Ken Nagy, CFA
TowerJazz has a History of Promises Delivered
On May 5, 2011 TowerJazz (TSEM) announced that it completed its previously announced acquisition of Micron Technology’s fabrication facility in Nishiwaki City, Hyogo, Japan. The acquisitions will nearly double TowerJazz’s current internal manufacturing capacity, increasing production by 60,000 wafers per month.
The total value of the transaction, including assumption of liabilities, is approximately $140 million, of which $40 million was paid in cash, approximately 19.7 million Tower ordinary shares and the remainder reflects assumed long-term retirement liabilities that are payable incrementally upon employee retirements. In addition, under a “take-or-pay” supply agreement between the companies, TowerJazz will manufacture products for Micron in the Japan facility for at least the next three years with processing technology licensed from Micron.
History of Promises Delivered
Just a year removed from being the only worldwide foundry with positive year over year growth (2009 vs 2008), Towerjazz completed it’s goal of $500 million in annual revenue in 2010. During the fourth quarter conference call the number one specialty foundry, obviously not ready to put the bold predictions to rest, predicted $1 billion in annual revenue by 2014.
It should also strengthen the company’s presence in the Asia-Pacific region as it is likely IDM’s in the area would want a partner close by. Reading between the lines we feel the deal will help margins eventually, but perhaps not until 2013. 19.7 million shares for increasing your revenues by 80% is dilution we can live with. The first two years will operate with a cost plus model, which will allow the facility to be 80% utilized while the firm builds up a clientele. We feel this is a positive as new facilities can be a drain until the firm fills excess capacity.
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