Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) has announced a series of cost cutting measures aimed at improving its operating and net margins from next year. The company expects to save $5 million a year by cutting non-essential jobs and outsourcing auxiliary services, and a further $10 million in savings on materials and component procurements. Tower also said it will buy used tools from Intel and AMD fabs now being wound down.
Apparently Tower will continue with a previous agreement with HP Israel to outsource some positions. It also claims that about 20 employees have left voluntarily, and others will be fired.
Tower CEO Russell Ellwanger said, "We are confident that these measures, coupled with business expansion initiatives, will result in a stronger and more competitive Tower, and hence help accelerate our move to profitability."
In its latest review of Tower, Collins Stewart rates the company "Buy" with a target price of $3, almost double its current price of $1.55. "We remain convinced about Tower’s ability to grow substantially faster in 2008, after out-performing its peers in both 2007 and 2006," says Collins Stewart analyst Ramesh Misra. "After increasing its wafer capacity at the 0.13 micron node earlier this year to about 24 thousand a month, the company is now ready to increase capacity further to 30,000 thousand a month. Furthermore, the company already has customer commitments to purchase those wafers."
Misra notes the long-term contract that Tower recently secured from a US-based integrated device manufacturer (IDM). "We estimate that this could result in about $15 - $20M/ quarter of additional revenues, and could be of a similar size to the multi-year $200 million contract that the company has with Vishay-Siliconix since 2004. While management declined to reveal the identity of the customer, press reports have speculated that it could be Freescale.
"Regardless of who the customer is, we think that it is very encouraging that it is an IDM rather than a fabless semiconductor company. An IDM would look to achieve the same quality and reliability of product from Tower as its own internal facilities would produce, and therefore we believe that the selection criteria for choosing Tower would have been even more stringent than that of an already fabless company that shifted production to Tower from another foundry only for cost reasons," adds Misra.
Tower's share closed unchanged on Nasdaq yesterday, giving the company a market cap of $194.3 million. The company's share gained 2.3% by mid-afternoon on the Tel Aviv Stock Exchange (TASE).
Published by Globes [online], Israel business news - www.globes.co.il - on December 4, 2007
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