TSEM: Q4 2022 Results Show Higher Margins as Low Margin Business Ends

February 16, 2023 at 7:28 AM·3 min read

NASDAQ:TSEM

Tower Semiconductor (NASDAQ:TSEM) reported revenues in Q4 2022 of $403.1 million versus $412.1 million in Q4 2021. The company is no longer providing guidance or hosting earnings calls. This reflects a year-over-year decline of 2%. Revenues declined sequentially as expected due to the softness in demand from customers across the board. Organic revenue for the fourth quarter of 2022, (defined as total revenue excluding revenues from Nuvoton in the Japanese fabs and from Maxim in the San Antonio fab,) grew by 6% year over year. Down from 22% in Q3 2022. We believe the company no longer has any capacity constraints due to the decline in demand.

Revenues in the second half were impacted by the shutdown of the Aral manufacturing factory in Japan as of July 1. That fab serviced Nuvoton exclusively and were low-margin revenues. The fab will not be reopened and most of the one-time $4 million restructuring charges in Q3 were due to a write-down of that fab and its equipment and assets. In Q4 there was a one-time gain mostly from the sale of equipment and machinery from Aral.

Q4 2022 gross margin increased to 30.9% from 24.3% a year ago and 29.2% in Q3 2022. The increase was primarily from the elimination of $20 million of low-margin revenues from the closure of the Japanese fab which were replaced by higher-margin sales generated from outside customers. Gross margin dollars increased by $25 million, or 25%. Not including one-time charges operating expenses decreased to $39.6 million from $44.3 million a year ago. This year there was also a one-time restructuring gain of $13.6 million. Without the gain, the operating margin improved to 21.1% from 13.6% last year. On a dollar basis, it increased by $29 million or 52%. Other income was an expense of $55,000 compared to $372,000 a year ago.

Pretax profit was $98.7 million versus $55.5 million a year ago. Taxes were $12.8 million in the quarter compared to $3.6 million last year.

GAAP net income was $83.3 million versus $51.7 million last year, while non-GAAP net income was $76.7 million versus $61.1 million, up 26%.

Diluted GAAP EPS was $0.75 per share versus $0.47 last year. Adjusted non-GAAP diluted EPS increased to $0.69 versus $0.55 a year ago (up 25%). Average diluted shares for the quarter were 110.9 million, up from 110.3 million last year. EBITDA for the fourth quarter of 2022 was $161.5 million compared to $129.9 million a year ago and up sequentially from $157.6 million in Q3 2022. The EBITDA margin reached 40.5%, the highest ever.

In Q1 revenues will be hit by the usual seasonal weakness combined with a decline in demand across the industry and we expect more than usual down sequential revenues. We have initiated a 2023 non-GAAP EPS estimate of $2.14 due to weaker demand offset somewhat by higher gross margins. We still are waiting for the deal to close and believe the final step is regulatory approval from China.

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