TowerJazz CEO: 2018 is a reset year

Russell Ellwanger Photo: PR

Russell Ellwanger says his company has been focusing on improving profitability, and sees growth in 2019.

Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) (which trades s TowerJazz) disappointed the market with its third quarter results today, and cut its fourth quarter guidance. Its share price is down by more than 17%.

Talking to "Globes", Tower CEO Ellwanger says, "It's hard to talk about market expectations. There has been a pullback on the market lately. At the beginning of the year, we decided to abandon one customer with which we had experienced heavy price pressure and to improve the product mix, with the aim of raising profitability. The beauty of this is that in the fourth quarter we will reach an annual revenue rate of $200 million in SiGe (silicon-germanium based semiconductors for advanced communications technologies - S. H-W), and the number of units we supply in the quarter will be 60-70% higher than in the first quarter. Why is that important? Because at that rate of revenue from the Newport site, we will generate another $20 million profit, just from changing the product mix."

Ellwanger stresses the company's positive activity vis-a-vis its customers, and says that this will pay off later. "The best thing for offsetting a fall in the market is a strong sales policy. In the last quarter we won two substantial contracts with large customers in two different fields, contracts that in the future will put these customers into Tower's top ten customers and will become growth engines," he says.

What will 2019 look like?

"I believe that we'll see growth, but we still don't know. We are focusing on the growth engines and on carrying out our plans, as we have done in the past, and we are in a very good position. This year there was a headwind, and there was the abandonment of the customer, with some of the replacement revenue not coming in as expected. SiGe is starting to grow, and can be expected to remain strong in 2019. I think 2019 will be a good year. 2018 was strong at the activity level, with a reset in relation to a business that had become a commodity."

Are there mega-trends in the industry that are affecting you adversely? In the past there was talk of weakness in mobile.

"The big players in that field that are customers of ours have not yet released financials. Some of the demand has fallen somewhat, and as a result our guidance for the fourth quarter fell. But this is not just the effect of mobile - we have seen declines in other areas - it's a general slowdown in the industry, stemming both from geopolitical causes and also a little from economic ones, and from high existing stock levels.

"We try to be varied in the markets we serve so as not to be dependent on any particular market. At the same time, we are focusing on improving profitability, in order to continue to invest during slow periods and to emerge from them stronger."

You have more than $600 million cash, your share price has fallen substantially. Is there a chance of a share buyback?

CFO Oren Shirazi: "We're a growth company. We use our cash for capex and we look for acquisition opportunities. A dividend or buyback means giving money back to the investors, and that would show that we have nothing to do with the money - which is not the case in this instance."

Russell Ellwanger, are you still as optimistic as ever?

"I'm optimistic. We did a reset this year, we abandoned a large customer, and we're emerging from it well. We launched a new platform. Our relations with our customers in most areas are very strong, and in other areas we're strengthening them. The big picture is not always an indication of everything that's happening in the smaller picture. 2018 is not a growth year, but we're working in each business unit on creating ongoing growth engines, and so I'm optimistic. Good things are happening."

Published by Globes, Israel business news - en.globes.co.il - on October 29, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Russell Ellwanger Photo: PR
Russell Ellwanger Photo: PR
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