Tower Semiconductor Continues Trend of Sequential Growth

Zacks Small Cap Research

By Ken Nagy, CFA

On November 6, 2013, Tower Semiconductor Ltd. (TSEM), the Israel based global specialty foundry leader, reported financial results for its third quarter and nine months, ended September 30, 2013.

The company continued its trend of solid sequential revenue growth, reporting third quarter revenues of $132.555 million, which was a $7.589 million or nearly 6 percent quarter over quarter improvement and 18 percent increase over revenues for the first quarter 2013.

However, year over year revenues fell by $22.039 million as a result of the planned contractual decrease in the Micron volume agreement in Nishiwaki. Still, excluding this Micron reduction, revenues were $4 million higher.

During the quarter the company had a record number of new masks entering its factories demonstrating effectiveness in realizing customer projects and the sales funnel.

GAAP gross profit during the 2013 third quarter was $4.371 million resulting in gross margin of 3.3 percent which compares to gross profit of $12.222 million and gross margin of 9.8 percent during the three months ended June 30, 2013.

EBITDA during the third quarter of fiscal 2013 was $21 million compared to $27 million during the three months ended June 30, 2013. Tower reported a third quarter 2013 GAAP net loss of $31.776 million or $0.68 per share, which compares to a net loss of $22.887 million or $0.59 per share during the second quarter 2013.

Non-GAAP third quarter 2013 gross profit was $39.486 million representing gross margin of 29.8 percent while non-GAAP net profit was $12.225 million. This compares sequentially to non-GAAP gross profit of $44.032 million and gross margin of 35.2 percent. Non-GAAP net profit was $18.201 million for the second quarter ended June 30, 2013.

Revenues for the nine months ended September 30, 2013 were $370.438 million, down from $491.244 million for the comparable nine months of fiscal 2012.

GAAP net loss for the first nine months of 2013 was $77.814 million or $2.10 per share, which compares to a net loss of $46.880 million or $2.13 per share during the nine months, ended September 30, 2012.

Non-GAAP gross profit for the nine months was $117.218 million representing gross margin of 31.6 percent while non-GAAP net profit was $36.899 million.This compares to non-GAAP gross profit of $184.125 million and gross margin of 37.5 percent. Non-GAAP net profit was $109.558 million for the nine months ended September 30, 2012.

Tower Semiconductor’s balance sheet remained strong with $141.447 million in cash and short-term deposits and working capital of $160.060 million for the period ended September 30, 2013. This compares to $116.559 million in cash and short-term deposits and working capital of $157.197 million for the period ended June 30, 2013.Shareholders' equity at September 30, 2013 was $172 million and the current ratio was 2.1x compared with 1.8x at the end of 2012.

The first nine months of 2013 saw a 6 percent year over year increase in design wins and an increase of over 3,000 new masks entering the fab which amounted to a 34 percent year to date increase as compared to 2012.

It’s important to note that design wins and numbers of masks entering the factory are the base for core business growth and the most important indicators for continuous revenue growth during the years to come.

As a result of these upturns, management anticipates fiscal 2013 fourth quarter revenues to be in the range of $133 to $143 million, representing mid-range growth of 23 percent, 10 percent and 4 percent as compared to the first, second and third quarter of 2013, respectively. 

This improvement, which is nicely above the foundry market trend, is based upon continued progress in the third quarter from both a business perspective as well as strategic perspective and a very nice outlook going into 2014 based upon the increased momentum year-to-date of mask sets entering into the factory.

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 Tower Semiconductor Report

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