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Operator
Ladies and gentlemen, thank you for standing by.
Welcome to the Tower Semiconductor third quarter 2010 results conference call.
All participants are currently in a listen-only mode.
Following management's prepared statements instructions will be given for the question-and-answer session.
(Operator Instructions).
As a reminder, this conference is being recorded November 11, 2010.
Joining us today are Mr.
Russell Ellwanger, Tower's CEO, and Mr.
Oren Shirazi, CFO.
I would now like to turn the conference over to Ms.
Noit Levi, Director of Investor Relations and Public Communications.
Ms.
Levi, please go ahead.
Noit Levi - Director - IR and Public Communications
Thank you, and welcome to TowerJazz's financial results conference call for the third quarter 2010.
Joining us today are Mr.
Russell Ellwanger, TowerJazz CEO, and Mr.
Oren Shirazi, CFO.
Russell will open the call, followed by Oren, with a discussion of our results in the third quarter of 2010.
After management's prepared remarks we will open up the call for 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 20F, F4, F3, and 6-K filed with the Securities and Exchange Commission, as well as filing with the Israeli security authority.
They are also available on our website.
TowerJazz assumes no obligation to update any such forward-looking statements.
Now I would like to turn the call to our CEO, Russell Ellwanger.
Russell, please go ahead.
Russell Ellwanger - CEO
Thank you, Noit.
A warm welcome to all of you to a third quarter 2010 results conference call.
The third quarter was very much a milestone quarter for us on multiple accounts.
With the second quarter where we achieved greater than $500 million quarterly run rate -- $500 million annual revenue quarterly run rate and considering fourth quarter guidance, it can be safely stated that our sales level is that of a $0.5-billion company, a far reach from the $94 million level when Oren and I first worked together at Tower in 2005.
The third quarter achieved the highest revenue in our company history at a $135 million with record EBITDA of $46 million.
This is $31 million higher EBITDA than Q3 2009 at $55-million higher revenue, or in other words, an incremental EBITDA margin of close to 60%.
Also of significance is that on every single financial parameter GAAP and non-GAAP TowerJazz was a profitable company in the third quarter.
Although we've had positive cash from operations for the past 16 quarters, we now show profit against a depreciation of all assets.
While our P&L performance was solid, we took advantage of our strong cash generation and business performance and made exceptionally strong progress in structuring and strengthening our balance sheet to support long-term growth and performance.
Oren will provide the details in a few minutes while we have restructured $400 million of debt and now have a debt payment schedule that is fully serviceable from operational cash in the Company on an ongoing basis.
The deals we have done with our banks and bond holders in this quarter demonstrate the confidence that they have in our business as well as our ability to maintain our current momentum and deliver strong returns for the long-term.
All this is due to the successful execution of our strategy designed to create strong shareholder value by running strong and sound business while improving our balance sheet and financial condition.
While we can look back at a string of successes over the past few years, including the merger with Jazz, we will now look forward.
Our continued design win momentum has provided us with a large group of diversified and global customers, many of the top companies in their respective markets, including top technology platform leaders.
In Q3, we had 120 design wins reaching over 350 design wins in the first three quarters of 2010, already surpassing the record 2009 level of 308 design wins.
It takes somewhere between 12 to 26 months for most of our design wins to reach volume production levels.
In 2008, we were at a quarterly design win average of slightly above 50.
This is predominantly what has driven the 2010 revenue growth.
In 2009, we achieved about 75 design wins per quarter which will fuel the 2011 growth, and in 2010 we had been at an average design win of close to a 120 design wins per quarter which will fuel the 2012, '13, and '14 growth.
And this underlies my continued optimism for TowerJazz's long-term growth prospects.
Now to talk to the various parts of our business.
In the past few conference calls -- and it is a very important point, we talked about how in the analog space, as compared to digital, one can keep older technologies alive and vital through content enhancement, rather than through aerial shrinkage.
And this is why technology obsolescence is not an issue for us.
We drive innovation by continually engineering better solutions to solve the problems of interfacing digital systems to the real world.
We have a vast array of specialty semiconductors, including wireless RF, analog, high-voltage analog, imaging and other sensors and communication chips.
We spoke at the last call in some good depth of how our design center services are a large enabler for our customers ensuring greater probability of first time design success.
We increasingly help customers bring new products to market through our product enablement capabilities and that is really where a large part of our customer value ad lies and is why they come to us again and again.
With regard to our business unit of transfer developments, optimization, and process services we're working on increasing the capacity of new products for Siliconix and wrapping International Rectifier products.
We have entered into a substantial agreement with another highly respected integrated device maker and have achieved a second milestone in this project.
We expect to reach the production milestone in mid 2011 at which time we anticipate a joint press release.
The Asian [Tops] project is progressing according to plan, and we're working on introducing a new technology platform in the MEMS arena.
The Crocus project is also on target and progressing according to schedule.
Working MRAM, multi array devices are showing very promising results within a very short period of development time.
As Dr.
Bertrand Cambou, Executive Chairman, Crocus Technology put it, "The combined teams of Crocus and TowerJazz are moving rapidly to release a manufacturable and high yielding MRAM technology, that will serve both embedded and stand-alone MRAM applications.
Our next step is to achieve a denser version of the MRAM array."
Our mixed signal in CMOS offering has been further expanded and includes a large variety of analog features and advance models.
We're now providing a flexible and highly customized process, a world renowned modeling kit and best in class PDK support, enabling optimum solutions for designers.
Some of the newly offered devices include ultra thick single or double copper layers for high-Q inductors in both 0.13 micron and 0.18 micron product lines, supporting other business units as well.
New customized flows have been developed to allow our customers better device performance, such as the low leakage process option and a high performance, high speed process option.
Engineering team continually focuses on developing customized technology platforms and enhancing the established process flows.
Our [analog] product line was very strong in the third quarter led by handset, TV receivers, and fiber optics in markets.
In each of these segments, we see strong prospects for continued growth.
The handset and TV receiver markets are served by our industry leading RFCMOS and BiCMOS technologies, and continues to win designs from existing and new customers due to both performance combined with the availability of multi-fab sourcing.
As an example, this quarter was an announcement of an expanded agreement with Entropic Communications to supply both satellite and TV tuner products that utilize both BiCMOS and RFCMOS technologies and this is currently being cross-qualified in our Israeli fab from the Newport Beach factory to better respond to customer demand upside and manufacturing flexibility.
The fiber optics market served by our high performing Silicon Germanium technology has seen the strongest year-over-year growth of any segment we supply.
Internet traffic is projected to continue to increase strongly due to the increased demand for video distribution which we expect will drive further growth in this segment.
Some examples of customer announcements this quarter include Gennum announcing use of our 0.18 Silicon Germanium technology to create the world's largest and most feature-rich cross-point switch and Ensphere announcing adoption of a 0.18 Silicon Germanium process for fully integrated one-chip optical Transceiver IC.
In the power management area, we see the fruits of our investment in this field in the past year with multiple products finishing their final stages of qualification towards a steep wrap in the first quarter of 2011.
These products, the majority of which coming from our Korean customers, vary from LED drivers for TV screens to motor drivers for printers and PC fans, to Class-D audio amplifiers for TVs.
All of these are very fast growing segments, and especially, growth areas in Korea.
Our technologies have proven itself as superior in the market and due to our profits flow efficiencies is the best cost performance solution today.
Our NVM Y-Flash solution is playing a major role in some of the products and licensing of a Y-Flash IP activity is moving along very well.
We've also been able to pull-in the schedule of our unique 700 volt platform for LED lighting.
And products on this platform are already on silicon expected to wrap in the second quarter of next year.
In general, we will wrap into volume productions three different power management platforms as streamlined, efficient, and cost effective flow for LED drivers and have the isolation flow for motor drivers and audio amplifiers and a 700-volt flow for LED lighting applications.
The CMOS Image Sensor business unit activity is very strong.
We have released numerous products to production with our leading high end customers such as e2v, [Cyprus], Panavision, and CMOSIS.
The industrial imaging business is growing very quickly.
In addition, the X-ray business is wrapping well, especially in the dental intra and extra-oral market with product being manufactured using a market leading stitching technology.
We have developed very low noise pixels for high-end DSLR and high-end video and cinematography markets which is being used by industry leaders and already wrapping in production.
In summary, as you can see we have established our leadership in specialty technology and TowerJazz business is now very strong and stable, now at a very strong and stable base for profitable growth for the quarters and years ahead.
Our business is now running soundly.
We continue to focus on the foundations of our success which is to focus on investments in R&D and innovation.
We focus on engineering solutions that can best fulfill our customers needs that of building chips which can interface digital systems to the real analog world.
On October 26th we held our TowerJazz Supplier Day and on the 27th and 28th we held our annual TowerJazz Global Symposium for existing and new potential customers at our Newport Beach facility.
We invited our customers and suppliers to join up to hear updates on the latest trends in process technologies and see hands-on demos of the most proficient use of tools to speed design cycles and time-to-market for the industry's most cutting edge products.
This year's conference illuminated the Company's strategy to champion specialty solutions to our expanding global customer base.
Registered attendees included a 150 representatives from nearly 90 companies worldwide, then were sponsored by close to 20 leading tool vendors, IP providers, and post wafer service companies.
During the conference we provided breakout sessions which addressed topics related to overcoming the top five design challenges and addressing performance cost and power challenges, also to help our collaboration with our customers on the most efficient designs and manufacturing solutions.
In addition, I presented the opening presentation which spoke to our mounting strength and stability, our industry leadership as well as specialty solutions driving our explosive growth in 2010 and beyond.
The customer survey responses were both satisfying and motivational, almost unanimously stating the relevance of our technologies and technology roadmaps for their immediate, mid term, and long range needs.
As we look to 2011, we are laser focused on extending our leadership as our customers' champion for specialty solutions.
As I stated earlier, we have restructured $400 million of debt resulting in debt schedule that is readily serviceable with the ongoing operational cash generation.
The $88 million Q3 cash closing balance was after prepaying $50 million to our lending bank partners.
We announced a few weeks back the raising of a $100 million in long-term convertible debentures.
Considering the Q3 cash balance of $88 million on a pro forma basis we now have close to $200 million cash on hand.
This is ample to serve merger and acquisition strategy which has been approved by our Board and which we are aggressively pursuing to require further capacity enabling the needs of a rapidly growing share with existing customers as well as the acquisition of many design wins with new customers.
Industry analysts have stated a short-term slow down in the industry and we know that the digital foundries have guided to 5% down from the fourth quarter and specialty foundries have guided it down a quarter of up to 35%.
I think it is a credit to our business model and market share growth that in this environment we are guiding flat to a slight mid range increase with a range of $133 million to $137 million for Q4.
With that I would now like to hand over the time to our CFO, Mr.
Oren Shirazi.
Oren, please.
Oren Shirazi - CFO
Thank you, Russell, and hello everyone.
This quarter to -- the third quarter 2010 was the best quarter for TowerJazz and for me on a personal basis since I started working for TowerJazz in 1998.
While we achieved many record data points and all our targets the two main achievements during this quarter were, a, the achievement of net profit, and b, the restructuring of more than $400 million of debt -- in four stage transactions, leading up for the third time in a long time, to a clean, clear, and stronger than ever balance sheet.
The net profit achievement is coupled with very good and improving growth and operating margins demonstrating the operating leverage we have in our business model where a large portion of our incremental revenues can fall straight to our bottom line.
We also achieved an all-time record EBITDA of $46 million in the quarter over 34% EBITDA margin, and our all-time record revenue of $135 million which reflect 69% growth year over year.
In terms of operating profitability, we continued to see very strong growth on both a GAAP basis and the non GAAP basis.
Non GAAP operating profit reached $46 million, growing 10% sequentially and multiplied by a factor of 3.5x compared with the third quarter last year.
On a GAAP basis sequential operating profit grew also by four times to $18 million; in this time last year, we were non profitable.
Going into further debt and our review of our balance sheet items, we also see improvement in all indicators and parameters as follows.
On the balance sheet, cash balance as of the end of the third quarter increased from $82 million at the end of December 2009 to $88 million currently.
The cash balance is almost 70% higher than the cash balance of $52 million which we had as of September 30, 2009.
Taking into account the $100 million fundraising announced two weeks ago, we have on a pro-forma basis $188 million cash on hand.
Current assets increased from $167 million at the end of December '09 to $193 million at the end of the prior quarter, with further growth to $207 million at the end of the third quarter of 2010.
Also notable is shareholders equity for the end of the third quarter, showing an increase to $102 million, almost double to $56 million as of December '09 and almost 50% higher than June 2010.
We achieved this improvement in cash, current assets, and shareholders equity, whilst continuing to reduce our long-term debt from $429 million as of December '09 to $355 million now.
We also recorded an increase in current liabilities from $121 million at the end of the previous quarter to $152 million at the end of the third quarter.
This was mainly due to an increase in the deferred revenues line following cash already received from customers which will be recognized into revenues in the next quarter.
Based on our 2010 EBITDA target of $160 million we have a net debt-EBITDA ratio of 2.2x as compared with ratios well above 4x that we had in the past.
As part of our efforts to improve our capital structure and balance sheet I'm happy to say we have completed the $400 million comprehensive debt restructure, carried out over the past several months.
This restructuring comprised the extension of the $45 million Wells Fargo credit lines to 2014, carrying an interest of LIBOR plus 2.5%, $80 million Jazz level bond exchange deal for bonds due in 2015, $160 million Israeli banks' credit line extension at LIBOR plus 2.75% where just two weeks ago, we raised approximately $100 million in new series of long term bonds maturing in two equal installments in December 2015 and December 2016.
The composite has created a new clean, clear, and strong balance sheet and the restructuring transactions in particular demonstrates the confidence that the financial community has in our business, our ability to generate strong results in our long term strategy.
Our continued efforts in this regard are part of our continued long term strategic growth trend designed to create stronger shareholders value by running a strong and sound business while improving our balance sheet and financial conditions.
This completes my balance sheet analysis.
Moving to the P&L, as I said in my introduction, we achieved a GAAP net profit in the third quarter of 2010.
This comes with the great achievement of an all-time record revenue reaching $135 million and an all-time record EBITDA of $46 million in the quarter.
More notable is therefore the $55 million revenue increase we had the year-over-year growth of $31 million in GAAP net profit, representing 56% incremental GAAP net profit margin.
In terms of gross profit on a GAAP basis, we achieved gross profit of $36 million compared to a gross profit of $22 million in the previous quarter.
As compared to the third quarter of '09, our cost of revenues increased only by $14 million over the $55 million increase in revenues, and our gross profit increased by $41 million over past $55 million revenue increase representing 75% incremental gross profit margin.
Gross profit on a non-GAAP basis was $62 million in the quarter, growing 139% as compared to the third quarter of '09 and 9% over the previous quarter.
Our non-GAAP gross margins improved to 46% compared with gross margins of 32% in the third quarter last year.
We achieved substantial GAAP operating profit in the quarter of $18 million, four times the level in the prior quarter.
Looking at our operational -- at our operating expenses as the percentage of revenue is evidence of the continuous improvement in our margins.
Our R&D expenses in the third quarter were 5% of revenue as compared to 8% in the third quarter of '09.
Our shares in marketing and G&A expenses dropped to 8% of revenues, an improvement when compared with 10% of revenues in the third quarter of '09.
As you can see, we continuously make tremendous effort to keep our cost control without sacrificing any of our top line growth.
Our net profit for the quarter was $1.2 million representing $00.01 EPS as compared to our GAAP net loss of $30 million a year ago, and $9 million in the prior quarter.
This means that our operations generated enough revenue to cover all of our expenses which includes the cost involved in operating the facilities including R&D, M&A, G&A, depreciation financing, and tax expenses.
Net profit on a non-GAAP basis in the third quarter was $36 million, representing a net margin of 27% which is substantially higher than the non-GAAP net profit of $13 million representing a net margin of 16% achieved in the first quarter last year.
EBITDA for the third quarter of 2010 was $46 million, an all-time record, and 3x up from the $15 million reported in third quarter of 2009, and higher than the $42 million reported in previous quarter.
Finally, I wish to share with you that we continue to aggressively pursue the $45 million in grant owed to us from the Israel Investment Center, an Israeli governmental agency encouraging CapEx investment in developing areas like Migdal in the north part of Israel.
Over the past few years, we have had many continued governmental commitment that we will get this $45 million cash grant, but since we have not yet received the money, we have appealed to get it and have seen measurable governmental activity to work the approval and payment of the grant in the foreseeable future.
Hence we are hopeful of positive outcomes.
I would like now to transfer the call back to Noit Levi.
Noit.
Noit Levi - Director - IR and Public Communications
Thank you, Oren.
Before we open up the call to the Q-and-A session, I would like now to add the general and legal statements to our results in regard to statements made and to be made during this call.
Please note that the third quarter 2010 financial results have been prepared in accordance with US GAAP.
And the financial tables in today's earnings release include financial information that may be considered non-GAAP financial measures under Regulation G and related reporting requirements, as established 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 tables on the non-GAAP basis after deducting, one, depreciation and amortization, two, compensation expenses in respect to option grants, and three, financing expenses net, other than interest accrued such that non-GAAP financial expenses net includes only interest accrued during the reported period.
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 GAAP financial measures.
EBITDA is presented is defined in our quarterly financial release.
EBITDA is not a required GAAP financial measure and may not be comparable to a similarly titled measure employed by other companies.
EBITDA and the non-GAAP financial information presented herein should not be considered in isolation or as a substitute for operating income; net income or loss; cash flows provided by operating, investing, and financing activities; per-share data; or other income or cash flow statement data prepared in accordance with GAAP, and is not necessarily consistent with the non-GAAP data presented in previous filings.
I would now like to turn the call over to our operator.
Operator?
Operator
Thank you, Miss Levi.
Ladies and gentlemen, at this time we will begin the question-and-answer session.
(Operator Instructions).
The first question is from Jay Srivatsa of Chardan Capital Markets.
Please go ahead.
Jay Srivatsa - Analyst
Thanks for taking my question.
I'm not sure if you mentioned this, Russell.
You talk about design activity during the quarter, how many design wins were you able to garner and how does it compare with the previous quarter?
Russell Ellwanger - CEO
I did -- I did.
It was 120 design wins.
The previous quarter was 123.
The quarter before that was 111, I think.
So we're -- I mentioned -- so certainly the 120.
But we're at close to 120 design win per quarter run rate as compared to 76 in 2009, as compared to about 50 in 2008.
Jay Srivatsa - Analyst
Okay.
In terms of capacity, where are you at in terms of utilization?
And then as you look ahead, what kind of internal capacity do you think you can support at the present time?
Russell Ellwanger - CEO
Our Newport Beach facility is running -- okay, to start with, just a clarifier.
Many people report utilization and capacity in very, very different ways.
I call 100% utilization really being the maximum that you can possibly run.
You cannot run a fab at 100% utilization because your cycle times become close to infinite then.
But 100% for us is really -- you cannot start more wafers than that.
That's a theoretical maximum photo layers that can be run.
The model that we attempt is to run between 88% to 92% utilization.
So if I say full utilization, that's being between the 88% to 92%.
Okay.
And at that rate, if you're running efficiently, you can still have reasonable cycle times for your customers.
Many factories already put many reductions against the theoretical capacity and hence they can report from time to time 130% utilization.
We will never report that.
Our utilization, the max that we wish to be running at is at 92%.
Okay.
So I'm sorry for the clarifier, but it's not really apples to apples the way different foundries present.
So that being said, our factory in Newport Beach and the six-inch facility in Migdal Ha'Emeq are both running at full utilization, and have been.
The eight-inch facility in Migdal Ha'Emeq over the third quarter was running probably about 75% utilization, and is now very close to full utilization as well.
Now, all of that being said, we have in real time increased the capacity in both Newport Beach, in the six-inch facility in Migdal Ha'Emeq and in the eight-inch facility in Migdal Ha'Emeq, to where we'll be ending up the year at somewhere around 900,000 wafer per year capacity.
In Newport Beach, we're moving up very close to 22.5 thousand wafer per month capacity.
So in all of the factories we will, according to our plans, be continuing to run at this 85%, 90% utilization level with the capacity increasing as we speak.
During 2010, we would be looking at doing further capacity increases organically, both in Newport Beach, maybe increasing another 3,000 wafer per month.
And in Migdal Ha'Emeq, we'll have the ability and most likely move up another 12,000 to 14,000 wafer per month during the year in 2011.
Did that answer your question?
Jay Srivatsa - Analyst
Yes.
So let me ask you this.
Really your capacity, you're running at almost full capacity across the board.
Where are you at in terms of your acquisition related move you've talked about the last couple of conference calls?
Can you give us a status on where things are at?
Russell Ellwanger - CEO
We're not at a point that we've signed a definitive agreement with anybody.
The model of acquisition we're going after is a two-fold model.
Firstly, we're looking at an asset acquisition.
The asset acquisition would be to where we would and are very interested in taking over a factory from an integrated device maker, where the IBM is now running at high utilization, but where for their digital technologies over the next few years an eight-inch factory, at let says, 90-nanometer, 130-nanometer, would no longer be meeting their needs.
They would need to move everything into the 300 millimeter at 65, 45, 32, for example.
In which case, we would buy a factory and have a loading agreement for multiple years, where the factory would cash flow break-even, off of their utilization or off of the utilization of their products for the first several years, and during that period of time we would bring up our own flow.
And as the utilization from the IBM's products would be decreasing, we would be increasing the start of our customers.
Now that's a plan that's fully approved by our Board of Directors.
We've been very active in this area.
We're still active in this area.
But nothing at this point of being at a definitive agreement.
But it is the model we're after, and it's something that we're extremely active in.
And I don't think I could really legally say much more than that on a -- in a call or in general outside of the Company.
But we're very active and we have a Board approved M&A strategy.
Now there's another type of acquisition that we're looking at as well, and that is a business acquisition.
In this case when we merged with Jazz -- we merged with Jazz because we were not in the Silicon Germanium space at all.
And as well, although we have some RFCMOS capability, the Jazz RFCMOS capability was much stronger from their background.
So we did an acquisition there that was a 100% accretive acquisition, to where we were able to bring on a whole different customer base that allowed us cross sales of some of the Tower products to those customers as well as to grow the customer base through the efficiencies and through maybe a different type of management.
So that acquisition has gone very well.
In fact, if you look at it and you were to say what is our ability to do acquisitions, although many of the acquisitions in many companies are unsuccessful.
Two years after the Jazz acquisition and the value of Jazz itself has increased a factor of 3.
So I think that that's a very strong statement of it.
If you look at the EBITA when they were purchased and the EBITA that's being produced now, time to the common industry multiplier it has 3x for a value.
So I think we've shown that we can do an acquisition of both types; an acquisition of an asset, we were able to integrate a different culture into one company that's much stronger than 2x the Company.
And if we do that for an asset, that's one major focus.
The other would be looking at technologies that we don't serve at this moment, that we maybe want to get into that's synergistic with the customer base that we have.
One such technology would be gallium arsenide, for example.
To where -- to do an acquisition in that area, you would have initial head start in that you have a technology platform to work off of.
First trying to go through all the cycles of learning by organic development and having no customers that you already are selling into.
So that's in my mind a very complete answer.
I hope that it satisfies your question.
Does it, Jay?
Jay Srivatsa - Analyst
Yes, fair enough.
I guess -- let me ask you this.
As you look ahead to 2011, do you believe you would need to complete an acquisition to meet the increasing demands for your products or do you believe organically you'll have enough to support the demand?
Russell Ellwanger - CEO
In 2011 I believe we can take care of things with organic growth, the end of 2011, beginning of 2012, we will need to have an acquisition in hand as to bring up our own flows in order to then grow our customers within that, it takes 12 months -- well, 9 to 12 months anyway.
So we'd have to have an acquisition most likely timing-wise by the second half of 2011 to hit the continued projected growth that we have for 2012 and 2013.
Jay Srivatsa - Analyst
Okay, last question and I'll step off the queue here.
On a macro level you've, kind of, guided to a flat quarter, Q1 tends to be a soft quarter for a lot of the end markets in the consumer space.
What is your outlook as you look for the full year next year?
Do you believe we're on a semi cycle basis where we are?
Can you share with us where we are and what your expectations are as you get into fiscal '11?
Russell Ellwanger - CEO
As a function of the design wins of 2009 we have a very, very big growth in market share.
That being said, it would be very, very difficult for me to see that we don't have not just growth but good growth in 2011 and I believe we'll have double-digit growth in 2011.
Now the old saying is very true, when the tide goes down all ships go down, when the tide goes up all ships go up.
The only way that you can modulate that is if you're growing market share.
So if there is an overall strong decrease in the market, if the market is down 20% and our market share is increased 40%, obviously we'll have growth.
If the market's down 50% and we have grown market share of 40% we'll still be down 10%.
I think our market share growth is on the order of 40% to 50%.
And what does that mean for 2011?
It's really I can't talk -- I don't have the any -- really anyway to say what will happen on a macro level.
On the big picture I see absolutely no way that semiconductor sales will decrease over time.
And if you look right now it's just a smart phone from having a handheld communication device that in the past had one power amplifier.
You're now dealing now with three to four power, front-end models rather than one from three years ago.
We have within a smart phone at least three power management chips.
You still have the transceiver, the controller.
And there is huge increase in contents for every system that's sold.
So the long-term of semi conductor the short-term -- the mid-term of semiconductor is very, very strong.
Now the amount of content that's increased in every system that's sold is really big.
Now if I look at what's on big picture some of you analysts say they try to track system sales versus semi conductor sales and they tend to say that there is an inventory build right now of more semis than there are systems.
But what they don't take into account is the 5x or greater content increase in systems -- of the semi content in the system over the past three or four years.
So again in the short-term, I can't really say what will happen in any cycle.
In the medium to long-term, I think, that semiconductors is an excellent place to be.
And certainly the analog market that we're serving is the sweet spot of the market, with all of the drive to green, to be strong in power management is very, very important.
With all of the increase in Internet, in Internet video, in basic data rates of streaming to be involved in very, very high end RF, it's the right place to be.
So I think that those two markets are very strong growth markets, they're needed markets, and that's where we have our technology leadership.
Jay Srivatsa - Analyst
Fair enough, congratulations in achieving GAAP profitability.
Russell Ellwanger - CEO
Thank you very much.
Operator
The next question is from Eric Reubel of MTR Securities.
Please go ahead.
Eric Reubel - Analyst
Hey, thanks for taking my questions.
Oren, could you give CapEx for the quarter?
Oren Shirazi - CFO
Yes, CapEx for this quarter were $43 million.
Eric Reubel - Analyst
I'm sorry -- 43?
Oren Shirazi - CFO
Yes.
Eric Reubel - Analyst
Okay.
And you're still on track to reach the target for the year?
Oren Shirazi - CFO
Yes.
Eric Reubel - Analyst
Or is that changed?
Oren Shirazi - CFO
What is the target you're referring to?
Eric Reubel - Analyst
$90 million for the year.
Oren Shirazi - CFO
Oh, yes, it could be a little bit higher because of what Russell mentioned that we are driving for increasing capacity internally in all our fab.
So we announced on February 16 about a $15-million investment and we are trying to do some more because of, again what Russell mentioned, in the beginning that our fab 1 and the Newport Beach fab are fully utilized.
So we have some opportunity that we find [tools] and CapEx that we can buy, install quickly, and therefore leverage on that.
If you remember Russell noted that in Newport Beach we almost have a 22k wafer per month or we will have soon.
And this is against the number, if you recall a year ago it was maybe 15k or 16k.
So all this was done both from the $15 million we mentioned in February but from other opportunities we fund plus also efficiencies.
But you're asking now about CapEx.
Eric Reubel - Analyst
Then Russell, you mentioned adding 3,000 wafers at Newport and 11,000 in Migdal Ha'Emeq in 2011.
Can you frame capital expenditure budget range to cover that expansion for 2011?
Russell Ellwanger - CEO
On the order of about $80 million.
Eric Reubel - Analyst
Okay.
And if I can ask, if -- well done over the design win momentum for the combined company, the 50 in '08 ramping to 75 to -- you know, 120 in the current quarter.
Can you talk about those trends in terms of the Jazz Technologies design wins?
Are they on the same track or can you give us any color about what the design win momentum cycle is in -- at the Jazz subsidiary?
Russell Ellwanger - CEO
So if you are to ratio to 2008 the increase from the 50 design win quarterly run rate in 2008 to the 120 quarterly design win rates of 2010 is pretty well proportioned among all of our business units.
I mean, in one quarter it might be higher than one in another but on the average everything is going up pretty much the same proportion.
Eric Reubel - Analyst
That's great.
Can you -- could you give us just a break out of revenue and EBITDA for Jazz for the quarter?
Oren Shirazi - CFO
Yes, so, basically it will be public domain anyway when we are filing today, tomorrow the 10-Q of Jazz.
So the revenue of Jazz is about $60 million this quarter and the remainder is, of course, the Migdal Ha'Emeq, so more than half.
And EBITDA is approximately $25 million for Jazz.
Eric Reubel - Analyst
And the revenue volume was $65 million?
Oren Shirazi - CFO
$60 million.
Eric Reubel - Analyst
$60 million, okay.
Great, that's it from me, thank you.
Operator
The next question is from Vernon Essi of Needham & Co.
Please go ahead, sir.
Vernon Essi - Analyst
Thanks for taking my questions and congrats on the modest guide you have here up sequentially while your peers aren't in that camp.
And regarding that I was wondering if you could give us some color on the different levers in place there.
One obvious question is your capacity constraint to some extent.
Could you have had more revenue in the quarter?
And then also just to help us understand how much of a business is being generated on newer customers, newer design, however you want to define that versus the legacy load that you had, programs that you had from maybe a year-plus ago.
Or however you want to break that out or -- to help us understand how much of the business is being driven by more newer customers as opposed to legacy side?
Russell Ellwanger - CEO
I really don't have on the top of my head new customers versus older customers.
I can say that for the 2010 revenue itself that about 25% to 30% of it is off of products that were not existing as revenue products in the first half of 2009.
And so they would have had protos running through the line in the second half, that we might have had revenue on but they become new products of revenue.
So new [skews], new tape-outs are driving about 25% of the revenue in 2010.
Vernon Essi - Analyst
Okay, that's helpful.
And in terms of the capacity side, do you feel like you were -- specifically, you could have more shipments in the quarter or how do you --
Russell Ellwanger - CEO
Yes.
Vernon Essi - Analyst
Okay.
And any -- you can't characterize how that might have looked.
But you feel confident though that if you had more capacity you would certainly be taking share out there in the environment that we have through the winter months.
Russell Ellwanger - CEO
Definitely.
The reason that we are expanding the capacity is that we see the demand.
I think it really doesn't make sense to grow capacity and then wait for the customers to come.
In Newport Beach, the capacity expansion probably for each node that we have done had somewhere about a six- to eight-month return on investment from the time that the tool was installed and running.
So certainly the utilization is immediately used.
At Migdal Ha'Emeq, the expansion that we are doing here is in the same range.
Now as we talk about increasing a 11k, 12k wafer per month in Migdal Ha'Emeq in the eight-inch facility during 2011, right now it's not that we are turning our way 11,000 or 12,000 wafers of business a month, it's that we see in our forecast that in the second and third quarter we will need to have that capacity for customers' needs.
Does that answer your question?
Vernon Essi - Analyst
Oh, it does, definitely does.
And then in the same vein, discussion of a gross margin, you had it in the last quarter or two here in that 45% to 46% range on non-GAAP basis.
How do you see that going into next year?
It sounds as though the capacity adds are matching up with the depreciation.
But where do you see this longer term?
Russell Ellwanger - CEO
I think in the same range, maybe a few points higher.
I think that's a pretty reasonable gross margin to be running at.
Vernon Essi - Analyst
And just for clarification, to follow on the acquisition points, you would certainly -- I mean, you wouldn't want this, but it's conceivable that you may take an acquisition on that might have an unfavorable gross margin contribution near term or do you have a hard fast rule or you'd want something that's a higher gross margin from the onset?
Russell Ellwanger - CEO
That's a very good question, it really is.
To follow the IBM-type model that I'm talking about, it obviously would not have a high gross margin.
There would be a -- why, because there would be a lot of incremental revenue.
We are looking at taking on something that would have very high capacity and the IBM would not be necessarily interested to buy wafers from us at a higher cost than their own internal manufacturing.
So the big thing about that type of an acquisition for us is that in the immediate term, meaning 12 to 18 months, while we are building up our own flows, we would want that acquisition to be slightly cost positive to -- maybe very cost positive but we wouldn't want to it to be cost negative.
That's what's outside of the model.
But certainly for the composite company, it would have a negative impact on the blended gross margin, you are absolutely correct on that.
However, I think we would have to be looked at a little bit differently and that would be -- that one would be acquiring 40,000; 50,000; 60,000 wafer starts for very, very minimal dollars and having the ability to bring it up without a running-cost loss.
Does that make sense what I'm saying?
Vernon Essi - Analyst
Oh, no, absolutely, I mean, when you are a larger -- a large IBM doing that right now.
So it makes sense perfectly.
Okay, that's all I have.
Thanks a lot, Russell.
Russell Ellwanger - CEO
Thank you very much.
Very good questions, by the way, thank you.
Operator
The next question is George Berman of J.P.
Turner & Company.
Please go ahead, sir.
George Berman - Analyst
Great quarter, gentlemen, good morning.
Russell Ellwanger - CEO
Good morning, good morning, thank you.
George Berman - Analyst
I have got a quick question, what is the current overall share account on your Company?
Oren Shirazi - CFO
$250 million.
George Berman - Analyst
$250 million.
And great job on restructuring all your debt.
My question was does that also include these outstanding capital notes that were overhanging the last couple of quarters are they taken care of as well?
Russell Ellwanger - CEO
No, the capital notes are not a debt structure.
The capital notes are an instrument that can be converted into equity, but no, that is not contained within anything that we have done.
George Berman - Analyst
Is that then part of $355 million or not?
Oren Shirazi - CFO
The $250 million.
George Berman - Analyst
That you are showing in long-term debt, you have about $355 million.
Russell Ellwanger - CEO
No, no, no, no, that's not debt.
So it's purely an equity structure.
George Berman - Analyst
Okay.
So it doesn't show up anywhere in your share account or on your balance sheet, on your liabilities?
Russell Ellwanger - CEO
Correct, it doesn't show up in shares outstanding, because they are not outstanding shares.
It shows up -- I mean, they're reported, and there is a possible dilution from the notes to the extent that the notes exist.
George Berman - Analyst
Okay, all right.
Next question, you have a ownership interest in a Chinese fab.
How much of a positive consumer is that for you or would you consider selling that off down the road?
Russell Ellwanger - CEO
It shows up on our balance sheet, at what value, I think, $18 million --
Oren Shirazi - CFO
$15 million.
Russell Ellwanger - CEO
$15 million.
We think that the value is much higher.
I think it would be very likely that over some time depending on what happens with that factory itself that we would look at selling our interest in it.
The equity that we have in that really does not have so much value for us in and of itself.
Now, in addition or separate from the equity holding that we have we do have a manufacturing agreement with HHNEC.
The factory is HHNEC by the way.
George Berman - Analyst
Okay.
Russell Ellwanger - CEO
That -- Hua Hong NEC.
Within the manufacturing agreement, they are a good partner for us, for outsourcing certain technologies for added capacity.
But with regard to the equity play itself, ultimately depending on market conditions and again what happens with that company itself, to divest ourself from that position is something that's been talked about at the Board level.
And it might be something that we do within some period of time.
George Berman - Analyst
Okay, great.
And then the last question.
I had the overall currency fluctuations worldwide the euro versus the dollar, or the other way around, the Chinese renminbi and a number of other currencies.
Does that have any major impact on your overall sales revenues and income?
And could you --
Oren Shirazi - CFO
No, no, actually not at all.
Our currency, our main currency is the dollar; also the reports are reported in dollar.
All our revenues are denominated in dollars.
The euro has no effect at all.
The only effect that there is is from the Israeli shekel, the Israeli coin.
And this is only -- also has not too material of an effect because all our revenues are in dollars.
Seventy percent at least of our expenses are in dollar.
So only 20%-25% of the expenses are in shekel.
It may relate to payroll expenses and some electricity and local expenses in Israel only for the Israel fabs.
So can give you a ballpark number that any 1% change in the dollar against the shekel, it is about 200K dollars effect per quarter.
So it is not significant effect.
Any way from the yen and from the euro we have no implication at all, no effect at all.
George Berman - Analyst
Okay, great, thanks very much for your answers and look forward to a further more profitable future with your Company.
Russell Ellwanger - CEO
Thank you very much.
Operator
The next question is from Jim Stone of PSK Advisors.
Please go ahead.
Jim Stone - Analyst
Good morning, gentlemen, very nice --
Russell Ellwanger - CEO
Thank you.
Jim Stone - Analyst
In terms of looking at the design wins that you are now doing, a 120, you see any reason why the statistics on these design wins, that is, how many of them are failures, and how many of them will be real successes model products of need, et cetera.
Do you see those statistics being significantly different than the design wins of two years ago or do you see them being roughly the same?
Russell Ellwanger - CEO
That's really an excellent question, very, very good, very perceptive question.
Actually you see them being better and the answer is the following.
Over the past years, we have gained a stronger customer base to where either the customer themselves is no leader in their market, not number one or two market share in high growth markets or to where the customer has a contract, and a very, very strong contract with the leader in the market.
So for many of these design wins that we have, as long as the design works, the market is pretty much guaranteed.
So I think that the taxonomy -- now already 50 designs wins a quarter.
That's a reasonable statistic.
So the taxonomy there, there will be some that will be high volume; there will be some that will be low volume; there are some that never go to volume.
But it's a high enough amount that you can have a pretty reasonable statistic off of it.
As we got to the 76 per quarter in 2009 versus the 120 now, against the baseline, it would not have decreased as far as the probability of success.
But to the opposite, many of the design wins are for customers that are leaders, or for customers that are selling with contracts, or being owned partially or entirely by market share leaders.
Did that answer your question?
Jim Stone - Analyst
Yes, it does very nicely.
Thank you.
Russell Ellwanger - CEO
Thank you.
Jim Stone - Analyst
In terms of the first half of next year then, it isn't clear to me when you're talking about the capacity and being up against it now, that you're looking at sequential growth in the first half.
Can you give us some more flavor on that?
Russell Ellwanger - CEO
Fully guided, more or less flat in Q4 against Q3, against a market that was guiding down, and within our industry, guiding strongly down.
In the short term, I don't have a really good feel for what's happening in Q1.
I would think that we'll come in very strong in Q1.
But I believe that we'll see good growth throughout the entirety of 2011.
Jim Stone - Analyst
Okay.
Because I was looking in terms of my model, and should I -- I look at relatively flat in first half.
And you're obviously saying no, put some growth in --
Russell Ellwanger - CEO
I didn't give a guidance for the first half, but I -- from everything that we see, we see ourselves increasing market share, so --
Jim Stone - Analyst
Yes.
Russell Ellwanger - CEO
So as long as the overall market stays flat to slightly down, I think that we'll be up.
Jim Stone - Analyst
Okay.
In terms of the design wins themselves, take that 120 number.
Are they mostly really fresh designs from ground up, or are they tweaked from old designs?
What are they?
Russell Ellwanger - CEO
So it is a variety.
There are some that are brand new designs.
There are some that are actually designs for customers that have never been in these markets before.
We have multiple companies that are getting into power management that have been into digital products in the past, to where we've used our design services to actually do the entirety or a good portion of the analog design.
And that's a brand new fresh design going into markets that is new for the customer, but replacing products that their end customer is buying from elsewhere.
There is also the next version, to where you already have a customer that's, for example, doing something in Tower and then wants to add additional features, so the next design has additional features.
I don't say it's a tweak.
It's a redesign but it's also the existing part, and adding more features to an existing part with a new design.
We have others that we're actually doing more or less supporting to where you have a customer that is now manufacturing from some supplier that they're not necessarily thrilled with that choose to come to us for a variety of reasons, and the first designs are design services actually importing the design from a factory into our flow.
So there is a combination of those three.
Jim Stone - Analyst
Can you give us a flavor or a relative sizing of those three segments?
Russell Ellwanger - CEO
I honestly, if I was to attempt it, it would really be proctology.
So I prefer to -- if you want --
Jim Stone - Analyst
I understand what you're saying.
Russell Ellwanger - CEO
I'd be very happy to look into the exact numbers and talk with you at the next call to announce that publicly.
But I really don't have the figures off the top of my head.
Jim Stone - Analyst
No, I'm thinking of solid numbers.
I'm thinking of in terms of this is number one by far, or this is just number one, this is number two, number three in terms of relative importance to us.
Russell Ellwanger - CEO
I think within power management, the bulk of all of them are new designs.
Within the RF and high-end Silicon Germanium high precision analog, it's a combination -- they're new designs but a big bulk of them are the next version for companies that are already producing certain chips with us.
They're additional chips to get into new markets for those companies.
Jim Stone - Analyst
And power design, roughly speaking, is what percent of revenue shipping today?
Russell Ellwanger - CEO
Presently, it's not a big portion of our revenue.
It's right now going into volume manufacturing.
We introduced our power platform into the market at the end of 2009.
So right now is where those initial design wins are starting to come into manufacturing.
I assume we're -- I mean, within our plans we would see the power growing up next year to be somewhere close to $50 million, and in 2012, exceeding $100 million.
But it's not a big portion of our revenue at this point at all.
Jim Stone - Analyst
Okay.
All right.
Thank you very much and keep up -- oh, I did have one other.
In terms of those -- that $200 million capital notes.
Do you have any indication of what their plans are on it?
Are they planning to convert some and sell pieces to gather cash?
They are just going to sit on them with the equity?
What can you call it?
Russell Ellwanger - CEO
The $200 million that you're talking about, it's $100 million notes sold by Bank Leumi, $100 million notes held by Bank Hapoalim.
Jim Stone - Analyst
Right.
Russell Ellwanger - CEO
They've both been very strong partners to the Company.
They're both very, very sophisticated investors and financial institutions.
They have a value in what they're doing with us.
I believe that whatever they do will be to our benefit and to their benefit, as they don't want to do anything to hurt the value.
But their exact plans -- I mean, whether I would know them or not, it's really not for me to speak.
I am not the owner, they're the owner.
Jim Stone - Analyst
Okay.
I understand that.
But I think we've talked about it and my concern over that particular issue.
Russell Ellwanger - CEO
I understand.
Jim Stone - Analyst
But thank you very much, and keep up the good work.
Russell Ellwanger - CEO
Thank you.
Operator
The next question is a follow-up from Eric Reubel.
Please go ahead.
Eric Reubel - Analyst
Hey, Oren.
Thanks for taking the question.
I was just trying to work through the cash bridge for the quarter.
Can you go through the push and takes on the debt repayment?
Last quarter, I had a $30 million being paid down on the term loan.
I think you mentioned $50 million in the quarter.
So could you just clarify?
And then, were there any significant cash in flows away from the changes in receivables, working capital, inventory, and deferred revenue?
Oren Shirazi - CFO
Yes.
So we started the quarter with $85 million, right.
We generated positive cash flow from operations of $48 million, which is a very nice number.
We invested in CapEx $43 million, like I told you before.
We raised $27 million investments made by [Jorge Irfan].
And on the other hand, we paid $30 million to the banks in Israel, Poalim and Leumi, $15 million each one.
So this brings you the bridge from 85 starting the quarter to ending the quarter with 88.
Eric Reubel - Analyst
Okay.
Perfect.
Thank you very much.
Operator
There are no further questions at this time.
Mr.
Ellwanger, would you like to make your concluding statement.
Russell Ellwanger - CEO
Certainly.
So again, thank you very, very much for time, for your interest, very good questions.
Five years ago, the Company was a very, very different company than it is now.
That's again the time that I had come, a little bit more than five years ago now.
Oren and I began working together.
At that time the Company was in negative cash flow.
If you look at the debt to EBIDTA ratio, it was truly infinite.
We had $560 million of debt that was due in 2007.
It took a lot of work and a lot of good partnership with banks, with some bond holders to reach the point that we are now, to where we have really a fully serviceable debt structure off of quarter by quarter operational cash creation.
Our present debt to EBIDTA ratio, considering the $160 million EBIDTA target that we have for 2010 which does appear nicely at hand, is about 2.4, which is a very, very nice ratio to have.
No bank debt due at all within the next three years.
Some bonds that are in the money that might be converted on the schedule that we have.
But the future is no longer a concern at all about having to meet debt payments at any given time.
At least in our book, our ability from ongoing cash creation is a certainty to be able to meet our debt structure.
So all the pieces are in place and all parts of our business are working together in harmony.
Not having to worry about debt payments as far as the concern and how we're going to address it, puts us in a very, very different position, to where we're now creating cash that can fully support activities to enable immediate, mid-term, and long-term growth, to be able to focus on investing in R&D.
Now, if you consider that during this period of time of the last five years, and if we indeed end up within our guidance that we have for Q4, we will have had about a 5.4x growth in revenue.
And it's not a fair statement, but an infinite growth in EBIDTA.
But a very strong growth in EBIDTA ending at $160 million for this year or beyond $160 million.
So we have really the cash at hand to further grow a company that with little resources was able to have phenomenal growth.
And I think that's something we should all keep into consideration.
We are a very different company.
The debt table of the Company very serviceable.
And what that means is, we have at hand now, considering the pro forma value of Q3 with the cash and the $100 million that we raised, close to $200 million of cash at hand to grow with and cash creation on a quarterly basis that far exceeds the need to pay off debt.
So we're very, very optimistic about our prospects for growth in 2011.
And considering the very high rate of design wins and the increase in the number of design wins, I believe that that will continue in the mid-term through the long-term, see the Company growing through 2014, 2015.
I'm very, very excited to be a part of that.
We'll be presenting at the Annual Needham Growth Conference, the week of January 10th in New York.
We'll be very excited to see you there, hopefully to celebrate having achieved our 2010 target of exceeding $500 million.
That target is what we had announced at the Needham Conference in 2009 in the first week of January.
I look forward then to see you at the conference and to share with you our next set of milestone targets.
So thank you very, very much.
And again, I really appreciate your interest in the Company, and look forward to partner with you over the years to come.
Operator
Thank you, ladies and gentlemen.
This concludes the Tower Semiconductor third quarter 2010 results conference call.
Thank you for your participation.
You may go ahead and disconnect.