高塔半導體 (TSEM) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Tower Jazz second quarter 2016 results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded August 4, 2016.

Joining us today are Mr. Russell Ellwanger, Tower Jazz's CEO, and Mr. Oren Shirazi, CFO. I will now hand the call over to Noit Levy-Karoubi, Vice President of Investor Relations and Corporate Communications. Ms. Noit, please begin.

Thank you and welcome to Tower Jazz's financial results conference call for the second quarter was 2016.

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 than those currently expected. These uncertainties and risk factors are fully disclosed in our form 20-S, S-4, S-3, and 6K filed with the Securities and Exchange Commission as well as filing the Israeli Securities Authority. They are also available on our website. Tower Jazz assumes no obligation to update any such forward-looking statements.

Now I would like to turn the call over our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Thank you Noit. Welcome to all of you and thank you for joining us today. The second quarter of 2016 was our strongest quarter to date with a record revenue of $305 million, an EBITDA of $87 million, reaching an approximate $1.2 billion and $350 million annual run rate, respectively. We showed increase growth in operating margins resulting in a net profit of $38 million or 13% net margins and breaking $150 million net profit annualized run rate.

We continue to experience strong, even excess customer demand across our specialty unit, driving a third quarter mid-range revenue guidance of $325 million up 33% year over year. And with the current roll up, we have an indication of further growth in the fourth quarter of 2016. To support the customer demand and to enable this substantial growth from $1 billion Q4 annualized revenue run rate to $1.3 billion annualized Q3 mid-range guidance, and with the expected further growth in Q4 16.

We've continued our operational strategy of one, cross qualification and offloading activities within all of our 200 millimeter factories, including the newly acquired San Antonio factory providing us with a more optimized global capacity flexibility. Two, we added d additional capacity in Fab 2 in [Migdal Haemek] and in Fab 3 at Newport Beach. And three, using available capacity in our TPSCo Factories for new third party business. Referring to which, TPSCo, third party wait for shipments in the second quarter of 2016 were up 50% from levels in Q1 2016.

We remain in line to the target we announced in 2015, namely to achieve a $25 million third party fourth quarter revenue from the TPSCo factories. In addition, last quarter we began operating our new eight inch Fab in San Antonio. As you may remember, this facility provides us with added capacity and manufacturing capabilities and a highly technically and experienced employee-base. As previously reported, this asset acquisition provided substantial increase an in already growing business with Maxim via a 15 year supply agreement. We have already qualified multiple additional RF and power discrete flows and expect to realize additional realize to the maximum baseline in the fourth quarter of 2016.

Our financial focus for the year remains ongoing with margin increases resulting in net profit and free cash flow generation growth. It is important to note that our growth is achieved by serving a diversified customer base with equally diverse end product applications for which we provide advanced differentiated analog technology offerings.

As an indicator of having the correct customer partners and serving them well, we continue to see double digit growth in sales to our top 10 customers, excluding Panasonic and Maxim, we realized 30% year over year growth with these top 10 customers in the first half of the year.

Our customer base is well diversified between the different business units. Our first half 2016 revenue and market breakdown is similar to what reported in Q5 15 for the full 2015 corporate revenue. Specifically, RF Group represented a total of 31% of our first half 2016 corporate revenues, 22% of the corporate revenue served mobile applications, and the remaining 9% predominately served RF infrastructure.

Power management end applications including industrial, white space, computing and automotive among others presented a total of 28% of our first half corporate revenues. This included both power ICs and power discrete. Our image sensor camera group serving studio, digital SLR, medical, industrial applications among others, represented 15% of our first half 16corporate revenues. Our mixed signal and others grouping including micro-controllers, [A-6], ID tags, sensors, U.S. aerospace and defense, and certain special embedded memory enabling the lower power requirement of the internet of things, represented about 26% of our first half 2016 corporate revenues As can be seen our offerings focus on seamless connectivity, lower power consumption and sensors. These are the fundamental drivers required by and enabling the internet of things. All being high growth markets and for each of which, we are partnered with the market leaders.

Additionally, all of the above business units have certain automotive end applications, these having very long product lifecycles. To our best knowledge at least 22% of the corporate revenues are for automotive applications. With regard to our worldwide Fabs, utilization our six inch factory, [Migdal Haemek] was about 70%, our 8 inch Fab 2 having a capacity increase of 6%, had a utilization rate of about 91%, and our 8 inch FAB 3 at Newport Beach having completed the present phase of capacity increase was at 88% utilization rate. Both Fab 2 and Fab 3 utilization rates are still above our 85% steady state utilization operational model.

TPSCo is at an average of about 42% utilization with the [Tunami] Fab now ramping substantially. Taking into account our worldwide capacity with TPSCo, including Fab 2 and Fab 3 expansions, at model utilization our present wafer manufacturing capacity has increased to allow $1.6 billion of revenues. With regard to our business units, as mentioned, we continue to see strong demand and growth across a variety of them. Our broad and advanced technology offerings provide a strong differentiator in each of the markets in which we are playing.

In RF this quarter, we continue to ramp silicon germanium for a low noise amplifier and power amplifiers serving the handset market, and augmenting our more traditional fiber optic silicon germanium business. Specifically, this quarter we announced our partnership with Skyworks solutions on achieving volume production with our latest power amplifier silicon-germanium platform. This platform is capable of integrating all components of a front-end module on a single die, including the switch low noise amplifier, power amplifier, and RF control; which lowers our customer total build of materials cost, increases our margins, and brings us into the market of power amplifiers which we previously did not serve.

Also in the quarter, we released a design kit for the next-generation version of this platform to key design partners and already have accepted our first customer take ins. In RF SOI we began production of our third-generation RF SOI technology, which we call CS-18 QT8. Feedback from our customers has been consistent that the performance of this technology is superior to others available in the foundry market today. We therefore expect this process to further fuel our growth for the most sophisticated RF switch products required by the marketplace.

In addition, we continue to execute on our qualification of the San Antonio facility of RS-SOI, we remain on track to qualify multiple customers this year. The San Antonio capacity is needed to absorb the growth in RF-SOI

We anticipate in 2017, within our power business unit, our power platforms continued to be designed into major products serving mobile computer consumer, industrial and automotive markets. Last quarter we began our mass production of our [Gen-2 LD MOS] both an Fab 2 and in [tsunami] Fab 5, and started to wrap the state-of-the-art industry best RDS on of 10 million millimeter square. Also in [ Fab 5 tsunami] increasing our customers' manufacturing flexibility.

We have developed a 200 volt SOI platform for high-power applications with excellent parametric performance and released our first process design kit to certain strategic customers. The very steep ramp of mixed-signal and power management products at Fab 5 continued into this quarter. We had more than 50 products enter into [tsunami] in the first half, which will add significantly more production [waivers] at the end of 2016 and during 2017.

We see very high demand in our C-MOS image sensor business unit continuing to increase also in the next quarter. The high demand is a continuation of ours' and our customers' market share increases, mainly in the medical x-ray and the industrial machine vision markets.

In the machine vision market, we experienced amount from all of our leading customers for all sensor resolutions, starting from one megapixel for barcode reading applications, to two megapixel, five, eight, 12 megapixel, even 25 megapixel sensors for high-end machine vision and industrial line control applications. These products are based on our current extremely successful global [shutter] technology on .18 micron node in (inaudible), and we expect these platforms to continue to win sockets for several years

In parallel, as we stated in the last quarter, we are about to complete the development of our next-generation platform for the industrial sensor market based on [110 nanometer] node with state-of-the-art 2.8 micron global shutter pixels. This platform is expect to serve us in the industrial sensor market for the coming decade and beyond

In the medical market segment we see a strong growth, especially in the extra oral dental CT segment, but also the medical surgery market segment. Our customers are introduced to the market of new sensors that provide excellent performance and have accepted rapid market placement competing successfully with the amorphous silicon technology. Their growth continues even stronger in the coming quarters.

We see a nice rate of new products to [Fab 2-Migdal Haemek, and in the in the TPSCo Fab 6-110 nanometer and Fab 7-65 nanometer], which we expect to wrap production in 2017. We are moving forward with new design wins in the high-end photography market in the [65 nanometer - 200 milometer Fab.] We expect to increase our market share in this area substantially.

In summary, we showed very strong results in the second quarter in both top and bottom line financials. We only expect to continue this trend throughout the year.

Our organic Tower Jazz factories are running at very high utilization with cross qualification activities continuing to progress as well as our TPSCo factories and presently ramping at our San Antonio factory. Our balance sheet is stronger than ever. We are excellently positioned to continue our growth for the foreseeable future

As a last note, as released last week, the securities class actions filed earlier this year in the United States District Court was dismissed after a plaintiff request for voluntary dismissal. This occurred without settlement or any other considerations provided by the company and at a zero financial cost of the company.

With that, I would like to turn the time to our CFO, Mr. Oren Shirazi. Oren please.

Thank you Russell and welcome everyone. Thank you for joining us today.

The financial statements we presented for the second quarter of 2016 showed record performance for Tower This includes record revenue of $305 million for the second quarter, record EBITDA $87 million, record operating cash flow generation of $82 million, $27 million free cash flow, and a GAAP net profit of $38 million for the quarter

We prepaid the entire amount of loans owed by raising money from the issuance of long-term noncompetitive bonds. This reduced our cost of capital, all the while releasing leans and replacing the strict governance under the bank loan agreement with much like the recovering of enabling better business and financial flexibility.

We present the record deposit showed at the end of Q2 totaling $311 million and very strong balance sheet financially. I will provide our end results analysis highlights for the second quarter of 2016 and the first six months of 2016, and then discuss our balance sheet and cash flow. All numbers will be provided on a GAAP basis unless otherwise stated.

Revenues for the quarter are a record of $305 million as compared to $236 million i the second quarter of 2015, an increase of 29% year over year and a 10% growth as compared to $278 million reported in the first quarter of 2016.

Gross profit for the second quarter of 2016 was $73 million reflecting 24% gross margin and representing an increase of approximately 39% as compared to $52 million gross profit the second quarter of 2015, and an increase of 19% as compared to $61 million gross profit in the immediately preceding quarter..

Operating profit was $40 million for the second quarter of 2016 an 87% increase as compared to $22 million in the second quarter 2015, and a 30% increase of compared to $31 million operating profit in the immediately preceding quarter. Net profit for the second quarter of 2016 was $38.5 million reflecting 12.6% net margins, $.45 in basic earnings per share, and $.40 in diluted earnings per share. The net profit for the quarter included a $10 million net gain from the acquisition of San Antonio Fab partially offset by a $7 million non cash finance expense recorded the GAAP following the earlier payment of these early bank loans. Excluding these two items, net profit was $35 million for the second quarter 2016 as compared with $25 million for the first quarter of 2016.

Net profit was $8 million for the second quarter of last year and $66 million for the first quarter of 2016, which included $41 million total net gain from the San Antonio acquisition.

EBITDA for the quarter was a record $87 million reflecting a 48% increase as compared to the $59 million in the second quarter of 2015, and reflecting 12% sequential increase of as compared to $78 million in the immediately proceeding quarter. On an adjusted basis as described and reconciling the tables of the press release issued by us earlier today, adjusted net profit for the second quarter of 2016 was $40 million, as compared to $12 million in the second quarter of 2015, and $32 million in the immediately preceding quarter.

For the first six months of 2016 also demonstrates strong growth in revenue, profitability margins, and cash flow with further strengthening of the balance sheet. Revenue for both the 2016 first half was a record $583 million reflecting 26% growth as compared to $462 million in the first half of 2015 .

Gross and operating profit for the first half was $134 million and $71 million as compared to $85 million and $24 million respectively in the first of2015. Net profit for the first half of 2016 was $104 million, or $1.22 in basic earnings per share or $1.09 in diluted earnings per share. Net profit for the first half of 2016 included a $51 million gain from the San Antonio acquisition partially offset by a $7 million non cash financing expense relating to these early bank loans and early repayment. Net loss for the entire six months ended June 30, 2015 was $ 65 million which included $73 million in a non-cash financing expense associated with the serious conversion done last year.

EBITDA for the first half totaled $165 million representing a 50% increase as compared to $110 million in the first half of 2015

I will now go into the balance sheet analysis for the end of the second quarter. Shares of equity as of June 30, 2016 was $559 million, an increase of 86% as compared to $300 million in June last year, a 45% increase as compared with $386 million as of December 31, 2015, and an 11% increase as compared with $504 million in the end of the quarter.

Net debt amounted to $51 million dollars as of June 2016 reduced when compared to a net debt of $65 million as of March 16 and $105 million as of December 31, 2015.

In regards to our cash flow report, as mentioned, we raised $150 million net of [which] $200 million were in escrow and were received by us in July 2016 after all claims were released. This was from the issuance of long term non-convertible bonds carrying a [coupon of 2.79%,] which has final maturity date of 2023.

This fundraising used -- was used to prepay the entire outstanding amount of $78 million to the Israeli bank loans. This financing released the leans and straight governance that we had, and enhances our business and financial flexibility, and strengthening our balance sheet.

During the quarter, our free cash flow continued to increased to a record number of generation of cash flow operations of $82 million and $27 million in free cash flow, after investing $54 million CAPEX. This is compared to $77 million cash flow operations in the previous quarter, which resulted in $20 million of free cash flow.

During the quarter we received customer prepayments of $11 million, net which we invested in capacity expansion equipment that are included in the $54 million in CAPEX investments noted above mentioned.

Cash and short end deposits continues to grow, the balance as of June 30, 2016 was $311 million as compared to $445 million as of March 31 16, 2016, $206 million as of December 15 and $143 million as of June 2016.

In summary, this was a truly excellent quarter for us from a financial perspective. We continue to present revenue increase, margin increase, profit increase, and free cash flow generation increases; all with a guided revenue growth. . In addition, we significantly strengthened our balance sheet.

Our financial focus is and will continue to be generating significant cash flow operations, free cash flow, increased EBITDA margins and net profit bottom-line results.

That ends my summary. Now I wish to turn the call over to [Noit].

Before we will open up the call to the Q&A session, I would like now to add the general and legal statements to our results in regards to statements made and to be made during this call.

Please note that the second quarter of 2016 financial results has been prepared in a accordance with U.S. GAAP. And the financial date in today's earnings release, includes financial information that may be considered adjusted measures and non-GAAP financial measures, and related reporting requirement is established with the Securities and Exchange Commission [and their plight to our company].

Namely, this release also presented financial data, which [reconsidered as indicated in the table or in the call on an adjusted basis after deducting one, amortization of the required tangible assets,] two, compensation expense in respect to equity grants to directors, officers, and employees; three, gains from acquisition net, four, non-cash financing expenses related to bank loans earlier repayments, and five, other reoccurring items such as acquisition related costs and issued costs to be determined

Adjusted financial measures and non-GAAP financial measures should be evaluated in conjunction with and our not substituted for GAAP financial measures. The tables in the earning releases also contain the comparable GAAP financial measures to the adjusted financial measure as well as the reconciliation between the adjusted financial measure and the most comparable GAAP financial measures.

EBITDA is reconciled in the tables from GAAP operating profits. EBITDA is not a required GAAP financial measure and may not be comparable to a similarly entitled measure employed by other companies. EBITDA and the adjusted financial measures presented here should be considered in a relation or as a substitute for operating income net, income or loss cash flow provided by operating in existing financing activities, fair shared data or other income of cash flow statements that are prepared in accordance with GAAP; and is not necessarily calculated or presented in a basis consistent with the same or similar data presented in previous communications.

And now we will open up the call for Q&A. Operator?

(Operator Instructions) Cody Acree of Drexel Hamilton.

Thanks guys for taking my question and congratulations on the strong results in progress.

Russell, maybe if you could if we could start with your Q3 outlook with the $20 million that you're expecting at the midpoint for growth. Can you just maybe stratify or give us any weightings on what will be accounting for that or contributing to the growth?

I'm sorry, I really didn't quite follow what growth were you referring to? What did you just say? You said something of $20 million?

The sequential growth that you're guiding to -- any help with the weightings or the contributions that you expect from your different divisions?

As stated, we really do see growth across all the business units. We certainly see a very strong contribution of growth from the C-MOS image sensor, particular in the industrial vision. And in the medical we will see a very nice uptick on that.

If we look at the -- even mobile platform -- if we were to take the first half and compare that to the second half, we were seeing somewhere about of an 11% growth off of already a very strong growth in the first half. But I don't see really any single business that's down second-half or first half. Though across the board we see growth, probably the single biggest growth on a percentage basis would be the image sensor. And probably the next biggest growth on a percentage basis would be the power management.

When you look at that CIS in the growth that you're sitting there, I guess I wouldn't expect that some of those underlying end-markets, whether it be machine vision or maybe particularly medical are growing aggressively individually. Maybe I'm wrong about the underlying health of those markets or the growth rates. Is this primarily your share gains and your customer share gains that are driving this, or are you seeing a lot of underlying strength in those applications as well?

I think in general the area of sensors is growing, machine vision, industrial vision, it's a growing area. The exact figure, I couldn't off the top of my head tell you what that is at the moment. It is certainly a growing area.

Our customers are definitely growing share and we have grown share within this market. A lot of what's happening right now are wins that we really had a good year to a year and a half ago that are now moving strongly into manufacturing. These are very highly integrated parts sitting above 40 photo layers. At this point, we are realizing the shipments of these products in the manufacturing node, not just on the prototyping node. And I expect that, that will continue to grow.

In the area of the medical, that has a very very long cycle of adaption, but once it is adopted into the markets on it stays really very very long, very difficult to to replace once it's qualified; be it for the extra intraoral or for a direct medical device. But as stated, there's a quite a big growth in that between the second and the third quarter, then being maintained in the fourth quarter.

Russell do you think that and in the next-generation products at [110 nanometer] can accelerate that growth?

The next-generation products at [110 nanometer] will certainly prevent us from losing market share.

And I believe that they could accelerate growth. But we wouldn't be seeing a manufacturing volume from 110 nanometer activities until most likely at the earliest, the second half of 18 beginning of 19.

I see thank you for that. And lastly, the one -

Cody just to state, one of the important things about a continuous roadmap, be it within medical devices, cameras in general, be it within an RF space or power management space; having developed a reputation and bringing on leading customers in every one of our segments, very few customers are willing to design to you and take substantial volume from you without an assurance that they can stay with you multiple years.

They a start designing, they learned your design kits, you learn their designers. We have a very strong and stated policy in the company that all major developments have to be aligned with first-year customers.

So with our major customers, we don't just work on present generation, not even just next-generation but we are typically working on features that are two or three generations out to make sure that at the time the platform is out, that it does meet the customer need immediately and that they will be taping into us. So I am just saying this is an add-on to your previous question.

So the ability to grow market share in present generations is very very related and reliant upon having future generation roadmaps that customers believe will be able to continue design to you. Very few of the quality of customer that we work with right now is a customer that would take the effort to learn your design environment for a single generation product.

And then lastly, any update on the other capacity additional to $1.6 billion? If I take any growth in December and annualize that and then apply EBITDA, a moderate growth rate for 2017 -- you could easily get into that, $1.5 billion range next year With the existing footprint -- I guess, do you have further ability to expand within your claim rooms beyond the $1.6 billion or is that going to take the next transaction to continue to grow beyond that?

At the San Antonio factory, we've actually done some [strawman] exercises as to how we can increase the capacity there by another 20% to 30%. And I think it is very feasible by moving a few walls to be able to do it without having to do any per se, major construction, by taking some gray areas and making them into white areas.

Though there are certainly organically the capability to still grow beyond the $1.6 billion, however, not without investment, but it would be an investment that would have a very short-term ROI. However, we are and have been active always at looking at deals that would give us incremental capacity.

I think our model has been a very good model of taking on capacity, being that we are analog, we don't need to [build Greenfield] with multiple billion dollars of investment. We have been able to -- with the Panasonic creating tower jazz Panasonic semi conductor, most recently with the San Antonio factory from Maxim, to acquire an asset in both cases, having a strong negative goodwill. So the one-time benefit on the net profit -- we didn't do it for the one-time benefit, but basically, the ability -- and see that in the negative goodwill -- the ability to take on a very very good asset under a model that's a win-win for both the seller and ourselves to where we have a capacity and commitment from the seller so that we don't take on ourselves a running cost obligation off of a plan to use the utilization that maybe doesn't materialize, and hence not offering a downside to the company or to the shareholders by having a glutton cash to try to maintain something during a period where you're ramping third party.

So that being said, you know we always have been and will continue to be active in looking at those type of models. There is other accretive type of models that we've looked at. We chatted when we had our analyst day in the San Antonio factory and as well and we mentioned it at the previous conference call, a China strategy to where we would, you know, want to get involved in having manufacturing capability in China for our investment would be an investment in kind, not a cash investment.

So there's certain things that we are investigating continually, nothing at a point right now that would necessitate, or be wise, or required to give any specifics on. But I think a good company is always looking at, how do I maintain profitable growth? I think our model of acquisition has been a good model, one that hasn't given a downside risk to our shareholders and hence to the company. And we are continuing to look at that.

At what point would we need additional capacity? I'm very happy that you believe that it will be at $1.6 billion in 2017. We have certainly not stated that, but I would believe that under our present growth rate that the second half of 2017, we would need to be looking at additional capacity.

(Inaudible) from Needham & Company.

The question Russell on the -- some of the new products in the RF business -- can you talk a little about the -- you know, the market share dynamics that you're seeing that your customers, with respect to this low-power noise amplifier and integrated Wi-Fi PA? I think on the last earnings call, you talked about low levels of revenue in the second half of 2015 ramping to a substantial business going forward.

Can you talk a little about you know, the ramp of that new product cycle at your customers and that's -- how that result -- is that resulting in market share gains against global foundries or other?

Certainly the (inaudible) -- I believe the significance revenue at this point -- and it's continuing such. If I look at the -- I think I gave this number, the second half first versus the first-half by what we see now in the customer demand, we should see within the mobile platform, an increase of about 11%. If I was to exclude the [Si-G], it would be an increase of 8%. So you have 33% of the growth basically is based upon the [Si-G] platform, the second half versus the first half.

It's been very substantial. I believe that at the next one platform especially going forward. And as stated, the next generation platform, the PDK has been released as well.

On the specific number, I wouldn't feel comfortable to give right at this moment other than just that it is a substantial piece of business that we see growing.

And can you maybe discuss the trend of prepayments, customer prepayments? Is that trend accelerating -- kind of emphasizing this idea that your customers need to get -- they want to prepay for capacity in advance? Has that been changing throughout the year as they ramp -- as your RF customers ramp for new phones -- and major customers you know, in North America and China?

So first a clarifier, the prepayments that we received was not solely for RF. So I wouldn't want to answer the question in that regard because it wasn't just for RF, it was for other applications in addition RF.

But no, we have completed anything that we have planned on a capacity expansion. We had stated that in Q4, we would see our CAPEX going down closer to the $40 million quarterly run rate that we wish to be maintaining and in Q1 to achieve the $40 million into to it and to keep it at that rate. So we are not looking at any other organic capacity expansion. Now, that doesn't mean we wouldn't have one or two tools show up for a capability here or there, that can always happen But the capacity expansion that we have planned or we need to be doing is pretty much taking care of.

Some of that dealt with as well, the added capacity that we now have in San Antonio, and the amount of time that it takes to qualify those platforms to run in San Antonio -- it's something that I said during the script, was that on the qualification of the RF platforms there we saw critical to the volumes that we needed to have in 2017.

Certainly, we did not have that capacity coming into 2016. And although we knew that we would have it, the platforms could never have been qualified in closing the deal on February 1 to start shipping in the second or third quarter.

So the capacity right now we think is all in place. As we stated we have capacity to ship circa $1.6 billion. So it is not a capacity issue right now and hence we are not looking for any customer prepayments to add organic capacity.

Last question, again, on the RF side, the ramping up for a lot of your major customers with these new products. So you know, each of these modules have two to four ICs, which include switches, antennae, power amplifiers, low noise amplifiers. And I wanted to get a sense of the competitive advantage that you guys have in terms of your process technology over the competition, typically around your RF SOI your [SI-G] technology continue . Can you -- with maybe some more detail in terms of -- how are your processes technologically superior to your competitors as the RF guys move into these integrated modules?

So if you're looking at the (inaudible), there is just a question of trying to do a very very advanced switching speed on a [SI-G] platform and being able to incorporate other functionalities -- the [RF C-MOS as well as the LNA,] the switch, the power amplifier.

Are we strongly differentiated against our competition? We certainly had a very nice PR from Skyward Solutions about going into manufacturing with us at a more advanced platform that is being released. If you look at the RF SOI, I believe as stated, that the most recently released flow the QT- 8 has substantial advantages with regards to the on the switching speed, the RNC off, as well as, the linearity.

And we have an increased roadmap going on there to where we had spoken of having a [sub-90 femtosecond] platform in our 300 mm (inaudible) TPSCo, for where we have supplied customers with samples.

So the other differentiation again, it comes into, what you do with it in the silicon, and how do we partner with customers to make sure that the silicon we are producing meets the feature requirements that they have.

Given you know, your expertise in these processes, are you going to see a trend where the -- your RF customer start to outsource more of the foundry to two external suppliers like yourself? And can you talk about what percentage of the founding they do internally versus externally, and where that could possibly go?

I think if you look at -- without being specific about any of our customers, but if you look at the leaders in the front-end module, they all have their own gallium arsenide capabilities. None of them have really an RF C-MOS capability,, though, anything that's done with RF SOI is done outside of their own factories. Anything that would be done with silicon germanium is done outside of their own factories.

How much have they moved from gallium arsenide [PMs] to RF SOI -- I think that the market there is about 85% movement to the RF SOI. On as far as the [gallium arsenide] for the power amplifier, the predominant market has stayed with gallium arsenide for power amplifier.

But as far as any specific one of our customers and how much foundry outsource do they do versus what they do internally, that's really a question that should be asked of them not to me. On as far as what we make for our customers, they do not have capability to do it inside their own factories

Richard Shannon of Craig-Hallum.

I'll have here a few questions, maybe following up on commentary regarding TPS through the third-party revenues? Russell I think you said last quarter expected to exceed your first stated goal of getting to a $25 million are run rate by the end of this year. You were kind of echoing those comments this quarter. It seems like -- are you saying you don't expect to exceed it anymore? Can you just clarify that relative your comments from last quarter?

What I talked about was the $100 million run rate, so the analyze $100 million run rate or the $25 million quarter. Yes, I would still expect to exceed the exact $25 million number.

And I apologize if you -- if you were more precise on the opening comments. I missed those. But can you tell us what areas are driving that as you get to the $25 million number? And then I think you have given a goal of getting to a $50 million quarter number by the end of next year? What would drive that as well? Are they different areas or the same?

It's the same but more of -- so to speak. I don't want to sound obtuse.

What's really driving a lot of the immediate growth now, is the qualification of the power management flows and the mixed-signal flows in the [tsunami] factory. So a lot of the growth that were seeing there is growth because of a cross-qualification where we needed to have greater capacity to meet customer needs.

And then, in addition, we have other platforms that have been developed that were not across qualified platform that is also ramping at the moment. And though what we expect will be a big portion of the growth in 2017, will be the 300 mm image sensor products, which is not a substantial part of the 2016 revenue.

Okay, that's kind of what I thought it was, but thanks for confirming that. Thanks for that response Russell there.

A couple more questions for me, I you think you mentioned that your top 10 customers excluding Panasonic and Maxim grew something like 30% year on year? What is that outlook look like with that group of customers as you look in the second half or even farther if you care to take it that far? I would be curious to know what that -- what that looks like.

That's a good question. I haven't done the analysis.

If we include Maxim, I can say it would be much more than 30%, just for a fact of the acquisition of the San Antonio factory. I really don't know off the top of my head. I wouldn't want to be misleading.

I can follow up later when you can try to do that analysis. It's an interesting comment to make. So I will move on here.

I think you mentioned that you're expecting a further growth in the fourth quarter? Your typical trends in fourth-quarter last years is to grow. Are you suggesting that you expect to grow at least in line with your averages in the fourth quarter or could i be even higher if you could just delineate that comment a little more? That would be great to hear.

I wouldn't want to set an expectation right now for the fourth quarter, other than we forecast additional growth to the third quarter.

The 305 to 325, I think is quite significant. And the major reason that I wanted to point out the fact of having additional growth in the fourth quarter is because we see it being sustainable. The exact number again -- I wouldn't want to give the target right now.

We do see growth in -- for me to mention growth that wouldn't mean going from 325 to 326.

Fair enough, my last question, you called out to exposure to the automotive market. I think you mentioned you to believe it to be as much as 22% of your total sales are related automotive in some fashion?

We believe it's at least 22%. Why do I say that? A good amount of our discretes go into automotive applications.

And I don't have visibility as to where our customers sell the discretes into. The discrete customers that we have -- well, the bulk of them are well known has been press released, it's Shea's electronics, it's Infineon having acquired IR and its Fairchild. A fair amount of the discrete product that we make -- the power discretes go to automotive.

But I have no breakdown of that really whatsoever. The 20%, that of which I know, which does not include the breakdown of the discrete.

Within the within the parts that you do know about, any thoughts on what the historical or what the most recent trend on growth rates has been there?

I think it has been very flat. The revenue has grown in the company -- as a company.

Where are we selling into a good amount of automotive? We have image sensors that are going automotive that have continued to -- that are growing within that. We have a nice growth that will be coming on --really a nice growth in the area of automotive radar, but this is a silicon germanium platform for collision avoidance. And it is qualified, it is now rapping into production.

And I expect some time in the Q1 timeframe to be able to release that entire ecosystem of product, which is very substantial. We have within the TPSCo factories a good amount of automotive that's produced there. It is very very stable if not growing And we have within the San Antonio factory automotive that is produced there, of which -- I know would never give a breakdown specifically of what Panasonic -- what their end products is putting into automotive or what Maxim or their end products are putting into automotive. Again, that's for them to say. But that's where the 22% is made of.

There are no further questions at this time. Mr. Ellwanger, would you like to make the concluding statements?

Certainly. Well, I really do thank everybody for the questions. I think they were very good questions. I appreciate the interest in the company.

As stated during the call and really as per Oren's concluding remark, it really was a very very strong quarter for the company. We have stated for a while what our strategy is within the analog space. We have had this acquisition model if you will, for a good period of years and I am very very happy that at this point the numbers are verifying that our strategy is solid and that our tactics to implement the strategy have been good.

As stated, we continue to focus on our margins, on increasing the free cash flow, and the analogous net profit that, that is dependent upon . So we look forward to the next quarters, the next year's.

We thank you for your interest in the company and for your loyalty to the company. We will be, next week at the Oppenheimer 19th annual Technology Internet Communications Conference in Boston on August 9. I'll be presenting there. We would love to meet whoever is available to be there. It would be enjoyable.

On August 30, we will also be presenting at the Jeffries Semi Conductor Hardware Communications Summit in Chicago, Dr. Marco Racanelli will be presenting there. He is the head of the RF business unit. So any of you who would like to engage in very in-depth discussions with him on the RF space, certainly, he can get into it to a much greater depth than I can. I think that could be enjoyable for you as well.

so that being said, we look forward to meeting you at one or both of these conferences, and if that's not possible, you can always meet us here in Migdal Haemek and often times in San Antonio or Newport Beach. So thank you very, very much and have a good night.

Thank you. This concludes the Tower Jazz Second Quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect.