The most boring item in the fourth quarter financials of Tower Semiconductor (Nasdaq: TSEM; TASE: TSEM) is the revenue line. The company had previously announced that revenue for eh quarter would be $79.6 million, representing just 2.8% growth over the corresponding quarter of 2008, but 32% higher than in the previous quarter. Apart from this item, Tower's financials supply a fair amount of interest: a non-GAAP profit; a switch to profit by subsidiary Jazz; a fall in inventory; a rise in gross profit margins; and, most importantly, strong guidance for the fourth quarter.
To start from the end: Tower expects to report revenue of $90-94 million for the fourth quarter. This is a record figure, representing growth of 13-18% over the third quarter, and 19% over the fourth quarter of 2008.
Other items in the report also indicate improvement in the company's business, achieved of course thanks to the start of global economic recovery that has helped many companies, particularly in the semiconductor industry. On a non-GAAP basis, Tower made a net profit of $11.2 million in the third quarter, 109% more than in the third quarter of 2008. Gross profit was $25.9 million, 65% higher than in the corresponding quarter. The gross profit margin rose from 20% to 32%. Operating profit was $13 million, compared with just $1.7 million in the corresponding quarter, while the operating profit margin rose from 2% to 16%.
Tower posted a $4.2 million tax benefit arising from the merger with Jazz, which helped the profit line. But EBITDA (earnings before interest, tax, depreciation, and amortization) was a record $15 million in the third quarter, 740% higher than in the fourth quarter of 2008, in which the company recorded a similar level of revenue after the merger with Jazz. Another important figure is inventory, which fell 30% to $28.7 million in the quarter.
However, as is well known, Tower has depreciation expenses, mainly on its Fab 2, which have occasioned it looses on a GAAP basis. CEO Russell Ellwanger promised at the company's conference last month that it would achieve profitability in mid-2010. In the third quarter of 2009, however, Tower lost $30.2 million, compared with a loss of $30.9 million in the corresponding quarter. The loss mainly stemmed from a growth in finance expenses to $7.7 million in the third quarter this year, from $224,000 in the corresponding quarter last year. The reason for this was a rise in the value of the company's convertible bonds, recorded as a rise in liabilities in the books. Excluding this item, the GAAP loss was $13.4 million.
At the end of the third quarter, Tower marked a year since the merger with USA company Jazz, which brought it several deals and improved its financial position. "The merger has been widely successful and propelled us into the position of the leading global specialty foundry," Ellwanger said today.
Company chairman Amir Elstein, a former Teva manager who was recruited to Tower by his friend Idan Ofer, chairman of Israel Corp. (TASE: ILCO), which owns 10% of Tower, added, "I remain confident and boldly optimistic with regard to the coming quarters. It is built upon many months of hard work and dedication by TowerJazz's executive team and employees in instilling change, improving processes, and realizing cost efficiencies and synergies throughout the company. Now we are a strong and lean company with business platforms primed for continued long-term and profitable growth."
"We will reach profitability in mid-2010," Ellwanger repeated, talking to "Globes". Asked about the first quarter of 2020, generally considered a weak quarter in the industry, Ellwanger said there would be no drop in revenue, but zero-to-moderate growth in comparison with the fourth quarter.
"The run of new contracts will continue," Ellwanger added. "We are very aggressive in the market, and very active." Asked whether Tower was considering a further acquisition to boost its production capacity, a year after the merger with Jazz, Ellwanger answered with a clear, sharp, "Yes."
Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2009
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