 from where they were last year ($500 million). TSEM manufactures integrated circuits (ICs), offering a broad range of customizable process technologies, including SiGe, BiCMOS, Mixed-Signal/CMOS, RF CMOS, CMOS Image Sensor, integrated Power Management (BCD & 700V) and MEMS capabilities. To provide multi-fab sourcing for its customers, TSEM operates two manufacturing facilities in Israel, one in the United States, and three in Japan.

TSEM’s 2015 Q2 revenue stood at $234 million, up 76% quarter over quarter and 87% year-over-year. This includes Tower Panasonic Semiconductor (TPSC) results for the first time. EBITDA stood at $33 million compared with $26 million last year. 

TSEM provides wafer fabrication services to fabless IC companies and IDMs as a sole source or second source and enables smooth integration of the semiconductor design and manufacturing processes. By doing so, TSEM enables its customers to bring high-performance, highly integrated ICs to market rapidly and cost effectively. Its technological strengths and emphasis on customer service have allowed the company to develop a differentiated position in large, high-growth specialized markets for CMOS image sensors, RF, power management and high-performance mixed signal ICs.

Meanwhile, TSEM derived strong revenue for fiscal year 2013 by targeting specialized markets: CMOS image sensors, wireless communication, RF SiGe, high performance analog and power ICs. The company is highly experienced in these markets, having been an early entrant and having developed differentiated proprietary technologies, including licensing and joint development efforts. 

TSEM’s joint venture (JV) with Japanese electronics giant Panasonic will be the catalyst for TSEM’s growth. (Under the JV, Panasonic has transferred three of its semiconductor plants in Japan to the venture and has agreed to purchase roughly $100 million in chips from the venture (each quarter) for the next five years.)

TSEM has signed contracts and entered into business agreements with multiple third-party image sensor companies and top-tier integrated device manufacturers. TSEM expects this new business to top $100 million in annual revenue (at high margins). This is above and beyond the $360 million to $420 million in revenue expected to be generated by Panasonic. 

Although the gross margin for the quarter was significantly down from the pre-JV gross margins, it went from 35.2% in Q2 2013 and 33.5% in Q1 2014 to 26.7% Q2 2014. This is mainly because of the blended margins of the legacy business, combined with the very low-margin Panasonic business in the JV.

About the Author

Ronnie Moas is the founder and director of research at Standpoint Research. TipRanks recently ranked Ronnie #1 in a ranking of 3,500 analysts evaluating more than 400 of his recommendations since 2008. Ronnie Ideas are generated by a 155-variable computer model after heavy fundamental and subjective overlays are applied. Ronnie is also the founder of Research free trial at @RonnieMoas