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Operator
Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz third-quarter 2011 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 November 15, 2011.
Joining us today are Mr. Russell Ellwanger, TowerJazz's CEO, and Mr. Oren Shirazi, CFO. I would now like to turn the call over to Mrs. Noit Levi, Director of Investor Relations and Public Communications. Mrs. Levi, please go ahead.
Noit Levi - IR & Public Communications Director
Thank you and welcome to TowerJazz financial results conference call for the third 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 third quarter of 2011. 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, S-4, S-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 statements.
Now I'd like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.
Russell Ellwanger - CEO
Thank you. I welcome all of you to our third-quarter 2011 results conference call.
2011 to date has been an exciting year for TowerJazz and really is the culmination of strong efforts we've put in to build our leadership position over the past few years. Our third-quarter revenue level of $176 million, 31% over last year, puts us at a current run rate of around $700-plus million per year. This is well ahead of all competition in the specialty foundry segment. Also, it brings us a step closer to our goal of becoming a $1-plus billion company by 2014, our stated goal since crossing the $0.5 billion mark at the end of last year.
This was the first full quarter since acquiring the Nishiwaki factory in June and hence shipping qualified products to a new customer, namely Micron. The factory has a 60,000 wafer per month DRAM-based capacity which we believe will be notably higher as we convert the capacity from DRAM to our logic flows over the next three years.
By virtue of this timely acquisition that brought with it a new major customer with qualified flows and guaranteed loading, we're able to stem the tide that the present worldwide economy has on decreasing foundry revenues. Guaranteed loading with an agreed cash positive model, while acquiring capacity for a cash value of less than $1 million per thousand wafer capacity, is a desirable transaction under any circumstance in any environment. But in a specific worldwide economic downturn, a guaranteed long-term cash positive high-revenue contract creates needed ballast and stability.
The integration that has been helped with the involvement of all sites has been seamless with all committed and forecasted metrics having been met or surpassed. We're very fortunate that, with this asset acquisition, an experienced and highly capable executive team and workforce became part of the TowerJazz employee family. 55% of all engineers in Nishiwaki have greater than 10 years of experience and 88 such engineers have had an international assignment within Micron. Many of these assignments were working directly on programs of digital integration and technology nodes well beyond what our analog model requires. This brings with it additional ideas for innovation and efficiency spawned from an experience base outside of what we have focused on in TowerJazz.
Running the business development activities is Mr. Kenichi Katsumoto, who came from Kobe Steel with the first employee group to build and establish the Nishiwaki site at the onset of the Kobe Steel TI joint venture. He's stayed at the facility ever since and run the operations whilst developing a strong reputation within the Japanese semiconductor executive ranks.
Running the fabrication area is Mr. [Kaiji Jono], who became the fab manager under Micron in 2009. He began his career as a [dry etch] process engineer, spent two years at Micron in Boise, Idaho in the central process and equipment team, and before becoming fab manager was processing equipment manager. He is well experienced, knowledgeable, and among a rare breed of high-performing operation heads who is as well expressly entrepreneurial in his approach.
Following the successful template of the Jazz integration, rather than inundating the local operation and business group of many headquartered personnel, Mr. Rafi Mor, Ephie Koltin operations head and corporate officer relocated to Newport Beach to be the site manager. For Nishiwaki, Mr. Rami Duek relocated to Japan to be the site manager. Mr. Duek began as a dry etch engineer in Tower Semiconductor and grew in the management positions within facility and equipment engineering. He had been operation manager of Fab2 prior to and is the head of Fab1 upon taking the site management role in Nishiwaki. As an added background, Mr. Duek managed the Israeli operation to the large Japanese equipment maker during his career and well understands Japanese culture. He's doing an outstanding job integrating business process and culture and promoting open communication.
Specific to the Japanese market, we've already been selected by a top 10 Japanese integrated device maker who will transfer product and flow into the Nishiwaki facility and a second large IDM who will transfer a major growth product inflow into one of our Migdal Haemek facilities with a second product family targeted to transfer to Nishiwaki. Additionally, we are strongly engaged in multiple opportunities with seven other substantial Japanese companies and we view the probability as high to reach business term agreements.
Our first internal transfer, mainly a low-cost version of our .18 micron Power Management base platform, is well underway and a first integration lot will start this month in November. This platform and the Japanese location is very well received by our growing Korean Power Management customer base. The level of customer trust is objectively demonstrated in the high level of design wins which the Company has recorded over the past years. In spite of the worldwide economic slowdown, Q3 remains strong at just shy of 100 design wins.
Taking into consideration customer forecast, design win, market share gain, and several specific contracts, the Company has continued to invest in capacity expansion. With the addition of Nishiwaki, at year's end, we will have the capacity to produce 1.7 million wafers per year, double that of our end 2010 capacity level. We are examining ways to increase the Nishiwaki capacity by another 200,000 wafers per year, bringing the total potential to 1.9 million wafer per year manufacturing capability.
Most of all -- or sorry, most all if not all of our largest customers experienced drops in their revenue in this year, which obviously reflects in a decrease of wafer demand. Hence, the increased capacity, although we remain confident we will be needed in the short term, was not used in Q3 and appears will not be fully used in Q4. Hence, with full employee cooperation and support, the Company took actions to adjust expenses to customer demand. One of these actions was requesting ten days of unpaid vacation for all employees exempting direct fab manufacturing labor. Although the wafer loading reduction was predominantly in two fab sites, we were very encouraged by the willingness of all employees to accept a global action rather than local headcount adjustments, which become very difficult to recover from when the good times come. To further clarify, this action does not impact manufacturing output; there are no fab shutdowns.
During the month of October, I enjoyed many high-level customer meetings, customers being supported by our RF high precision analog business unit, our Power Management business unit, our TOPS business unit, and our CMOS mixed-signal business unit. These meetings culminated in our annual TowerJazz Technology Symposium in our Newport Beach facility. The general attitude of customers was that of an economic rebound beginning in the latter part of the first half of 2012, but more importantly was the positive momentum in the relationships and the desire to partner with us in present generation and future generation technology platform. I am quite positive that we are in an excellent position, especially with the added capacity of the Nishiwaki fab, to exit the current worldwide economic situation with an unrivaled momentum.
It is our expressed mission to bring to market specialty foundry solutions that provide unique value to our customers. To enable this, we must not only supply present generation solutions but additionally have strong customer partnerships where we work together to supply process platforms and features that are required for their next generation and generation plus two applications. With this in mind, I will review our various business units' roadmap focus.
For MEMS, our major development is partnering with leading customers to presently produce resonators, high-end accelerometers, and high-end gyroscopic applications. Current platforms in development are based on an advanced deep silicon edge technology and a unique 3-D alignment between varied MEMs device [layers] and wafer level packaging technology.
TowerJazz offers mass production MEMS experience and capabilities in two of its 8-inch facilities with proven backup options. TowerJazz puts its MEMS customers with complementary MEMS-specific .18 microns Power Management, CMOS technology-enabling high-voltage MEMS driver, high-performance analog for sensing, as well as a proprietary unique CMOS-based nonvolatile memory for MEMS trimming all on a single chip, making TowerJazz a true one-stop shop.
For next-generation, we are partnering to produce Pico projectors, [vast] resonators and next-generation accelerometers. Longer-term we're partnering to develop a highly differentiated MEMS RF switch. In our RF High-Precision Analog Business unit, our major development is partnering with leading customers to presently produce chips for wireless and high-speed wireline data transceivers, including those in consumer handsets, WiFi terminals, as well as those core to the network infrastructure using our silicon geranium and RF CMOS technology platforms.
For next-generation, we are partnering to produce chips in the front-end module of wireless devices that include the power amplifier and antenna switch using our newly introduced SOI, Silicon-on-Insulator process and customized silicon geranium power amplifier module as well as chips serving high-speed wireline data in consumer applications such as the Apple and Intel proposed Thunderbolt and Light Peak interfaces. This uses our highest-speed silicon germanium platforms from our mature 200 gigahertz SB-C8 [teenage 2] to recently announced 270 gigahertz [teenage 3] process, the latter being the highest-performance silicon germanium technology available in the foundry industry today.
In our Mixed-Signal CMOS business unit, our major development is partnering with leading customers to produce notebook security and gaming controller chips by incorporating our internally developed Y-Flash zero mask adder NVM as a .16 Micron Technology node. For next-generation, we are engaged with leading customers to produce cost effective solutions for similar products using 152 nanometer platform. Additionally, we enable advanced RFID modules as well as high fidelity audio chips using .18 and .13 technology nodes with additional devices, including low leakage 5-volt and enhanced IP offerings. In mid-term future, we enable smart metering solutions and advanced remote controllers by customizing our low-power and low-leakage technology platforms specific to customer design.
In Power Management, our major development is partnering with leading customers to presently produce low side 700-volt products and for next-generation to produce high-side 700-volt platform on .18 micron-based very low RDS(on) platform for up to 60 volts. Current platforms in mass production are our 5 to 60-volt cost effective platform, our 5 to 60-volt isolated platform, an our 5 to 60-volt highly isolated platform. All are .18 micron based and have two versions, 5-volt gate which we call TS35PM and dual 1.85-volt gates, TS18PM.
The cost effective platform has only 20 photo layers for 5-volt gate with three medals and is specifically optimized to the fast-growing LED driver market for TVs and monitors. The isolated platform has only 23 total layers for 5-volt gate with three medals and is specifically optimized for the fast-growing DC/DC converters in motor driver market. The highly isolated platform which is unique in the industry has only 24 photo layers for 5-volt gate with three medals and is specifically optimized for the booming organic LED driver market.
The 700-volt low side platform has only 16 photo layers, two of those being metal. It was optimized from the very fast-growing LED lighting market as a very cost-effective platform.
The 700-volt high side platform current in development is specifically targeted to the home appliance and air conditioner converters. This device controls six IGBTs in a converter model.
In September, we received a very strong commendation regarding our 700-volt platform. In the press release, Samsung electro-mechanics stated, and I quote, "We chose to work with TowerJazz on our next-generation of high-voltage products because of their superior 700-volt technology which is unrivaled by other foundries. We were looking for a true partner who would be committed to our success and provide excellent support and required manufacturing capacity. TowerJazz is well-known in Korea, especially in the Power Management market, and we are looking forward to our collaboration on many high-volume products." What a validation by Samsung, unrivaled by other foundries.
The press release commemorated signing a memorandum of understanding to develop and ramp to volume production of a variety of product families based on TowerJazz's 700-volt Power Management process. We'll collaborate with Samsung, becoming its preferred supplier for all of its products based on the 700-volt power platform. This is a very important agreement with significant potential as the initial products come to market in 2012 and beyond. It also cements our standing in Korea.
In our CMOS Image Sensor business unit, our major developments (technical difficulty) partner with leading customers to presently produce best-of-breed high-end sensors for high-end still camera and video applications as well as dental and medical x-ray sensors. Next-generation will produce a state-of-the-art CMOS Image Sensor platform with special .111 in-pixel design rules with low stack height and backside illumination technology.
In the x-ray market, we have developed state-of-the-art pixels used by our customers ranging from 15 microns for intra-oral dental market up to 150 micron for the extra-oral dental CT market. This technology is backed by our patented stitching technology as well as other patents such as Diagonal [VIA] for three-sided Thunderbolt sensors and special charge transfer pixels.
In the high-end sensor market, we support state-of-the-art current, dark current and noise figures and very fast pixels. For next-generation, we are developing a special in-pixel design rule that will allow .11 Metal 1 design rules with local interconnects and bathtub back-end to allow for very low optical stack height. This technology, combined with the .16 micron in the periphery, allow our customers to reuse their own IPs while getting some excellent in-pixel features.
In addition, the currently developed backside illumination will put us at the front line with the major CIS IDMs, allowing our customers competitive advantage for the years to come.
All business unit heads have close cooperation with their respective customers and are experts in their respective fields. The business unit general managers DTs are [Mrs. Sierra Levi] for transfer optimization process services BU; Dr. Marco Racanelli, General Manager of the High-Precision Analog RF business group with an additional responsibility as the GM of the US Aerospace and Defense business groups; Dr. Avi Strum, General Manager of the Power Management business unit as well as General Manager of the CMOS Image Sensor business unit; and Mr. Ilan Rabinovich, General Manager of the CMOS and Mixed-Signal business group. All business units are supported by dedicated headcount from our design center under the leadership of Mr. Ori Galzur, Vice President.
We have done well in growth over the last years, but we're well aware that we must do much more, be more efficient and quicker to enable our customer needs. To this end, we are introducing a 2012 corporate theme, or mantra if you will, namely the Pursuit of Excellence. To prepare for this, I with the management team have been and continue to go through each site at the group level asking each group manager to define excellence in their group in four to six bullets and then to state three initiatives to enable it. We are about 70% complete and will finish the exercise in December.
What has been the overriding outcome is that, independent of specific group task, excellence boils down to three things -- Firstly, capable people; secondly, adequate tools and environment to get the job done; and third and most critical, passion. If capability and the tools and environment exist but there is no passion, one has only mediocrity. If the tools and passion exist but there is poor capability, there is great waste. If capability and passion exist but in an environment that does not allow ideas and growth, there is frustration. If that frustration continues, the passion is lost and/or the people are lost.
Our target is to take a very, very capable workforce supplied with adequate tools and create an environment of the most impassioned foundry in the world; that is our 2012 cultural focus.
In order to meet our customers' needs and ensure long-term business unit and customer roadmap alignment, we're implementing an organizational change. Dr. Itzhak Edrei, to date Executive Vice President of Business Units and Business Development, has been promoted to the position of President, where now the business unit general managers as well as the regional sales VPs will report to him. I believe this will enhance internal communication between immediate customer needs and business unit resources, as well as foster continued alignment between business units' generation [plus two] roadmap and customer application needs.
Additionally, Mr. Ephie Koltin has been promoted to the position of Executive VP of Worldwide Operations at all three operational sites for manufacturing factors reporting into him as well as all procurement, corporate quality and safety, corporate reliability, and industrial engineering.
In addition to Dr. Edrei and Mr. Koltin, whose titles and roles have changed, the executive staff is completed with Mr. Shirazi, who remains the CFO, Mrs. Dahan, Senior VP HR and IT, Mr. Netzer, VP of Corporate Planning, and Ms. Somekh, Chief Legal Officer. Mr. [Moore], who is the interim GM site manager of Newport Beach reporting to Mr. Koltin in that role remains a member of the executive staff. I am honored to work with this group of executives in this Company, every one of which has an extreme ownership mentality with high personal capability, extreme passion, and unquestionable integrity. I respect each of them and have absolute trust in their business judgment.
All of which I have said about my executive team I wish to also say about our Chairman of the Board, Amir Elstein. He is a partner who I respect and trust.
I mentioned already the TowerJazz Global Symposium in Newport Beach on November 2 and 3, which had a record attendance of 200 customers. There was a general atmosphere of partnership and friendship at a level to which I have never before experienced in such a large forum. I gave the opening presentation at the commercial day, a talk I entitled "Formulas for Growth". It outlined the basic management philosophy at the Company and how this has led us to number one foundry growth and how we intend to grow on these principles to remain number one growth for the years to come.
It is one thing to give a la-la philosophy talk to those you do not know, but to talk to these principles in front of our customers who know us well is a much different story. The reception was strong in the attendee evaluation. I am not saying this at all for self acknowledgment; it is a statement from the customers that what TowerJazz says is what we are dedicated to deliver and that is what they want from us as their trusted foundry partner. In their evaluation, there were no poor or average grades. 4% evaluated that presentation as good, 34% very good, and 62% evaluated it as excellent. What a validation that we were indeed going in the correct direction.
As a last point, we are guiding Q4 to be predominantly flat to Q3. Our Q3 to Q2 growth was a function of Micron business which, as noted, surpassed our business line. In Q4, we start to see indications of possible recovery with the non-Micron business growing. As a result of customer input, including new activity market share gain, we are operationally focused to meet an increased manufacturing demand by the end of Q2 2012, and target achieving an annualized quarterly run rate of $800 million in the second half of 2012.
Thank you. With that, I'll turn it time over to Oren Shirazi to speak in detail about the Q3 financials.
Oren Shirazi - CFO, SVP Finance
Thank you Russell. Hello everyone. I will start with a P&L review and then will analyze our balance sheet.
As Russell stated, our third quarter's revenue amounted to a record $176.1 million, within the guidance range we issued three months ago, a 26% growth against previous quarter.
Regarding our bottom-line performance, we again recorded a net profit on both a GAAP and non-GAAP basis, achieving GAAP net profit of $1.8 million or $0.01 per share compared to $1.2 million in the third quarter last year and $1.7 million in the prior quarter. Our non-GAAP net profit was $46 million with non-GAAP gross profit of $57 million as compared to $46 million and $51 million respectively in the prior quarter.
EBITDA for the third quarter was $63 million, including $14 million gross gain from HHSL sale, or $39 million excluding it. During the quarter, we sold our 10% holdings in HHSL in China, which owns 100% of HHNEC, a Shanghai-based company, in a HHSL buyback transaction for $72 million gross in cash. This investment was valued on our balance sheet in the amount of $17 million. Hence, we recorded a gross gain of $15 million as a direct result of this sale which is approximately $9 million net.
Our third quarter 2011 is the first quarter which includes a full quarter of results from TowerJazz Japan, a facility we acquired from Micron at the beginning of June. During the quarter, we completed the valuation of the acquired assets of TowerJazz Japan and by a third-party appraisal company according to which the value of the assets acquired exceeded the purchase price by $19 million. No P&L effect was recorded in the P&L for the third quarter of 2011.
It is important to note that the new fab that we acquired in Japan exhibits a different cost structure to the average across TowerJazz with lower margins. We generally lowered our gross and operating margins in the quarter while contributing incremental margin dollars.
In October 2011, we completed a voluntary transaction to redeem the entire remaining outstanding 8% notes of our US subsidiary Jazz Technologies in the principal amount of $35 million originally due December 2011. This note amounted to approximately $130 million as of the date we acquired Jazz Technologies in 2008 and were convertible into our ordinary shares. However, eventually, none was converted into shares. $94 million remain outstanding in non-convertible notes issued in 2010 for payment in 2015.
Now I will review in detail the balance sheet items as compared to our previously announced balance sheet stated June 30, 2011. Cash. During the quarter ended September 30, 2011, our cash balance increased from $139 million to $178 million, mainly due to the generation of positive cash flow compilations of $42 million, gross cash from HHSL equity sale of $32 million, and Israeli investment center government grants of $4.4 million, all offset by CapEx of $34 million.
Short-term investments. A reduction from $17.1 million as of June to $0 today is a result of the successful sale of HHSL shares that we held.
Other receivables. The reduction from $39 million to $32 million is mainly related to the receipt of $4.4 million of government grants in connection with [PEP2] that were outstanding as of June 30, 2011.
Total assets. We had total assets of $989 million versus $972 million as of June 30, 2011. On the liability side, short-term debt is comprised of $21 million in bank debt, and the remainder of bonds during the coming 12 months, of which $35 million was already paid down to the Jazz bondholders, as I mentioned earlier.
Long-term debt of $331 million is comprised of $100 million of long-term bad debt and the remainder is bonds long-term debt. Other current liabilities bonds of $68 million includes approximately $41 million in employee-related allowances and provisions, as well as interest and other payables.
This is tax liability. Since we have a $1 billion NOL, net operating losses, carry-forward with no expiration date [to] our Israeli operations, the entire deferred tax liability balance of $26 million is a result of our US and Japan affiliates and is partially offset by deferred tax assets presented under the line named Other Current Assets, which balance is $18 million in the balance sheet, which $18 million balance includes $11 million of deferred tax assets associated with our US and Japan affiliates.
Shareholders equity increased to $190 million as compared to $180 million as of June, and as compared to $118 million as of December 2010.
Lastly, our current assets increased from $367 million to $385 million, with current liabilities reduction of $10 million, both contributing to our improved current ratio from 1.16 as of June 30, 2011 to 1.25 as of September 30, 2011.
I would like to transfer now the call back to Noit Levi.
Noit Levi - IR & Public Communications Director
Thank you. Before we open up the call to the Q&A session, I would like now to read the general and legal statement to our results in regards to statements made and could be made during this call. Please note that the third-quarter 2011 financial results have been prepared in accordance with US GAAP and the financial (inaudible) 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 conference, namely (inaudible) also represents (inaudible) financial data which is reconciled as indicated by the footnotes below the table on a non-GAAP basis after deducting, one, depreciation and amortization; two, compensation expenses in respect to option grants; and three, finance expenses met other than (technical difficulty) non-GAAP financial expenses, and that's included on the interest (technical difficulty). Non-GAAP financial measures should be evaluated in conjunction with and are not substitutes 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.
I would now like to turn the call over to our operator. Operator?
Operator
(Operator Instructions). Jay Srivatsa, Chardan Capital Markets.
Jay Srivatsa - Analyst
Thanks for taking my questions. Russell, most of your peers in the industry appear to be talking about a weak Q4 and most of them have guided for sequentially lower revenues for Q4, yet looking at your guidance, I think you're looking for a flat quarter. Maybe you can help us understand where are you seeing this trend?
Russell Ellwanger - CEO
So I think I mentioned in Q3, we had surpassed what our plan was for the Nishiwaki facility, so fundamentally from Micron. To stay flat in Q4 [at our plant] shows that a lot of our aside-from-Micron business is growing, and indeed it is.
We've seen very nice upsides within the cell phone area, and we've seen very nice upsides within some of the Power Management area.
Now, from the upsides within the Power Management, it deals at this point not necessarily with an industry rebound, but it deals with the fact of market share gain. I think one of the things that -- I don't think, I know one of the reasons we're very bullish on our own forecasting and being prepared for a ramp at the end of Q2 deals quite substantially with market share gains.
Now, fundamentally, if an overall market is down, everyone will go down, but if you're gaining access into markets that you previously didn't serve, it really doesn't matter if it's down or not; you're going to have an upside. That's the predominant portion of where our revenue is growing in Q4. It's market share gained against areas that we weren't previously competing in, although there has been some rebound with the cell phone. Does that answer your question?
Jay Srivatsa - Analyst
Yes. So on the same vein, looking ahead to next year, [it seems] some of the others appear to be looking at maybe 3% to 5% growth in the semiconductor market, but looking at the drivers, you're looking at almost a 30% sequential growth or upswing. Are there newer areas that you expect to contribute to your revenue growth next year? If so, could you try to highlight that a little bit?
Russell Ellwanger - CEO
Certainly. Again, I didn't guide anything for 2012. I said that we target achieving an $800 million run rate by quarter in the second half of the year. That's not really guidance. I just wanted to clarify that. But it certainly is our target, and I think we've been very good about hitting our targets in the past, if not exceeding them.
Where we have a lot of activities that are happening, as I mentioned previously, deals within Power Management. So we see a huge growth within Power Management, and one thing that I mentioned about the RF High-Precision Analog group was an entry into the switch market which we hadn't previously competed in. Up until date, most all switches for front-end modules were based on gallium arsenide PM technology. There is a movement within the front-end module now for that switch to move to SOI. Initially, it was maybe driven by costs. Now it appears to be cost and performance. We're getting strongly into that market with major customers.
So those are the two areas that I see our growth coming out of in the second half of the year, which is really increased share of market. In the case of the switch area, it's a market that we didn't compete in before because we didn't have the technology for it, meaning we're not a gas foundry. In the case of Power Management, as we continue to grow our offerings within that, we see a very good customer traction there. Does that answer your question?
Jay Srivatsa - Analyst
Yes. Oren, I know, during the quarter, you bought some notes that were due at the end of the year. Having done that, how much is left as you look to the end of the year to be paid out?
Oren Shirazi - CFO, SVP Finance
$55 million.
Jay Srivatsa - Analyst
Okay. So I guess, Russell, with your increased cash balance even with taking away the $55 million, you're I suspect looking at roughly about $120 million in cash. Can you highlight what your plans are with that cash position?
Russell Ellwanger - CEO
Very candidly, I think that cash position of the Company is strong. We still have other debt that needs to be paid in 2012, so it's not that -- it's so huge of an amount of money that we can go out and be frivolous with spend.
We do continue, as mentioned, to increase in CapEx, not even solely for expansion of capacity but for the enablement of new platforms, meaning new process platforms. I had mentioned that one of the MEMS capabilities we have deals with Deep Oxide Etch with deep trenches and through silicon [vias] for other applications. So we have certain CapEx needs that are independent of capacity growth, but very dependent upon enabling very high margin markets within the capacity that we have. So there is a continual CapEx outlay from the Company to increase our capability.
Most of the CapEx for expansion that we have will have been spent by the end of this year, so the $1.7 million wafer per year capability, most all of that has already been spent and the last tools of it are being brought off and qualified. So -- but we'll still be spending and are spending to increase platform capability for certain specialized tools. There's always a need for that in our CapEx. I haven't yet completed with Oren and team the specific annual plan and CapEx spending for 2012, but there will be some reasonable amount of money that will be spent for capability -- incremental capability improvements.
Jay Srivatsa - Analyst
Oren, as you look at Q4, what do you expect the gross margin profile to be, and what do you expect the share count to be as you exit Q4?
Oren Shirazi - CFO, SVP Finance
Gross margin should be pretty much the same. It could be a little bit of improvement. As Russell mentioned, that the know Japan (inaudible) business is going up slightly and the other one is going down slightly, so a little bit better on the margins.
About the share count, there is no expectation to any dilution or to any additional shares because all the convertible bonds, which someone was thinking maybe will be converted to equity out of the money so will not be converted to equity, and this is the reason that we will need to pay down the $55 million which will not be converted. So share count will be the same.
Jay Srivatsa - Analyst
Thank you very much.
Operator
Vernon Essi, Needham & Co.
Vernon Essi - Analyst
Thank you very much. Oren, I was wondering if you could just elaborate a little bit more on the gross margin side, just I guess more qualitatively as opposed to quantitatively. The push and pulls between mix, obviously Micron sounds like your overall revenue is outpacing Micron's revenue, and that mix should be helping you versus, say, your capacity utilization. Can you just kind of go over the different levers involved and sort of how that might play out over the next six to nine months? Thanks.
Oren Shirazi - CFO, SVP Finance
You refer to the gross margin of the Japan factory or generally speaking?
Vernon Essi - Analyst
Overall gross margin.
Oren Shirazi - CFO, SVP Finance
Overall gross margins, basically if you assume a flat revenue like we assume for the next quarter which is what the previous analyst just asked, so we'll be a little bit better because of two reasons. One is the improvement of their [needs], which is, as Russell mentioned, a little bit lower in Japan and higher in the other business of Tower. The second reason is that the Japan volume take or pay contract we have with Micron is built on the fact that the revenues stay pretty much the same, although the demand is going down, meaning the average selling price is going up. This means that the margins will be slightly better in the first half of next year than it is now, so the second half, if you take Russell's indication about the target revenues for the second half, so of course it will be even much, much better on the margins because we will also enjoy an increase in the total revenues.
Vernon Essi - Analyst
That's useful. I totally understand and that's what I was looking for, was color on the different moving pieces there.
Then if I could just switch gears, Russell, this is probably more on your end of things, you had some discussion in your prepared comments about the MEMS market. Obviously, there's a lot of interesting growth areas in that and I heard you mention a couple of times resonators. There's always been the debate on whether or not those are very profitable right now.
Do you feel that market is sort of turning a corner and you're seeing a lot more interest from your customers? If so, is it becoming more economically feasible to build resonators on silicon? Thank you.
Russell Ellwanger - CEO
Very candidly, every customer that we're dealing with in MEMS right now we see as a good profitable business. The price per layer across the board on every MEMS application is at the high end of all the margins that we have in the Company.
The question always comes into, when anything becomes very high volume, what will then the margins be upon high-volume introduction? That does become a very strong question.
If you look at front-end module tunable capacitors, it enables very, very differentiated performance but in the end of the day, how much will someone pay for that in a cell phone? If you look at Pico projectors if they're attached a cell phone, it's a very interesting application, but how much is an end-user willing to pay for a projector they're going to use out of their cell phone? So that's honestly a very, very valid question.
Now, I don't have a quick crystal ball to speak to it, but I can say that, in our projections, everything that we're doing with MEMS deals with high-end applications and it deals with differentiated functionality. The differentiated functionality will always demand margin until it becomes very, very huge volume and hence by definition becomes somewhat commoditized.
Vernon Essi - Analyst
Just lastly, can you give us an idea of how much of your business would you say is directly touching the MEMS market overall, just a rough percentage approximation?
Russell Ellwanger - CEO
How much of our present revenue?
Vernon Essi - Analyst
Yes.
Russell Ellwanger - CEO
Less than 1%.
Vernon Essi - Analyst
Okay, thank you.
Operator
[Justin Liu], [Zasso] Associates.
Justin Liu - Analyst
Thanks for taking my question. My question is regarding the Jazz subsidiary. I was wondering what happened with their numbers this quarter. Obviously, they were down quite a bit, as well as what you expect for them in the fourth quarter.
Russell Ellwanger - CEO
So the Jazz numbers become a matter of public record. It was $35 million revenue. We don't give guidance per factory. I would expect it to be somewhat flat to what the third quarter was.
What has happened to their revenue? Again, that was one of the sites that was hit due to the economy. It's not a question of losing customers; it's a question of the specific area that was being supported predominately from that factory. That market was hit very hard on some of the end customers. All of the customers that were being supported out of that market were hit extremely hard.
So in the Q3/Q4, that was an area of lower utilization where I mentioned the action that we took on the ten unpaid vacation days. Back in 2009, the Newport Beach facility was pounding out wafers when the Migdal Haemek facility was having a very difficult time. We took an action that hit them at that time, although it wasn't impacted, although their revenues coming out of Newport Beach was not impacting the corporate at the time in a negative way.
So at this time, we very much believe in the capabilities that's being performed there, the high-precision analog. The complementary by CMOS coming out of Newport Beach is unrivaled anywhere, the optical transceiver products that's coming on right now with SOI switch, amazing products where we talk about being operationally focused to be able to have a big ramp come Q3 of next year. Had an all employee meeting in Newport Beach I think two weeks ago Friday, maybe plus or minus, and my strongest direction was the fact that, in that factory specifically, the developments that are being done right now have to come up very, very seamlessly into high-volume manufacturing. So the recovery of the utilization in Newport Beach is something that I'm very, very convinced of, as the products are fantastic.
The slowdown in Newport Beach had nothing to do with what was coming out of the products. It had to do with that that segment was hit very, very hard. As I mentioned, at the risk of being redundant, a very, very big cell phone and brand name had major difficulties, major layoffs, and many of the customers that were being served out of Newport Beach sold into that customer.
I think, at this point, our customers' customers are more diversified and the products that we're making for those customers are more diversified, as well as we're getting into markets that we did not have before, which is the switch.
I think that's a very detailed answer. Did it answer your question?
Justin Liu - Analyst
Yes, no, that's fine. Just let me follow-up. What was utilization for the quarter? Also, what magnitude of cost savings do you expect from some of the actions you're taking for next quarter as well as CapEx going forward? This is at the Jazz subsidiary.
Russell Ellwanger - CEO
I don't have it broken down in my head at the Jazz subsidiary as far as the cost saving. The average utilization in the Company was just shy of 70% for Q3; that's average in the Company. Again, I've not to date broken down utilization by site and don't intend to do so. But the average in the Company was about 70%, or just shy of 70%.
As far as the ten vacation day in Q3 and Q4, I think that's a direct $5 million saving. I think that's specific (inaudible) to Newport Beach, the $5 million I imagine would probably be somewhere around $1.8 million or $2 million, in that range.
There's many other cost saving actions that are going on, but a lot of that becomes really corporate based in working with suppliers to drive higher market share that they would gain a higher market share, but unit costs go down off of a higher market share, and we have a very effective activity within that.
As far as CapEx, as I had mentioned before, I've not yet approved the 2012 CapEx budget, so I really don't honestly have a number to give you for the CapEx that will be being spent in Newport Beach. As we speak, there's a worldwide operations meeting going on to where Ephie Koltin is working with his staff and some of the extended staff to prepare the operational (inaudible) for 2012 off of the present forecast of mix of products. Then we'll have a roll up with that. But I candidly do not have a specific number for CapEx for Newport Beach for 2012.
Justin Liu - Analyst
How about for the fourth quarter of 2011?
Oren Shirazi - CFO, SVP Finance
Usually, the CapEx in Newport Beach are about a $4 million a quarter, a platform in a specific quarter like Q2, which we just (inaudible) capabilities.
By the way, I wanted to close Russell statement on Jazz. You can see that we filed a full detailed 10-Q of Jazz yesterday, or today, I think it was yesterday. So we tell you all the numbers and I think even with that pretty low levels of revenues compared to the past couple of years, you'll still see a net cash flow positive -- net cash flow positive you'll see in our cash from operations positive at about I think $5 million or $6 million a quarter, which is a very good signal that even at that level we are generating positive cash flow operations and positive net cash flow.
Russell Ellwanger - CEO
Just a final comment about Jazz CapEx. Although I don't refer to it as Jazz anymore, I refer to it as Newport Beach, but the Newport Beach monthly wafer capacity at the time of acquisition was 16,000 wafer a month. At the end of this year, it will be 25,000 wafer a month. We are fully committed and believing that capacity will be used.
Operator
Ken Nagy, Zacks Investment Research.
Ken Nagy - Analyst
Thanks for taking my call. I was just curious if you could provide an update on the efforts to expand the Company's presence in the Asia-Pacific region.
Russell Ellwanger - CEO
Could you be a little bit more specific? I can give a very global answer on that, but I'm not sure exactly what you're asking.
Ken Nagy - Analyst
Was part of the Micron facility purchase [an idea] to expand your presence in the Asia-Pacific region? I'm just wondering how that's going.
Russell Ellwanger - CEO
I mentioned that during my -- during the call itself. But I think it's going extremely well. As stated, we have already reached agreement with the top 10 integrated device maker in Japan to transfer flow and product to Nishiwaki. We have a second large Japanese integrated device maker that probably enabled the presence in Japan is transferring a flow and product family to Migdal Haemek, to the Israel facility, where the toolset is more compatible with their specific need for this product family. But it's truly their flow. Where we're in discussion that a different total family of product using our platforms will then move into the Nishiwaki facility at the end of 2012.
Additionally, we have had many, many meetings with different IDMs. A regional sales vice president has gone half-time into Japan to work with the business development group there. He will most likely relocate full-time there. And of many [pins] of contacts, we have right now seven additional customers, really blue-chip customers, who are in various stages of coming to business agreement of them either transferring flows or designing products on the flows that we're bringing there, the first one being the Power Management flow. So that -- as far as our presence in Japan, I think that in and of itself is -- it's going very, very good for Japan itself.
As far as the impact on Korea, it's very strong. The reason that we are transferring the .18 Power Management based platform is out of belief that we'll need a very, very high capacity for it to serve Korean customers, and also the strong desire of our Korean customers to have a factory that's really within their own region.
So I think -- I don't think -- it's going very well. The increase of our presence there is strong. They're a part of our very big design forum. I think the conference is next week -- this week. So we have quite a bit going on there.
Ken Nagy - Analyst
Thank you.
Operator
Sabina Podval and (inaudible), Leader Capital Markets.
Sabina Podval - Analyst
I have actually two small questions. The first one, I just wanted to clarify the current net debt to EBITDA ratio. I just wanted to hear from you what you expect the ratio should be for a company like Tower in the long-term.
The second question is regarding the CapEx. What CapEx do you expect in the steady state for the Company? Thank you.
Oren Shirazi - CFO, SVP Finance
Net debt from the balance sheet, you can take the $330,000 plus the $121,000, which is the short-term and the long-term debt -- this is $451,000 -- reduce the cash of $178,000 and divide it by whatever EBITDA that someone believes. If you want to take 2010 the actual EBITDA over the last trailing four quarters, I think it will be around $160 million a year. So total net debt to EBITDA is about 2 now in the Company. We believe it's a very good number. We are in the past at ratios of 4 and above. In the last two years, we are at between 2 to 2.5, so we think we are in a very good position. We don't think it will change dramatically.
The second question was about CapEx.
Sabina Podval - Analyst
Yes. (multiple speakers) the CapEx?
Oren Shirazi - CFO, SVP Finance
Yes, so CapEx actually in Q3 was $34 million. If you look [over in the past] it should be around this number, the past [four] quarters that we have specific ramp or growth, and currently we didn't initiate any (inaudible). So this amount is pretty much (inaudible).
Sabina Podval - Analyst
Thank you very much.
Operator
Paul McWilliams, Next Inning Technology Research.
Paul McWilliams - Analyst
Hi guys. Thank you for taking my call. Let's see. To continue on that last statement, the CapEx is $34 million, do you think that's a good normalized figure per quarter going forward?
Oren Shirazi - CFO, SVP Finance
Yes. That was the previous question. I think it should be between $25 million to $30 million.
Paul McWilliams - Analyst
Oh, okay, so normalized, we would say $25 million, $30 million per quarter?
Oren Shirazi - CFO, SVP Finance
Yes.
Paul McWilliams - Analyst
Very good. I do appreciate all of the clarity you guys provided in your press release. That really helps me a lot.
Going over to the conversion to logic (technical difficulty) foundry, and you said that that's going to take your wafer capability up there. Do you think the increase is going to be --?
Russell Ellwanger - CEO
I missed the first part.
Paul McWilliams - Analyst
In moving to a logic flow in Japan, you had said that will increase your wafer capacity there. Would you say that's about an increase of, what, 16,000, 17,000 wafers per month?
Russell Ellwanger - CEO
I think it could be on that range, maybe even a little higher. Basically just for a DRAM flow, there is more value-add process steps by probably 25% to 30% than there is on the logic flows that we do. Our flows use more back-end layers, more metal layers. The DRAM flows uses more front-end layers, and obviously if it's more layers, period, it would require less lithography. So I think we should be able to reduce the amount of layers keeping the litho somewhat constant, maybe add one or two different capability with our tools, add some back-end capability, maybe sell some front-end capability in the used market. If you just take the ratio of the logic flow to the DRAM flow against the 60,000 per month, I think that to look at 75,000 to 80,000 is probably realistic and reasonable. So your 16,000 I think that's very reasonable, and I would target that we could probably get a little bit more. As mentioned in the call, that's really what we're looking at. I think -- what did I state -- that we'll be at 1.7 million wafer per year at the end of the year and with a target of bringing that up to 1.9 million as we convert the DRAM flows into the logic flows, which isn't immediate. The DRAM flow is needed over the next period of time to meet the Micron needs. But if you look at 200,000, then you're dealing with somewhere about 17,000, 18,000 a month.
Paul McWilliams - Analyst
Very good. Now, out of the fully diluted share count, how much of that increase from outstanding to fully diluted is attributable to the capital notes?
Oren Shirazi - CFO, SVP Finance
Almost everything (inaudible) a few employee options and the (inaudible) option.
Paul McWilliams - Analyst
So 95% of it may be attributable to capital notes?
Oren Shirazi - CFO, SVP Finance
Everything apart from $30 million.
Paul McWilliams - Analyst
Okay. Do you have any ideas that you can talk about at all at this juncture as to how you intend to manage those capital notes?
Russell Ellwanger - CEO
It's a very difficult question. To start with, it's difficult to manage something that you don't own, and we don't own them. We have a major shareholder that has them and two banks that have them. I believe that you personally have put out -- well, I know that you've put out in your newsletter various scenarios that while may be sensible as to how the notes can be handled over time, but I really am not the owner of the notes. The Company doesn't own the notes. To speak to it on -- in any type of a forum I think would be out of place.
Paul McWilliams - Analyst
I understand. Do you think it's reasonable to target a resolution in the next year or maybe two years?
Russell Ellwanger - CEO
I think it's reasonable.
Paul McWilliams - Analyst
Very good. Getting down here to the Q3 revenue and maybe even Q2 a little bit, what I'd like to pinpoint here a little bit better than what I can with the data -- and I appreciate the extra clarity that you provided -- but would be, in the retail world, what they would call same-store sales. Is there a way that you can help me quantify here the same-store sales in Q2 and Q3?
Russell Ellwanger - CEO
Not unless I understood what same-store sales were.
Paul McWilliams - Analyst
In the retail world, let's say that Walmart talks about their same-store sales. That would discount all new stores that were opened during a particular quarter. We would say that the Japanese facility was opened during Q2, and was opened all of during Q3. So what I'm trying to quantify here, what would be same-store sales in Q2, discounting Japan, and then again in Q3, discounting Japan?
Russell Ellwanger - CEO
Paul, again, as far as Newport Beach, we make a separate filing there, solely for the reason that is a legal requirement. I've never broken down revenue per fab. I don't intend to break down revenue per fab.
If we look at anything that's coming out of Nishiwaki, one could look at that in one of two ways. The way that I think is valid to look at it is that we gained a new customer, being Micron, and Micron added revenue to the Company. That's pure organic growth. The fact that, in addition to gaining a new customer under a very good business term, a long-term take or pay agreement on a guaranteed flow, which is really no different than what's been press released that we do with [Vishay] other than in [Vishay] we transfer the flow into our factory. In the case of Micron, we transfer flow into a factory that we bought and the flow was already there. But it is an accretion of a new customer into the Company that grew our revenue.
What I did state clearly is that, for Q3 versus Q4, we see an increase in the non-Micron business. But I -- if I was to give you the numbers I think you're looking for, you would know exactly what the number is that we do with Micron, which I'm really not at liberty to give, even if I wish to. I don't have permission to disclose exact numbers for Micron.
Paul McWilliams - Analyst
Yes, I could back into that number. In Q3, I believe your statement was that Micron accounted for most of, if not all of, the growth.
Russell Ellwanger - CEO
I said it accounted for all of the growth.
Paul McWilliams - Analyst
I can deal with that. And I understand the difficulty that you face. On image sensors, will you be moving those or are you running those on an 8-inch line?
Russell Ellwanger - CEO
We run them on an 8-inch line, yes, and we also run them on a 6-inch line.
Paul McWilliams - Analyst
Okay, let me --
Russell Ellwanger - CEO
We run them in Newport Beach; we run them in Migdal Haemek.
Paul McWilliams - Analyst
You noted that because of the price of the stock and the notes won't convert in Q4, that you'll have $55 million of debt service yet this year above what you've already tackled. I believe I'm correct there. What is your scheduled debt service in 2012 and 2013?
Oren Shirazi - CFO, SVP Finance
It's Oren. 2012 we have $36 million of bonds to pay if the stock is not above $1.15. If the stock is below $1.15, so if the stock is below $1.15, we have to pay the $36 million. If the stock is above $1.15, we have to pay only $6 million. In 2013, we have no bond payment, to have only bank payment for the Israeli banks of $20 million for the entire year, so a very small amount.
Paul McWilliams - Analyst
Very good, very good. Execution is beautiful. Congratulations on the way you're executing your strategy. I think you're doing a very good job. Thank you gentlemen.
Russell Ellwanger - CEO
Thank you Paul, and thank you for your newsletter. I think it's very insightful.
Operator
Eric Reubel, MTR Securities.
Eric Reubel - Analyst
Thanks for taking my questions. Just to confirm one more time, I apologize here, if nothing else were to change for the cash, ending cash in Q3, you would see the $35 million outflow for the Jazz maturity and then another $55 million into the end of the year.
Russell Ellwanger - CEO
Yes.
Eric Reubel - Analyst
Oren, thank you for providing the Q for Jazz Technologies. I know you guys are very focused on integrating and building upon the new factory in Japan. I do have some questions on Jazz Technologies. I just wanted to just sort of get a sense of how you're feeling about the liquidity at the subsidiary. It looks like you did very well on working capital in Q3. Do you think that you can continue to generate cash from working capital in Q4?
With respect to total liquidity, is there -- are there any opportunities or can you pursue any ventures with your Israeli banks that would allow you to, if necessary, downstream cash to the Jazz subsidiary if that were necessary to sort of backstop liquidity at the subsidiary?
Oren Shirazi - CFO, SVP Finance
I don't think it's required. If you will look -- so like you mentioned, like I mentioned before, in Q3, although it was very -- maybe the lowest point in revenues that we've seen in a long time, it was $6 million positive cash from operations, and we ended Q3 with $52 million, which after, even after the payment of the $35 million, we have $70 million pro forma cash. If you're reading the 10-Q that we filed yesterday, you'll see that we have still additional availability of $7 million, meaning we can go down from the (inaudible) additional $7 million. This amount even maybe can grow as we continue into time because this is subject to -- this can be even up to $45 million theoretically. But even if you just take the $17 million add to that the $7 million, it's already $24 million. We don't see any forecasts for the future that Jazz can need -- not can need -- can consume this $24 million because, as Russell mentioned, for Q4, we see from the non Micron business an increase, meaning that you can understand from that [Jazz] is not supposed to continue to go down. So I don't see any reason for [a problem].
Eric Reubel - Analyst
That's great. Russell, if I could ask you, you talked a lot about the PA switch module. That's business that I understand would go to -- would be supported out of the Jazz factory. Is that correct?
Russell Ellwanger - CEO
Yes.
Eric Reubel - Analyst
You talked -- you mentioned that in your meetings within the past two weeks or so that you're looking for ramp, a seamless ramp, for this process to Q3. Do I take it that you have handset design wins that should ramp in sort of the Christmas timeframe for next year? Assuming that this business can fully ramp, if you were to place it in terms of revenue run rates that you've reached in prior peaks, where do you think that you could get to in Jazz, sort of a revenue run rate into the next peak when that happens? Let's say we're -- hopefully we're in some type of recovery by Q3 2012, and if you could think what your peak revenues could be at Jazz.
Russell Ellwanger - CEO
I'm not going to state, nor am I really in a position to say what the specific Newport Beach revenue would be in the third or the fourth quarter of next year. I do believe that we can get to a very nice $60 million a quarter run rate in Newport Beach. We've been in the $60 million a quarter run rate, and I don't see any reason that we couldn't get back there.
As far as the specific front-end module activities, the first really big one to ramp is the switch. Do we have many design wins there? What I'm talking to is not at this point a specific design win. What I'm talking about is customers that are very excited to get the process qualified and get the design wins, and in so doing will ramp very quickly and get the parts qualified.
Eric Reubel - Analyst
Okay. Fair enough. Good luck with that, and thanks for taking my questions.
Operator
There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?
Russell Ellwanger - CEO
Sure. I'd like openly to really thank the entire TowerJazz employee base, including the Japanese employees, for continued hard work and efforts to make us a company that, in spite of conditions, has the ability to grow. We've shown I think very nice growth in that.
As mentioned, our big target is to make sure that we create environment in the Company that everyone would look at us and say this is the most impassioned company in the world. We have extremely capable people, and I think the reason for our growth to date has honestly been because of the management philosophy giving young engineers very strong growth paths if they show themselves to be stars and to get as many extremely capable engineers in front of customers as possible because it excites the customers. We're very focused to continue that, to continue to advance the careers of young people that haven't yet learned to say "No" and that we've done this before. So that's our focus.
It was so exciting to be at the Symposium in Newport Beach and really to see the absolute belief of customers, absolute is maybe overstated, but the strong belief of customers in our Company as being the long-term partner.
I thank you for your continued interest in our business. I wish you a wonderful next few weeks, an incredible Thanksgiving for those of you that are in the US.
At this point, I would like to just end by inviting you all to attend the Needham conference in New York. It's the next large conference that we'll be presenting at. We'll be presenting on January 10, I think at 9 A.M. in the morning. Any of you that would like to attend, I would love to meet you there. Those of you who would like to try to schedule one-on-ones, that's part of the conference agenda. We'd be very happy to accommodate and I'd love to meet with you.
So again, thank you for your interest. I believe we have an exciting company and look forward to a continued update with you as time continues.
Operator
Thank you. This concludes the TowerJazz third-quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.