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Operator
Ladies and gentlemen, thank you for standing by.
Welcome to the TowerJazz fourth-quarter and year-end 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 February 16th, 2012.
Joining us today are Mr.
Russell Ellwanger, TowerJazz's CEO, and Mr.
Oren Shirazi, CFO.
I would now like to turn the conference over to Ms.
Noit Levi, Director of Investor Relations and Public Communications.
Ms.
Levi, please go ahead.
Noit Levi - IR & Public Communications Director
Thank you and welcome to TowerJazz financial results conference call for the fourth-quarter and fiscal-year 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 fourth-quarter and fiscal-year 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 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, Noit.
I welcome you all to our results conference call summarizing our full year for 2011 as well as the fourth quarter of 2011.
From both the strategic and business standpoint, 2011 was a very strong year in performance and a catalyst for the future.
Fueled by long-term business relationship with the new customer Micron Technologies, we're able to achieve 20% year-over-year growth, multiples above our peer group.
In addition we doubled our wafer capacity as compared to 2010 in a most cost effective manner.
In 2010 we achieved our target of surpassing $0.5 billion in revenue.
2011 was another record year for us with revenues reaching $611 million, again up 20% substantially higher growth than our entire peer group and with the continuance of a yearly achievement of over $100 million cash from operations.
We further cemented our position as the number one specialty foundry and expanded our revenue lead above the number two specialty foundry by about $100 million.
We did this against a backdrop of a tough economic and industry environment.
Any company, especially in an environment like this, can only sustain growth by developing close relationships with its customers and supplying products that not only meet their immediate market needs but also by engaging in programs that ensure several generation performance and market readiness.
This has continued to be our goal at TowerJazz and we have seen its realization as proven by our growing market lead.
Our design win momentum remained solid in 2011 including strategic tier I customers and high growth, high margin analog segments.
In 2011, we effectively doubled the TowerJazz total manufacturing capacity from 850,000 wafers per year at the end of 2010 to a new capacity level of 1.7 million wafers per year.
This was achieved in part by CapEx expansions in the both the Newport Beach and Migdal HaEmek 200 millimeter fabs and to a greater degree by cost effectively acquiring the fully functional 200 millimeter 70,000 wafer per month factory in Nishiwaki, Japan.
This new and substantially increased capacity and technical capability is enabling us to convert a continued strong design win momentum into products and bring our customers to volume production at a faster rate than was possible only a half year ago.
This new capacity also sends a clear message to all our current as well as our potential customers that we're well positioned to meet any and all of their growing needs for the foreseeable future.
We are very pleased with our acquisition of the Nishiwaki fab in Japan with a technical staff that has a strong base of advanced technological expertise having had many (inaudible) assignments within Texas Instruments and Micron Technologies during the respective years of TI or Micron ownership.
This expertise will facilitate successful process transfers and further sourcing opportunities in Japan and around the globe.
The first grouping of internal platform transfers and Asian customer programs have proceeded flawlessly exceeding our original expectation.
The Nishiwaki factory has met or exceeded all our forecasts and metrics for the first six months of the acquisition and we can already see the same happening in 2012 and beyond.
In addition, our strategy to qualify each of our major flows at two sites has been very well received by our customers.
We are pleased to announce in addition that we were awarded a grant by the Japanese government of up to 33% for the CapEx needed to convert this large existing DRAM capacity to our analog flows.
On our first visit to the Nishiwaki factory we were more than impressed with the pristine condition of the factory in its grounds.
It is well beyond the beauteous setting.
The ownership of all employees to maintain perfection in appearance and performance was most evident and motivating.
This inspired us to adopt our 2012 mantra, the pursuit of excellence.
We've now worked through all our sites and support groups and asked each manager to define excellence in their group in four to six bullets and accordingly to propose initiatives that will better drive excellence.
It was a very interesting exercise.
Excellence distilled down to three factors; personal capability, adequate work tools and individual passion.
Great capability and good tools yield only mediocre performance when individual passion is missing.
We're now engaged in all ways to promote an environment that impassions our worldwide employee base and it's very clear that which excites our customers also impassions our employees, namely first time success.
Nishiwaki has provided us with substantial potential for synergistic gains between our new subsidiaries and the rest of our business.
As mentioned, now with operational facilities that span the globe, our strategy to qualify each of the major flows in two sites has been very well received by our customers.
We are always looking for ways to better ourselves and improve our processes.
To this end, we recently combined sales and business units into a single management staff under the leadership of Dr.
Itzhak Edrei who is promoted to president, the intent being a weekly alignment of regional sales VPs and business unit VPs.
This allows us to tailor the long-term product growth maps and short-term deliverables to our customers' needs both expressed and anticipated.
Being aligned with our top tiered customers in several up and coming market game changers should see the introduction of several critical platforms that will be the core of incremental growth this year.
Throughout 2011, we have seen a significant increase in our capabilities across all of our business units leading to new customer wins and increased design wins and revenue.
In the RF High-Precision Analog business group, we successfully combined our 0.13 micron silicon-germanium frontend from our Newport Beach, California facility with the copper backend capabilities from Migdal HaEmek, Israel facility, resulting a process with improved RF performance and integration density.
In the area of high speed silicon-germanium, 2011 saw significant volume growth on our 200 gigahertz silicon-germanium technology driven by optical networks, millimeter wave and consumer markets.
In power management, we combined the excellent devices developed in Migdal HaEmek with the state-of-the-art models of Newport Beach.
The outcome is a very strong modular and scalable 0.18 micron power platform.
Notably in Q3, 2011, we announced an MOU with Samsung electro-mechanics to develop a mass produce of variety of product families based on our 700-volt power process.
In the TOPS, standing for transfer optimization and process services business unit, we experienced a great deal of activity in 2011.
We qualified one of our biggest customers in both fab I and fab II with new platforms and new products.
We won a new tier I customer and we have continued with next generation and new platform most all of our current top customers.
We are pursuing process transfer activities not only in the regions of our manufacturing facilities, but also in BRIC countries.
In CMOS Image Sensors, our focus remains the high-end professional Image Sensor market segments, medical X-ray, professional video and still photography as well as high-speed industrial cameras, machine vision sensors and barcode readers.
We continue to hold the leadership position in the X-ray sensor market.
During the 2011, we enriched our offering the combination of high quality and high yield.
We now enable our customers to offer sensors which outperform any competition all keeping cost effectiveness and competitiveness.
We've continued to expand our mixed signal CMOS offering by introducing a large variety of new analog and digital devices as well as IPs on the various core 0.18, 0.16 and 0.13 micron platforms.
We also added new RF analog devices to our offering.
This past year we also worked together with key customers to introduce our Y-Flash as a standard offering in our 0.18 micron and 0.16 micron platforms.
Y-Flash enables our customers to provide both better performance as well as a lower overall cost of ownership for the final product.
Overall we continue to expand our process offerings to provide our customers with the wider source of specialty foundry solutions.
Along with these advanced technologies, a world class design enablement offering and other multi-sourcing capabilities we remain well positioned to offer the best solutions available to continuously meet and exceed our customer's expectations.
Today we announced the signing of a binding MOU with a leading Indian infrastructure conglomerate to build and operate a 300-millimeter facility in India.
This will enable the Company a roadmap to long-term 300 millimeter wafer size 90 nanometer analog technology and companionships in (inaudible) Micron Technologies 65 and 45 nanometer as well as the 90 nanometer digital node.
Note this business model does not require any CapEx investment from TowerJazz.
The Company presented to the Indian empowered government committee as a three-way consortium with a leading Indian infrastructure conglomerate, a world-wide leading technology provider and TowerJazz.
The Company believes that we are in the best position as number one, the consortia is extremely strong and two, TowerJazz has an impeccable reputation in India based on a previous successful government fab project win and execution which project brought over $100 million cash into the Company over the past several years.
However, the Company cannot predict the outcome of government selection and hence neither has nor can give assurance of a witness bid.
Moving to our guidance regarding Q1 revenue to be between $165 million to $175 million representing a mid-range of Q1 year-over-year growth of 41%.
They are operationally preparing for a strong second half and can continue to target $200 million quarterly revenue run rate by year's end.
In summary, our business remains very strong and continues to grow on momentum as every quarter passes.
We still have much growth potential to realize and we are well on track to reaching our goal of becoming a billion dollar revenue Company.
The cornerstone of our strategy remains the close relationship with our customers.
Our new local presence in Japan improves our capability that drive close relationships with our East Asian customers.
Our substantial industry out performance over the past years have by virtue of our customer choosing to give up an ever increasing share of their business rather than a competition as we meet and exceed their expectations.
I remain very excited and optimistic with regard to 2012 and 2013 and then beyond.
While our industry might be a tough place in the near term, we believe we will continue to substantially outperform.
And as industry resumes its growth trend, which from recent customer inputs looks very, very strong for the second half, we will continue to grow in excess of our peers.
With that, I would now like to handover the call to our CFO, Oren Shirazi.
Oren, please.
Oren Shirazi - CFO, SVP Finance
Thank you, Russell, and hello, everyone.
We were very happy to announce today that 2011 was a record year in revenues, EBITDA and in a number of other metrics.
In terms of revenues we reached $611 million, up 20% over our record year in 2010 which exceeded $0.5 billion for the first time.
We far outpaced the industry and we are pleased we have greatly exceeded our lead as the number one specialty foundry.
In terms of EBITDA, we achieved $187 million positive EBITDA reflecting a 31% EBITDA margins coupled with a non-GAAP net profit of $156 million reflecting 26% net profit margin.
Our balance sheet also improved in strength as evidenced by our year end shareholder's equity of $175 million, up 48% over last year.
In addition, we applied significant focus and took great strides in structuring and lowering of our debt levels which resulted in debt level of $350 million as of December 30, 2011, as compared to $482 million last year.
These reduced debt levels brings us to our ratio of 1.7x net debt to EBITDA as of December 31, 2011.
We ended the year with $101 million in cash and in the fourth quarter of 2011 we generated $30 million positive cash from operating activities with $40 million of positive EBITDA.
Over the last two quarters we received $33 million of long awaited grants from the Israeli governmental investment centers for the Company's Israeli fab II CapEx acquisitions.
The grant is not a loan, but rather a contribution from the Israeli government designated for companies like TowerJazz that are investing in CapEx and provide employments in the peripheral areas of Israel such as Migdal HaEmek, the location of our fab I and fab II facilities and offices.
As you know, during this year we acquired Micron Technologies fab in Nishiwaki City, Japan, significantly increasing our manufacturing capacity and geographical reach.
As a result of the transaction, Micron became a strategic shareholder holding approximately 6% of our ordinary shares with a lockup schedule built into the contract.
In addition Micron became a top customer of ours under our committed volume manufacturing agreement for three years which commenced in June 2011.
We paid in cash and shares a total of $63 million generating in June 2011 an immediate gain from the acquisition of $19 million over the acquired assets and liabilities according to get and based on assessed by the experts' opinion.
Going into a detailed review of our balance sheet, we also see improvement in all indicators and parameters as follows.
Cash balance as of the end of the fourth quarter was $101 million.
This is compared to the $198 million reported as of the end of December 2010.
During 2011, we generated $108 million positive cash from operating activities with $30 million of which in the fourth quarter.
This is a second yield in a row that our cash flow from operating activities exceeds $100 million per annum.
Further to the principal payments of approximately $140 million made during 2011 which I will soon detail, we invested approximately $80 million net of government grants in CapEx and fixed assets.
On the other hand, during 2011 we received 32 million cash from the sale of our 10% holding in HHNEC, a Shanghai based company completed in the third quarter of this year.
HHNEC was valued in our balance sheet in the amount of $17 million and we sold our holdings in $32 million in cash realizing a growth gain of $16 million.
In regard to our debt, we repaid and redeemed debt in the total principal amount of approximately $140 million in the last year including $13 million bank debt and approximately $110 million of bonds debt.
As a result, bond series A, B, and C that were issued by us in the previous decade for a total amount of $130 million have now been fully redeemed and do not exist anymore.
And in addition, the Jazz bond that carried a due date of December 2011 do not exist anymore with the early redemption and buyback we performed in 2011 in this regard totaling $44 million.
These reduced debt level place us with reasonable and conservative debt ratio of 2.3x debt to EBITDA and 1.7x net debt to EBITDA as of December 31, 2011.
In terms of the balance sheet metrics comparing the balance sheet item as of December 31, '11 to the end of 2010, we experienced increases in most of our balance sales as follows.
The inventories increased by $27 million mainly due to the inclusion of the Nishiwaki fab WIP, work in process, and materials commencing on the acquisition date.
The decrease of $18 million in long-term loan investment is mainly due to the sale of our 10% holding in HHSL, an investment which was presented on our balance sheet as of December '10 in the amount of $17 million.
The $124 million increase in property and equipment net as of December '11 is mainly due to the inclusion for the first time of their real estate building and equipment of the Nishiwaki fab.
The financial debt balances according to GAAP were reduced by 27% from $482 million at the start of the year to $350 million as of December 31, 2011, reflecting our strong focus on strengthening our balance sheet and capital structure.
Our current liabilities -- other current liabilities, sorry, increase of $26 million is mainly due to the Nishiwaki employee related short term liabilities and tax provisions.
And lastly, long-term employees related liabilities increase of $70 million is mainly due to the inclusion of the Japanese fab employees' liabilities.
As I mentioned, most notable is shareholders' equity, which for the end of the year shows an increase to $175 million, up by 48% in just one year from the $118 million we ended last year.
This completes my balance sheet analysis.
Moving to the P&L, revenues were at a record of $611 million for the year, an increase of 20% over revenues of the $509 million as reported for 2010.
Fourth-quarter 2011 revenues were $175 million compared with $135 million in revenues for the fourth quarter of 2010, a growth of 29% and compared with $176 million in the prior quarter.
EBITDA for the year was $187 million reflecting 31% EBITDA margin.
Comparing the fourth quarter of '11 with revenues of $175 million to the prior quarter, we achieved slightly better growth and operating profits on a GAAP basis while we experienced an increase in the net loss to $17 million or $0.5 per share.
Such increase is a result of the one time positive items we had in the prior quarter which totaled nearly $20 million, which are the gain from the sale of our 10% holding in HHSL and the effect of the changes in the Company's third quarter stock price over our GAAP non-cash financing expenses.
GAAP loss for the year of $19 million is a rough improvement versus the GAAP loss of $42 million in 2010 and versus $120 million in 2009.
Our EBITDA in the quarter was $40 million, which is $1 million better than the previous quarter EBITDA excluding the one-time $14 million gain from the sale of our holdings in HHNEC.
In terms of gross profit on a non-GAAP basis, we achieved gross profit of $58 million in the quarter as compared to a gross profit $57 million in the previous quarter and achieved non-GAAP operating profit of $40 million, slightly better than the previous quarter.
Gross operating and net profit result on a non-GAAP basis continue to be strong at $58 million, $40 and $34 million respectively.
For the full year our non-GAAP growth operating and net profit reached $219 million, $164 million and $166 million respectively reflecting very good gross operating and net margins of 36%, 25% and 26% respectively.
I would like now to transfer the call back to Noit Levi.
Noit.
Noit Levi - IR & Public Communications Director
Thank you, Oren.
Before we open up the call to Q&A session, I would like now to add the general and legal statement for our results in regards to statements made and will be made during this call.
Please note that the fourth-quarter and full-year 2011 financial results have been prepared in accordance with US GAAP and the financial tables in today's earnings release include financial information that may be considered non-GAAP financial measures under Regulation G and related reporting requirements as established by the Securities and Exchange Commission as they apply to our Company.
Namely this release also presented financial data which is reconciled as indicated by the footnotes below the table on a non-GAAP basis after deducting, one, depreciation and amortization; two, compensation expenses in respect to options grants; and three, finance expenses met other than interest accrued such that non-GAAP financial expenses net include only interest accrued during the reported period.
Non-GAAP financial measures should be evaluated in conjunction with and are not 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.
EBITDA as presented is defined in our quarterly financial review.
EBITDA is not a required GAAP financial measure and may not be comparable to a similarly titled measure employed by other companies.
EBITDA and the non-GAAP financial information presented herein should not be considered in reservation or a substitute for operating income net, income or loss, cash flow, provided 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 that are presented in previous filings.
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 question.
Congratulations on the strong guidance for Q1.
Russell Ellwanger - CEO
Thank you, Jay.
Jay Srivatsa - Analyst
Russell, there seems to be some discussion and comment made by other companies that they are starting to see the bottom in the semiconductor markets in Q1.
What's your take on it and what are you hearing from your customers?
Russell Ellwanger - CEO
So your question, it did broke up a little bit Jay, but I believe your question was from other companies, they are stating that they are seeing the bottom of the market and what is our take?
Jay Srivatsa - Analyst
That is correct.
Russell Ellwanger - CEO
Okay.
Very much in line with that statement, in the most recent round of customer visits, which I completed at the end of last week, I'd say that the majority of the customers reported that they would see already at the second part of Q2 an increase in their business and obviously seeing strengthening Q3.
For a while now we've heard from our customers that they would believe Q2 would be a turnaround, but when that's two, three quarters off, it doesn't necessarily mean very much.
At this point for the base of the products, the base of what we had going into 2011, that customer base, not talking of the increased market share that we gained, but really do believe that that is increasing and several customers very specifically said that they see their business increasing double digit on orders at the end of Q2, coming into Q3.
Jay Srivatsa - Analyst
All right.
Couple of days ago there was a press release from you about a subsidy from the Japanese government.
Could you elaborate on what it is and, I guess, how does it relate to the CapEx that you expect to spend over the next couple of years?
Russell Ellwanger - CEO
That's a very good question.
So, fundamentally the government opened up a subsidy for capital expenditure for enabling an economic recovery there, as particular within Hi-Tech.
The grant that one would receive is a rebate, so to speak, of up to 33% of capital expenditure.
As we've talked about before with the Nishiwaki facility, it's right now capable of producing about 60,000 wafer per month of DRAM.
We are moving from DRAM into our analogue flows.
Two things happened now.
First, with DRAM, it's about 13 value added steps per photo layer, outflows are about nine value added steps per photo layer.
So with some incremental equipments, we believe that we will be able to increase the capacity where the DRAM is very strong in frontend processing.
Outflows need a little bit more backend processing.
So we need to add some more backend tools, metallization tools, and our target it to increase the capacity of the factory above 70,000 wafer per month.
That being said, there's also equipment that is needed fundamentally to change from DRAM to our analog flows.
Within our models we think that's somewhere on the order of $40 million to $60 million in order to fulfill both functions and we'll get more close to those exact numbers as we complete transfers and bring on more Japanese integrated device makers or regional customers into the factory.
But at this point it would look like it's about a $60 million investment for 2012-2013.
Off of that investment, then again the grant would be 33% of that would come back into the Company or up to 33% would come back into the Company.
The specific amount has not been confined to us yet.
But the grant that we were awarded was up to 33% of direct CapEx expenditure.
Jay Srivatsa - Analyst
All right.
In terms of your process flows into the Micron fab, you mentioned you're in the process of qualifying them.
Can you give us some update on when you expect that to be completed and when do you hope to start to see some of your existing profits lines being run in the Micron fab?
Russell Ellwanger - CEO
The ex-Micron fab?
Jay Srivatsa - Analyst
That's right.
Russell Ellwanger - CEO
So we're making great progress on it.
For one specific not internal flow but a development flow, we already have aerometrics that have met all the customers need.
And our flows for the power management that we're doing there, I think we should have the flow qualified within the next four to five months.
And then we'll see what other flows we bring in on top of the core power management flow what we call the BC 35.
But we expect that by the third, fourth quarter we'll be bringing incremental capacity in above that what is with the take or pay with Micron.
Jay Srivatsa - Analyst
Okay.
In terms of the opportunity that you highlighted in India --
Russell Ellwanger - CEO
Yes.
Jay Srivatsa - Analyst
-- given that it's still in early stages, would you be able to quantify what is the size of the opportunity and when you expect some decisions to be made?
Russell Ellwanger - CEO
So there's a press release from the government, from the Indian government, within the past few weeks to where they had stated that the decision would be made this year.
So the final bid would be selected there.
That's what the government is stating.
We've presently been through two rounds and we'll see what happens further.
The consortium that we have, as I mentioned during the call, I think is extremely strong.
The Indian infrastructure conglomerate is very big, very well known and an incredible company as -- not just in the business but also in their social awareness, I'm very, very impressed with them.
The digital technology provider for this is really a world leader, extremely well known company.
And ourselves we have a great reputation in India and I think our ability to grow with an analog to those specialized to show capability in operational model I think it's worldwide very good.
And I think we have good reputation not just in India but specific in India.
As mentioned in the call, we did win a bid several years ago, a government bid.
And we've completed that extremely well or we're in the midst of completing it, but it's gone well.
We have I think a lot of people that would stand as witnesses for us in India as to our capability and our integrity in doing exactly what we say we will do.
So the opportunity is very strong I think we have an excellent group bidding on it and we'll see.
We -- as stated you never know until it's done.
Anything can happen, will the government make their decision, will they award the contract this year?
We believe so, but that's certainly not an area that we have control over.
And if they award the decision, will we win?
We think we are in a good position but we can't predict that either.
Now, as far as what does it mean which was the other part of your question.
This was a very, very big opportunity for the Company.
There is no CapEx that we're investing.
The financial part of it is a subsidy that will be worked out from the government and the Indian conglomerate that wishes to get into the semiconductor industry.
And we'll be the enabler to build the factory and to operate the factory.
The revenue stream for us during the building period will be very strong.
And then afterwards we have the opportunity during running the factory a certain portion of the capacity will be ours for our customers and that will also provide a very nice revenue stream.
These specific numbers are not public record and I don't wish to get into them at this point.
But it's a very strong revenue stream that would last for multiple years.
Jay Srivatsa - Analyst
All right.
Last question and I'll step off the queue.
You've done a very good job of lowering your debt over the past year.
But I suspect you still have some capital notes out there.
Can you tell us what the plans in terms of, one, how to address it, and two, what is left off the capital notes thus far?
Russell Ellwanger - CEO
Okay, so firstly capital notes are not debt.
So they're not redeemable.
There's nothing that deals with us on the capital notes have to pay any money at all.
The capital notes are not owned by us.
The capital notes are an equity vehicle owned by two banks and a major shareholder.
And I honestly cannot talk to any plans with them as what is happening if anything is happening is not a matter of public record.
And we don't have ownership over it.
So I can't at all forecast or dictate what an outcome would be.
Jay Srivatsa - Analyst
Okay, thank you.
Russell Ellwanger - CEO
Thanks.
Operator
Paul McWilliams, Next Inning Technology Research.
Paul McWilliams - Analyst
Congratulations too on a nice year and a lot of accomplishments.
Russell Ellwanger - CEO
Thank you.
Paul McWilliams - Analyst
On the wafer capacity is that presented in eight-inch equivalent?
Russell Ellwanger - CEO
Yes.
Paul McWilliams - Analyst
Okay, great, great.
What was your percentage utilization in Q4?
Russell Ellwanger - CEO
Somewhere in the order of 70%.
Paul McWilliams - Analyst
Okay.
So we've got plenty of upside for growth.
Russell Ellwanger - CEO
Yes.
Paul McWilliams - Analyst
And what is your expected utilization for this year in total?
Russell Ellwanger - CEO
Expected utilization, in the Nishiwaki factory by the end of the year, we'll have wafer capability beyond the take or pay which we already have.
And we won't have (inaudible) with our own flows.
Certainly our expectation would be to have full utilization in the second half of the year.
And that's where our point of where we said that we're operationally preparing for a very strong second half.
So expectation, that is not a guidance is what we're preparing for to have everything in place to be able to fully utilize our factories.
And so our operational model is a model to where the factories are running.
In our case when we talk 100% utilization, it's not what maybe other factories talk about.
100% is the absolute max that can come out of our factories.
We'll have some factories that will report they achieved 130% utilization.
We don't have overrides on utilization.
So 100% is really theoretical in our case.
Our model is to run our factories between 88% and 92% utilization.
And when I mentioned the 70%, Paul, that does not include -- with the 70%, I take Nishiwaki out of that factor for the fact the take or pay is what Nishiwaki is running at.
But there was added capacity in Nishiwaki beyond the take or pay.
Paul McWilliams - Analyst
Okay.
So just to make sure I understand here.
Your expectation for exit of 2012 would be 100% utilization?
Russell Ellwanger - CEO
No, again 100% is not our model.
It would be full utilization which is between 88% to 92% of the theoretical.
Paul McWilliams - Analyst
Okay.
And does that model reflect preventing maintenance times and such as that?
Russell Ellwanger - CEO
The 100% is the absolute max that you can get out of the fab.
The PM is taken into account with 100%.
Paul McWilliams - Analyst
Okay, very good.
I think I understand that well.
In your non-GAAP presentation, what was your Q4 fully diluted share count and how does that how much for the capital notes?
Oren Shirazi - CFO, SVP Finance
Q4, ordinary shares was 318 million shares and this disclosed in the press release.
The fully diluted is not relevant when you have loss, so we didn't mention that.
Paul McWilliams - Analyst
Well, you showed a non-GAAP profit though, didn't you?
Oren Shirazi - CFO, SVP Finance
No.
You mean in the non-GAAP?
Paul McWilliams - Analyst
Correct.
Oren Shirazi - CFO, SVP Finance
$156 million?
Paul McWilliams - Analyst
Well, in Q4 non-GAAP fully diluted share count?
Oren Shirazi - CFO, SVP Finance
Fully diluted, we need to give only for the GAAP.
And we will give that of course in the detailed financial report if we would have net profit but we didn't have.
Paul McWilliams - Analyst
I know.
But it's standard operating procedure for all the companies I follow, if they show a non-GAAP profit to a company that with the fully diluted share count and fully diluted share count is very important to us shareholders.
Oren Shirazi - CFO, SVP Finance
But you are asking now about non-GAPP, right?
Paul McWilliams - Analyst
Correct.
So --
Oren Shirazi - CFO, SVP Finance
If you want to calculate the positive returns, you can do that.
I mean there is all the available data.
There is the 318 which are listed.
There's the capital notes that Russell mentioned before held by the banks and the other shareholders and the -- all the options and wants that are in the money, which are actually close to zero at the moment at the current stock price, which should be around $700 million.
Paul McWilliams - Analyst
Okay, roughly $700 million and most - - most if not all of the increase above the outstanding is attributable to capital notes?
Oren Shirazi - CFO, SVP Finance
Yes.
Paul McWilliams - Analyst
Okay.
Has there been any change over the last year in the number of capital notes outstanding?
Oren Shirazi - CFO, SVP Finance
No.
Paul McWilliams - Analyst
Okay.
How many 10% customers did you have in Q4?
Oren Shirazi - CFO, SVP Finance
We had one more than 10%, which is Micron.
Paul McWilliams - Analyst
Okay.
Can you share the percentage?
Oren Shirazi - CFO, SVP Finance
We didn't yet finish the preparation of the full financial statement.
As you know, most of the companies and we are the same.
They file the press release as soon as they can and they do the detailed annual -- not annual report, it's called the full financial statements is all they know according to all the fabs and all the accounting GAAP.
Paul McWilliams - Analyst
Oh, I understand.
And --
Oren Shirazi - CFO, SVP Finance
And we will file -- do that, and we need to be audited on those full notes which is one of the special document and we will file that and it will be, of course, mentioned there.
Paul McWilliams - Analyst
Well, of course.
Could you give me an approximation of the percentage?
Oren Shirazi - CFO, SVP Finance
I wouldn't want to give a number which is not yet publicly disclosed and not audited yet, no, two weeks before we filed an audited real number.
Paul McWilliams - Analyst
Okay.
By my understanding we've got a deadline day coming up from NASDAQ and you have to be trading above $1 for 10 consecutive days prior to that date.
Is that a correct understanding?
Oren Shirazi - CFO, SVP Finance
Correct.
Paul McWilliams - Analyst
What is your plan A and plan B on that deadline?
Oren Shirazi - CFO, SVP Finance
Currently, it's not so relevant because although you mentioned that it's coming in the end of next month or in the second half of next month, one can get an automatic, pretty automatic extension for additional six months.
So the date, the really relevant date is September this year.
So we have eight months until that.
And of course I cannot be quoted and don't want to comment on the stock price in the future, whether it will go above $1 and for how many days and how much.
But we've seen the progress in the last few weeks.
And nobody knows what will happen until September, right?
So we have time until September.
Paul McWilliams - Analyst
So your plan B is if you don't realize it ahead of March 18th date I think it is, you'll file for an extension and you feel comfortable that you will be granted that extension?
Oren Shirazi - CFO, SVP Finance
Yes, yes.
I understood, it's pretty automatical thing just --
Paul McWilliams - Analyst
I believe that's the case.
Oren Shirazi - CFO, SVP Finance
Yes, and by the way we [treat] two years and we got it and eventually we crossed the $1 and everything is good.
Paul McWilliams - Analyst
Well, I think your stock is worth more than a dollar.
The last question I have here, and possibly Russell, this would be for you, but either one of you, what product sectors are showing the most stability and what product sectors are showing the most strength?
Russell Ellwanger - CEO
We have in certain activities absolute stability because we have take or pay agreements.
So within our business group that I reported on what we call TOPS, the transfer optimization process services.
Within that we have take or pay contracts.
So that's 100% stable because it's a minimum amount of business that has to done.
Paul McWilliams - Analyst
Yes.
Russell Ellwanger - CEO
So what is that as far the exact products that we're shipping there?
It's a variety.
But a lot of it deals with discrete.
As far as what segments would I think have huge growth opportunity now and when we talk about stable, stable for us is a little bit different than maybe what the market is, Paul, as our stability independent of what's been happening in the market is maybe modulated through the fact of market share increase.
So our power management offerings have been growing continually.
That business has been doing very well, but it's not necessarily that the [fights] within power managements have been stable or growing.
That I don't know as far as the world-wide industry.
But without the market share increase has carried over within that segment.
Where we see a lot of potential growth is really within the area of frontend module.
In that area, we've been a very, very strong supplier in the past of transceivers and then with the PA controllers.
But right now there is a very big shift in that market of the switch moving from a gallium arsenide, which the top frontend module providers have within their internal capability or still have within their internal capabilities.
But that switch is moving from a gas PM technology to a SOI technology.
And from a foundry offering, there's really two competitors within that space.
We have a qualified SOI flow.
We're working with customers on another SOI flows, and next week I think we will press release something very, very interesting or within the next week for press release something very interesting within the frontend module space.
Also within frontend module, particularly for certain WiFi applications, the power amplifiers that the very, very high performance will continue to be done in GAAP, but until this date all of it is been done in gallium arsenide, which again frontend module players that have internal, some of that would be moving to silicon germanium.
And as you know, we really are a recognized world-wide leader in our silicon germanium platforms.
So within the contents of the frontend module, our surf market is increasing quite substantially and we have obviously very, very strong relationships; RFMD and Skyworks have been press released many times about activities that we have and those are two leaders within the frontend module space.
Paul McWilliams - Analyst
Oh, absolutely.
Russell Ellwanger - CEO
Hopefully that answers your question, Paul?
Paul McWilliams - Analyst
Yes, it does.
And now it does lead to one more if you don't mind.
You are probably familiar with the fact that I think it's Peregrine filed a suit against RFMD and Motorola in regards to their SOI process, which I would assume would be for switches that are used in the SIM.
Are your familiar with that?
Russell Ellwanger - CEO
Remotely, not in detail.
Paul McWilliams - Analyst
Okay.
Do you have exposure to both Motorola and is Peregrine, I don't know if I am pronouncing that correctly, but it stand in the neighborhood of your fabs, so you are probably familiar with them?
Russell Ellwanger - CEO
Paul, I am sorry the connection is poor.
I couldn't hear the last part of your statement or question?
Paul McWilliams - Analyst
Oh, okay, do you have manufacturing exposure with both RFMD, and -- is it Peregrine?
Am I pronouncing that correctly?
Russell Ellwanger - CEO
Manufacturing exposure RFMD is a press release customer of ours.
Paul McWilliams - Analyst
Yes.
The other is a private company who sued RFMD this week.
Russell Ellwanger - CEO
Yes I - - I only comment on customers that are press released.
I don't speak to customers that aren't press released, period.
Paul McWilliams - Analyst
So you don't have enough knowledge or an ability to comment as to whether this law suit might affect you?
Russell Ellwanger - CEO
It's really even if I did, I would not comment on it because I wouldn't comment on a customer's capability or legal viability.
Paul McWilliams - Analyst
Okay, I understand.
Just it's my job to ask that question and make sure that there isn't answer that I can get.
Russell Ellwanger - CEO
Okay.
Paul McWilliams - Analyst
That covers all my questions, guys.
Thank you again.
Russell Ellwanger - CEO
Thank you, Paul.
Operator
[Ashley Dundin], Pine River Capital.
Ashley Dundin - Analyst
Will you be giving in your SEC filings information on the Jazz Tech, a broken out results and can you shed any color on those on an on GAAP basis now?
Oren Shirazi - CFO, SVP Finance
We will be filing Jazz separate financial statement on Form 10K.
This is not yet public domain and it's not yet audited.
It will happen probably in the coming few weeks.
We do that every quarter.
You can look at the recent 10Q that Jazz filed in, I think, mid-November 2011 and Jazz broken down full financial statement.
Ashley Dundin - Analyst
Right, right.
I saw it.
so just wanted to confirm you doing that again.
And can you comment on sales EBITA trends outlook down at the sub?
Oren Shirazi - CFO, SVP Finance
For which period?
Ashley Dundin - Analyst
For the fourth quarter.
Oren Shirazi - CFO, SVP Finance
No, because it's not yet public domain.
So I wouldn't want to give now a data which will be -- - which is not audited yet and will be public domain in a few weeks.
But you'll easily have it at your hands in disposal within a few weeks.
Ashley Dundin - Analyst
Okay.
Are trends consistent with what we are seeing in a consolidated basis?
Oren Shirazi - CFO, SVP Finance
Yes, there is a slight - - it's pretty flat or a slight improvement in Jazz in Q4 compared to Q3.
Ashley Dundin - Analyst
Okay, I appreciate that.
Thank you.
Oren Shirazi - CFO, SVP Finance
You are welcome.
Operator
There are no further questions at this time.
Mr.
Ellwanger, would you like to make your concluding statement?
Russell Ellwanger - CEO
Yes.
So to conclude, we really do thank our customers for their trust in us as long-term partners, our investors for the belief in our management and business models, and very especially our employees for their capability, their dedication, and passion which has driven us to be the number one specialty foundry in the world.
We've issued today a 2011 annual business update report, which will also be shortly available on our website and we've filed a PowerPoint explaining our latest financial results, strategic business direction and growth engines, which is presently available on our website.
I am looking forward to continuing updating you on the progress over the coming quarters.
Many exciting things are happening.
And going back to just reiterate on Jay's question, our customers really are excited about what they see as having already hit the bottom of whatever the economic trend is in the market and seeing increases in their orders in Q2, Q3.
We are very, very bullish on our performance for the second half of the year as function of the market and more importantly as the function of our market share increase within a market.
So I thank you very, very much and I look forward to chat with you at least three months from now or in the interim.
Thank you.
Operator
Thank you.
This concludes the TowerJazz's fourth-quarter and year-end 2011 results conference call.
Thank you for your participation.
You may go ahead and disconnect.