高塔半導體 (TSEM) 2005 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to Tower Semiconductor's Third 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 and Mr. Oren Shirazi, CFO. For opening remarks and introductions I would like to turn the conference to Russell Ellwanger. Please go ahead, sir.

Welcome everyone, and thank you for joining us for today's conference call. We'll begin the call with Oren Shirazi our CFO reporting our Q3 financials, upon which I will review the impact of some of our recent organizational changes and comment on the progress which we made in Q3 regarding technology, operations, and our customer pipeline. Finally, I'll give Q4 guidance and some perspective of how we see 2006. We hope you will stay for a Q&A session, following our formal comments. Oren?

Thank you Russell, and hello 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 uncertainties and risk factors that could cause our actual results to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our Form 20-F and 6-K as well filed with the SEC and the Israeli Security Authority. They are also available on our website, as well as in our Form F-2 which is the rights offering prospectus we filed on October 11th. Tower assumes no obligation to update any such "forward-looking" statements.

And now lets go over the financial highlights of Q3 '05. Sales in Q3 were $20.6 million which is 7% higher over $19.2 million in Q2, excluding revenue of $8 million recorded in the second quarter former -- previously announced Fab2 technology related agreement. The loss for Q3 was $55 million, which is $8 million higher that the $47 million loss we experienced in Q2. The main reason for this higher loss is the effect of the $8 million associated with the Fab2 technology agreement in Q2 that I mentioned earlier.

Depreciation in Q3 was $36 million, which is similar to the depreciation amounts we had in the previous quarter. Cash closing balance at the end of September '05 was $30 million, and our total balance sheet was $689 million. At the end of the quarter the company had 67 million outstanding shares and 31 million options, warrants and convertible debentures, including 13 million options to employees and directors.

Banks and funding update. As it relates during Q3, Tower has reached a definitive agreement with its banks under which they will provide the company with up to $30 million of additional funding to be matched by financing or $30 million to be raised by Tower. To date, the banks have already provided us with $21 million towards these $30 million. As also relates during the quarter, our preliminary prospectus provides offerings to purchase the company's convertible debentures both filed in the U.S. and Israel. All of Tower's shareholders, as of the record days yet to be determined, will be offered the opportunity to participate in this $50 million price offering.

Certain of Tower's major shareholders have already committed to purchase from Tower's 25.5 million principal amount of convertible debentures. In addition, the bank's agreement described earlier provides certain of the financial ratios and covenants for the coming few quarters. As of the balance sheet date the company's is in full compliance with all of the financial ratios and covenants under its banks facility agreement, as well as under its (inaudible-highly accent) certificate.

Guidance. The company expects Q4 '05 revenues to be in the range of $25 million to $28 million which represent a significant growth rate of between 22 and 36% over Q3 '05. This growth indicates the continued satisfaction of Tower's customers from our technological capabilities and speed of responsiveness to their needs, as well as the realization of the pipeline and the (inaudible-highly accented) of Fab 2 technology offerings for these (ph) customers products.

I'm returning the call back to Russell.

As those of you who have been following Tower are aware, we've recently implemented several organizational and management changes which we believe will enable us to better serve our customers by more rapidly addressing and meeting their specific needs and hence growing our business.

To be specific, and having implemented a product line based structure, we reduced the number of interfaces and internal transactions required to respond to the customer, and we've increase the empowerment of lower innovational levels ,and hence are seeing an increase in the degree of customer and business focus, which was not easily derived from the previous function based organization.

To this end, shortly after implementing the product line structure we completed a customer road show from which we have seen immediate impact. One such customer, being impressed with the breath and capability of the offering, immediately engaged with Tower. This product family spanning several technology generations in both Fabs, went from introduction to tape out within an incredibly short cycle time. This activity has the potential to affect multiple thousands of wafers per month within 2006.

We continue to make good progress in advancing the stages of the customer pipeline. In Fab 2 we realized more production customers, having increased from nine in Quarter-2 to 13 in Q3. We have also continued to backfill the pre-production side of the funnel, increasing from 22 to 24, whilst moving the four previously mentioned customers into production. Our close relationship with our long-term customer and partner SanDisk continues to be valuable to both of us.

In Q3 SanDisk chose Tower's to deliver added value to their new product families. We are manufacturing the memory controller for the U3 enabled USB flash drive family, which will enable us to more (ph) drive computing application. In addition, Tower's manufacturing a highly secure memory controller for TrustedFlash, SanDisk's new family of memory cards. SanDisk and Tower co-developed this memory controller, to include advanced security features, that allow safe transfer of downloaded content such is music files, movies and games.

Our specialty foundry model is proving successful with higher share in CMOS Image Sensor and Mixed Signals RF. In the CMOS Image Sensor space our .18 micro process and pixel IP achieved excellent sensor performance, resulting in the addition of Biomorphic to our growing list of customers. Our pixel roadmap is targeted to the next generation, high mega-pixel cell phone market, and compared with other leading foundry IP, Tower's pixel IP demonstrated significantly higher sensitivity, and significantly lower pixel defect density in dark current level pixel performance, helping enable Biomorphic to win designs at tier one companies.

We expect to see further realization of our CMOS Image Sensor customer pipeline in the coming quarters as well. In addition, Tower's first customer product in the wireless LAN domain, produced at .18 micron CMOS, is working impeccably with volume production having been shipped to a leading customer as planned. During the third quarter, we continued our focus on operational performance and increasing the loading of both Fabs.

Fab 2 utilization grew approximately 50% and we expect continued improvement. Fab1 utilization rate also increased substantially in Q3, and is expected to reach targeted utilization during Q4. The design team under the new leadership of Yakov Mustaine, is developing several unique IP offerings, especially in the non-volatile memory area. Furthermore, the design team is focused to render a greater proportion of its efforts to support customers during the design phase, and has undertaken closely aligned product development efforts to improve our customers time to market, and expedite Tower's volume ramp.

Finally with regard to guidance as mentioned by Oren, we expect the next quarter to show a quarter over quarter revenue increase of 20 to 35% which begins to reflect the awaited ramp in volume production, by existing customers and products and the new customer product movement within the pipeline into the production phase. To summarize, Q3 was within our expectations and our financial guidance which we had given. We expect Q4 to show significant revenue increase and have confidence in continued increase during 2006 as a function of our activities and the present global indicators. Thank you.

Thank you sir. Have you finished your presentation?

Yes.

Ladies and gentlemen, at this time we will begin the question and answer session.

[Operator Instructions]

We'll take our first question from Ramesh Misra of Unterberg, please go ahead.

Okay. Good morning or good evening guys. Can you update us on what's happening with your Siliconics ramp?

Certainly. The Siliconics ramp is proceeding two plan. Actually somewhat exceeding plans and we've implemented multiple products into Fab2, are shipping -- I'm sorry, into Fab1 and are shipping multiple products to Siliconics. And we're fully on target with the program that have been setup. We continue to have management reviews and ramping shipments. So, very much on target and I think to the satisfaction of both companies.

Okay. And can you remind us again when you'll see revenues from that?

Presently.

Presently. So in Q3 you already recorded meaningful revenues?

Yes.

Got it okay. And how high could it go on a quarterly run rate basis?

On a quarterly basis? It could be on the order of -- on wafers, not on revenue you're talking right? On wafers -- quarterly basis--

Both, if possible.

On wafers as -- hi, Oren. Revenue (ph) wafers, as you know the capacity for Siliconic will reach 17.5 wafers for the month capacity. This will hopefully be achieved in the beginning of '06. Currently it's ramping from -- we started in Q2 and currently we are at about the middle of the road to reach 17.5. It's in terms of capacity.

The revenue for wafer is not something that we disclose.

Okay. In terms of the Biomorphic relationship -- by when do you expect sizeable revenues from that, and can you talk about the potential size of that contract?

Q3 is where we began seeing revenues, and we expect to continue to see an increase in revenue of a substantial base. Again the difficulty here is, a direct answer to that question with very much give out information about Biomorphic which we also will not do, but we did release in the press that we have products that have been production released and that they themselves had a customer win with the products. And they're growing our business. They have, we believe, very substantial differentiations within their product, and we were able to benefit them with differentiation within our pixel performance, and hence were selected to do the work.

Russell you mentioned that Fab utilization rates in Fab 2 went up by 50%. To -- where does it stand right now, and what is the Fab1 target it level?

The Fab1 target it level we should be able to continue there at somewhere near 90% utilization. That would be the target level. For Fab2, the very specific -- where we are at in Q3 that's something that, again we've never really disclosed in the past on what our specific utilization rates are. I would prefer not disclosing those as we move forward. The proportional increase is something I think is significant to state, as the utilization is increasing, and obviously one would expect it would as you see the increase in revenue in our guidance for Q4.

Okay. All right. You mentioned that you might talk somewhat in a generic manner about what do you see for '06. Can you expand on that a little?

Sure. We had a very good amount of acceptance and movement within the customer pipeline, we've had good acceptance and we believe the customers within some of the products that we've qualified will also be having good acceptance. We would see general increase ...

(Audio break)

. . . previously announced range of 60 to 80. What is your expectations for the cash burn going forward?

I do not understand Jesse (ph), why do you see it in the bottom because nothing could have been changed.

Because wasn't the convert going to be in the $30 to $50 million range?

Yes, the converted is still a bill of $50 million. This is our target to write $50 million, out of which 25.5 guaranteed. And in addition we have $30 million that were committed from the bank.

From the bank.

Or the total around is between $60 to $80 million.

Okay so that's -- okay we're still on track for that.

On track, no changes.

Okay and could you talk a little bit about your cash burn here in the quarter? What was EBITDA, and where do you see your -- how long will this cash financing last you?

Cash from operations was negative almost $10 million, which excludes $8 million of interest payments to the banks which is the ongoing statement. Relating financing our future operations we don't see here an issue, because as you know from our balance sheet you can see that we have $30 million on cash, and we have described before expected an amount of between $60 to $80 million from this standing ground (ph), although $13 million out of which is already including the balance sheets, because this is money that the banks already provided. So, if you were sum the $30 million together with the between 50 to 70 additional expected proceeds, it should take us quite easily in the coming period.

Could you remind us of how many customers you have in the CMOS Image Sensor market? Approximately.

We have a very large amount of customers actually within Fab1, within the medical applications for x-ray, and several that are also within some automotive applications. The total for Fab 2 within different phases of the pipeline right now is 12.

Great thank you, very much.

Thank you.

[Operator Instructions]

Please standby while we poll for more questions. There are no further questions at this time. Mr. Ellwanger?

Thank you again, for your time and the questions. Thank you.

Thank you. This concludes Tower Semiconductor's Third Quarter Earnings 2005 Conference Call. Thank you, for your participation. You may go ahead and disconnect.