Tower Beats on Earnings, View Upbeat

Zacks

Tower Semiconductor Ltd. (TSEM) reported first-quarter 2013 earnings per share of 12 cents, beating the Zacks Consensus Estimate of 16 cents loss per share.

Management also provided an upbeat view for the overall semiconductor market. Following the earnings release, shares shot up 2.13% but dropped 5.82% in after-hours trading.

Revenues

The company reported revenues of $112.6 million, down 33.0% year over year and 23.7% sequentially. The decrease was due to planned contraction in supply agreement with Micron Technology.

Margins

Reported gross margin for the quarter was 2.3%, down 1,120 basis points (bps) year over year due to lower volumes.

Operating expenses (R&D and MG&A) of $19.5 million were down 4.9% from $20.5 million in the year-ago quarter. Reported operating margin was (16.7%), down significantly from the year-ago quarter margin of 1.3%. Research and development (R&D) expenses as well as marketing, general and administrative (MG&A) expenses increased as a percentage of sales.

The quarter’s GAAP net loss was $23.2 million or loss per share of 96 cents versus $19.3 million or 91 cents loss per share in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $5.8 million or earnings per share of 12 cents.

Balance Sheet

The company ended the first quarter with cash, short-term deposits and designated deposits balance of $119.7 million, down from $133.4 million in the prior quarter. Trade receivables were $80.0 million, up from $79.4 million in the prior quarter.

During the quarter, cash flow from operations was $18 million and capex was $26 million. Additionally, Tower reduced its 2013 and 2014 principal payments from $105 million to $30 million.  This loan of $131 million carries a low interest of LIBOR+3.5% with final maturity in May 2016.

Guidance

For the second quarter of 2013, Tower expects total revenue in the range of $122 to $132 million, up 13% sequentially at the midpoint.  

Conclusion

Israel-based Tower Semiconductor is a global specialty foundry leader, which manufactures semiconductors using its advanced production processes. The company reported a decent first quarter with earnings exceeding the Zacks Consensus Estimate by a wide margin.

We remain encouraged by the company’s record number of full mask tape-outs into Tower’s 8" facilities and strong demand in the Israeli 6" factory. Management also gave a strong second quarter guidance, which indicates improving demand visibility and an overall improving semiconductor market.

Additionally, we believe that the company’s new products, design win activity, strong customer acceptance and global market expansion, including Europe, Korea and the U.S will continue to drive Tower’s growth.

Currently, Tower has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth considering include Amkor Tech (AMKR), Integrated Device Tech (IDTI) and Pericom Semiconductor (PSEM), all carrying a Zacks Rank #1 (Strong Buy).
 

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