高塔半導體 (TSEM) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Tower Semiconductor's second-quarter earnings 2005 conference call. All participants are at present in a listen-only mode. As a reminder, this conference is being recorded. With us online today are Mr. Russell Ellwanger, Tower's CEO, Mr. Oren Shirazi, CFO, and Mr. Doron Simon, President of Tower USA and VP of Marketing.

For opening remarks and introductions, I would now like to turn the conference over to Russell Ellwanger. Please go ahead, sir.

Hello, everyone, and thank you for joining our second quarter of 2005 conference call. Yesterday was my three--month anniversary and during the past three months, I visited over 20 customers throughout the world and as well introduced myself to Wall Street. I was very happy to learn firsthand from the customers a great degree of satisfaction resulting from our technical and operational capabilities, as well as from our responsiveness and speed as we provide solutions to their challenges. The level of satisfaction is translated into a record number of tape-outs during the second quarter, this number having exceeded the total number for the full year of 2004. This is a clear indicator of the customer's commitment towards Tower.

This pipeline of new customers and projects demonstrates the diversity of our specialized technology offering, which is in line with the Company's strategy. The customer pipeline which has been referred to is real, as having been verified from the customers that I spoke with during these past three months.

During this period, I also prepared and gained board approval for an 18-month plan, focusing on short and mid-term financial achievements. In addition, we have conducted a reorganization, which will enable quicker decision-making and a greater customer focus.

During the second quarter, Tower's started shipping production wafers of 1.3 and 2 megapixel CMOS image sensors for cell phone applications, utilizing 0.8 micron manufacturing capabilities of Fab 2. Included in the Q2 tape-outs are a leading fabless company utilizing Tower's state-of-the-art 0.18 micron embedded NVM solution. In addition, we are experiencing growth in Mixed Signal revenues in Fab 2 and have obtained excellent performance on advanced RFCMOS product in the Wi-Fi space.

Fab 1 sales to customers in the medical imaging area continue to be strong and generate new design wins. There is definite customer-expressed interest to move some of these specialized technologies to the Fab 2 0.18 micron technology node.

The Siliconix ramp is on track with initial shipments during Q2 and as we look at what we have moving forward with the pipeline as we look at the tape-outs, and knowing the product lifecycle in this industry and the amount of time it takes for a product to mature, we expect to see a sequential revenue growth in the coming quarters.

I have implemented an organizational structural change that I referred to above, building product line units. The purpose of the product line units is, as stated, to enable quicker decision-making and to further drive our customer rapport to further drive our customer responsiveness. Within the product line unit at this point are all the capabilities needed to meet the customer demand -- the product marketing, the customer support, as well as the R&D. So there is now three product lines -- one being Image Sensor and NVM, the other being Mixed Signal and RFID, and the last being CMOS -- core CMOS. So within these three product lines, we expect even greater responsiveness as we align our road map to our customer needs.

We've also created a CTO office and a business development office to ensure the capture of all appropriate business opportunities.

Now we'll address the Q2 financials. As stated with me today are Oren Shirazi, CFO, and Doron Simon, President of Tower USA and VP of Marketing. I'd like to turn the call over at this time to our CFO, Mr. Oren Shirazi, for a summary of the financials. Oren?

Thank you, Russell. Good day, everyone. Before we begin, I would like to remind you that some statements made during our call may be forward-looking and are subject to certain risks and uncertainties that could cause actual results to be different than those currently expected. These risks and uncertainties are fully disclosed in the Company's Form 20-F and 6-K also on file with the Securities and Exchange Commission, and (indiscernible) securities authority and are available throughout the Company's Web site, as well as in the company's Form S-2, which is the right offering (indiscernible) filed with the SEC and the ISA by us on July 27th. Tower assumes no obligation to update any such forward-looking statements. And now, let's go over the financial highlights of the second quarter of '05.

Revenues in the second quarter of '05 were $27.2 million, which are $4 million higher than the $23.2 million in the first quarter of '05. These Q2 '05 revenues include $8 million from a previously announced attitude (ph) technology-related agreement.

The loss for the second quarter of '05 was $47 million, which is $8 million better than the $55 million loss we experienced in the first quarter of '05. EBITDA for the second quarter of '05 was $5 million, which is $9 million better than the $14 million negative we experienced in the first quarter of this year. Depreciation for the second quarter of '05 was $35 million, which is $2 million higher than the depreciation we had in the previous quarter.

Cash closing bonds as of June '05 was $40 (ph) million and total balance sheet was $728 million. Total shareholders' equity as of June '05 was $66 million. As of June '05, the Company had 66 million outstanding shares and 23 million options, warrants, and convertible debentures, including the 10 million option through our employees and directors.

Now moving to the banks and funding update. As we list (ph) on July 24th, Tower has reached a definitive agreement with its banks, under which they will provide the Company with up to $30 million additional funding to be matched by financing of $30 million to be raised by Tower. As related (ph) on July 27th, a preliminary prospectus for (indiscernible) offering to purchase the Company's convertible debentures was signed in the U.S. and in Israel. All of Tower's shareholders as of the record date yet to be determined will be offered this opportunity to participate in this $60 million loan. Certain of Tower's major shareholders have already committed to purchase from Tower $24.5 million principal amount of convertible debentures. In addition, the bank's agreement to buy certain of the financial ratios and covenants throughout the coming quarters to align them with the Company's current working plan.

As of the balance sheet date, the Company is in full compliance with all of the financial ratios and covenants under its bank's facility agreement as well as under it's Israeli investment center grant of (indiscernible) certificate. By then, the Company expects Q3 '05 revenues to be in the range of 20 million to $22 million of revenue. And now I will turn the call back to Russell.

Thank you, Oren. As Oren mentioned, the agreement with the banks and our shareholders -- it will enable us in bringing our pipeline of new customers, products, and value-added technology projects into the production phase, expecting commencing the first quarter of 2005. I am completing my relocation personally to Israel, where I estimate I will be spending the majority of my time and you can see this event, my relocation here, as a strong belief in the Company's great potential in the future. The remainder of my time will be split between our facilities in the U.S. and meeting customers throughout the world.

I am very excited to work together with the management team and confident that we'll lead the company to success. And the more I work with the people here, the more I believe in the people capability of Tower and the technologies that they have developed. Again, thank you for your interest in Tower and we'd like to open up the floor for questions at this time.

(OPERATOR INSTRUCTIONS). Ramesh Misra, Unterberg.

Good morning, gentlemen. Could you give a breakdown of revenues between the three marketing segments for the quarter, just intuitive? And also where you expect that to be in the next quarter?

Sure, just one moment here.

You mean the market segments?

Yes.

Yes. The last we (ph) related (ph) in our press release, consumer was at 28 million -- 28% of our revenue in Q2. Communications --

I'm sorry, Oren. I meant in -- you said you are reorganizing the company into three business segments -- the Image Sensor and Non-volatile Memory, Mixed Signal and RFID, and core CMOS.

Sure. Core CMOS was about 54%; NVM, about 9%; Image Sensor, about 18%; and the Mixed Signal RF, about 19%.

The Mixed Signal was how much? I'm sorry.

Mixed Signal and RF was about 19%.

And where do you anticipate the greatest strength and weakness amongst these segments going forward?

Greatest strength and weakness? I'm not sure what you mean specifically in the question. If you're saying where do we anticipate the greatest growth?

Right. No, where do you see these (technical difficulty) going in in the September quarter?

I don't believe that we'll see a substantial difference in the revenue split between Q2 and Q3. I don't think we'll see a substantial difference into Q4. I believe that we'll see in the latter quarters of 2006, a substantial growth in both the Mixed Signal and in the Image Sensor by ratio. I think all of these will grow themselves in revenue sequentially over the quarters as we had mentioned. But by the ratio of it, we'll be moving more from the core CMOS into the Image Sensor and into the Mixed Signal sequentially as we get into the second half of '06.

Okay. Russell, can you provide an update on your 0.13 program (ph)?

On the program?

Yes, the 130 mm.

So we're moving along. We've done our first qual. lots have come through. We are on track with our customer commitments. We'll be having capabilities and believe that we'll be -- in order to have production shipments toward the end of the first quarter of '06.

Okay. And where are your fab utilization rates for Fab 1 and Fab 2 at this point?

On Fab 1, is a bit better than 50%. Fab 2 is less than 50%. Fab 1 utilization is growing in Q3 and Q4. We'll see Fab 1 hitting very high utilization rates over the next quarters and especially in the first half of '06 as we continue in meeting the Siliconix commitments that we have and meeting that financial, or that contractual, obligation.

In Fab 2, again, we'll see continued growth. We mentioned the pipeline and the fact that we had 14 tape-outs this quarter. If you look at the time from tape-out to where you really start seeing production volume, you're looking anywhere in the order from four months to eight months, nine months. So you can expect that within that timeframe that the tape-outs of Q2, you'll start to second the volume from that very strongly in Q1, Q2 of next year, and then we believe that we'll continually grow the capacity or grow the utilization in the Q3, Q4 of '06 timeframe.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. Mr. Ellwanger, would you like to continue?

Just again, thank you for calling in. Thank you for your interest in Tower. And I remain really very optimistic on the future of the Company and especially so by having spoken with customers and seeing what the customers see in the Company -- very, very strong responsiveness, the ability to customize according to their needs, which goes hand in hand with feed (ph) and believe that the structural changes that we're making in the Company now will only further enable what customers already see as good capability and drive it into great capability within the specialty lines that we've developed in defining these product lines.

So thank you for your time and I look forward to talk to you as time continues.

Thank you. This concludes Tower Semiconductor's second-quarter earnings 2005 conference call. Thank you for your participation. You may go ahead and disconnect.