Tower Semiconductor(TSEM) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter revenues were $300 million, meeting guidance, with EBITDA of $73 million and net profit of $17 million [6][29] - Year-over-year organic revenue growth was 10%, or $19 million, while nonorganic revenue decreased by $29 million due to a renewed contract with Panasonic [29][30] - Gross profit for Q1 2020 was $53 million, down from $63 million in Q1 2019, and operating profit was $16 million compared to $27 million in the prior year [29][30] Business Line Data and Key Metrics Changes - The analog IC business unit saw strong growth in mobile RF due to increased market share and 5G handset rollouts, although growth expectations were tempered by COVID-19 impacts [11][12] - The silicon germanium optical business unit reported a resurgence in orders driven by 5G infrastructure, with expectations for strong growth through 2020 [13] - The power IC business unit maintained good performance despite challenges in the automotive sector, with new product ramps expected to mitigate COVID-19 impacts [14][15] Market Data and Key Metrics Changes - Utilization rates varied across facilities, with Fab 1 at 60%, Fab 2 at 70%, and Fab 3 at 55%, with significant increases expected in Q2 due to demand for silicon germanium [22][23] - The 12-inch foundry business in Japan had an 80% utilization rate, a 10-point increase from the previous quarter, indicating strong demand [23] Company Strategy and Development Direction - The company is focused on capacity expansion in its 300-millimeter facility to meet existing and future demand, with investments in equipment reaching $63 million [6][29] - Continued investment in new technologies and partnerships, such as with Renesas for advanced satellite terminals, is a priority [14] - The company aims to maintain a strong balance sheet, with a current assets ratio of 3.8x and record shareholders' equity of $1.36 billion [28][33] Management Comments on Operating Environment and Future Outlook - The management acknowledged the challenges posed by COVID-19 but noted stable demand in early 2020, with expectations for quarter-over-quarter growth throughout the year [10][24] - There is uncertainty in customer forecasts, but the company remains optimistic about growth in various markets, particularly silicon germanium and RF mobile [44][57] - The management emphasized the importance of diversified end markets to mitigate risks associated with downturns in specific sectors [43][82] Other Important Information - The company reported a tax benefit of $1.7 million due to the CARES Act [31] - Standard & Poor's Ma'alot affirmed the company's corporate credit rating of ilAA- with a stable outlook [35] Q&A Session Summary Question: Customer demand improvements around 300-millimeter capacity - Management noted that demand is driven by diversified end markets and market share gains, despite uncertainties [43][44] Question: Market share growth in silicon germanium - Management indicated that while market share is high, the overall market is expanding, particularly in data centers and 5G infrastructure [45][46] Question: Gross margin decline - Management explained that gross margins were stable, with expectations for improvement as revenue increases [47][48] Question: Guidance for Q2 and organic growth rates - Management maintained guidance for Q2 at $310 million, reiterating expectations for low double-digit organic growth for the year [50][56] Question: Capacity increase due to non-litho bottlenecks - Management provided details on expected capacity increases and the impact of alleviating bottlenecks [60] Question: Supply risk management - Management emphasized strong relationships with suppliers and proactive inventory management to mitigate supply chain risks [62][63] Question: Sustainability of data center orders - Management expressed confidence in the strength of data center demand and its sustainability for the remainder of the year [84] Question: Growth drivers for 2021 - Management highlighted RF mobile, silicon germanium, and new technologies like fingerprint sensors as key growth drivers for the next year [78][79]