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TSEM: Q2 2018 Meets Guidance Despite Continued Mobile Market Weakness

By Lisa Thompson



Revenues for Q2 came in as forecast and in line with guidance at $335 million, down 3% from a year ago. Tower Semiconductor (NASDAQ:TSEM) guided to a midpoint revenue range of $335 million plus or minus 5% for Q3, below expectations, as it sees continued weakness in mobile and it has taken longer than expected to ship out silicon germanium product. At $335 million, revenues would be down 6% year over year and flat sequentially. The company believes it is positioned to reach its Q4 guidance of $360-380 million based on its current production status, possibly flat with last year. SiG demand is increasing and the company is spending more cap ex on increasing capacity at its Newport Beach and San Antonio fabs. Growth drivers also include an increased addressable market, and 300mm product. 300mm has three strategic segments: radio frequency, power management, and CMOS image sensor. End markets are mobile, machine vision, DSLR, medical X-ray, and surveillance.

TSEM reported adjusted non-GAAP EPS year over year decline to $0.42 versus $0.54 a year ago, down 31% year over year, and compared with $0.31 in Q1 2018. Adjusted EBITDA was $96 million versus $108 million, down only 12%.

Gross margin for the second quarter was 23.4% versus 26.4% a year ago and 21.2% in Q1 2018. Gross margin is expected to improve throughout 2018 as sequential sales increase and as high margin SiG capacity increases and higher margin 300mm product ramps in the second half.

R&D costs for the quarter were $1.8 million higher than last year and M,G&A decreased $1.1 million. These increased costs combined with lower gross margin caused operating margin to decline three percentage points year over year. On a dollar basis it was down 23%.

Financing expense was $7 million compared to $1 million last year. Much of that was one time as the company prepaid and refinanced some debt.

After taking out $2.8 million for taxes and $1.7 million for minority loss, GAAP net income was $38 million versus $50 million, while non-GAAP net income was $42 million versus $55 million.
Diluted GAAP EPS was $0.38 per share versus $0.52 last year. Adjusted non-GAAP EPS declined to $0.42 versus $0.54 a year ago.

Q2 and Q3 2018 Revenue Guidance

Management expects revenues in Q3 to be at $335 million plus or minus 5%, the same as this quarter. The midpoint would be down 6% from last year. In Q4, the company is looking for revenues of $360 million to $380 million versus $358 million in Q4 2017.

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