TSEM: Tower Projects Another Revenue Decline in Q1, But Sees Demand Picking Up Across Most Product Lines
NASDAQ:TSEM
READ THE FULL TSEM RESEARCH REPORT
Tower (NASDAQ:TSEM) reported another quarterly revenue decline in Q4 2023 but is seeing improving demand kicking in mostly in the second half of 2024. We could see revenue growth return by Q3 2024. It is seeing demand pick up across the board except for power ICs and 200mm. These products go into automotive-- where Tower sells mainly to EV manufacturers, consumer products, and the industrial sector.
There is strong demand for RF SOI including 200mm and 300mm and Agrate is adding capacity in that area. Customers are beginning to discuss 6G, and AI and VR should fuel a handset refresh cycle. There is continued demand for the company’s Silicon Photonics platform which is used for LIDAR in the automotive market and for co-packaged optics. Satellite providers are interested in the company’s Silicon Germanium ICs used for communications, defense, and internet access services. This could also be deployed into mobile handsets. Also, management expects a pick-up in data centers as the industry rapidly moves to 800G at a pace faster than industry analysts have forecasted.
The company continues to see weakness in 200mm power ICs used in automotive, but there is strong demand for 300 mm. The fab in Albuquerque is making progress and it will begin prototyping in the second half of 2024 for production in 2025. Machine vision is expected to get back to high demand levels this year driven by the Chinese market for factory automation and robotics.
As shown in the chart below, the biggest contributor to revenues remains RF mobile used in cellular handsets.
Fab utilization is still weak and below 2019 and 2020 levels. There is a gap in our table below as the company did not report numbers right before and during the acquisition attempt by Intel. During Q1 2024 the company began to move some production from its 40-year-old Fab 1 to Fab 2 to consolidate production and reduce expenses. It will also shut down some lines no longer needed and possibly sell off the equipment. Fab 1 itself is leased from the government and not owned. In addition, it started shipping small amounts of product from its new Agate fab which will continue to ramp for the next two years. It has not reported utilization. All its capacity there is already spoken for 2024 and 2025. Also, on January 1st there was an earthquake in Japan that disrupted production and caused damage to some products and equipment. All is back to normal now and the fab is functioning on plan.
TSEM trades at an enterprise value of $2.5 billion-, or 1.8 times EV to estimated sales for 2024. Its PE is 17.7 times 2025 EPS.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
