Ken Nagy, CFA
The Road to $1 Billion Begins
Just a year removed from being the only worldwide foundry with positive year over year growth (2009 vs 2008), Towerjazz (TSEM) completed it’s goal of $500 million in annual revenue in 2010. During the fourth quarter conference call the number one specialty foundry, obviously not ready to put the bold predictions to rest, predicted $1 billion in annual revenue by 2014.
On Monday (April 4th) they got to work on that $1 Billion number when they signed a non-binding agreement to buy Micron Technology's plant in Nishiwaki City, Japan for $140 million (40 million in cash 20 million of Tower ordinary shares would be issued to Micron Technology) in a deal that would nearly double production capacity. The proposed purchase of the plant, located south of Tokyo, would increase production by 80%, or 60,000 wafers per month. It should also strengthen the company's presence in the Asia-Pacific region. Reading between the lines we feel the deal will help margins eventually, but perhaps not until 2013. 20 million shares for increasing your revenues by 80% is dilution we can live with.
In September of 2008 the firm merged with Jazz, the owner of the Newport Beach CA 200mm facility. The merger was significant to Tower because the customer base was doubled, it was done at a time when most FAB’s were struggling to survive, and Jazz possessed several industry leading technologies such as SiGE, BiCMOS, and MEMS
The non-operating side of the business has been busy as well. On October 25, 2010, Tower Semiconductor successfully completed the institutional stage of a fund raising in Israel, receiving commitments from investors to a new series of long-term bonds it intends to issue. The bonds will mature in two equal installments on December 2015 and December 2016. By October 27th the firm had $100 million in commitments
Looking at the past year this completes a comprehensive debt restructure. This restructure comprised the extension of the $45 million Wells-Fargo credit lines, $80 million Jazz level bonds exchange to bonds due in 2015, $50 million pay down and restructure of the remaining $160 million Israeli banks debt to a long term loan and this deal. Tower has created a new balance sheet with zero bank loans’ principal due during the coming 3 years, servable debt ratios and a cash balance which will enable the firm to be flexible if M&A opportunities present themselves.
For a free copy of the full research report, please email scr@zacks.com with TSEM as the subject.
Follow Zacks Small Cap Research on Twitter at Twitter.com/ZacksSmallCap
Be the first to comment