高塔半導體 (TSEM) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Tower Semiconductor's second quarter 2008 financial results conference call.

All participants are currently in a listen-only mode.

(Operator instructions).

Joining us today are Mr.

Russell Ellwanger, Tower's CEO, and Mr.

Oren Shirazi, CFO.

I would like to turn the conference over to Miss Nati Somekh Gilboa, General Counsel and Public Relations Manager.

Nati, please go ahead.

Thank you, and welcome to Tower Semiconductor's financial results conference call for the second quarter of 2008.

Russell will begin with remarks about the quarter's highlights, followed by Oren with an analysis of our second quarter.

After management's prepared remarks, we will begin the question and answer session.

Before we begin, I would like to remind you that some statements made during this call may be forward-looking, and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected.

These uncertainties and risk factors are fully disclosed in our Form 20-F, F-4, F-3, and 6-K, filed with the Securities and Exchange Commission, as well as filings with the Israel Securities Authority.

They are also available on our website.

Tower assumes no obligation to update any such forward-looking statements.

Now I'd like to turn the call to our CEO, Russell Ellwanger.

Please go ahead.

Thank you, Nati.

Welcome, and thank you very much for joining us today.

I'm pleased to report results for the second quarter, including revenue of $58.1 million, which was above the midpoint of our guidance range, and represents the second highest quarterly revenue in the Company's history.

This growth was accomplished despite the current global economic environment, which has impacted the semiconductor industry, as well as the majority of technology sectors.

Our focus on growth has been further complemented by cost savings initiatives and operational efficiencies, which contributed to a $2.8 million improvement to the bottom line this quarter, and a $13.3 million improvement in the first half of the year when compared to the prior year period.

As a Company, we remain focused on controlling costs and driving Tower towards profitability in the most expeditious manner possible.

In support of that goal, in late May, we announced the first steps in a cost reduction program, which will result in annual cost savings of $14 million.

Combined with our growth initiatives, we believe that our ongoing efforts in this regard will serve as a key component in the achievement of our primary goal, which is, deliver long-term value to our shareholders.

Oren will focus on our financial results in more detail in a few moments.

But first, I would like to review several business and technology developments and accomplishments.

During the last months, Tower has taken a number of steps towards executing our long-term growth strategy by expanding our higher margin specialty businesses.

This included, one, agreements to manufacture on our high end specialty platforms for fabless companies in several high growth end markets, two, having signed an MOU for a high end flow IDM transfer, as well as other such high end integrated device maker transfers, having moved into advanced stages of negotiations, and three, most significantly, having announced that we signed a definitive agreement to acquire Jazz Technologies, a Newport Beach, California high end specialty foundry.

I will first give an update on the status of and activities surrounding the merger with Jazz Technologies.

On August 8, our Form F-4 registration statement was declared effective by the SEC, following which Jazz set September 17 as the day for a special meeting of their shareholders to vote on the proposed merger.

With the approval of Jazz's shareholders, we anticipate the closing of this transaction will occur before the end of the third quarter.

In preparation for the completion of the merger, integration efforts are well underway.

We have established an intercompany, cross-functional team that has been charged with ensuring a seamless transition, as well as the realization of approximately $40 million annually in cost saving synergies that we expect will result from the merger of these two companies.

Customer response to the completeness of Jazz's and Tower's combined product platform portfolios, libraries, IP, and design services has been overwhelmingly positive.

We have begun to realize cross-selling synergies through discussions with multiple customers from both companies.

At present, there are Jazz customers within the Tower qualification pipeline, a multiple of which are targeting to use Tower's 0.13 micron copper technology, which we believe will begin to produce revenue in Q2 2009.

Tower has been the leading revenue growth foundry worldwide, when comparing 2005 to 2007, and we believe that the merger with Jazz positions the Company to continue on a similar trajectory in the coming years, and to become the leading worldwide specialty foundry.

The additional technical depth and diversification, as well as greater geographic and operational scale provided by the merger with Jazz, will serve as key components in the ultimate achievement of this goal.

In Fab 1, as we previously announced, we have two additional Siliconix Technology platforms that are being qualified.

One of these platforms has already been qualified, and is ramping into very large volume production.

This is on top of a stable, high loading of advanced logic, mixed signal and high end image sensor products from a long-term, loyal customer base, which introduces multiple [tens] of new products per quarter into the Tower Fab 1 fabrication.

Additionally, for Fab 1, in June, we announced a multi-year agreement with ON Semiconductor, related to a portfolio of CMOS products targeted at the automotive, computing, consumer and communications markets.

Through this agreement, Tower and ON Semi will jointly develop new, best in class manufacturing technology platforms.

By building upon each company's core expertise, we will deliver highly competitive and cost effective products, which meet the needs of end customers within these rapidly growing markets.

We are pleased to expand our relationship with ON Semi, and expect that this new agreement will result in millions of dollars in annual revenue over the coming years.

Moving now to discuss customer activities that will be manufactured in Tower's Fab 2 facility.

In April, we announced the ramp of production for Canesta's 3D image sensors.

These CanestaVision sensors are manufactured utilizing our 0.18 micron technology process, and are targeted at the automotive industry.

Tower and Canesta jointly developed the process over the last several years, to place the capacity to follow objects in three dimensions in real time, in any light, on a chip which can be produced using a conventional CMOS platform.

As a result, these sensors will have high availability and a low cost, both of which will make them an attraction option for mass market opportunities for electronic perception technology.

In June, we announced an agreement to manufacture QuickLogic's ArcticLink II platform for mobile display devices, which are expected to reach volume production during the third quarter of 2008.

These low-cost, high-performance platforms are targeted to high growth mobile consumer markets.

In July, we announced that Cypress Semiconductor and Panavision Imaging will begin manufacturing new products in Fab 2.

Tower and Cypress collaborated on the development on Cypress' first 0.18 micron stitched large format CIS devices, which will be manufactured utilizing Tower's latest generation of stitching technology.

Additionally, we announced that Panavision Imaging has developed the DLIS-2K and DLIS-4K reconfigurable line-scan CMOS image sensors, utilizing Tower's advanced photodiode pixel process.

The CMOS image sensor market is expected to grow from $7 billion in 2008 to $13 billion in 2012, and these sensors are targeted at high growth end markets such as consumer, industrial, scientific, and automotive.

Also during the quarter, Tower signed an MOU with a European integrated device maker to transfer their BiCMOS process to Tower, targeting a volume of 30,000 8-inch wafers per year, reaching full production in the second half of 2009.

These are precision analog products being processed with a highly specialized and proprietary flow.

During this past quarter, Tower finished the qualification of an additional platform for one of our Fab 2 IDM customers, and ramped to full production.

And Tower started manufacturing the new Zoran [bodies] chips for its DVD market.

We have progressed very well on our 55-volt power management platform recently released to customers.

This platform uniquely combines several types of LDMOS transistors for various voltages, which is 25-volt and 42-volt operation on the same platform.

Two products of our leading power management customer have been tested recently, and are fully functional.

Production of these products is expected early next year.

We continue to lead the industry in our offering of low RDF on values, and with the integration of Jazz, we will have the best of breed power management and BCD platforms at the 0.18 micron technology node.

Tower has developed a patented, novel, non-volatile memory cell called Wi-Flash that is the smallest cell in the world for logic MDM with no mass [scatter].

This is gaining strong customer traction.

This cell is capable to achieve above 100,000 cycle endurance.

To the best of our knowledge, this MDM module, using our unique technology, is the only true, multi-time, programmable, mid-size, no mass scatter MDM in the world, capable of working on a 5 volt platform as well as on a 3.3 volt, and will be easily adopted by the large power management customers worldwide.

There is a strong need for 5 volt, cost effective MDM solutions for power management and microcontroller applications.

As you may recall, we announced eight months ago, in a special conference call, the formation of a partnership with CMT, a publicly traded company specializing in digital imaging for medical x-ray.

This joint venture will design, develop and sell state of the art large panel CMOS sensors for the medical x-ray applications, replacing the currently used amorphous silicon based flat panel detectors.

We are happy to report that this project is progressing very well, and we have fabbed out our first 1 die per wafer silicon sensors based upon this design.

Tower's novel stitching in the 8-inch 0.18 micron platform, as well as Tower's novel x-ray pixels were used in this project.

The silicon will be used as a 5" x 6" tile in the full 10" x 12" detector, achieving superior quality and sensitivity and resolution, much less power consumption, and being a significantly more cost-effective solution.

It will be offered to the market at substantially lower prices than the presently available large panel digital solutions.

The silicon is now undergoing extensive characterization.

We planned out prototypes ready for customer release in the first quarter of 2009 as per the initial program schedule.

New sensors for other medical applications have already been considered, and have started in the design phase.

Upon successful completion of the detector, Tower will benefit from selling the high value wafer sensors to the partnership, as well as from its share in selling the completed detectors to the OEMs.

Tower has historically been strong within the RF space, and is a key supplier to Atheros, one of the world leaders in wireless LAN.

The pending merger with Jazz will further and greatly strengthen our position in this market.

Jazz is an acknowledged foundry leader with a complete set of high frequency to ultra high frequency solutions, including fully predictable and scalable models for both silicon and silicon-germanium based technologies.

Following the completion of the Jazz merger, we look forward to discussing our RF capability and future roadmap with you in much greater detail.

Now, regarding our balance sheet.

Over the last several months, we have been actively involved in discussions with our leaders -- I'm sorry, with our bank lenders, and Israel Corporation, a large investor, with the goal of improving our capital structure through the renegotiation of some of the terms surrounding our debt.

At Tower, we're very fortunate to have solid working relationships with our banks and with the Israel Corporation, who have been very supportive of our efforts, and have served as critical long-term partners for the Company.

As a result of these negotiations, we announced this morning that we signed a memorandum of understanding with the banks and with Israel Corporation, which will significantly improve our balance sheet and financial position, and will reduce our debt by $250 million, increase our shareholders' equity by $250 million, and improve our cash flow and financial results.

In addition, the MOU postpones principal repayment of the remaining loans, defers interest payments, modifies the interest rate, and waives financial covenants.

The arrangement also includes an additional investment by Israel Corporation into the Company.

Looking forward over the next several months, our key milestone will be completing the Jazz acquisition and executing a seamless operational integration.

We will also further identify and leverage cross-selling opportunities that exist within the products lines and customer bases of both companies.

We believe these opportunities have the potential to drive significant revenue growth for the combined Company over the next several years, based on the minimal overlap that exists between our two customer bases.

In conjunction with these efforts, we remain focused on driving organic growth, and are making progress on many fronts, including specialty IDM transfers, where the end customer is concerned with high level technical skills required to complete the transfer, and wish to move to a lower cost region that maintains IP and process knowledge security.

Looking at the third quarter, beginning with the close of the Jazz merger, we will be reporting consolidated financial results for the combined Company.

Although the exact closing date of the Jazz merger is still unknown, we anticipate that some portion of Jazz's results will be incorporated into the Tower's third quarter financials.

Therefore, the Company will not be providing an exact revenue guidance at this time.

We expect to provide our revenue projections for the third quarter of 2008 on with the completion of the Jazz acquisition, which is anticipated to occur before the end of the third quarter.

That being said, we presently see a decrease in the Q3 demand of some of our larger customers, which would result in a decrease in Tower's Q3 standalone revenue.

However, with the expected closing date of the Jazz merger to occur shortly after the September 17 shareholder vote, we expect our Q3 results to modestly exceed our reported Q2 revenue.

Even should the present economic conditions persist over the next few quarters, we expect that Tower organic growth would augment the present environment in the short-term by having increased the number of small to mid size customers to whom we are now shipping, and to who we will begin to ship revenue products in the short term, as well as from an increase in the volume that we are shipping to this grouping of customers as their differentiated products continue to gain share in the respective markets.

Further midterm and longer term targets will be presented after the closure of the Jazz merger.

With that, I'll turn the call over to Oren for a review of our financial results.

Oren?

Thank you, Russell, and hello, everyone.

First, I would like to remind everyone that beginning with the fourth quarter of 2007, we now report our financial results in accordance with US GAAP.

With that being said, I would like to note that the financial tables in today's earnings release include financial information that may be considered non-GAAP financial measures under Regulation G, and relating reporting requirements promulgated by the Securities and Exchange Commission as they apply to our Company.

Namely, this release also presented financial data which is reconciled, as indicated by the footnotes below the table, on a non-GAAP basis after deducting, one, depreciation and amortization expenses, and two, compensation expenses in respect to option grants.

Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures.

The tables also contain the comparable GAAP financial measures, to the non-GAAP financial measures, as well as the reconciliation between the non-GAAP financial measures and the most comparable financial measures.

Further, the non-GAAP financial information presented herein should not be considered in isolation, or as a substitute for operating income, or net income, moreover, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.

Now, I will turn to our financial results for the second quarter of 2008.

As Russell mentioned, we reported revenue of $58.1 million, which was the second largest revenue quarter in the Company's history, and an improvement when compared to revenues of $57.1 million in the same period one year ago.

On a non-GAAP basis, our gross profit for the second quarter of 2008 was $21 million, representing 35% gross margin, an improvement when compared to 33% gross margin in the same quarter one year ago.

Also on a non-GAAP basis, our operating profit, or EBITDA, for the second quarter of 2008 was $12 million, representing 20% operating margin, similar to the same quarter one year ago.

We are very satisfied that we have been able to maintain the same level of EBITDA compared to the second quarter of 2007 despite, one, the continued weakness in the US dollar currency, which resulted in 20% exchange rate devaluation of the US dollar against the Israeli currency as compared to the second quarter of 2007, and two, reduction in average selling prices of semiconductor products resulting from the global economy -- economic environment.

This achievement is due to our focus on specialized products with relatively high margins, and cost reduction activities that we have executed after our previously announced cost reduction plan.

For the six months of 2008, on a non-GAAP basis, our gross profit was $42 million, representing 36% gross margin, and our operating profit was $24 million, representing 20% operating margin.

In the first half of 2008, we improved our GAAP net loss by $13 million, to $61 million, an improvement of 18% compared to the same period one year ago.

In the second quarter of 2008, we narrowed the bottom line loss to $31 million, an improvement of $3 million over the same quarter one year ago.

EBITDA for the second quarter was, again, positive for the eleventh consecutive quarter, in total, $12 million.

And cash flow from operations for the second quarter of '08 was positive for the seventh consecutive quarter and totaled $4 million.

Total GAAP operating expenses during the first half of '08 were $21 million, representing 18% of revenue, an improvement when compared to 20% of revenue in the same period one year ago.

Now looking at sales to our major customers, during the second quarter of 2008, we continued to expand our customer base.

We had a total of more than 60 customers in both fabs.

Our leading and largest customers in the second quarter of 2008 were Atheros Communications, SanDisk Corporation, Zoran, Medtronics Groups, International Rescue Fire, and SiTel -- all of these in Fab 2.

And Vishay Siliconix and ON Semiconductor in Fab 1.

And what Russell mentioned, we signed an MOU with our banks and Israel Corporation, which will substantially reduce our debt, increase our shareholders' equity, and improve our future cash flow and financial results.

According to the MOU, $250 million of our debt will be converted into equity capital notes, on a basis of $1.42 per share.

The debt conversion will increase shareholders' equity by approximately $250 million, reduce our debt by the same amount, as well as improve our cash flow margin statement of operations results and our financial position.

The MOU also postponed principal repayment of the remaining loans, to begin in September 2010, postponed the interest payments originally due September '08 through June '09, to be added to the principal payments which are scheduled to begin in September 2010.

It modifies the interest rate to LIBOR plus 2.5% per annum, and waives our compliance with financial covenants throughout the end of 2008.

In summary, Tower is waived from any interest payments to its banks until September '08 -- sorry.

Tower is waived from any interest payments to its banks until September 2009, as opposed to the previous schedule of approximately $20 million of interest payments until such date, and is also waived from any repayment of principal until September 2010, as opposed to the previous schedule of $180 million that we were supposed to pay until such date.

We believe that this conversion of $250 million of debt is, as per share of $1.42, is very beneficial to our shareholders, as it is twice the market price, and it further improves our P&L and cash flow margin.

In addition, Israel Corporation will invest $20 million for capital notes, and will invest up to an additional $20 million by the end of 2009 for capital notes pending certain conditions.

As Russell also mentioned, on May 2008, we entered into a definitive agreement to merge with Jazz Technologies.

The agreement has been approved by the Boards of Directors of both companies, and is subject to the approval of Jazz stockholders and other customary closing conditions and regulatory approval.

In June 2008, we filed a registration statement on Form F-4 with the SEC, which was declared effective by the SEC in August '08.

The date for the special meeting of Jazz stockholders to vote on, approve and adopt the merger is set for September 17.

With the approval of Jazz shareholders, we anticipate the closing of the transaction to occur before the end of the third quarter.

Finally, I would like to update you that our annual report on Form 20-F for the year 2007 was recently reviewed by the SEC, and we successfully completed the review process with a clearance letter from the SEC a few days ago.

Together with the effectiveness of our Form F-4 registration statement, we view this as an indication of the quality and the reliability of the reporting and the disclosure of our financial statements.

We will now open the call for a question and answer session.

Operator?

Thank you.

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

(Operator instructions).

The first question is from Chris Cook of Zazove Associates.

Please go ahead.

Hi.

Thanks for taking my question.

What was capital spending in the second quarter, and what do you anticipate it for the year?

Hello?

Yes --

Just a second.

I want to give you that number.

Yes.

So you asked about the capital expenditure, spending in Q2 '08.

It was approximately $16 million.

1-6?

Yes, 1-6.

And in Q1, it was approximately $40 million, so this is basically close to last payments for the ramp of the 0.16 and 0.18 micron that we did in Fab 2, which we ordered the new tools to expand Fab 2 from 24,000 wafers per month to approximately -- to beyond 30,000 wafers per month.

This was done in the end of 2007.

All of the equipment, tools already arrived to Tower in the first half of 2008, and these payments that you see are almost the last portion of payments worldwide.

What would you expect CapEx to be, then, in the second half?

We usually don't give guidance or forecast for futures.

I can say that usually, the baseline of this CapEx payments, together with the sustained capital, is like $6 million to $7 million a quarter, and since -- on top of that, we have some last milestone payments for those equipment, tools, it can range in the order of $10 million to $15 million.

Per quarter?

Yes.

Thanks.

Thank you.

The next question is from Ramesh Misra of Collins Stewart.

Please go ahead.

Good evening, Russell and Oren.

My first question was in regard -- was a bookkeeping related question, about your utilization in the two fabs.

Fab 1 utilization maintained very high levels, most of it fully utilized.

We saw in the second half of the second quarter a reduction in the utilization in Fab 2, bringing it down to the order of about 70%.

So you ended the quarter at 70%?

Or was it -- was 70% the overall aggregate for the --

No, we ended at about 70%.

Okay.

With the new capacity that's coming on in Fab 2, what are your expectations in terms of actually utilizing this additional 0.13 capacity?

We see, with our existing customer base, an additional new project with a present 0.13 micron customer, 0.16, 0.18 micron customer, that we've taped out and have shipped prototypes for the 0.13.

Another existing customer, that's -- we should be taping out in Q4 at the 0.13.

And then, as far as the Jazz customer base, as I had mentioned in the -- in my dialogue a second ago, we have several opportunities that should be coming on board in the second quarter of next year.

So there's a potential to be shipping in the order of 8,000 to 10,000 wafers per month in the latter part of the second quarter -- second half of 2009.

From these Jazz related customers?

Augmented by the Jazz related customers, mainly built up by the Tower customers.

Got it.

Okay.

In regards to the demand environment right now, Russell, you mentioned that Q3, you're expecting, on an organic basis, to be down slightly.

Can you talk about which end markets are looking the weakest, which end markets are looking strongest?

If you could give a qualitative description of conditions?

I think the basic consumer markets are looking the weakest.

The specialty areas -- cameras, medical, the more highly specialized product loads that we run, are staying very, very strong, if not growing.

But the more consumer based applications -- consumers, at the moment, I think have just really cut back on their spend.

Okay.

In regards to your -- the renewal of the new agreement with ON Semi.

Is this going to maintain your sales to ON Semi at prior levels, or is it going to actually augment it?

We'd certainly be believing that it will augment the sales level we have with ON Semi.

We have a very strong, long-term relationship with them that we continually build upon.

I don't want, however, to give any specific forecasts, as that's not been released.

But we talked about that -- this product portfolio will produce millions of dollars of revenue for Tower.

Okay --

And it's on top of the existing portfolio that we have with them.

Okay.

In terms of your strategic planning over the next six through nine -- or even six to twelve months, barring -- well, considering that -- the weakness in the global economy, how do you see yourselves battling that, or offsetting that, and being able to grow despite weakness amongst many of your customers?

That's an excellent question, Ramesh.

Actually, it was something I wanted to allude to when I give my post-question summary statement, but actually, in the, I'd say, nine month horizon, we sit extremely optimistic, and think our customers are being very optimistic.

The amount of projects that we've had opportunities to bid on over the past months, the amount that we've been awarded, and the amount that are becoming available now, I think would show that our customers are themselves very optimistic over what's going to be happening in the next period of time.

That doesn't mean that Q3, Q4 demand is huge, but we have, as we had announced in the conference call, multiple deals that we have closed or in the process of closing that are very large deals with IDMs.

Now, within Tower's stated strategy of doing highly specialized IDM transfers, that even goes, maybe, beyond what the market growth is, as many IDMs drive more and more towards a fab-light model.

And our ability to have demonstrated, I think, extremely good if not best of breed, transfer start to product qualification time schedules, and the fact of Israel being, really, a lower cost region that has extremely good reputation for IP and process flow security.

It allows us to really move ahead very strong in that front.

So at present, we have multiple IDM agreements -- one that we signed an MOU with, that we didn't release the customer's name within this quarter, several others that we're really on the verge of signing, that we would hopefully be able to release with customer approval in a short period of time.

But on the IDM side, things are looking very, very strong for us.

On the cross-sells with Jazz, things are looking very nice for both Tower and for Jazz.

Multiple of our customers are so excited about the Jazz portfolio -- in particular, the added scale of the larger Company, combined with Jazz's well acknowledged leadership within ultra high frequency products, there's very, very strong traction.

So, organically, I think we look very nice within the six to twelve month period, as the present projects gain traction, and as the IDM transfers that we're now bidding on would be gaining traction.

So maybe those would be the nine to fifteen month timeframe.

And on the Jazz merger, the cross-sells, the benefits to both companies should be able to gain traction in the mid to end Q2 timeframe.

Okay.

In regards to this new IDM MOU, the European IDM, as much as 30,000 -- that's 30,000 wafers on an annual basis, right?

Yes, sir.

Okay.

When do you anticipate closing that?

Is it probably by year-end, or could it even happen before the end of this quarter?

I believe it will happen before the end of the quarter, in the very short term, before the end of the quarter.

I see, okay.

And obviously, for that to ramp, that will probably take another -- about six months after that, right, in order to transfer that process, qualify it, and actually ramp production?

Yes, I think you could look at probably a nine month period for an IDM transfer, for where it starts to ramp into production.

I see.

Okay.

In regards to the balance sheet restructuring, Oren, I might have missed this.

But where do you anticipate your quarterly interest expenses in the September quarter and beyond to go to?

So, on a cash basis, we will pay zero amount for interest by -- until September 2009, so already, the payment for this quarter, it will not -- is not being required.

So we will just pay nothing until September 2009 for interest, and nothing for principal until September 2010.

But if you -- I guess you ask also for the P&L?

Yes.

For the P&L, Q3 will still not be affected, because this -- the closure of this deal is expected next month, so still, during Q3, we will accrue the interest as previously.

But from Q4, it will go down by 60%.

So whatever your assumption for 100% was, now it will be now only 40%, because basically we had the outstanding debt to Israel Corporation and the banks of $450 million, and now it is being reduced to $200 million.

So it's -- the reduction is by 60%.

And interest reduction is pretty much the same.

Okay.

Now, the banks and the Israel Corporation, obviously, they are -- that $250 million debt into equity, they -- that is being charged at $1.42 per share?

In the conversion?

Yes, yes.

So help us understand -- what is in it for them?

What's the benefit that they are getting by this transaction?

From the banks' point of view, they really always appreciate that new funds are invested in the Company, because new funds that are invested in Tower are used always for growth, and for capacity expenditures, and the equipment, tools that we are buying for this capacity expenditure, from the banks' point of view, they are one of their securities.

So this is very good for them, that basically they did not invest any new money, but somebody else invested, which is Israel Corporation, and they have an additional security.

So from their point of view, it's a win/win.

They improved their situation.

From Israel Corporation point of view, they -- again, they are believing in our growth model, they believe in our strategy.

And from their point of view, to invest new money in the Company, after the -- with the closing of Jazz that is supposed to put us in a much better position, and with the banks' debt that is reduced by 50%, 60%, so now they are investing in a much stronger company.

So from their point of view, it's also a win/win.

Okay.

All right, I'll hop off and let somebody else come on, too.

Thanks.

Thanks very much.

Thank you.

The next question is from Glenn Barry.

Please go ahead.

Hello.

This is Glenn Barry -- I'm a private investor.

I have a question.

Russell, in the -- from a three year timeframe, what do you see as the potential for Tower in terms of sales and free cash flow?

Obviously, I'm asking you to speculate a bit.

Three years from now?

Yes.

I believe that we can nicely be above a $600 million revenue, and we can be sitting somewhere around $200 million cash generation.

And is the cash -- is that free cash flow, or how would you define the cash flow?

Free cash.

Free cash.

Well, okay.

Well, thank you very much.

That's not a target, or a guidance.

I understand.

Thank you.

(Operator instructions).

There are no further questions at this time.

Mr.

Ellwanger, would you like to make a concluding statement?

Sure.

So firstly, I really do thank you for your time, your interest, and your support.

To summarize, we believe that the financial restructure that we announced today with our lending banks, and with the Israel Corporation having infused more money into the Company, the expected closure of the Jazz merger, and our organic growth activities, these will allow us to continue our growth trajectory, which I mentioned had established us as the fastest revenue growth foundry for the '07 over '05 period, while at the same time, substantially improving our EBITDA and cash generation, in the course of transitioning to be the worldwide leading specialty foundry.

We stand very excited and optimistic over our future.

We look extremely forward to updating you at the closure of the Jazz deal with models and targets.

As mentioned to Ramesh in answer to his question, we see optimism presently in the face of our customers -- present customers, new customers, potential customers -- as far as the amount of projects that are being opened for bid, the amount that we've won, and the amount that we're close to winning.

So in the mid to longer term, we're extremely excited.

In the short term, we have a huge amount of work in front of us to effectively integrate the merged Company, and we're very excited to go forward with that.

So I thank you all again very much, and we look forward to really sitting down with you in great depth upon the closure of the Jazz merger.

Thank you.

Thank you.

This concludes the Tower Semiconductor second quarter 2008 financial results conference call.

Thank you for your participation.

You may go ahead and disconnect.