高塔半導體 (TSEM) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Tower Semiconductor fourth-quarter and year-end 2010 results conference call.

All participants are currently present 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 February 14, 2011.

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.

Thank you and welcome to TowerJazz financial results conference call for the fourth quarter and fiscal year 2010.

Joining us today are Mr.

Russell Ellwanger, TowerJazz CEO; Mr.

Oren Shirazi, CFO; and Nati Somekh, Chief Legal Officer.

Russell will open the call, followed by Oren with a discussion of our results in the fourth quarter and fiscal year 2010.

After management's prepared remarks, we will open up the call to the Q&A 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 Forms 20-F, F-4, F-3 and 6-K.

filed with the Securities and Exchange Commission, as well as the filings with the Israeli Securities Authority.

They are also available on our website.

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

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

Russell Ellwanger.

Russell, please go ahead.

Thank you, Noit.

I welcome you to all to our fourth-quarter and full-year 2010 results conference call.

2010 was really an outstanding year for us on multiple, multiple accounts.

At the Needham conference the second week of January 2010, we celebrated a 2009 revenue of $299 million, and at that, having been the only foundry worldwide to have had positive year-over-year growth 2009 versus 2008.

At that time, we further announced a bold target to achieve $500 million revenue in 2010.

We are very pleased to announce that we achieved this $0.5 billion target, the exact revenue number being $509 million, at an EBITDA of $168 million, a 289% year-over-year EBITDA growth.

This is a far reach from the sub-$100-million revenue level and negative $27 million EBITDA when Oren and I first joined together at Tower in 2005.

In 2010, we broke Company records in most every business and financial parameter.

The 2010 revenue at $509 million was 70% over that of 2009.

The 70% year-over-year growth is a high rate for any company.

But it's more notable that such growth is double that of the industry.

And again, we are the number one year-over-year growth foundry worldwide.

I congratulate all TowerJazz employees and the management team for having continued this trajectory.

This revenue level also provided us another major achievement.

If we look at the ranking by revenue of all specialty foundries, we moved from position number 12 in 2005 to position number six in 2008 to position number three in '09, and we ended 2010 as the number one global specialty foundry by revenue.

It is from this foundation of being the number one specialty foundry that we aim to continue to build our market leadership and strength in the coming months and years.

The strength of our growth is also seen by profitability.

We grew our net income by over 4 times on a non-GAAP basis against 2009, from $24 million to $129 million.

Plus we moved from a GAAP net loss to a GAAP net profit in the second half of the year.

For every financial parameter, non-GAAP and GAAP, TowerJazz was profitable for the second half of 2010.

Our strong business performance and cash generation enabled us to restructure debt and create a balance sheet capable of supporting measures to enable long-term continuous and substantial growth.

Oren will describe this in detail a bit later in the call.

Suffice it for me to say at this point that the serviceable debt ratios and all-time record cash balance of $198 million will enable us to execute quickly on synergistic business opportunities.

The support we have received from our banks and bondholders throughout the year demonstrate their confidence in our business, as well as our ability to maintain our current momentum and deliver strong returns for the long term.

Our design win momentum continued to build throughout the year, and our growing customer roster has provided us with a large group of diversified and global customers, many of which are the top companies in their respective markets, including top technology platform leaders.

We ended the year with over 450 design wins, surpassing the 2009 record level of 308 wins.

It's important to note that it takes between one to two years, or even more, for a design win to reach volume production levels.

To illustrate, during 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 per quarter, which will fuel the 2011 growth.

And in 2010, we had bidded an average of close to 120 design wins per quarter, which will fuel the 2012-2013 growth.

Hence, we have a lot of continued growth to look forward to.

To add a little bit more flavor to what was accomplished in 2010, approximately 25% of these 450 design wins were from 61 new customers, many of which are leaders in their respective application fields.

We are confident in continued long-term growth as a result of the many inroads which were opened in 2010.

Now to look to our operational capabilities, to carry the traffic of our many new customers and avenues of activity, by the second half of 2011 we will have an installed and qualified capacity of 35,000 wafer per month in our 6-inch factory, Fab one in Migdal HaEmek; 45,000 wafer start per month in our 8-inch factory in Migdal HaEmek, Fab 2; and 24,000 wafer per month in Fab 3 in Newport Beach.

This is an increase of about 15%, 45% and 25% for Fab 1, Fab 2 and Fab 3, respectively, versus 2010.

Before moving into the specific business and technical and market developments, I would like to summarize this portion of the call and announce our next big target by quoting part of what Mr.

Amir Elstein, the TowerJazz Chairman, said in today's press release.

"In only a few years, the Company has successfully transformed itself into the specialty market leader.

This leadership team is now well positioned to exceed the next big challenge of increasing our revenue to beyond $1 billion, with the accompanying bottom-line performance." It is our express target to achieve a $1 billion annualized quarterly run rate in the 2014 timeframe or before.

I'd like to spend a little bit of time talking about our R&D strategy.

In 2010, we strongly intensified our research activities and associated partnerships directed at building up semiconductor devices and technologies based upon new scientific concepts.

Differentiating ourselves from the plain-vanilla CMOS foundries, we enriched our core CMOS technologies to tackle more than (sic) more challenges and integrate innovations such as new micro and nano devices with enhanced functionality, sensors, MEMS and other technologies with an increasing number of applications.

To highlight our technological focus, in 2010 we received 19 US patents.

Our engineers published tens of research papers which made it into leading international journals.

They also presented the results of their work at a number of major international conferences.

Our R&D is where we build and maintain our competitive edge, and it enables us to add to our market lead over the coming years.

I will discuss now the performance of our various business units.

I will spend a little bit of time on this as it's not just talking about the quarter, but really summarizing what we achieved throughout the year.

And we are quite proud of the significant accomplishments that were indeed achieved by all business units in 2010.

This year, we continued to develop our unique design enablement platforms with best-in-class PDK support to enable optimal solutions for IC designers.

In all units, we increased our technology platform's capabilities, and hence our customer base, design wins, and present as well as promised long-term revenues.

To go into more details in each of the units, for the mixed-signal CMOS business unit, in 2010, the offering has been expanded and includes a large variety of analog features and advanced models.

We provide a flexible and highly customizable process with world-renowned modeling kit and 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 flows.

New customized flows have been developed to alllow our customers better device performance such as low-leakage process option and a high-performance, high-speed process option.

Our engineering team continuously focuses on developing customized technology platforms and enhancing the established products.

In the past year, many of our customers successfully implemented copper bonding with TowerJazz metallization using either thick-top metals or redistribution layers.

Other achievements included higher rating electrostatic discharge, pad-over logic, intellectual property blocks, which has been an added enabler to our power management offerings as well.

With regard to our transfer, development and optimization process service business unit, we continue to grow in partnership with the previously announced integrated device makers for whom we transfer and develop specific flows that are dedicated to the individual integrated device-maker themselves.

During 2010, we entered into a substantial agreement with another highly respected Tier 1 integrated device maker and have achieved all milestones to date in record time.

We should pass the production release milestone mid- this year.

The Asian project is progressing according to plan, and we are working on introducing new technologies in the MEMS area.

The Crocus magnetic memory project is also on target and progressing according to schedule.

2010 was a fantastic year for the CMOS image sensor business within TowerJazz.

We continue to grow our business and establish our position as the leading foundry for professional image sensor applications.

The main markets we are focused on were professional high-end video and still photography, medical X-ray for dental and radiography, industrial sensors, and machine vision.

We strengthened our collaboration with our existing long-term partners, among them Forza, Panavision, Cypress, e2v, Synopsys, Talus, AnaFocus and others, with whom we have enlarged existing business and engaged in exciting new opportunities.

Over the past few years, we've seen a strong shift from designs using older technologies to our new 0.18-micron image sensor platform.

In 2010, we've begun to harvest the fruits of our past investments into our newer technologies.

We saw many of our new product ramp to volume production speedily and seamlessly.

We ramped production of two new high-end cinematography camera sensors showing superior performance, which have seen excellent traction in the market.

We continue to work on improving our technology to address the aggressive requirements of this demanding market.

During the year, we kicked off development programs to further reduce dark current and further enhance pixel dynamic range and annular response.

We've also made significant progress with our backside illumination programs, which will be offered to our customers for production in 2012.

In 2010, we ramped several wafer-scale stitched X-ray sensors into production, with best-in-class quality and yields.

CMOS X-ray sensors are gradually replacing older technology such as amorphous silicon plates and image intensifier tubes, offering superb performance, unmatched ease of integration, and an excellent cost of ownership model for the medical community.

We further strengthened our position as a leading foundry for intra-oral X-ray dental sensors and significantly increased our market share for these types of sensors during the year, when most of the leading Tier 1 OEMs of this market produce their sensors with us.

In contrast to the huge X-ray sensors, we've also produced tiny video cameras for endoscopic use, allowing cost-effective solutions that would enable making single-use disposable endoscopes.

These cameras are on the size of 0.7 millimeter.

Our presence in the industrial sensor market has significantly grown in 2010 with applications such as machine vision, 2-D barcode readers and line scanners being the largest volume drivers.

Other new applications such as fingerprint detection for Homeland Security, traffic monitoring cameras and others, have increased our portfolio in 2010 and will support our further growth in the coming years.

2010 was a standout year for our RF and high-performance analog business unit, with record revenues, records design wins, and a large expansion of our technology offering put us in a strong position for 2011 and beyond.

Revenue growth spanned all major market segments and applications we serve, with a world-class silicon germanium BiCMOS and RF CMOS technologies.

New technology announcements from this year include a next-generation 0.13-micron silicon germanium BiCMOS process, built in both our US and Israeli factories, which for the first time offer silicon germanium with a copper back end.

The process shrinks die size while maintaining the noise, power consumption and output power benefits of silicon germanium.

We also pushed silicon germanium performance, delivering design kits for a 250-gigahertz silicon germanium BiCMOS process, the highest-performance BiCMOS available in the industry.

This high-end process addresses the needs for low power consumption in high-performance applications such as optical networks, automotive collision avoidance radar, phased array radar, and other millimeter-wave products.

In the area of front-end modules for cell phones, we believe that today, TowerJazz is the number one supplier of silicon, with several Tier 1 customers.

We continue to expand our technology in this space, with recent additions of an SOI switch in silicon germanium power amplifier processes with deep silicon via.

The SOI switch process has demonstrated performance comparable to that of expensive gallium arsenide [peahent] and SOS, while affording levels of integration not otherwise possible, and has strong customer traction for 2G, 3G and 4G applications.

The SiGe power amplifier process has demonstrated performance on par with more expensive gallium arsenide and continues to see good customer design traction, an example being our announcement with VT Silicon, now Microsemi, for a fully integrated 4G front end.

Finally, in the area of high-performance analog, we've expanded our already unique offering of complementary BiCMOS foundry processes in both 0.35 and 0.18 nodes.

The new process includes a high-voltage version with 14-volt NPN and PNP, and a high-speed version with a PNP [FT] of 25 gigahertz, prototyping with initial customers.

These technologies are used in applications such as line drivers for DSL and HomePlug and hard disk drive pre-apps.

2010 was truly a successful year for our RF and high-performance business, and the technology investments made and customer traction announced have set the stage for continued success for many years.

Our power management business unit grew its customer base to over 50 customers, including three new Tier 1 customers and many emerging Korean IC companies.

Our customers successfully won sockets across all of our BCD platform offerings, including the newly released TS100 [PM], 700-volt IC technology.

The achievements in 2010 include our 0.35-micron power management technology, which attained multiple socket wins in LED backlighting and DC/DC applications space.

These socket wins were driven by the flexibility of our scalable LDMOS devices.

This allows our customers to outperform their competitors while achieving a lower die cost.

Also, our 0.18-micron power technologies achieved design wins in digitally controlled power management ICs.

The additional capabilities of our 1.8-volt digital cell libraries, as well as our patented Wi-Flash-embedded memory and [MSROM], enable this emerging market space for our customers.

In addition, the [epi] on top of N-type buried layer extension to our 0.18/0.35 power management technologies enabled our customers to win key sockets in Class D audio and motor controller applications.

These applications generate noise from the higher power and/or the need for multiple drivers to operate within a high-precision IC.

The isolation offered by the epi N-type buried layer provides the noise isolation required by our customers in these markets.

Also, our 700-volt IC technology opens the AC/DC and industrial LED markets to TowerJazz.

This technology was developed in 2010, and our alpha customer secured a critical industrial LED socket with a top 10 LED manufacturer.

We also enhanced our power design enabling tools with the addition of a robust, complete ESD library and I/O libraries.

The expansion of serviceable markets for our customers in these platform technologies was achieved by adding high noise isolation epi, grown on the N-type buried layer extension, in the creation of the 700-volt platform to open the emerging green LED markets.

As you can see, across all our business units during 2010, we continued to cement our leadership in specialty technology.

A bit to look at the rest of 2011, how we see it by revenue -- the Q1 guidance is $120 million to $125 million, in line with industry seasonality and 8% up year over year.

We see Q2 being stronger than Q1, and the second half looks very good as a function of both customer forecasts and new activities that will begin to ramp in volume in the second half of the year.

Analyst midconsensus for 2011 is about 6% to 7% foundry growth.

We expect to continue to exceed the industry by at least a factor of 2, and hence, we foresee 2011 as a double-digit growth year for the Company.

To summarize, TowerJazz has become the specialty foundry leader.

Our customer and market traction requires capacity growth, and we have a balance sheet positioned to enable growth both organically and through M&A activity.

Our business units are focused to listen to, meet and exceed customer technological demands.

And in many instances, the relationship has grown to where we have become an intimate technical development partner with our customers.

We have changed substantially as a company since 2005 and believe that we will continue to grow as long as we maintain an attitude of relishing change.

We cannot predict the future better than anyone else, and maybe in some cases not even as well, but we can be and are open to data real-time.

And when our customers' needs or the market changes, we have been able to act quickly to adjust to those needs.

Being both nimble to change to the ever-changing world of technology and having the professional capability to do so quickly is what will propel us to the $1 billion revenue target.

To quote Mr.

Jack Welch from the General Electric year 2000 Annuaul Report, "We strive every day to always have everyone in the organization see change as a thrilling, energizing phenomenon, relished by all because it is the oxygen of our growth."

With that, I would now like to hand over the time to our CFO, Mr.

Oren Shirazi.

Oren?

Thank you, Russell, and hello, everyone.

The fourth quarter of 2010 was another record quarter and [ended] a fantastic year for TowerJazz -- the best year I can remember since I joined Tower in 1998.

2010 stands out as the year in which we achieved all of the annual and quarterly financial targets that we set for the Company at the outset of the year, as evidenced by our strong balance sheet released today in which we present an all-time record of $198 million in cash balance and short-term deposits, $118 million shareholders' equity, and $802 million in total assets.

In addition, we gained the support of analysts, investors and the financial markets in general, evidenced by the successful $450 million debt restructure executed in full-stage transactions during 2010, and the ForEx excess demands for our October 2010 bonds offering resulting in a $100 million fund-raising.

Additionally, we achieved consecutive GAAP net profit this quarter and crossed the $0.5 billion revenue milestone target announced for the year.

In the fourth quarter, we continue to demonstrate good and improving operating margins, with 42% non-GAAP gross margins, 34% operating margins and 26% net margins, much better than the comparable percentages for 2009, which were 39%, 23% and 15%, respectively.

This is demonstrating the strong operating leverage we have in our business model, where every incremental revenue dollar contributes approximately 60% to our bottom line.

We achieved an all-time record EBITDA of $168 million for the year and a record $46 million for the quarter, or a margin of 34%.

The $125 million growth in EBITDA between 2009 to 2010 on an annual basis as compared to $210 million revenue growth from 2009 to 2010 demonstrates this 60% incremental EBITDA margin, which is consistent with the quarterly results.

In terms of revenue, we achieved another all-time quarterly record of $135 million.

This grew 34% year over year and was slightly higher sequentially compared with last quarter, despite a sequential fall in our industry in general.

Most significantly, however, we reached $509 million revenue for the year, up 70% a year and making us the number one player in our sector.

Going into further depth, and our review of the balance sheet items, we also see improvement in all indicators and parameters as follows -- cash balance, including short-term deposits, as of the end of the fourth quarter increased from $82 million at the end of December '09 to $198 million at the end of December 2010, 143% higher and an all-time record of cash and deposits amount in our history.

Current assets increased from $167 million at the end of December '09 to $322 million at the end of the year.

And our current liabilities increased to reflect the debt maturing in 2011.

Also notable is shareholders' equity for the end of the year showing an increase to $118 million, more than double the $56 million in December '09, demonstrating the substantial success we had over the year to improve our financial positioning.

Based on our 2010 EBITDA of $168 million, we have a highly serviceable net debt to EBITDA ratio of approximately 2 times as compared with ratios well above 4 times that we had in the past.

As I mentioned earlier, as part of our efforts to improve our capital structure and balance sheet, in 2010 we completed an approximately $450 million comprehensive debt restructure.

This restructuring comprised of, one, the extension of $45 million Wells Fargo credit lines; two, 2014 carrying interest of LIBOR plus 2.5%; two (sic), $80 million of Jazz-level bonds due in 2011, exchange for bonds due in 2015; three, extension of the repayment of $160 million of bank loans carrying interest of LIBOR plus 2.75%; and four, fund-raising of approximately $100 million in a new series of long-term bonds maturing in two equal installments in December '15 and December 2016.

This has left us with a new strong and simplified balance sheet.

The fact that the new series of long-term bonds was heavily oversubscribed demonstrates the financial community's strong support and belief in TowerJazz's confidence in our business, our ability to generate strong results and execute on our long-term strategy and growth plans.

We will continue our effort in this regard, and we aim to continue improving the strength of our balance sheet as part of our continued long-term strategic growth plan.

We intend to continue to strengthen shareholders' value by running a strong and sound business while improving our balance sheet and financial health.

Moving to the P&L, we achieved another quarter of GAAP net profit.

This comes on the back of another record revenue level, reaching $135.1 million, and record EBITDA of $46 million in the quarter.

For the year, these figures were $509 million and $168 million, respectively.

In terms of gross profit, on a non-GAAP basis for the quarter, we achieved gross profit of $57 million in the quarter with gross margins of 42% compared to a gross profit of $39 million with margins of 39% in the fourth quarter of last year.

For the year, our non-GAAP gross profit reached $225 million, growing 143% compared with $92 million in 2009.

This is a gross margin of 44% versus 31% last year, a substantial improvement.

Looking at our operating expenses as a percentage of revenue, it's also in evidence to the continued improvement in our margins.

While our revenues increased substantially during this quarter compared to the fourth quarter of 2009, our R&D expenses in the fourth quarter of 2010 were 3% of revenues as compared to 7% in the fourth quarter of 2009.

Our sales and marketing and G&A expenses dropped to 6% of revenue, a strong improvement when compared with 10% of revenue in the fourth quarter of 2009.

Looking at our expenses on an annual basis, for 2010 we spent $24 million in R&D.

Expense is at around the same absolute level as last year, but as a percentage of our revenues it dropped from 8% last year to 5% this year.

In terms of our sales, marketing, and general and administrative expenses, they were $40 million in 2010 or 8% of revenues compared with $32 million last year or 11% of revenues.

As you can see, we continuously make a tremendous effort to keep our costs controlled without compromising on any of our topline growth.

Our GAAP net profits for the quarter were $1.3 million, representing $0.01 EPS, as compared to a GAAP net loss of $31 million a year ago, and is the second quarter in a row we have achieved a GAAP net profit.

This means that our operations generated enough revenue to cover all of our expenses, which include the costs involved in operating the facilities, including R&D, M&S, G&A, depreciation, financing and tax expenses.

Net profit on a non-GAAP basis in the fourth quarter of 2010 was $35 million versus a net profit of $15 million in the fourth quarter of last year.

These represent a net margin of 26%, which is substantially higher than the 15% net margin last year.

For the year, we reported a non-GAAP net profit of $129 million versus $24 million last year, an improvement of 436%.

In addition to the revenues anticipated this year and in the coming years from the design wins that Russell talked about earlier, as well as other customer engagement and business initiative pursuits, it is important to know that the Company has recently been notified by senior officials in the Israeli government that the Israeli Investment Center Committee, which approved the Company's new expansion program on January 2006, according to which we will receive up to ILS150 million in grants related to investments in fixed assets that we are [in deeded title program].

This results the open discussions held during the past year.

We expect that grants payments will be made over the coming two years.

I'd like to highlight that these grants are a few participation by the Israeli government in CapEx costs of companies investing in peripheral areas such as Migdal HaEmek, in which our fab -- Israeli fabs are located.

I would like now to transfer the call back to Nati.

Nati?

Thank you, Oren.

Now I'd like to add the general and legal statements to our results in regards to statements made and to be made during this call.

Please note that the fourth-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 a non-GAAP basis after deducting depreciation and amortization, compensation expenses in respect to option grants, and finance expenses, net, other than interest accrued such that non-GAAP financial expenses, net, include 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 as 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 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.

We will now be happy to take your questions.

Operator?

(Operator Instructions).

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my question.

Congratulations on achieving your fiscal '10 goals as well as emerging as the number one specialty foundry.

Thank you, Jay.

A couple of questions.

You've talked in the past about increasing capacity.

Can you give us an update on where things are?

Are you looking at acquiring capacity through an M&A?

And how does it relate to the design win activity you have, which seems to be growing pretty fast?

Very good question.

If you look at the design wins, and we've talked about the fact that the 2009 design wins are predominantly that which is fueling 2011, and it maybe follows that, although we are increasing quite substantially, as we had outlined in the call, the capacity for 2011, sometime within 2012 off of what had happened in 2010 design wins, we'll need additional capacity.

So the first activities are the organic growth that we've talked about during the call -- that's self-funded, fully funded -- and the 15%, 25%, 45% respective growths of the different factories.

And we are very involved in looking at asset acquisition, active in that area, and nothing at this point that has reached a signing of a term sheet to where we would have both the right and the obligation to announce it publicly.

But certainly many activities are on an ongoing basis there.

Okay.

In terms of your full-year guidance, you've guided for double-digit growth.

Is that assuming any M&A, or is it purely organic growth that you are driving to?

I didn't necessarily guide.

I said that we are targeting double-digit growth, but that would be organic.

So where the analysts are saying that it's somewhere about 6% to 7% mid-range for the year for foundry, we would see ourselves doubling that, whatever the industry does.

So we would think that somewhere in the 12% to 16% could be reasonable for us organically.

If the industry goes much stronger than that, then our growth will be much stronger.

If the industry flattens, no matter what, our market share increase is and has been on the order of about 2X that of the foundry growth.

But that is organic, what we're talking about there, Jay.

Okay, that's good to know.

In terms of your cash balance, you seem to have a pretty healthy cash balance exiting Q4.

As you look ahead to some of the increased capacity, how do you hope to fund it?

And if you can highlight wherever you see the need to raise additional cash or not would help.

From the organic capacity, that will be funded from the cash balance, as well as aided by the government grants that Oren had referred to just recently -- I mean, a few minutes ago on the call.

We would not be needing to raise any external funds for the organic growth.

The possibility of raising external funds would be depending on the opportunities and the size of an M&A that we might go after.

Okay.

Last question, on the gross margin profile, looks like on a sequential basis it declined a little bit in the December quarter.

What should we expect the margin profile to be in Q1 as well as for full-year fiscal '11?

Hey, it's Oren.

If you will look at the reports that were attached to the press release, you have the non-GAAP adjustment.

So you'll see there actually the fewer costs.

You'll see, actually, the gross margins improved against Q4 '09 in a significant way.

And against -- (inaudible), I guess you are checking against Q3 '10, right?

Right.

Yes, so we had there some effect from the fact that -- from two aspects.

One, we had the slight effect from the shekel against the dollar change.

So the Israeli shekel, if it goes, if it gets stronger, which happened in Q4, it is not something which is in favor of us.

It's not that material, but it still has, ballpark number, or that any 1% increase in the shekel value is about 200,000 a quarter.

And indeed, it got stronger by about 3% during the fourth quarter and ended at the very low point of ILS3.50-something, while now it is almost ILS3.70.

So, actually, in Q1, we will have the recovery of that.

This is one point.

The other point, in Q3, we had some one-time effect inside the expense that was an expense reduction from some kind of proceeds we got, some kind of a participation in expenses, which reduced slightly the expenses in the COGS line.

So, actually, Q3 margin was a little bit affected to the positive side from that.

So just in the second part of your question, we would see that Q1/Q2 would be somewhat in line with Q4.

Q3/Q4, we would see that the gross margin will be coming up as we would forecast significant increase in revenue, and those unit dollars then being amortized over the fixed costs.

Okay, thank you very much.

Eric Reubel, MTR Securities.

Thanks for taking my question.

Oren, could you give some color on the Jazz subsidiary?

Could you perhaps run through revenue, EBITDA, CapEx and ending cash for the quarter?

Yes, I could.

However, this is a TowerJazz call, and I would rather not get into a separated data for Tower and Jazz.

Anyway, the full financial reports of Jazz should be filed within a few days, (multiple speakers) one week, with the SEC.

So we will have all the data there.

I can tell you that the cash balance in the end of the year was $30 million out of the $198 million.

And what was CapEx for the current quarter, consolidated CapEx?

Consolidated quarter, CapEx for the quarter was $21 million.

Okay.

In kind of the guidance for Q1, did anything change during the quarter that kind of drove the sequential decline that you're seeing for Q1?

What's sort of the major driver there, Russell?

It really is seasonal impact.

It's fairly typical.

If you were to look at our Q4 versus Q3, although Q4 was slightly higher, it was more or less flat, where the rest of the foundry industry was down probably -- the deep submicron founders were down about 5%.

Our peer group of specialty was down about 30% to 40%.

And we maintained being flat, which was for a variety of reasons of markets that we were serving.

We see us down now no more or no less than what the predominant digital foundries are, and that's very seasonal.

I don't think there's any specific thing driving a good or a bad portion of Q1.

I really just see it as being the seasonality.

There is no specific segment that's weaker or stronger per se.

Fair enough.

Russell, can you remind us what your CapEx budget is for 2011 on a consolidated basis?

We've never given a forecast on CapEx.

Okay.

Did you have a sense of the range?

Somewhere about $60 million to $80 million.

Okay.

And Oren, one more last question here.

Depreciation, it was down in the quarter.

It's probably going to continue to decline through '11.

What's sort of a good run rate for D&A for the first half versus the second half of 2011?

And if you could talk little bit about where you see OpEx, you mentioned in the prepared remarks how R&D was flat on a dollar basis year over year.

Should we be modeling that?

Do costs kind of -- how should I be modeling SG&A as the business scales through 2011, if you were to achieve the expected 2 times the industry growth rate?

Okay, so about the R&D, M&S, G&A, so R&D, you saw indeed that it is, if you will, compared to previous quarter, it was very low this quarter, both from cost reduction, but also from Israeli governmental participation in some expenses that we received in the R&D costs, which is grants, but not related to the Investment Center grants that are capital participation.

So I would, if you would just take out this about $1 million of one-time that we had, add it back and this should be pretty much flat, the quarterly run rate that is expected.

And for the M&S, G&A, it should be the same, like there's no reason to think that it would be different from this specific quarter.

Okay.

Thank you very much, gentlemen.

Congratulations.

[Drew Shiller].

Yes, congratulations on your great year in earnings, your 450 design wins, and making number one global specialty foundry.

Thank you.

And you've had great representation at the conferences such as Needham.

And I've been a long-term shareholder since 1996, so I've been around for a while.

But I'm just still quite concerned that as of to date, there has been no, really, increase in shareholder value, and you have a forward P/E looking at 2, while others semis are hitting 52-week highs and PEs of 15 to 20.

Your market cap is down to $175 million.

A lot of the things I keep on reading about or a concern is the dilution, while you're selling the shares at $1.40 there, why there is no insider -- I don't see any insider buying.

So just wanted to know and just keep touch with -- and I know you're doing everything you probably should be doing, but why you don't perceive there's any kind of a shareholder value increase.

Yes, first of all, market cap is not $175 million.

We have outstanding shares of 265 million, multiply by $1.40, so should be about almost $400 million.

So the $175 million, I think it's from Yahoo!

or from [whatever].

Yes, I got that in the wrong place, sorry.

Yes, so it's a mistake there in the site.

So it's almost $400 million.

And if you compare to two or three years ago, you are correct that it's still quite around the same price.

I think you compare to where it was in the end of 2009, it's 40% or 50% up.

I don't think we want to enter into an analysis of the share price.

If you will look at the market cap of the Company, this $400 million number, it was much lower.

Also, if you will add the debt and reach to the EV of the Company, of course it's much higher than it was many years ago.

But I don't think I should comment on the share price.

Well, I understand what you're saying.

But like I said, you've got a forward P/E, and I don't think you're getting the recognition you deserve, a forward P/E of 2.

And I'm not -- there's no insider buying.

And everything you're saying is true there.

Everything sounds great, but I don't see anyone coming to the table here.

I agree with you 100%.

Okay, so that's all.

I just wanted to put it out there and get my frustrations out here on it.

Thank you.

No, I -- but just to come back, I really do agree with you.

You know, it is possible that we need to get out more on nondeal shows to meet more people; that's very possible.

But people know the story better.

I think, honestly, we had a couple of very good years, but people were questioning, is it sustainable?

How can you really grow and grow margins being an analog factory or being a factory that's not investing in deep submicron, where you have people such as TSMC or UMC or GLOBALFOUNDRIES investing billions in order to go to the next and next and next digital node.

I believe that the proof statement is out there, that to go from a $300 million to a $500 million-plus annual revenue, and to do so at a 60% incremental EBITDA margin, it shows that the model is at least a doable model.

And the only thing I can say -- and I really do believe this in my heart -- is that time is the teller of all truth.

And we just have to continue to be aggressive, set aggressive targets internally, and achieve.

And with time, then, everything catches up to the reality.

But I can understand your frustration in the short term.

Thank you, sir.

(Operator Instructions).

There are no further questions at this time.

Mr.

Ellwanger, would you like to make your concluding statement?

Certainly.

So, firstly, I thank all of you that were on the call.

We really are a reborn company, having become the specialty foundry leader.

We've done much in reshaping ourselves over the past years and have much, much more to do to maintain our position as a specialty market leader.

And we will do it by continuing to outperform the industry with topline and commensurate bottom-line growth.

And that's how we will attain our next financial milestone of the $1 billion.

There really are many, many exciting activities within the Company.

We look forward to updating you on them in detail at the appropriate times, when it is legally commensurate for us to do so.

And again, we thank you.

We are thrilled about what we've been doing in the Company.

The employees are very, very excited.

There's a confidence in the Company that is incredible.

And when people are confident and capable, really, the sky is the limit.

So, thank you again.

Thank you.

This concludes the Tower Semiconductor fourth-quarter 2010 results conference call.

Thank you for your participation.

You may go ahead and disconnect.