Tower Semiconductor(TSEM) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2021 was $362 million, a record for the company, representing a 17% year-over-year increase and 26% organic growth [9][33] - Gross profit for Q2 2021 was $74 million, up 28% year-over-year, while operating profit was $34 million, a 54% increase year-over-year [38] - Net profit for Q2 2021 was $31 million, or $0.29 basic earnings per share, reflecting a 62% year-over-year increase [38] Business Line Data and Key Metrics Changes - RFSOI segment saw over 40% year-over-year organic growth, power IC grew by 35%, image sensors increased by 30%, and power discrete grew by 23% [9] - RF mobile business accounted for 25% of revenues and is expected to show strong growth, driven by the anticipated doubling of 5G handset shipments [20] - Imaging business represented 15% of revenues, with growth in medical, dental x-ray, and industrial sensors [24] Market Data and Key Metrics Changes - The company expects to achieve a revenue run rate exceeding $1.5 billion annually, with Q3 guidance set at $385 million, indicating a 24% total growth year-over-year and 38% organic growth [10][33] - Demand for 5G technology is increasing average selling prices in the RF mobile segment, expected to continue for several quarters [21] Company Strategy and Development Direction - The company is executing a $250 million capacity expansion plan to increase production capabilities in 8-inch and 12-inch fabs [34] - A partnership with ST Microelectronics aims to accelerate the ramp-up of the Agrate 300-millimeter manufacturing facility, expected to triple current capacity [12][13] - The company is actively involved in the CHIPS Act discussions, targeting funding for growth initiatives in the U.S. [15][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued top and bottom line growth, driven by strong customer demand and capacity expansions [11][42] - The company anticipates increased margins in Q3 and expects to exceed a 50% incremental gross profit model in Q4 [42][65] Other Important Information - The company is about to issue its first formal Environmental Social Governance (ESG) report, emphasizing its commitment to sustainability [30][31] - Current assets ratio stands strong at 3.7x, indicating a stable financial position [39] Q&A Session Summary Question: Gross margins outlook for the year - Management expects gross margins to exceed 50% in Q4 due to higher selling prices and a richer mix of products [49][51] Question: Partnership rationale with ST Micro - The partnership aims for a faster ramp to high utilization and reduced fixed costs, benefiting both companies [53][55] Question: Capacity expansion plans - The company is including silicon germanium in its capacity expansion plans, addressing growing demand in data centers [58] Question: Operating expenses expectations - Operating expenses are expected to remain flat, allowing for earnings leverage in the second half of the year [101][102]