高塔半導體 (TSEM) 2011 Q1 法說會逐字稿

Thank you and welcome to TowerJazz financial results conference call for the first quarter of 2011.

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 first quarter of 2011.

After management's prepared remarks we will open up the call to 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 risks 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 filings with the Israeli Securities Authority.

They are also available on our website.

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

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

Russell Ellwanger.

Russell, please go ahead.

Thank you, Noit.

I welcome all of you to our first-quarter 2011 results conference call.

Firstly, we reported revenues of $121 million in the quarter, 6% above those of the first quarter last year, and at that we grew our non-GAAP net income to $31 million or 16% over last year with increased margins across the board.

This demonstrates the strong operational leverage inherent in our business model.

While we increased our revenues by approximately $7 million, about 4.1% of that fell straight to the bottom line.

Our design win momentum remains solid and we achieved a triple-digit number of new design wins in the quarter continuing to broaden our diversified and global customer roster, many of which are leading companies in their respective markets, including top technology platform leaders.

As previously stated, from the time of design win to volume production is at least a one- to two-year process.

So we are only now really enjoying the fruits from the design wins of 2008 and 2009 when our quarterly design win average rate went from 50 in 2008 to around 75 in 2009 to 110 quarterly level in 2010.

Hence, as the remainder of the 2009 design wins reach volume production and as the 2010 begin to ramp in production, there is a very high likelihood to maintain the strong year-over-year revenue and bottom line growth which we have demonstrated over the past years.

The more recent design wins will benefit in the latter part of 2012 and beyond with giving us significant confidence in our ability to grow in the years ahead.

Additionally and very importantly, in Q1 we reached business understandings for new and expanded opportunities with several strongly acknowledged industry leaders for use of our state-of-the-art RF and Power Management platforms.

These agreements promised to reach revenue levels of multiple tens of millions of dollars per customer within the next years.

These specific customers are existing customers who, through having experience with our technical capability and operational performance, have decided to greatly increase our portion of their supply needs.

Additionally, we completed installation and qualification of the first tools for internal epicenter, hence, expanding our strategic relationship with a very large volume, long-term partner.

Obviously our growth also depends on our ability and capacity to manufacture.

As we recently announced, we signed a non-binding term sheet to purchase Micron Technology's fabrication facility in Nishiwaki City, Hyogo, Japan.

The facility can support geometries down to 95 nanometer technology node and, in addition to the current products that are being run in the factory, can also be used to manufacture other products as we transfer and qualify our own process technologies.

This acquisition would be a strategic move by us into the Japanese market and will strengthen our presence in the Asia-Pacific region through local, high-quality manufacturing capabilities.

Assuming closing, we will also sign a supply agreement to manufacture products for Micron in the Japan facility for the next three years.

We see this as the first step in a long-term partnership with Micron.

The Micron fab acquisition will provide us with needed large-scale incremental capacity of up to 60,000 wafers per month.

This comes on top of the capacity expansions which we have already completed and are performing in our 3 fab, ramping our Fab2 and Fab3 to close to maximum capacity.

The additional capacity serves the growing demands of our expanding customer base.

The increased manufacturing scale and expanded addressable market would further support our strategy to extend our position as the number one specialty foundry worldwide.

As you can see, we are acting on the future to cement and increase our long-term market leadership in specialty technology.

We are currently in advanced stages of negotiation and legal definitions of the definitive agreement with Micron targeting to close within the second quarter 2011.

Since there is no assurance as to the exact closing date, if at all, and hence the revenue consolidation starting point, it would be premature to provide guidance for the second quarter at this point.

Nevertheless, as we mentioned in the past, analyst mid consensus is about 6% to 7% foundry growth for 2011.

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

To summarize, as a specialty foundry leader, TowerJazz is at a point with significant potential to grow and we are now actively adding capacity to enable us to fulfill our potential.

The cornerstone of our strategy is to work closely with our customers, building strong trust and performance-based relationships which enables open discourse and feedback, and then to adjust our behavior according to the input of our customers regarding who we are and not according to our internal self-perception.

Hence, TowerJazz is in a continual of reinvention.

This has apparently worked well as we have outgrown all of our industry peers by virtue of customers who see value in giving us an ever-increasing share of their business.

I remain very excited with regard to the rest of 2011 and, considering the Nishiwaki fab acquisition, it will be our expressed accepted challenge to achieve $800 million revenues in 2012.

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

Thank you, Russell, and hello, everyone.

We are starting 2011 with the strong momentum we have built up throughout 2010.

Revenues grew 6% year-over-year to $121 million.

Sequentially we did see a revenue decline of 11% from our $135 million peak last quarter.

This was in line with our expectations and was in line with industry seasonality.

We ended the quarter with $184 million in cash balance and deposits, $143 million shareholders' equity, and $798 million in total assets.

In the quarter we continued to demonstrate solid margins with 44% non-GAAP gross margin, 33% operating margin, and 26% net margin.

Better than the comparable percentage for the first quarter of 2010 which were 43%, 31%, and 23%, respectively.

It is a powerful demonstration of the strong operating leverage we have in our business model.

As Russell mentioned, while we increased our revenues year-over-year by $6.8 million, we saw an incremental increase of $5.1 million in our non-GAAP bottom line or approximately 75% of that revenue.

We achieved EBITDA of $40 million for the quarter or a non-GAAP operating margin of 33%.

In addition to the above, I would like to discuss some financial achievements during the last few months.

In February 2011 we received a long-awaited approval letter from the Israeli Investment Center, (inaudible), according to which the Israeli Investment Center committee approved our investment plan for the ramp up of Fab2 and the purchase of equipment.

According to this approval certificate, we will receive up to ILS150 million in grants which is around $42 million for investments in fixed assets.

This results in the open discussions held with the Investment Center during the past year.

The grant's (inaudible) is pending a successful audit by the Investment Center of the eligibility of the CapEx investment reported [by us].

This audit is expected to commence by the investment center during the second quarter of 2011 and we, therefore, expect the actual grant to be received in the second half of this year.

I would like to highlight that these grants are a [peer] contribution by the Israeli government for the CapEx cost of companies investing and providing employment in peripheral areas, such as Migdal Haemek, in which our Fab2 is located and is in no way similar to a loan.

The Investment Center approval program is related to investment in fixed assets and was a main contributor to the reduction of the depreciation component included in the cost of revenues for the first quarter of 2011.

In February 2011 we further signed a letter of agreement with our Israeli lender bank according to which the bank gave their consent for the acquisition of Micron's fab in Japan.

As part of this letter agreement, we paid $15 million in March on account of the outstanding loan and we are scheduled to pay an additional $15 million in December 2011, hence, loans payable to the bank as of December 31, 2011, following the above pavement will be only $131 million as compared to $211 million on March 31, 2010 -- a year ago.

This bank prepayment reduces the average duration of the bank loan thereby increasing its net present value and resulting in non-cash financing expenses.

This component was the main cause for the higher financing expenses this quarter compared with that of the previous quarter.

As Russell discussed and as we recently announced, we signed a non-binding term sheet to purchase Micron Technology's fab in Nishiwaki City, Japan.

The total value of the proposed transaction including assumed liabilities is anticipated to approximate $140 million, out of which $40 million will be paid in cash, approximately 20 million Tower ordinary shares will be issued to Micron technology, and long-term retirement liabilities will be assumed payable incrementally upon employee retirement.

We are currently negotiating definitive agreements for the proposed transaction.

As a result of this transaction, Micron will become a strategic shareholder and will hold approximately 6% of Tower's ordinary shares.

Moving to the balance sheet, cash balance including short-term deposits was $184 million at the end of March 2011 versus $83 million as of March 2010 with total assets of $798 million versus $643 million as of March 2010.

Total assets include $32 million of grants receivable related to the Investment Center approval which are mostly presented in current assets.

Long-term debt decreased from $359 million at the end of December 2011 to $332 million as of March 31, 2011, mainly due to the above mentioned $15 million payment to our Israeli lender banks.

Also notable is shareholders' equity this quarter showing an increase to $143 million, considerably higher than the $118 million we reported on December 11 and $65 million as of March 2010.

Last year, we placed significant effort in strengthening our balance sheet and restructured $450 million in debt.

This effort has yielded fruit enabling us to have a stronger simplified balance sheet.

We intend to continue our efforts in strengthening and improving our capital structure as part of our continued long-term strategic growth plan.

Based on our current EBITDA run rate of $40 million a quarter, we have a highly serviceable net debt to EBITDA ratio of approximately 2 times as compared with ratios well above 4 times we had in the past.

Moving to the P&L statement, we are happy with the results of the quarter with revenue at $121 million, up 6% over last year, and EBITDA of $40 million, up 13% over last year.

In terms of gross profit, on a non-GAAP basis for the quarter we achieved gross profit of $53 million or gross margin of 44%.

This is compared to a gross profit of $49 million or a gross margin of 43% in the first quarter of last year.

Non-GAAP operating profit increased to $40 million in the quarter, or 33% operating margin, compared to $35 million, or 31%, in the same quarter last year.

We also experienced improvement in the operating expenses, which were 11% of revenue in the quarter compared to 12% in the first quarter of 2010.

On a GAAP basis, we achieved gross profit of $31 million almost doubling the $16 million reported in the first quarter of 2010.

We also achieved an operating profit for the fifth consecutive quarter of $15 million, a significant improvement as compared to $0.2 million in the same quarter last year.

Net loss was $5 million or 0.02%, meaning $0.02 per share, compared with a net loss of $36 million or $0.18 per share in the first quarter of 2010.

The reported GAAP loss included financing expenses of $19 million in the first quarter of 2011 and $34 million in the first quarter of 2010.

These charges resulted mainly from the non-cash GAAP financing expenses related to the market and sales value of the Company's securities and debt, as well as the one-time bank loans value adjustment related to bank prepayment I mentioned earlier.

Excluding the financial charges, the Company would have reported a GAAP net income of $[40] million in the quarter, which is $16.5 million better than in Q1 2010.

To conclude, net profit on a non-GAAP basis in the quarter was $31.5 million versus a net profit of $26 million in the first quarter of last year.

This represents a net margin of 26%, which is higher than the 23% net margin in the same quarter last year.

I would like now to transfer the call back to Noit Levi.

Noit?

Thank you, Oren.

Before we will open up the call to the Q&A session, I would like now 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 first-quarter 2011 financial results have been prepared in accordance with US GAAP and the financial tables in today's earnings release includes financial information that is mainly 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 non-GAAP basis after deducting 1) depreciation and amortization, 2) compensation expenses in respect to options and grants, and 3) finance expenses net other than interest accrued such that non-GAAP financial expenses that 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 table also contains 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 financials.

EBITDA as represented is defined in our quarterly financial release.

EBITDA is not required GAAP financial measures and may not be comparable to (inaudible) 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 statements that are 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 the operator.

Operator?

(Operator Instructions) Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my questions.

In terms of the guidance, I know you haven't provided quarterly guidance given the agreement has not been signed yet.

Could you tell us, upon closing of the agreement, what type of revenue run rate, quarterly revenue run rate incrementally can you expect from this acquisition?

Sure.

I think we can give those -- yes, we will give some numbers about that.

Okay.

Is this something you can tell us now on what you expect in Q3 and Q4?

I would prefer to wait till we close.

Okay.

You have given very bold guidance for fiscal 2012.

In the past you have talked about double-digit growth in fiscal 2011.

Is that still in your target range?

Yes, I actually reiterated that during the call that we still expect to outperform the -- at least initial analysts' expectation of the 6%, 7% by about a factor of 2.

Okay.

A question on gross margins, it looks like it has jumped up pretty nicely in Q1.

Do you expect your margin profile to be at these levels or do you expect any negative impact from the acquisition?

You are correct that there are two main effects on the gross margins.

One is the consistent improvement we show from this report, improvement on all the margins from cost reduction and other synergies.

Also, synergies with Japan fab of course will contribute to that.

On the other hand, at least for the first two years with -- after the closing of the acquisition of the Micron fab in Japan, we will have kind of a cost-plus model with Micron as a customer, which of course its margins will be somewhat lower than the current margins that we have.

And the target of these first two years is actually to assure us that the fab is entirely loaded or certainly more than 80% loaded during the period that we ramp up our customer product there.

Okay.

Russell, in terms of the acquisition itself, this is the first time you are going to have a fab in Japan.

Can you highlight what kind of opportunities it provides you in terms of acquisition of new customers and as well as ability to get into -- get ability in new processes that you may not have the capability before?

Certainly.

Presently Japan foundry demand -- again, this is according to IC Insights -- is about 5% of the worldwide foundry demand.

So Japan, for as many IDM and as much manufacturing capability as Japan has, it's very underrepresented within foundry.

We ourselves are underrepresented within the Japanese demand.

Right now our revenue from Japan is about 0.5% of our total revenue, so one-tenth that of the overall Japanese foundry demand.

Also, actually in Asia-Pacific itself it's about 9% of our revenue, whereas Asia-Pacific represents about 27% worldwide foundry demand.

Now we believe twofold.

Firstly, by having the geographic location there there will be a higher confidence of Japanese IDMs to transfer flows and technologies into the factory.

And that is one of the points of our business model as we build up operational performance of the factory that we see as one of the businesses that will be accretive to our model.

And that will be certain Japanese IDM where we would take their flow and transfer it into the factories, similar to what we do with Vishay Siliconix or International Rectifier, to where we basically do a copy smartly of some of their flows and then restrict that flow only to their products.

So I think to start with that will have the opportunity through being local that we will get a bigger portion of that 5%.

But I believe as well that there will be some IDMs -- and this is highly speculative what I am saying.

I have nothing to base this on other than belief.

But there will be some IDMs that seeing as they now have a pure-play foundry will want to adapt a model of working with a foundry as they have something that is in their region that they understand the mentality of, that they understand the quality output of, that will move more strongly into foundry than they might otherwise might have.

So for Japan specifically the local presence -- just to summarize, the local presence will allow us to compete more strongly for the available foundry business that there is presently on the table, but I think that it will also create incremental business from some companies that might want at this point to move things into a foundry.

Now if you look at several of the -- or many of the Japanese factories, they are older 200 millimeter or 150 millimeter factories where one would have to believe that the utilization is decreasing as time goes on.

And, hence, it might make sense for some of these companies to say why not transfer a flow and possibly consolidate three of my factories into two highly-utilized, shut down one and transfer a few flows into Nishiwaki.

So that is what we are thinking about Japan specifically.

Now I have mentioned multiple times on the calls about the degree of business that we are building up in Korea specific to Power Management.

That will be, first and foremost, flow that we bring up within the Nishiwaki facility are several of our power management flows as multiple fold.

Firstly, some of the promised volumes coming out of these flows we will need the capacity for.

And, secondly, several of the Korean companies that we are working with really do want to have a factory for manufacturing that they can easily visit that they believe is local from Incheon airport to Osaka airport is -- I think it's an hour and 20 minute air flight, so it's very local and the same time zone.

Does that answer your question, Jay?

Yes, thank you very much.

Final question for Oren.

What is the share count in Q1 and what do you expect to be the share common upon the close in Q2?

Today's share count is 286 million; it was the same share count of March 31.

And with the 20 million to Micron it will be 306 million.

Thank you very much.

Vernon Essi, Needham & Company.

Thank you.

I appreciate you are not going to have much to give out on Micron specifically, and I just wanted to ask the obvious question here.

What is the timeline here on the close?

Is it definitively expected to be closed by the end of the second quarter?

Our target is to close it before the end of the second quarter, but there is several variables that we really don't have control over.

It's a very, very interesting and good acquisition for us, but it's complicated in as far as it's a full asset acquisition.

It's not buying a business, so there is many, many Is that have to be dotted and Ts that have to be crossed as far as supply contracts.

Many, many things on that order that if you are acquiring a business all the supply agreements come directly with the business.

Here there is many, many things that have to be carved out, and a lot of work is being done on that.

I think on the big order business terms we have agreement on everything.

As far as, again, dotting Is and crossing Ts, it's something that I said very specifically in the script, legal definitions.

There is still things that have to be done.

So our target is to have a closed before the end of Q2.

It might extend beyond that and, again, I have no way to even say that it will close.

I believe it will, but anything can happen until it's done.

Okay.

And if you could just switch gears here, I would like to revisit the investment grants.

And I apologize, Oren, I think you had some said some of this in your prepared comments.

But you have already -- am I to presume you have already received these and they are on your balance sheet?

Is that what you had said?

Not exactly.

We received -- money we did not receive yet.

We received during Q1, in Hebrew it's called (spoken in Hebrew), in English it's like approval certificate.

So we got the certificate which is a government commitment to pay us the grants subject to us proving to the government actually that we indeed invested in CapEx in what is [legible] which is basically the semiconductor manufacturing tool for the ramp up of Fab2 and employed employees.

So we submitted all the evidence and all the reports.

It's called reports on the execution of the program.

We submitted these during Q1 in April and the process now is that the government agency, which is a company affiliated with the industry ministry and commerce, is now auditing that.

We expect that it will finish the audit and will release the grants -- will pay out the grants on a gradual basis starting in early Q3.

Within one or two months we will start to get the money and the total amount of money that the government should pay us is about $42 million, of which we expect about $25 million to be paid within this year.

What I mentioned in the balance sheet was that we have under the -- in the balance sheet in the assets a grants receivable.

Under other receivable line in the balance sheet we have the (inaudible), which is called grants receivable, which is actually the government debt to us which from our point of view, of course, is due but from the government's point of view it has internal procedures to make.

Okay, that is helpful.

If I can ask just to dovetail into this, is that another -- on the equity side did that get reflected in your shareholders' equity as well?

No, no, no.

This is what I mentioned in my comments prepared in the first, that it's not in any type of a loan or anything else.

This is a pure contribution.

Actually, it's not really a contribution.

This is a participation in our CapEx expenses, so big numbers.

Back of the envelope, we invested $400 million in CapEx and -- are investing $400 million of CapEx in the ramp up of Fab2 since early 2006 until the end of next year.

For that we are supposed to get grants in a rate of 10% and this is just participation in our growth.

So instead of having a cost of $400 million, the cost of the ramp up will be reduced to $360 million after we get all those grants.

Okay.

So then what you have is just your depreciation schedule goes down with that.

Right.

Okay, all right.

Another question I had just to kind of go into that point.

Could you provide the depreciation in the quarter as well as cash from operations and CapEx?

Yes, the depreciation in the quarter appears in the press release.

Below the press release we have the tables, so we have the balance sheet and then we have the GAAP including the adjustment to the non-GAAP.

So you see there the third column to the left is actually the depreciation and some amortization.

You will see here $23 million in the COGS and an additional $2 million in the R&D and [M&S].

However, when you compare it to previous year you will see that we have a $10 million reduction of the depreciation against Q1 2010, and this is mainly due to the fact I mentioned in my comment, which is exactly what we spoke before, the one-time effect of this grants receivable.

So like you mentioned, since we got the approval for the grant the cost of the CapEx goes down so the depreciation goes down.

On a future basis, depreciation will go down only by 10% which is about $2 million a quarter, so if one expected our depreciation next quarter to be $32 million it will be only $30 million.

For this specific quarter, Q1, we had actually the entire effect of the depreciation adjustment because of the one-time retroactive adjustment.

Basically, to answer your question about the future, which is I guess what interests an analyst, is that we expect about $30 million to $32 million of depreciation a quarter.

Okay.

I mean, in Q2, Q3.

Later it should go down.

Q4 should go a step function to about $27 million a quarter and Q2 of 2012 another step function down to about $20 million a quarter.

Okay.

And then, I am sorry, the cash from operations?

Sorry.

Cash from operations was positive $17 million and the CapEx in the quarter was $26 million.

This is mainly the CapEx for the ramp up of actually Fab2 and the Jazz fab that we announced that we are ramping Fab2 from about 30,000 wafers a month to 40,000 and Jazz by additional 3,000 wafers per month.

Okay.

And then finally -- thanks for all the info there, Oren.

Finally, I guess back to you Russell.

On just the overall market any thoughts on end market areas where you are seeing more strength relative to others and how that looks sort of going into the second quarter where you are seeing more demand?

Most everything that deals with power we are seeing being strong and driving very, very positive growth coming out of it.

Be it LED drivers for LCD pack lighting, be it LED drivers targeting commercial lighting, motor drivers; everything in the power region appears very, very strong.

There appears to be some -- I wouldn't know if it's a weakness or just a change of market shares, but in some low-end cell phones, non-smartphone applications, there seems to be some weakness.

Market share is moving from some bigger players into a lot of smaller Asian players.

And I think that some different suppliers then are changing their taxonomy of customers as things are adjusting there.

But the power area seems very, very strong at present and seems to be going very nicely.

Good, okay.

That is helpful.

Thanks a lot, Russell.

Ken Nagy, Zacks Investment Research.

Thanks for taking my question.

Just to get back to margins, assuming the Micron deal closes did you say it will be less than the corporate margin until 2013 or it will be less than the corporate margin period?

We have a loading agreement, providing everything closes with Micron, that is a cost-plus model.

So the revenue contribution that would be coming out of the Nishiwaki factory for the first 18-plus months will be at a lower margin than our normal margin model.

Okay.

However, very, very candidly and Oren did talk to this, that is a very, very good thing for the Company.

To acquire 60,000 wafer starts within our type of flows and our customer base it will take somewhere between 14 to 20 months to bring up the flows and have customers qualified on those flows.

So during that period of time the factory is cash flow positive due to the loading that is coming out of the Micron agreements.

And that is a very important point is that it's an acquisition that is cash accretive from day one and doesn't bleed as you are building up your own utilization.

Then from the -- for a period of up to three years there is a decreasing portion of the Micron load, but whatever that portion of the Micron load is will most likely be lower than our normal margin model.

That is great.

Thank you.

Eric Reubel, MTR Securities.

Hi, gentlemen.

Thanks for taking my questions.

Russell, if you think had to think about the core business ex kind of the proposed Micron transaction, how should I be thinking about the inflection point in the business?

Should I be anticipating an uptick in Q2 or is the uptick that you are guiding to for growth for 2011 more a function of the back half?

I think it's a stronger function of the back half.

Okay.

Oren, you mentioned CapEx for the quarter.

Can you break that out between what was at Tower and what was at Jazz?

No, we don't want to give this and also we cannot.

However, within a few days we will file the reports of Jazz and you can see there the Jazz numbers.

Is the Q -- is the Jazz Q expected tomorrow as you have been normally doing or is it a couple of days away?

I am not sure, I have to check.

I am not sure.

Okay.

And then, if I could just clarify then on the depreciation schedule that you called out, Oren.

You talked about getting down to -- it appears as though depreciation in Q1 was $23 million, but then I thought I heard you say that in Q4 it's going to be $27 million.

Could you just repeat that again, please?

I explained that the $23 million included -- also in my comments in the beginning that the $23 million included a one-time reduction because of the one-time effect of lower depreciation because of the grants we received from the Israeli government.

So if you, for example, compare the $23 million to our results in our --

Q1 2010.

-- Q1 2010, you will see that there is a $10 million reduction which is actually mainly by this one-time component.

So apples-to-apples -- I mean excluding this one-time effect the depreciation should have been $32 million this quarter as well, exactly like previous year.

Now what I mentioned is that because of the grants -- the grant's positive effect for the future is that the depreciation instead of being $32 million will be about $30 million a quarter if you want to model next quarter.

If you want to further model Q4 and beyond, so the $30 million will further go down to $27 million.

In Q4.

And then the step down for 2012?

And then I mentioned that from Q2 2012 and beyond it will go down further to $22 million.

Okay.

Thank you very much.

That is it for me now.

Thanks.

Sabina Podval, Leader Capital Markets.

Good afternoon.

I have a small question regarding your operating expenses.

I saw that you actually showed a slight decline in both the research and development expenses and the SG&A expenses, so I would like to understand what is -- is there something special that happened there?

Or what was the reason for the decline, especially in the SG&A?

And regarding the R&D, is it something that we will see also in the future or it's something temporary only for this quarter?

Actually, both numbers, the R&D and the SG&A, that we see this quarter is a good indication for the future.

The reduction that you see is correct, but this is driven from some one-time effects that were last year, in Q1 last year.

Indeed, if you compare this number of Q1 to Q4 2010 you will actually see an increase in the year in SG&A.

Also in Q4 there was some one-time.

But to conclude, Q1 numbers are pure of any one-time effects on the R&D or the SG&A.

Okay, thank you.

[Greg Schiller], private investor.

Congratulations on what continues to be more exciting news, especially the peak about possibly hitting $800 million in revenues.

But I just had a couple of questions there.

I just wondered what it's going to take, and I know you go out and do conferences like Needham and stuff like that, but why do you think there is no institutional investors even though you have got a PE (inaudible) of 2 and your stock is 35% over the high?

Is it because of the share availability in the float?

My second question is I still didn't see any insider buying.

Is there a company policy against it or don't you share the same kind of future growth potential?

About institutional shareholders, I guess you are referring to US institutional shareholders because in Israel there are a lot of big institutionals that invest.

So driven from what we hear is, first, the fact that many of them -- as long as you don't have really sustainable net profits in the bottom line it's some barrier.

Although we explain and we show in the non-GAAP our profitability excluding the depreciation, although we explain in length that this depreciation, these high amounts is not a reflection of the sustaining economical CapEx that is required but a reflection of the historical costs to build Fab2 which was $1.5 billion to build the fab.

And now we incur these expenses.

Still many people are waiting for the EPS, are waiting for the real net profit sustainable that we will show and then they will consider.

The second factor is indeed that in Tel Aviv Stock Exchange, in the Israeli exchange, we have a very nice volume and trading also of the institutional investors.

Just today we had 3 million shares volume and actually the average is about 2 million a day.

In NASDAQ indeed the trade is lower.

That is the other thing.

However, in the last year we got three or four new analysts covering us and we are working with -- (inaudible).

We are working with two or three more and hopefully with them initiating coverage it will encourage also strategic institutional in the States.

Further to that we will present in the Oppenheimer conference in Boston in August and we will do more often on the roadshows to tell the story more.

Russell, do you want to --?

So please, once again, the second part of your question dealing with --?

I just had -- I am wondering -- I didn't see, I have never seen any insider buying.

I was just wondering if there is a company policy, if there is something different about that over in Israel.

There is no policy against insider buying.

We do have, I think, a reasonably good program in the Company that key employees receive from the Board very reasonable stock options.

The plans that we have is a pure stock option plan.

There is no restricted stock so no one gets penny stock.

The employees only have a benefit if indeed the shareholders have a benefit, which I think is the right way to go.

I don't think it's a good thing, honestly, for companies to have very rich restricted stock programs.

So we have a reasonable option program.

And I think probably those that are in a position to buy stock realize and look forward to the realization of benefits through the stock options rather than going into the market and buying shares.

So there is no restrictions for key management?

I was pointing more towards key management personnel.

So there is no restrictions then?

No more or no less than the normal SEC restrictions.

Thank you.

There are no further questions at this time.

Mr.

Ellwanger, would you like to make your concluding statement?

Sure.

Again, thank you very much for your time, for the good attendance.

A few weeks ago, May 1, marked my 6-year anniversary at TowerJazz.

It has been a really amazing time for the Company, for its employees, and certainly for myself.

As reported by IC Insights, we moved from the number 16 position of all foundries 6 years ago, or actually 5 years ago, to the number 5 and from number 12 of specialty foundries to number 1 at the end of 2010.

The promised results from the 500-plus design wins, if we look from the beginning of January 2010 until present, combined with the Nishiwaki fab capacity which we hope will close this quarter that combination we foresee really continued strong top- and bottom-line growth and enhanced specialty market leadership.

I very much appreciate those that are invested in the Company, those that have stayed loyal to the Company, and believe in the Company.

I think from a performance standpoint we have really turned the Company around very, very strongly and now we have the opportunity to really move forward in growth.

The Nishiwaki factory, should it close, will be a very, very big catalyst for us to get to the billion-dollar landmark of revenue and appropriate margins, especially as we replace the loading agreement that we will have with Micron or should have if it closes with the business that we ourselves will be transferring and building up.

Again, thank you very, very much.