Bio - I don't remember if you were a Tower shareholder in late 2009 but this is the same exact pattern that Tower took then. I'm hoping the market temporarily forgets about Tower's debt, dilution issues and extremely low profit margins, and that this thing reaches $20. I'm out then. You should be as well...you don't want to be left holding the bag. And while I do admit that Tower could somehow pay off their debt and turn this company (and stock) into a $5+ billion company (valuation), I believe the chances are very very low and therefore it isn't a smart move. I am selling (hopefully) when it hits $17-20. I'll take my loss but if this stock shoots up to $50, I won't be the least bit disappointed in myself. 1) It was impossible to know and 2) it would have been a terrible bet to continue holding after 5 years...think about it.
No, it is sheer luck. NO ONE knew about the Panasonic deal except for Tower's management. Also, India was not a sure thing when Tower was trading at $5/share. In fact, it was just "under consideration" and that's all. If you really invested in Tower at that price, that is called a terrible bet. I mean, beyond terrible. Tower's organic growth is decent but definitely not enough to cover all of their losses per year. Not only that but they have a history of diluting shareholders (see the past 7 years in particular as a gigantic example). Also, it is quite literally impossible to make a profit when your costs of goods sold is between 85-93% of your revenue. You can "trust" the company's management all you want but at the end of the day, the signs were pointing in the other direction.
Yes they lent money to Tower but look at the price they got it at - $10.90. That was an incredible bet and I bet that even I would have taken. Tower is not going under. It is a cash maker for Israel Corp. (8% interest per year). So if it's not going bankrupt, all Tower needed to do was close one MAJOR deal and the market would react positively. Chances are it is only a matter of time until the stock price soars over $10.90.
In regard to doubling or tripling your money - easy for you to say now. But NO ONE was investing in Tower a month ago when it was trading at $5.
Also, there are many people concerned with long term share price potential, like myself. I invested in Tower with the belief this stock could hit $50/share. I'd rather than than take a MASSIVE risk and end up doubling or tripling my money in the short run. You play games like that and eventually your luck runs out.
1) If the series F are converted anytime close to right after they are in the money, it will show what those holders really think of Tower.
2) You clearly have not been following Tower's diluting ways over the past 10 years.
3) I recommend you look at COGS and see if LONG TERM sustainable profitability is a true reality.
4) Just like Micron, what will happen in 5 years when Tower's deal with Panasonic runs out?
Everything you say is accurate....however you left out the dilution. Once the stock price hits $10.90, there will be 20M series F shares in the money. That will be an extra 20M shares - or 42.5% increase in the amount of shares. Then there is another roughly 16M shares that are debt - almost all convertible just like there series F shares (which are all convertible). Since the reverse split already happened, it is just about impossible (mathematically and factually speaking) for Tower to reach even close to a $20 share price. Every time the stock will move up, more dilution will take place.
This stock is a GREAT buy right now but if and when you decide to buy, I would STRONGLY recommend you sell after a 20-30% gain. Tower is unfortunately not a long term hold. I learned this the hard way.
If you want to call shareholder dilution pulling "multiple rabbits out of a hat" then go for it...but be honest. How did Tower fund their expansion? At the expense of shareholders over and over and over again. And I'm betting that it will happen again.
I could care less about what is currently happening today with TSEMs stock price. Today is a good day in a very very very long time. Per Russell Ellwanger:
"In view of this and the announced undertaking of majority ownership in a joint venture with Panasonic with the ability to consolidate our Japanese business, we see 2014 as a year of strong top line revenue growth and more significant, one in which we will see a marked move in demonstrating a business model of sustainable GAAP net profit."
Key words: "and more significant, one in which we will see a marked move in demonstrating a business model of sustainable GAAP net profit."
I only PRAY that this man is telling the truth...because if not, there is no future hope for Tower Semiconductor...
I believe the down day is due to the new report that there is currently no land available to build these plants. If you look on Google Finance, you will see the article. So the market probably took this piece of news as "the plants may not actually happen."
Yeah...who is going to give 0% interest on $2-3 billion? Everyone is out to make a buck. Maybe they will get "favorable" rates but definitely not 0% interest.
Also, I believe Tower will be around a lot longer than 5 years. It is a cash maker for bond holders and Israel Corp. They would never let it go under. That's not my issue. My issue is actually taking this stock to the next level - i.e. $20+. They already had a 1:15 reverse split. If they dilute further, that will mess over ever share holder who has been holding pre reverse split, including me. There will be no chance to even break even.
I am not sure about the highs of over 10 years ago but there is a bit of potential. Look, no company is going to sky rocket with a gross profit margin of MAXIMUM 20% (it's more like 15% and last year it was I believe around 10%). However, if they can reduce their debt by at least 75% and increase their revenue to $1 billion dollars while NOT diluting, they could probably have a market cap of $750 million - $1 billion, which would give them a stock price between roughly $15-$21. If the India deal can really give Tower $300 million in pure profit and if they use that to pay off debt, then Tower will be in excellent shape. I mean, truly excellent shape. They are already have a plan to pay off the $131 million they owe to the banks over the next 3 years (concluding in March 2016). As long as they don't take on additional debt, Tower *COULD* theoretically have debt of less than $150 million. If they have sales of $1 billion and 15% gross profit, that would equate to the debt. Stock would probably trade at .75-1x sales, which would give them a market cap of $750MM to $1 billion as I stated previously - stock price of $15-21. But...that's 3 years away. :)
I agree there is lots of "potential" which is initially what drew me to this stock. But at the end of the day, potential is just potential. What is a fact is that Tower has had this potential for over 15 years now and they have never once reached their potential in regard to shareholder value/share price. Not once. In 15 years. Also, what makes you so sure that they will use the profit from the India deal to take care of the debt? Perhaps they will continue expanding? That could extend the current situation another decade. Also, about a year ago debt was $350 million. I read recently that it was close to $500 million now.
As of June 2013, debt excluding shareholder value and employee liabilities was around $450 million from what I can tell. You can type into Google "tower semiconductor ltd. and subsidiaries unaudited condensed" it is a PDF. Also, within that PDF, you can see that total revenue for 2013 (at that point it accounted for 6 months of 2013) was $237,883,000. However, the cost of those revenues were $223,086,000. That leaves GROSS profit at 6.22%. How can you turn a profit with that kind of margin? Tower will need 5 deals like India to reach the $20 level.
They will still be diluting (again) if they were to raise more money. How high can the market cap go with debt of $500 million and annual sales of $1 billion, with a gross profit of 15%? You tell me.
Well yes and no. The stock market goes up and goes down. A stock within the stock market, especially one like Tower with 15% gross (not net) margins, has a VERY unlikely chance of moving up in share price. A company like this also must mainly rely on debt to continue operations. Management clearly knows this. The chances of the stock not only going up but staying there is slim to none. Why not take 8% interest per year instead? If they can finance the operations with continued debt, all while closing deals that is JUST enough to cover the debt, why not? 7.8% interest is FAR better than waiting 5 years for the stock to reach a good enough price to sell their options. Example:
Say a man like Ellwanger has $10 million for investing. He invests in Tower bonds every year and takes the interest but leaving the principle amount ($10 million) to collect 7.8% interest. After 5 years, he has made $3.9 million. Now say he has 1 million options convertible at $8 (or 53 cents pre split). He would have to wait until the stock hits $12 to make as much as he made with a SURE thing. First of all, the market hates Tower. Ellwanger and every investor knows this. Second, as said previously, there is just too much debt for the stock to hit that price in the next 2-3 years. Yes, his POTENTIAL is greater...but smart people don't look at potential. They look at the easy money. You would take the 7.8% annual interest 100 out of 100 times over 1 million stock options convertible at $8 and trading at a current price of $5.90 (and with the current debt situation). The options are worthless until they are in the money. The 7.8% interest? That is REAL money.
Can you give me the link for this article?
$500 million in debt is a lot more than I thought. That kind of debt is only manageable if Tower consistently brings in $1 billion/year in sales. Otherwise, Tower will declare bankruptcy.
Cravi - all of what you said is completely accurate. However, answer these questions:
1) You realize that the semiconductor industry does not have good margins (costs of good sold is roughly 85% translating into 15% GROSS profit). How do you see Tower sustaining GAAP net profit over 4-5 consecutive quarters (and beyond)?
2) With little room for error, especially regarding profit margins, how do you see Tower being able to pay back the (I believe) $375 million in debt they carry?
3) As Tower has consistently diluted the share count over the past 10 years, do you see this method ever stopping?
4) Do you happen to know how many capital notes are left? Did the banks sell out their entire positions or only a portion?
5) How do you see future profitability when bondholders are receiving 7.8% annual interest?
Yosef - you are right and wrong. What about the warrants? Also, Tower did issue a few million shares (I believe somewhere between 2-6 million). That is A LOT considering they had 22 million shares outstanding after the reverse split. Also, the overhang shares you speak about - do they represent 100% of the capital notes the banks were holding or are there still some left? Either way, a SIGNIFICANT amount of dilution will be coming due to the massive debt Tower still doesn't take care of. If that wasn't bad enough, we also have to worry about management themselves issuing random dilution (just like they did AGAIN and AGAIN in 2010 with that shady company called YA Global. Forgot about that? B/c I didn't...90 million here...a few more million there...why not? For more on that, type in Google "sec yorkville $1 billion" - see what comes up). All I'm saying is everyone here is #$%$ when the dilution happens but then seem to forget about it and have positive hopes for the future...which leads to no complaining. We should all file a complaint of some sort to management.
The law is that management needs to have the shareholders best interest first. In fact, they could go to jail assuming you can prove in a court of law that they deliberately sold the shareholders down the river. "In a publicly held company, directors are elected to represent and are legally obligated to represent the interests of the owners of the company—the shareholders/stockholders." - Wikipedia
While it is clear to shareholders that they have sold us down the river (look at the history over 10 YEARS...not months...years), management can argue that it was a necessity. The slightest doubt in a court of law would already win them the case.
In any event, that is why not only I but many shareholders are mad.
Dino: you are correct. That also played a part in the reverse split. But the fact of the matter still remains: it happened to be extremely beneficial for Tower to go forward with the reverse split. Only a few months after the reverse split and Tower ALREADY just about doubled their share count (I believe from 27 million to 47 million). That is fast working. I knew it was coming but didn't think it would happen THAT quickly. This dilution will make it harder for us to get anywhere close to $20/share, even in 3-5 years from now.
Also, you would think that $8 is better than $3 but I'm not so sure. With this renewed stock confidence, we will likely see more dilution. Just wait for it.
Did you actually believe that was the reason for the reverse split? So that institutional investors could **potentially** invest? Come on...
The main reason for the split was because if they didn't do it, the stock price would have tanked back to the 20 cent range and perhaps lower. What do you think that would have done to the company? The negative sentiment alone would have had rumors about bankruptcy swirling like crazy. More importantly, it gives them A LOT more room to keep on diluting as per their usual diluting actions over the past 10 years (if not more). You can't dilute when your share price is 20 cents. But you can when it's $5.
The institutional investors will NEVER show up unless Tower shows CONSISTENT GAAP NET PROFIT. I'm not referring to one or two months of profitability either. I'm talking about 4-5 straight quarters - something Tower has NEVER done in its history. Their guidance and focus on profitability must also be stated publicly...none of this "we are continuing to look at expansion" only. They need to also consistently mention profitability, more than they do expansion. Otherwise, the market will react as it has been over the past 10 years. With the exception of the rise from 10 cents to $2 (early 2009 - late 2010 when every other stock was rising as well), the market has crushed Tower. Also, the institutional investors will be weary.
I believe Ellwanger is an honest man too...but define honest. A person can be honest but he can also have his best interests in mind first (depending on who you ask to define honest).
Regarding volume: I couldn't care much about day to day or even year to year volume. What interests me is profitability. Volume will come when that happens.