Weak Quarter Offset by Solid Outlook at Tower

Zacks Small Cap Research

By Ken Nagy, CFA

On May 9, 2013, Tower Semiconductor Ltd (TSEM)., the Israel based global specialty foundry leader, reported financial results for its first quarter ended March 31, 2013.

The company reported mixed results with first quarter revenues of $112.647 million, which fell $55.366 million year over year and $34.940 million sequentially.

The revenue reduction was primarily due to the planned contractual decrease in the Micron volume agreement in Nishiwaki.

Still, it should be noted that management sees this as short term, as evidenced by the Company’s record number of full mask tape-outs into Tower’s 8" facilities and strong and increasing demand in the Israeli 6" factory  resulting in an upward sequential quarterly guidance.

Year over year, GAAP gross margin dropped from 13.5 percent to 2.3 percent for the three months ended December 31, 2012. Sequentially, gross revenue dropped from 5.8 percent in the quarter ended December 31, 2012.

Operating loss for the three months ended March 31, 2013 was $18.831 million compared to an operating profit of $2.248 million for the comparable quarter of 2012 and an operating loss of $9.517 million during the fourth quarter fiscal 2012.

Tower reported a first quarter 2013 GAAP net loss of $23.151 million, up year over year from a net loss of $16.281 million for the first quarter 2012 and up sequentially from a net loss of $25.700 million during the fourth quarter 2012.

Based on a weighted average number of ordinary shares outstanding of 24.1 million, GAAP basic net loss per share resulted in a net loss of $0.96 per share during the first quarter of fiscal 2013.  This compared to a basic net loss per ordinary share of $1.05 on a weighted average number of ordinary shares of 22.2 million during the three months ended December 31, 2012.

Non-GAAP first quarter 2013 gross profit was $33.700 million representing gross margin of 29.9 percent while non-GAAP net profit was $6.473 million.

This compares to non-GAAP gross profit of $49.308 million and gross margin of 33.4 percent. Non-GAAP net profit was $21.927 million for the fourth quarter ended December 31, 2012.

Tower Semiconductor’s balance sheet remained strong with $119.707 million in cash and short-term deposits and working capital of $141.438 million for the period ended March 31, 2013.

This compares to $133.398 million in cash and short-term deposits and working capital of $129.186 million for the period ended December 31, 2012.

Along the same lines, Tower reduced 2013 and 2014 principal payments from $105 million to $30 million, extending a low interest of LIBOR+3.5 percent bank loan ($131 million) to final maturity in 2016.

Finally, management anticipates fiscal 2013 second quarter revenues to be in the range of $122 to $132 million, representing sequential mid-range growth of nearly 13 percent.
Additionally, design win activity remains strong at a quarterly level of about one hundred, demonstrating customer acceptance of Tower’s platform differentiation.

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