使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen, thank you for standing by.
Welcome to the TowerJazz Fourth Quarter and Full Year 2017 Results Conference Call.
(Operator Instructions) As a reminder, this conference is being recorded February 22, 2018.
Joining us today are Mr. Russell Ellwanger, TowerJazz'z CEO; and Mr. Oren Shirazi, CFO.
I would now like to turn the conference over to Ms. Noit Levi, Vice President of Investor Relations and Corporate Communications.
Ms. Levi, please go ahead.
Noit Levi
Thank you, and welcome to TowerJazz financial results conference call for the fourth quarter and fiscal year of 2017.
Before we begin, I would like to remind you that some statements made during this call may be forward-looking and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected.
These uncertainties and risk factors are fully disclosed in our Forms 20-F, F-4, F-3 and 6-K filed with the Securities and Exchange Commission, as well as 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 C. Ellwanger - CEO & Director
Thank you, Noit, and then you all for joining us today.
2017 was another rather significant year for the company, with palpable high performance across all indices, further cementing our position as the global specialty foundry leader while providing us with the strongest financial position in the history of the company.
We presented another year of record revenues at $1.39 billion, representing a year-over-year growth of 11%.
Excluding the Panasonic and Maxim contracts, which are committed and stable, 2017 annual revenues represent year-over-year business unit-based organic growth of 23%.
We also recorded our highest ever EBITDA of over $425 million and record net profit of $298 million.
Our operating margin continued to increase in 2017.
We reported 15.8% operating margin and 30.6% EBITDA margin, a 180 and 130 basis point increase over that of 2016 respectively.
This was a result of utilization and optimization of the product portfolio mix, for which we expect further improvements in 2018.
Our balance sheet is strong, approaching $0.6 billion in deposits and short-term cash investments, having been built throughout 2017 by a company record free cash flow.
Oren will cover our financials for the year and for the quarter in great detail in a few minutes.
Our 2017 performance is evidence of the strength of TowerJazz's business model in growing both organically as well as our ability to identify and pursue opportunities on an ongoing basis for company expansion and growth.
Our success is based upon providing our customers best in class specialty technology offerings, providing the right platform to support them within the trends that are now driving the world, namely energy efficiency and seamless connectivity and sensors, as the foundation of smart systems.
We continue to increase our competitive advantage in both existing and new markets by being responsive to the present and future need of a diversified customer base.
In 2018, our focus will remain on our high-end businesses, and hence to enhance value across all of our manufacturing facilities.
We begin the year with the typical first quarter seasonality, our midrange guidance being $325 million plus or minus 5%, with customer forecasts showing growth throughout the year with a very strong second half.
In particular, this year we look forward to ramping our 300 millimeter factory in Uozu, Japan.
Please allow me to explain it in some more detail.
Our business model, when we acquired majority ownership of the Panasonic semiconductor fabs and later full ownership of Maxim's San Antonio fab, provided us with a long lead runway during which fixed costs are being covered, enabling us time to both transfer and in some cases perform further developments on our flows and for our customers to qualify their end customers on these flows.
This process is a 2.5 to 3 year period to reach volume production, as was evidenced in our large capacity fab 5 in Tonami, Japan, which ramped almost full utilization in 2017.
At the time of the Panasonic semiconductor fab acquisition, we identified value in having a 300 millimeter factory with 65 nanometer capabilities in order to further enhance certain of our analog offerings.
Hence, we were excited to acquire the 300 millimeter Uozu factory as part of this transaction, but these 300 millimeter platforms needed a full development from scratch, in all cases creating new product applications and in most cases attracting new customers who were not previously part of our customer base.
These 300 millimeter activities are ramping now in 2018.
The three main areas where we have used 65 nanometer capabilities to further add to our state of the art platforms are CMOS image sensors, RF, and power management mixed signal.
For CMOS image sensor, we use the 300 millimeter 65 nanometer capability to develop unique, high dynamic range and extremely high sensitivity pixels with very low dark current for the high-end digital LSR and cinematography and broadcasting markets.
In these developments, we've included our fab 2 stitching technology to enable large full frame sensors.
In addition, we developed a unique family of global shutter state of the art pixels ranging from 3.6 micron down to 2.5 micron, to note the smallest in the world, with extremely high shutter efficiency using the unique dual light pipe technology already developed at TPSCo for high quantum efficiency and high image uniformity.
And lastly, within the CIS regime, we've pushed the limits of our x-ray dye size, developing a 1 die per wafer x-ray stitch sensor to produce a 300 millimeter, a 21 centimeter by 21 centimeter imager.
All of the above technologies have been or are being implemented in our CIS customers' next generation products and are ramping or plan to begin ramping this year, with some additional next year.
Looking at RF, we are offering RF SOI technology in our 300 millimeter factory.
The technology makes use of unique capability of the 65 nanometer to deliver one of the industry best Ron Coff figures of merit for RF switches, being below 100 femtosecond, together with high performance, low noise amplifiers.
The combination of switch and LNA at our achieved performance levels we believe to be otherwise unmatched by another other provider in the industry.
Combining high performance LNA and switch is becoming increasingly important in new smartphone architectures.
For mixed signal and power management, during 2017 we announced the availability of the 5 volt CMOS and low voltage power 65 nanometer 300 millimeter process, providing customers with multiple advantage over present industry 5 volt offerings, including lower RDS(on), tighter analog design rules, as well as very dense digital capabilities, combining about a 30% aerial reduction for our customer benefit whilst as well lowering the manufacturing mass count.
This is an important segment and having a competitive advantage here is significant.
According to market reports such as Yole Development, the low voltage power IC market is estimated to be almost 50% of the overall power management market.
The 5 volt 65 nanometer technology addresses multiple applications such as LED lighting, analog switch, DC/DC converter, and load switch across consumer, industrial and automotive markets, and is presently being used by our customers to give them strong competitive advantage in large markets such as LED drivers and fingerprint ICs.
We are also expanding our 300 millimeter power management offering to include up to 16 volt operation, with best in class RDS(on) and other combined parameters with also the very high logic density of 65 nanometer at a low mass count.
This platform will enable our customers to reduce the dye size by 20% to 50% verse 0.18 micron platforms and will best match the needs of a wide variety of applications across many market segments.
We have strong customer pull for this offering presently for applications such as PMICs, battery protection, Class D amplifier, and load switches, and we see it as a high growth driver beginning the second half of this year, 2018.
I'd like to spend a few minutes talking about our current utilization, as well as plans for expanding our capacity which will enable us to continue to deliver growth for the coming years.
In terms of the utilization rates, Fab 1, our 6 inch factory in Migdal Haemek, was at 93% utilization, above our 85% design utilization model, again a statement about the longevity of our analog asset reuse business model.
Fab 2, our 8 inch factor, which is also in Migdal Haemek, Israel, was at its target 85% utilization.
In Migdal Haemek, we are increasing our monthly capacity by 6,000 wafers per month for certain IDM customers.
These are specific customers with long-term contracts with us.
These customer flows are mainly discretes that require more and longer furnace cycles and different CMP steps than the imaging, RF, and power flows.
Fab 3 in Newport Beach, California, our 8 inch factory, was operating at 76% utilization during the quarter, refreshing the line to enable the transition and capacity increases to substantially higher volumes of high-end silicon-germanium flows.
We invested in 2017 for tooling that is coming online now.
We expect to nearly double the advanced IG capacity by the second half of this year.
And as I'll mention in a minute, we are also adding silicon-germanium capacity to our San Antonio facility.
Our SiGe flows are highly differentiated, adding substantial value to our customers and as such are among our higher margin offerings; thus, as we increase our capacity in this realm, will lead to increases in overall margins.
The 3 TPSCo factories in Japan had a weighted average of approximately 60% utilization with a 15 point increase in our 8 inch third party foundry business.
I do note that the 12 inch factory is still at low utilization levels, which allows substantial open capacity to be targeted, as I explained, to ramp this year and through 2019 and continue into the '20s.
And finally, Fab 9, our San Antonio factory, was at about 55% utilization.
We recently installed several new tools to start providing SiGe capabilities in San Antonio which, in addition to the current flows, will bring the SiGe capacity from zero to 2,000 wafers per month in San Antonio by the end of this year.
Furthermore, in San Antonio, we are in the very good position of being able to trigger organic capacity expansion whenever we wish, with the potential of adding a further 12,000 to 14,000 wafers per month.
We are currently working on a large tool deal to substantially decrease the cost per 1,000 wafer per month capacity increase, and we will update when we have further details.
Looking at China, for our standard foundry business, China is the highest growth region, having grown by about 86% versus last year, with continued strong growth forecast.
We have over 20 active customers being served with activities from all of our business units, as well as many more Chinese customers in the funnel.
Growth in China has both tactical and strategic importance to us.
Considering the government-backed semiconductor initiatives and the Chinese stated goals to develop a complete semiconductor infrastructure to serve the growing needs of IC manufacturing and IC integration, we view it as strategically important to take part in this build out.
Therefore, we have been and continue to be active in exploring multiple opportunities to expand our presence there.
With respect to Tacoma, another avenue for capacity growth in the company, the partnership in China that we announced in Q3 2017 for the establishment of an 8 inch facility in Nanjing, I attended a roof sealing ceremony to celebrate building completion co-hosted by Tacoma and Nanjing Economic and Technology Development Zone this past month.
The project is progressing well.
We have agreed on terms for licensing of technologies, subject to payment milestones and deliverables, and are working to finalize the terms of support services and structure.
The full funding of this project is also in progress, supported by the local government.
We look forward to utilizing the capacity of the Nanjing fab to meet our customer demand and winning opportunities to fulfill our allocation of 50% of the fab capacity, and as well further strengthening our geographic presence in the China region.
Moving on to our business units, I'd like now to discuss end markets that are served within each of our main business units, provide color to the 2017 annual revenues and year-over-year growth for each of the major groups.
We divide our revenues into four groupings, RF, power management, CMOS image sensors, and lastly a grouping of mixed signal and others.
In 2017, as we had forecasted, we experienced organic revenue growth in all business units of over 25% except for RF, which grew at approximately 10%, yielding for the company a 23% year-over-year organic growth.
I'll now provide a summary of the main activities per business group.
In 2017, our RF group, including mobile and infrastructure, represented 29% of corporate revenues, approximately $400 million.
Mobile represented about 21% of the revenues, while infrastructure was at about 8%.
Of this, silicon-germanium offerings for infrastructure and some high-end mobile applications grew 22% year-over-year.
We continue to invest in technology to address the next generation of connected and smart devices.
During 2017, we launched H5, a leading silicon-germanium technology that is now part of TowerJazz's silicon-germanium terabit platform enabling next generation data communications in networks and data centers, supporting the dramatic increase of wire line data traffic.
We announced key design wins with Broadcom, a leading designer, developer and global supplier of a broad range of digital and analog semiconductor connectivity solutions.
We qualified our RF SOI platform at multiple manufacturing sites, offering increased capacity to meet growing customer demand.
We also began offering our enhanced and advanced automotive offering with leading technology for the complex requirements of ADAS and autonomous driving in the wireless connectivity and automotive radar markets.
We announced strong partnership with DENSO, entering production on RF radar sensors for the Toyota Camry cars released in North America.
We launched a new foundry silicon photonics process.
This new SiPho offering adds new serviceable content to the optical fiber market already served by our high performance silicon-germanium technology in data and cloud computing centers.
Looking ahead, the RF and HPA business unit is investing heavily to capture several emerging opportunities, the most significant being the advent of 5G for higher wireless data rates.
5G will increase the RF content in smartphones and improve performance, benefitting from the company's most advanced RF SOI and silicon-germanium technologies.
The higher data rates will also provide an infrastructure growth boost which TowerJazz will serve with its high performance silicon-germanium and new SiPho platforms.
In addition to our 5G activities, automotive sensors will continue to provide new business opportunities as advanced safety systems enable autonomous vehicles in the future.
TowerJazz's RF group will continue to expand its strong offering and presence within these fast-growing markets.
In 2017, our power management group, including power ICs and power discretes, represented about 30% of our corporate revenues, or approximately $420 million.
The power management business unit continues to see high demand, driven primarily from automotive industrial markets with additional consumer needs.
During 2017, we significantly expanded our offering by providing a broader voltage coverage and new capabilities, providing increased efficiency and additional features to our customers while enabling better cost structure from which both we and our customers benefit.
Several of the highlights of the year; we released our 200 volt SOI technology, which is now in mass production.
We release the 5 volt only and 3.3 volt only 65 nanometer process platform in Uozu, Japan, which started mass production and is ramping now.
We ramped to production multiple gen 4 and low RDS(on) products.
We are qualifying our power management platform at our San Antonio facility to enable additional capacity and flexibility for our customers.
And we released the leading 5 volt, high density, best in the world 91K gate per square millimeter digital library to enable high density designs on the analog platform.
We see a number of interesting opportunities ahead of us.
In the short term, we expect to increase our footprint in low voltage market using our previously described 300 millimeter 65 nanometer platform, providing customers with substantial cost advantage as we take part and share in higher margins.
And as mentioned, we have strong customer draw for our unique 65 nanometer BCD platform, which will give us leadership at the 16 volt level, offering the leading edge platform with best in class RDS(on) while again providing lower cost to our customers and higher corporate margins.
Our image sensor end markets, including medical, machine vision, digital SLR cameras, cinematography and security, among others, represented about 15% of our corporate revenues, or $210 million, and provided the highest margins in the company.
We offer the most advanced global shutter pixel for industrial sensor market, with a 2.8 micron global shutter pixel on a 110 nanometer platform, the smallest global shutter pixel in the world already in manufacturing.
Additionally, as mentioned, we have a 2.5 micron state of the art global shutter pixel in development as 65 nanometer 300 platform with several leading customers, allowing high sensor resolution for any given sensor size, enabling TowerJazz to further grow its market leadership.
We also offer a single photon avalanche diode which is state of the art technology, and ultrafast global shutter pixels for automotive LIDARs based on time of flight principles, answering automotive market needs.
We have engaged with several customers in the development of their automotive LIDAR, and expect to be a major player in this market in the coming future.
During 2017, we announced a partnership with Yuanchen Microelectronics for backside illumination manufacturing in Changchun, China that provides us the BIS process segment -- or the BFI, sorry, process segment for CIS 8 inch wafer manufactured by TowerJazz to increase our service to our worldwide customer base in mass production.
The line will be ready for this mass production early second half of this year, with multiple customers already having started their product designs.
In addition, we developed backside illumination and stacked wafer technology on 12 inch wafers in the Uozu factory, serving as the next generation platform for high-end photography and high-end security markets.
We now offer both BSI and column level stacked wafer PDKs to our customers.
We are investing today in 3 main directions, next generation global shutter technology for the industrial sensor market, backside illumination stacked wafers for the high-end photography market, and special pixel technology for the automotive market.
About 26% of corporate business serve various mixed signal applications.
The products within this group included MCUs, ASICs, RFID tags, logic standard cells, certain special CMOS embedded memories, and advanced sensors including MEMS.
These products serve computing, industrial, consumer, and automotive end markets.
And we serve as well the aerospace and defense business in the U.S., providing ITAR access to our commercial technologies for military and space applications at our Newport Beach, California facility.
So to summarize, we see strong demand across all of our business units, with additional specific demand for high-end, high margin silicon-germanium platform-based products.
As such, we are doubling our SiGe capacity.
We anticipate a significant ramp in 300 millimeter 65 nanometer flows starting production this year.
We are increasing capacity organically as outlined in this call, and as well through initiatives in China such as Tacoma, which is progressing nicely.
As stated, we anticipate growth throughout the year and, in particular, very strong second half.
As we continue our lead in the analog semiconductor space, we're taking significant strides to increase our activities and capabilities, and look to further our market potential and competitive advantages by investing and focusing on additional high growth, high margin markets.
Two of the newest focuses and activities of the company are analog neural networks fitting within the AI space, and environmental sensor modules.
We look forward to giving further updates as these activities progress.
I appreciate and gratefully acknowledge the combination of a dedicated worldwide employee base, outstanding managers and leadership team for the achievements I presented, as well as, and of great importance, our customer partners who have and continue to trust us with their business.
With that, I'd like to turn the call to our CFO, Mr. Oren Shirazi.
Oren?
Oren Shirazi - CFO and SVP of Finance
Thank you, Russell, and welcome everyone.
Thank you for joining us today.
We'll start by providing the P&L results highlights for the full year 2017 and for the fourth quarter, and then discuss our cash flow report and balance sheet.
The financial results for 2017 are the best financial results we ever have achieved, including record net profit and cash flow results, record revenue, gross profit, operating profit, and EBITDA.
Revenues for 2017 were a record of $1.39 billion, reflecting an 11% growth as compared with $1.25 billion in 2016, and reflected organic revenue growth of 23%.
Gross and operating profit for 2017 were at a record of $354 million and $220 million, an increase of 17% and 26% as compared with $303 million and $175 million in 2016 respectively.
EBITDA was at a record of $425 million, representing 31% EBITDA margin, an increase of 16% as compared with EBITDA of $367 million in 2016.
Net profit for 2017 was at a record of $298 million, reflecting 46% year-over-year net profit increase resulting in record basic earnings per share of $3.08 and a record diluted earnings per share of $2.90.
Excluding 2 one-time items related to tax which I will describe in greater detail later, net profit for 2017 was $203 million, reflecting 15% net profit margins in 2017 and reflecting 36% incremental net profit as compared with $154 million recorded in 2016, excluding San Antonio acquisition gain.
Net profit for 2017 included 2 specific one-time items in relation to tax.
The first income tax benefit is $82 million resulting from deferred tax assets realization following the release of a valuation allowance we previously had over the Israeli net operating gross carryforward NOLs for tax.
As of December 31, 2017, such NOLs amounted to approximately $1.2 billion, and they can be carried forward forever without any time limitation.
As an industrial company located in Migdal Haemek in Israel, our applicable tax rate is only 7.5%.
However, no cash basis will be required to pay income taxes after our future accumulated taxable profit will exceed even those $1.2 billion NOLs.
Multiplying these $1.2 billion NOLs by the 7.5% applicable tax rate results in a deferred tax asset of approximately $90 million.
This deferred tax asset is presented in the balance sheet as a long-term asset at a value of $82 million, being partially offset by the realization of deferred tax liabilities, mainly associated with the higher book value of our property and equipment as compared to its tax base value as a result of accelerated depreciation for tax purposes.
The realization of this net deferred tax asset of $82 million was recorded in the fourth quarter of 2017 as income tax benefit in the statement of operations, thereby increasing our net profit and shareholders' equity by the same amount.
The deferred tax asset will be utilized without any time expiration against future profits to be generated by us in Israel up to an aggregate amount of $1.2 billion.
As a result, we will record a periodic non-cash income tax expense equal to 7.5% of any pre-tax profits to be generated by us in Israel.
The second income tax benefit is $10 million resulting from the recently legislated U.S. tax reform, reducing the federal income tax rate from 35% to 21%.
This tax rate reduction will reduce our future tax payments in the States, and has already resulted in a reduction of certain U.S. deferred tax liabilities, net of certain deferred tax assets, from $32 million to $19 million.
Our net profit was 46% higher than the net profit recorded last year of $204 million, or $2.33 per share basic and $2.09 diluted earnings per share in 2016.
Net profit for 2016 included a $50 million net gain from the San Antonio fab acquisition and $6 million income tax benefit related to Nishiwaki fab closure, which were offset by $7 million non-cash financing expenses relating to Israeli Bank's loan early retirement.
Net profit excluding all above mentioned one-time items increased from $154 million last year to $203 million in 2017, reflecting an incremental net margin of 36% from the $138 million revenue growth.
Adjusted net profit, as described and reconciled in the tables of the release, increased from $175 million in 2016 to $226 million in 2017, representing 29% incremental growth and $50 million incremental adjusted net profit over the same $138 million incremental revenue.
For the fourth quarter of 2017, revenues were a record of $358 million compared with $340 million in fourth quarter of 2016.
EBITDA for the fourth quarter of 2017 was $107 million, or 30% EBITDA margins, as compared to $105 million in the fourth quarter of 2016.
Net profit for the fourth quarter of 2017 was a record of $147 million as compared to $48 million in the fourth quarter of 2016.
Basic earnings per share for the quarter was at a record of $1.50 and diluted earnings per share was at a record of $1.40, as compared to $0.53 and $0.49 respectively in the fourth quarter of 2016.
Net profit for the fourth quarter of 2017 included the same 2 one-time items I mentioned before, namely the $82 million Israeli deferred tax asset realization and the $13 million resulting from the U.S. tax reform.
Adjusted net profit for the quarter was $60 million, representing a 12% increase as compared to $53 million in the fourth quarter of 2016.
With regards to our cash flow report, in 2017 we generated a record level of cash from operations and achieved record free cash flow.
Free cash flow for 2017 was $191 million, and included $356 million positive cash from operations and $165 million CapEx payments, as compared with $117 million free cash flow in 2016, representing $73 million or 53% year-over-year incremental free cash flow from the $138 million revenue increase.
The other main cash flow activities in 2017 were comprised of the following; $115 million of cash invested in marketable securities, $31 million received from the exercise of warrants and options, and $50 million debt repaid.
Cash from operations in the fourth quarter of 2017 was $85 million and CapEx payments were $41 million, resulting in $44 million of free cash flow.
The other main cash flow activities in the fourth quarter of 2017 were comprised of the following; $65 million invested in marketable securities, $17 million debt repaid, and $3 million received from the exercise of warrants and options.
I will now provide a balance sheet analysis as of the end of 2017.
As of such date, cash, short-term deposits, and short-term marketable securities increased to $560 million as compared to $389 million as of December 31, 2016.
The gross debt outstanding amount as of the December 31, 2017, was $334 million, comprised mainly of $138 million of bank loans and $180 million debentures.
Cash, including short-term marketable securities net of gross debt as of December 31, 2017, total a record of $226 million as compared to net cash of $37 million as of December 31, 2016.
In February 2018, Wells Fargo and Jazz Semiconductor, our U.S. fully owned subsidiary, signed a 5-year extension of the existing credit line agreement, which had been originally set to mature in December 2018, under which Jazz will be able to draw down up to $70 million through 2023.
Any such drawdown will bear an interest rate ranging from LIBOR plus 1.25% to LIBOR plus 1.75%.
And as of December 31, 2017, and the date hereof, there were no loans drawn down under this credit line.
Shareholders' equity was at a record of $1.03 billion as of December 31, 2017, as compared with $683 million as of December 31, 2016.
Share count as of December 31, 2017, included 98 million outstanding shares.
Our fully diluted share count as of December 31, 2017, included an additional total of 10 million possible shares that may be issued comprised as follows; 3 million under ESOP plan and RSUs, 6 million underlying convertible bonds, and 1 million underlying capital notes.
As a result, the fully diluted share count was 108 million, unchanged from previous quarter.
With regards to currencies and hedging, in relation to the Japanese yen, since all Panasonic revenues are denominated in yen and the vast majority of TPSCo's costs are in yen, we have a natural hedge for most of the Japanese business and operations, excluding the portion in which the yen-denominated variable costs associated with foundry business exceed the yen net gains from Panasonic business.
In order to mitigate most of this yen exposure, we have executed zero-cost cylinder hedging transactions.
These zero-cost cylinder transactions hedge all currency fluctuation to be contained within a narrow range as compared to the spot exchange rates.
Hence, while the yen rate against the U.S. dollar may fluctuate, our margins are almost not impacted.
In addition, in relation to the Japanese yen impact on balance sheet, we have a natural hedge on cash and loans balance, since the loans and the cash are both yen-denominated and in similar amounts.
These protects us from potential impact of yen fluctuations.
In relation to fluctuations in the Israeli shekel currency, we have no revenues in this currency.
And while less than 10% of our costs are denominated in the Israeli currency, we also target to hedge this currency risk with zero-cost cylinder transactions.
Lastly, in relation to the euro currency, we have almost zero business in euros, hence no exposure to the euro.
To summarize, 2017 was the best year we had to date, a year in which the company achieved all-time records in revenue, profit margins, and cash flow.
That ends my summary, and now I wish to turn the call to Noit Levi.
Noit, please go ahead.
Noit Levi
Thank you, Oren.
Before I 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 fourth quarter and fiscal year of 2017 financial results have been prepared in accordance with the U.S. GAAP, and the financial tables in today's earnings release include finance information that may be considered adjusted financial measures and non-GAAP financial measures under Regulation G and related reporting requirements as established with the Securities and Exchange Commission as they apply to our company.
Namely this release also presented financial data which is reconciled, as indicated in the tables or in the call, on an adjusted basis after deducting, one, amortization of acquired intangible assets; two, compensation expenses in respect of equity grants to directors, officers and employees; three, gain from acquisition net; four, non-cash financing expenses related to bank loans early repayment; and five, other nonrecurring items such as acquisition-related costs and Nishiwaki fab restructuring cost and impairment.
Adjusted financial measures and non-GAAP financial measures should be evaluated in conjunction with and are not substitute for GAAP financial measures.
The tables in the earnings release also contain comparable GAAP financial measures to the adjusted financial measures, as well as the reconciliation between the adjusted financial measures and the most comparable GAAP financial measures.
EBITDA is reconciled in the tables from GAAP operating profit.
EBITDA is not a required GAAP financial measure and may not be comparable to a similarly entitled measure employed by other companies.
EBITDA, the adjusted financial measures and the non-GAAP financial information presented herein should not be considered in isolation or as a substitute for operating income, net income or loss, cash flow provided by operating, investing and financing activities, per share data or other income or cash flow statements that are prepared in accordance with GAAP, and is not necessarily calculated or presented on 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
Thank you.
Ladies and gentlemen, at this time we will begin the question and answer session.
(Operator Instructions) The first question is from
Cody Acree of Drexel Hamilton.
Cody Grant Acree - Interim Director of Research
Sure.
If we could go back to a comment you made in your press release, I think the quote was realization of several key initiatives that would be a foundation for long-term growth.
You talked about your organic capacity expansion, and obviously, you have the Chinese Tacoma project.
Are there other key initiatives that you were alluding to?
And how does that relate to the long-term $3.5 billion target that you laid out at the analyst day?
Russell C. Ellwanger - CEO & Director
Yes, there's multiple things, a lot that were press released.
So the initiatives that we did over the year was -- or that really took fruition in the past year with the customers were, to a very large extent, on impact for '18 and '19, those activities that I summarized for 300 millimeter.
If you look at the CIS, the column stacking, for example, the backside illumination activities, in addition to what's in there now were very, very strong initiatives.
Now the column stacking in BSI will not be '18 revenues, but we have very strong activities that have happened there that will continue an, I think, outstanding performance within the image sensors for a long period of time.
What we've done within the imaging side on the LIDAR activity is very, very strategic.
In the power management, the activities we're doing on the up to 16 volt BCD technologies with lower mass counts, those are type activities that add tremendous benefit in that both the customer and ourselves share in higher margins.
It's a very, very big step function difference on chip sizing and performance; the RF capabilities that we talked about that were ramping in Uozu.
So those are some of the strategic initiatives that really took tremendous customer actions in 2017 to drive what we're forecasting in the '18, certainly the Tacoma project.
We had stated back in '16 the importance that we saw in China, and to have announced that project -- and we've stated as well that there's a variety of other things that we're pursuing.
But the Tacoma project, the 8 inch backside illumination project that we have there, the overall Chinese growth is both tactical and strategic and we think very, very important.
And then we have the other activities that we're doing in a variety of areas.
The SiPho, I think we have an incredible SiPho program going on, and a variety of things in the SiPho arena that are not press released.
We have a variety of things within the image sensor arena that are not press released where we have very strong customer interactions and joint developments that are under NDA.
But across the board on a technology front, on a tactical front in what we've qualified, how we're growing things, I think we made some very good moves.
In the area of SiGe capacity increase, we had seen and believed a very, very strong growth in our SiGe demand.
The tools that we actually got for silicon-germanium deposition itself had extremely long lead times that, had we not had the foresight, and I think good business outlook in relation with the customers, to have ordered the tools when we did we wouldn't be in a position to be ramping and meeting customer demands in Q1, Q2, Q3 of this year.
So I think tactical execution was very, very good.
Strategic execution I think has been extremely good.
So I don't know if there's more that you want to hear about that, but I think as far as what is in public record the statement is a very, very accurate quote.
And then there's substantially more that is not in public record.
Cody Grant Acree - Interim Director of Research
And it maybe to that, Russell, you laid out that very aggressive $3.5 billion target and you didn't give, obviously, a timing on that at the analyst day.
But a lot of the programs that you've laid out, at least that have been released, sound like they're kind of block and tackling organic initiatives, maybe very aggressive but still relatively organic.
So I guess from $1.5 billion revenue company to a $3.5 billion, can you walk us through the mindset of how do you get to $3.5 billion, and why $3.5 billion?
Why not $2.5 billion or $4 billion?
Why did you settle on that number?
Russell C. Ellwanger - CEO & Director
Very specifically, we have a series of board meetings.
Within these board meetings, obviously there's always the financial board meeting and audit committee meeting each quarter.
But we have very strategic meetings that we call content boards that cover a variety of issues.
One is M&A initiative and landscape.
And we outlined at that meeting a variety of activities that we were pursuing, some at beginning stages, some at latter stages, but all with opportunities that we thought were very realistic that would enable the $3.5 billion in addition to the organic growth that we're talking about.
So the organic footprint that we've talked to if you include the Tacoma project, which you could consider organic or having done a very, very strategic business model, probably puts us somewhere between a $2.3 billion and a $2.5 billion.
And then the other initiatives that we're looking at, where we would increase our served market on markets that are adjacent to what we have right now, hence adjacent meaning predominantly serving a variety of existing customers in areas that we do not presently present, and hence the ability in our mind and from some customer inputs to somewhat rapidly grow market share in a new served market, that is what we have as the basis for the $3.5 billion.
So the $3.5 billion wasn't just a target pulled out of the air.
It was numbers that we had discussed on paper with the board that we thought was reasonable to get to with a variety of activities that we are pursuing, have pursued, and will continue to pursue.
Cody Grant Acree - Interim Director of Research
That's very helpful.
And then lastly, Oren, could you just talk about use of cash going forward?
You obviously have these organic initiatives, your doubling of SiGe.
What kind of CapEx are we looking at for 2018?
And then what are your thoughts now that I think you're annualizing getting into a point where dividends and buybacks might be a possibility?
Can you just talk about your use of cash plans?
Oren Shirazi - CFO and SVP of Finance
Okay.
So with regards to CapEx, we so far don't change our previous forecast, which is about $168 million, $170 million total CapEx per year.
And this is our standard run rate.
Now, of course, Russell mentioned in his part about a possibility to increase capacity of San Antonio and other possibilities.
And of course, once we will announce that such a plan was done, this will be on top of the $170 million.
And we will be very happy to use for that the cash.
Usually, it has ROI of 1.5 to 2 years from such a CapEx investment.
With regards to dividend and buyback, we believe that the best use for our funds is growth opportunities, exactly what Russell spoke before, all kinds of acquisitions and the other transactions that we consider all the time.
And we want to achieve those, this very aggressive target of $3.5 billion for that, of course.
Right as you said, $2.2 billion, $2.3 billion is maybe internally possible when including Tacoma and San Antonia expansion and all that.
But the rest should come from acquisition.
And for that, we want to have -- we need to have these funds.
Operator
The next question is from Rajvindra Gill of Needham & Company.
Rajvindra S. Gill - Senior Analyst of Microcontrollers, Analog & Mixed Signal; Consumer IC & Multi-Market
A question, Russell and Oren, on the near term.
So Q1 revenue is implying to be down about 9% sequentially.
If you look at last year in March, revenue was down 3% sequentially, so it was greater than seasonal at least with respect to last year.
And on a year-over-year basis, revenue is down about 1.5% year-over-year.
And so this is kind of now several quarters in which growth rate has been decelerating on a year-over-year basis and now entered into negative territory in Q1.
So I wanted to -- maybe if you could elaborate on kind of what happened in the quarter in terms of the seasonality effect.
And I know you had mentioned organically you grew 23% year-over-year in '17, but the overall growth rate has been decelerating since Q4 of 2016.
So maybe if you could talk to that as well, I would appreciate it.
Russell C. Ellwanger - CEO & Director
Certainly.
So the first point is your question about the seasonality.
You are correct.
In Q1 of 2016, we saw much less of the seasonality that the entire industry saw.
So certain areas that we were involved in then were seeing some surges in market demand outside of seasonality, and we were growing in market share in certain areas that allowed us to curtail seasonality.
I think if you were to look at it, the industry itself, and if I look at the industry I look at the largest foundry in the world, I think that they were as well in Q1 '16 on the area of about 10% down quarter-over-quarter.
We were somewhere about 2%.
I think right now if you look at the biggest player in the world, they're down 10% quarter-over-quarter.
We're down 9%.
I don't think there's any big difference.
But you are correct.
We did mitigate more of the seasonality through certain areas that we were involved in that had very high demand at the beginning of 2016.
I don't see that as being a problem at all.
If you talk about growth decelerating, we had a 2016 30% organic.
We had a 2017 23% organic growth.
I don't know that one could maintain a 30% organic growth forever.
Some of the organic growth really will tail out unless you're increasing your served markets.
Certainly 23% is probably more than any single segment that we're involved in has grown over the past year.
So we're outgrowing markets within areas that we're in because we're growing market share within those areas.
And part of the answer to Cody's question, without getting into details, is part of what we're focusing on for the $3.5 billion, as I mentioned, are adjacent technologies where you then have increases in your share of market almost from day one because it's an increase in your served market.
And that becomes something that we've I think been very strong at and very good at.
If you look at most of the products that we do, even the organic growth is increasing our served market capabilities.
Certainly, when we got involved with image sensors at 300 millimeter, there were markets that we were then able to compete in that we didn't compete in before such as the digital SLR cameras.
So by doing that acquisition, we enabled a new served market.
It takes a number of years, especially within an area of digital SLR, for that to start growing because you're dealing with, if you want to have any big growth, there's not so many big players in that.
You have to get them.
They have to design to you and then get into the models of cameras.
But that is how we outgrow the market, is by either organically increasing served market areas or inorganically buying something that allows us to get into a new served market.
You cannot continually have organic growth that outgrows a market growth.
Rajvindra S. Gill - Senior Analyst of Microcontrollers, Analog & Mixed Signal; Consumer IC & Multi-Market
That was very helpful.
Oren, on the gross margins, again, you don't break out the stock-based comp across the different lines, although it's still small, but it basically implies kind of a 25.2% gross margin in Q4.
I'm wondering how you're looking at gross margin going forward.
Russell mentioned that you should have a mix shift positive impact with SiGe.
Are there any other additional tailwinds that you're seeing on the margin front, or conversely any headwinds?
Other competitors, or at least some folks, have talked about higher wafer pricing for 200 millimeter for the raw wafers.
So I was just wondering if you could talk about the puts and takes on the gross margins as we progress throughout this year.
Oren Shirazi - CFO and SVP of Finance
Yes, you are correct about the SiGe observation, that certainly, like Russell indicated, this should improve our gross margins.
While the capacity in Newport Beach will stay the same, we will introduce more SiGe wafers.
We are, like Russell said, almost doubling the capacity of the SiGe, and the gross margins will improve from that.
And another factor is the Uozu introduction, so we are ramping up in Uozu.
So mainly in the second half of this year, the Uozu product, which is obviously 300 millimeter, are better from a margin point of view in the average than other fabs, so we will have also a benefit from that aspect.
With regard to the silicon cost, we succeeded through qualification of other vendors to reach the situation that it almost has no impact on us.
And our costs are not going up almost in any manner because of that, indeed, trend of silicon price increase.
We found alternative suppliers and alternative materials, and overall we don't have any cost increase.
Rajvindra S. Gill - Senior Analyst of Microcontrollers, Analog & Mixed Signal; Consumer IC & Multi-Market
Okay, good.
And last question for me, last year you talked about the RF business kind of growing mid-single digits, and then it ended up growing 10% year-over-year.
And then you had mentioned the other businesses, power management, sensor and mixed signal, kind of growing 25% year-over-year.
And so I'm wondering if you could provide a forecast for this year as best you can base on these growth drivers because you've outlined kind of going from 1.5 to 2.2, 2.3 organically, so I wanted to get a better sense.
You talked about return on investment of 18 months, so that's going to be some time relatively soon.
I was wondering if you can elaborate on some of those growth drivers this year.
Russell C. Ellwanger - CEO & Director
Probably organically this year we'll sit somewhere in the -- as a company organically somewhere in the low double digits.
That's what things are rolling up to look like at this point.
RF this year should be somewhere again around 10%.
But within the RF, one of the big things of RF is the silicon-germanium growth.
That will probably be up somewhere between 30% to 45%.
And what that matter is really the -- we had stated back at the beginning of '16, and it hasn't changed, we're not extremely interested to compete on low margin RF SOI.
If you look at RF SOI, it has a very, very good sale price because the substrate itself is very expensive.
But the margin isn't necessarily fantastic unless you're doing the higher end products.
So when I talk about around a 10% RF growth, the RF margin will grow much more than 10%.
But the revenue itself, we're replacing some high ASP, average selling price, products that aren't necessarily high margin with very high margin that, because the substrate is now taken out at a $300 to $400 level, you're dealing with a similar selling price but a much higher price per layer.
Operator
The next question is from Quang Tung Le of Credit Suisse.
Quang Tung Le - Research Analyst
So I have a question -- well, most of my questions were asked already, but I have a question as to your tax.
So basically you do say that you will benefit going forward from lower taxes in U.S. And on the group level then, where do you see the tax rate's going to be in '18 and '19?
Oren Shirazi - CFO and SVP of Finance
So I believe the overall total will be close to zero because, on the one hand, we have the tax reduction in the States from 35% to 21%.
And we also have the tax program that we launched in the previous quarter, we spoke about it, in Japan, about royalties and other expenses paid from TPSCo, the Japanese JV, to Panasonic and Tower.
And in Israel, it's obviously zero until we will make accumulated profits of $1.2 billion.
So I believe that tax payments will be very small, maybe 1 digit, meaning less than $10 million for the year, so less than maybe $2 million a quarter.
And the total tax expense will be a little bit higher, but they will be non-cash.
But overall very, very small amounts.
Quang Tung Le - Research Analyst
I see.
And then could you elaborate more on your wafer suppliers.
You said that you found an alternative wafer supplier.
Did you have to qualify all of them?
And when you said you found alternative wafer supplier, could you specify where geographically were they based?
Russell C. Ellwanger - CEO & Director
Yes, we certainly have to qualify every alternative supplier, and that's an activity that was not an immediate activity.
It's something that we've been working on for many years.
And we've been pretty successful at it.
So although there is from some people's standpoint a shortage of silicon, we pretty much have everything taken care of, reserved, and on contract.
And we have never missed any wafer starts because we didn't have available silicon for those starts.
Our alternative base is really in many, many different areas, some now being qualified in China.
Quang Tung Le - Research Analyst
And these are all on 200 millimeters, am I correct?
Russell C. Ellwanger - CEO & Director
For the most part, 200 millimeter, because most of our volume is 200 millimeter, 300 as well.
Quang Tung Le - Research Analyst
You do have 300 from China as well?
Russell C. Ellwanger - CEO & Director
No, we have 300 millimeter.
I honestly don't know if we have any 300 millimeter substrates from China.
I really don't.
I don't think so, but I am not sure.
Your question was about the 200 millimeter, the China substrates.
So definitely the 200 millimeter is coming from China but for once specific flow.
I really don't know of any 300 millimeter from China at all.
Operator
The next question is from Lisa Thompson of Zachs Investment Research.
Lisa R. Thompson - Senior Technology Analyst
I just wanted you to follow up a little bit on your statement that you said, this year is going to be heavily back-end weighted.
Could you describe perhaps an order of magnitude what is causing that, either by product or technology?
Russell C. Ellwanger - CEO & Director
Really 2 major things.
As I talked about very strongly in the call, we are anticipating, forecasting a substantial ramp at 300 millimeter, the ramp beginning now.
So anytime you have a ramp, every quarter is more than the other.
So we would expect the second half of the year to be a significant amount of 300 millimeter revenue.
And the other, as I talked about, was the silicon-germanium capacity increases that we're doing.
So as we -- from now in the qualifications through the end of the year or into the third quarter, as we double the silicon-germanium capacity obviously that allows higher revenues.
And then we have as well an additional 6,000 IDM wafers that we're adding to Migdal Haemek, and that's being done as we speak.
And that will go then through Q1, Q2 until that's fully installed, so you have then the additional capacity coming out of fab 2 for that additional 6,000 IDM wafers.
Lisa R. Thompson - Senior Technology Analyst
Okay.
So it's more a factor of production rather than customer demand for some particular product that's coming on line.
Russell C. Ellwanger - CEO & Director
They both go hand in hand, actually, right?
I mean, the ramping in 300 millimeter is as per customer demand in 300 millimeter.
The 6,000 wafer addition of IDM activities is also customer demand related.
So I'm not trying to be obtuse.
I don't know how to separate each one, but certainly, it's capacity that's driven by certain people using the capacity.
We have capacity already in Uozu, so it's the demand of the customers that's driving the revenue growth.
In the case of the silicon-germanium, it's really a case of capacity and demand going hand in hand.
Operator
The next question is from Richard Shannon of Craig-Hallum.
Richard Cutts Shannon - Senior Research Analyst
I'm going to follow up on the last one here.
I got interrupted during your prepared remarks, so I may have missed your comments, Russell.
But specific to the acceleration in the second half of the year from 300 millimeter, did you specify which product or products were driving that?
Russell C. Ellwanger - CEO & Director
I did.
Richard Cutts Shannon - Senior Research Analyst
Can you repeat what those are?
Sorry about that.
Russell C. Ellwanger - CEO & Director
It was probably about a 15 minute portion of my script, but I'll go ahead and summarize it.
Richard Cutts Shannon - Senior Research Analyst
Yes.
Is there a 10 second summary on that one?
Russell C. Ellwanger - CEO & Director
Yes.
It was CMOS image sensor.
In particular, we talked about the high-end digital SLR, cinematography and broadcasting.
Within RF, it was RF SOI/LNA combos.
And within power management, it was the 5 volt ramping presently.
And we said a BCD platform 65 nanometer with a up to 16 volt capability ramping in the second half of the year.
Richard Cutts Shannon - Senior Research Analyst
Okay.
That's helpful.
I did want to follow up on the combination of LNA and switches.
How prevalent of an architectural shift do you expect that to be going forward?
Is this a relatively smaller portion, or we could see it pervasive across all the leading edge handsets?
Any thoughts on that?
Russell C. Ellwanger - CEO & Director
I think it'll really come into a fact of is it cost productive to combine it verse having small LNAs and a separate bill.
But right now we're seeing a lot of interest by people.
We've certainly taped out a variety of products.
And we have multiple customers sampling a variety of products, both the 200 and 300 millimeter.
Richard Cutts Shannon - Senior Research Analyst
Okay, helpful.
Russell C. Ellwanger - CEO & Director
There's a very big provider that's very strong into a combined switch LNA right now, provider meaning one of those that would sit within our customer base.
Richard Cutts Shannon - Senior Research Analyst
Okay.
Maybe a couple quick questions for me.
You made a brief comment on Tacoma, and it sounds like you're in process of negotiating something there.
It sounds like you would prefer us not to try to include anything in your models at this point, but if you can give us any updated thoughts on how to think about the scale, both kind of the interim consulting or service related revenues, and then any expectation and timeframe for wafers coming out that would drive some revenues.
Russell C. Ellwanger - CEO & Director
So we actually have I think a very, very strong demand for that capacity presently.
That would be substantial revenue, would probably come online within 2019 and be steady throughout the entirety of the 2020s.
So I think that's the timing that we would look at from the demand that we're seeing right now, would be a ramp in '19 and hitting probably entitlement volumes in '20 and staying that way for quite a long time.
The numbers that we've always said from Tacoma you could look at.
I mean, it would give us 20,000 wafer per month of 200 millimeter capability.
So we never gave a specific forecast on it, but that would be on a totality -- well, you can do the calculations.
It depends on what the sale price would be per wafer.
As far as the contract itself and what we'd be getting out of the contract, we had announced that the first payment was gross somewhere about $20 million.
Net of taxes I think it was $18 that we got on that.
And the rest of the payment schedule, we've not released what it would be but there would be several more technology transfers as well as milestones of building up the facility, and then certain other servicing agreements that would be on a yearly basis thereafter.
Timeframe, I do think that the Tacoma project is moving nicely.
And I would expect that in the Q2, Q3 timeframe that pretty much everything is settled and done.
Operator
There are no further questions at this time.
Mr. Ellwanger, would you like to make your concluding statement?
Russell C. Ellwanger - CEO & Director
Certainly.
Again, as always, really do very much thank our investors, our analysts for their interest in the company; very grateful to our customers for trusting us for an integral part of their business.
The company is in a very, very good trajectory and an incredible position that we never had before as far as sitting on a very good financial base to allow us to move in several directions that maybe weren't available for us before to increase our served market.
As a nicety, we would really look forward to seeing any and all of you face to face at upcoming conferences.
On March 8th, we'll be at the UBS conference in London; March 12th at the Roth conference in Orange County, California; and March 14th at the Susquehanna annual technology conference in New York.
So, anyone who would like to sign up for those conferences, we'd really enjoy the one-on-one, face to face time with you.
And obviously, any follow up to this call, as per normal we're very, very happy to do.
Also, our 2017 annual report is now available on our website.
It contains a message from our Chairman, a message from myself, from our CFO, from our President.
It contains sections from each of our business unit General Managers outlining their vision of their business, of their markets, and concludes with a message from our Head of Human Resources talking about different initiatives we do to inspire our employee base, and also outlines our environmental social activities in order to show our value as being a global citizen and we value being a global citizen.
With that, I thank all of you for your participation.
Please take a look at the annual report in the website.
I think you'd enjoy it.
I think it's an interesting report.
It certainly has some very pretty graphics in it.
So thank you very, very much.
Operator
Thank you.
This concludes the TowerJazz fourth quarter 2017 results conference call.
Thank you for your participation.
You may go ahead and disconnect.