Tower Semiconductor(US:TSEM)2020-04-30 20:38Financial Performance - Revenues for the year ended December 31, 2019, were $1,234,003 thousand, a decrease of 5.4% from $1,304,034 thousand in 2018[37] - Gross profit for 2019 was $229,671 thousand, down 21.5% from $292,947 thousand in 2018[37] - Operating profit for 2019 was $86,716 thousand, a decline of 44% compared to $154,943 thousand in 2018[37] - Net profit attributable to the Company for 2019 was $90,048 thousand, a decrease of 33.6% from $135,579 thousand in 2018[37] - Basic earnings per share for 2019 were $0.85, down from $1.35 in 2018, representing a decline of 37%[37] Assets and Equity - Total assets increased to $1,932,833 thousand in 2019, up from $1,789,977 thousand in 2018, reflecting a growth of 8%[38] - Cash, cash equivalents, and short-term interest-bearing deposits rose to $571,170 thousand in 2019, compared to $505,170 thousand in 2018, an increase of 13%[38] - Shareholders' equity increased to $1,346,723 thousand in 2019, compared to $1,236,205 thousand in 2018, a rise of 9%[38] Research and Development - Research and development expenses for 2019 were $75,579 thousand, up from $73,053 thousand in 2018, indicating a growth of 3.5%[37] Customer Concentration - In 2019, 27% of the company's revenues were generated from one customer (PSCS), with five additional customers each contributing between 5% to 9% of revenues[55] - Revenue from PSCS decreased by approximately $70 million in the nine-month period ended December 31, 2019, due to reduced selling prices under a renewed agreement[56] Risks and Challenges - The company faces risks related to manufacturing difficulties, which could adversely impact delivery times and financial results[40] - The company may face adverse effects on financial results due to global economic conditions, including a potential global recession and the impact of the coronavirus pandemic[60][61] - The company relies on export licenses and other permits for operations, which may pose risks to business continuity[57] - The company is dependent on maintaining key customer relationships; loss of significant customers could materially harm financial results[55] - The company may need to obtain financing for strategic opportunities, which could dilute shareholder holdings or incur additional debt[54] - The company faces risks related to international operations, including compliance with foreign regulations and geopolitical instability[68][69] - Manufacturing facilities may experience disruptions due to natural disasters, which could adversely affect production and revenues[65] - The company’s financial results may be negatively impacted if it cannot operate facilities at satisfactory utilization rates, as a large portion of costs are fixed[64] - Cash flow fluctuations could adversely affect the company's business and financial position, influenced by factors such as revenue levels and capital expenditures[73] - Over-demand for foundry services may lead to customer loss and revenue decline, impacting profitability[74] - The company faces challenges in retaining qualified personnel due to intense competition in the semiconductor industry, which may increase compensation costs[75] - The lack of significant backlog makes it difficult for the company to forecast future revenues and margins accurately[76] - Future revenues are expected to depend heavily on purchase orders received in the preceding quarters, with no assurance of order continuity[77] - Manufacturing based on forecasted demand may result in obsolete inventory, negatively impacting financial results[78] - Long sales cycles may lead to excess capacity and lower utilization of facilities if received orders do not meet expectations[79] - Delays in procuring equipment and raw materials could result in production delays and loss of customers[80] - The company is subject to conditions from Israeli government grants, which may impose liabilities if not met[82] - The company is subject to various litigations that may divert management focus and adversely affect business operations and financial results[96] - The semiconductor industry frequently faces litigation regarding patent and intellectual property rights, which may impact the company's ability to manufacture certain products[97] - Future infringement claims could lead to substantial financial burdens, including legal fees and potential damages, affecting business operations and revenues[98] - Compliance with environmental regulations in multiple countries may result in increased manufacturing costs and potential liabilities[99] - The company operates as an independent semiconductor foundry, relying on the trend of outsourcing foundry services, which if not sustained, could negatively impact financial results[101] - Collaboration with electronic design automation vendors is crucial; difficulties in this area may harm the company's ability to meet customer design needs[102] - The company may face challenges in selling excess and unused equipment, which could negatively affect financial results if not managed effectively[103] - Compliance with governmental regulations regarding semiconductor exports may disrupt business operations and increase costs[105] - Product liability claims due to defective integrated circuits could damage the company's reputation and financial condition[106] - Unionized workforce dynamics may lead to increased manufacturing costs and operational disruptions, impacting overall performance[107] Dividends and Financing - The company does not expect to pay any dividends in the foreseeable future, intending to retain future earnings for growth and acquisition strategies[122] - The company may seek additional funding sources, including debt refinancing and sale of new securities, to manage its debt obligations and support growth plans[72] Debt and Interest Rates - As of December 31, 2019, the company had approximately $290 million of consolidated principal amount of long-term debt outstanding, including $135 million in Series G debentures, $101 million in JP Loan, and $54 million in capital lease agreements[71] - As of December 31, 2019, the outstanding principal of Debentures Series G is approximately $135 million, bearing an annual fixed interest of 2.79%[474] - As of December 31, 2019, the company has approximately $101 million in TPSCo's loans at a fixed interest rate of 1.95% and $54 million in equipment capital lease agreements with interest rates of 1.85% or 1.95%[482] - The company is exposed to market risk due to fluctuations in interest rates on cash deposits and investments, which may affect interest income and fair market value[472] Currency and Inflation - The company operates in three regions: Japan, the United States, and Israel, with the functional currency for U.S. and Israeli entities being USD, and for the Japanese subsidiary being JPY[476] - During the year ended December 31, 2019, the USD depreciated against the NIS by 7.8%, compared to an 8.1% appreciation in 2018[477] - Assuming a 10% appreciation of the NIS against the USD, the effective impact on quarterly Israeli expenses would be approximately $3 million higher[480] - Assuming a 10% appreciation of the JPY against the USD, the effective impact on quarterly results would be a decrease in profitability by approximately $2 million[481] - The company holds approximately $74 million in cash and cash equivalents in JPY currency accounts, partially mitigating JPY debt exposure[482] - A 10% appreciation of the JPY against the USD would not have a material effect on the company's balance sheet as of December 31, 2019[482] - Inflation in Israel has ranged between -1% to 1% over the last 6 years, having a minor effect on the company's business[483] - The company's dollar costs in Israel may increase if inflation exceeds the devaluation of the NIS against the USD[483]