Q2 2020 Tower Semiconductor Ltd Earnings Call

[music].

Ladies and gentlemen, thank you for standing by welcome to the Towerjazz second quarter 2020 results Conference call. All participants are currently in a listen only mode. Following management's prepared statements instructions will be given for the question and answer session.

For operator assistance during the conference Please press Star Zero.

As a reminder, this conference is being recorded July 29 2020.

Joining us today are Mr. Russell Ellwanger, Towerjazz as CEO Mr. Oren Shirazi CFO.

I would now like to turn the conference over to MS. Snowy Levy, Vice President of Investor Relations and corporate communications.

MS Levy. Please go ahead.

Thank you and welcome to power semiconductor financial results conference call for the second quartile of 2020.

Before we begin I would like to remind you. The some statements made during this call may be forward looking and are subject to uncertainties and risks factors that could cause actual results could be different from those currently expected.

These uncertainties and risks buckles fully disclosing level forms 20-F, EXL III Gary.

As with the Securities and Exchange Commission as well as filings with the Israeli Securities authorities.

They'll also available on our website.

Assumes no obligation to update any such forward looking state [noise].

Please note that the second Caulfield 2020 financial results have been prepared in accordance with you as a gift.

Financial tables, and I think their earnings release any todays earnings call. It also includes certain adjusted financial information that may be can see they'll non-GAAP financial measures under regulation G. And secondly, bolting requirement is established with the Securities and Exchange Commission.

The financial statements include a foot explanation of these measures and the reconciliation of these non-GAAP measures to the GAAP financial measure.

Now I'd like to turn the call to own C. O Mr. Russet Ellenberger myself. Please go ahead.

Thank you know eight.

And thank you everybody for joining our call today discussing our second quarter of 2020 business and financial results.

Second quarter revenues met our guidance at $310 million.

Resulting in EBITDA of 82 million.

Net profit of $19 million.

We further strengthened our financial position, having achieved records in shareholders equity and total balance sheet.

During the quarter, we continued our capacity expansion plan over 300 millimeter facility.

As well as certain incremental capability Catholics, 300, millimeter and hundreds or [noise].

As shown by the increased levels of investment in equipment to $63 million to support existing and future capacity technology demands.

Later Oren Shirazi, our CFO will provide an in depth review of our second quarter financial results balance sheet and main financial activities.

Regarding the third quarter to be a mid range of 320 million supported by higher utilization rates will try who will review later.

Addressing the Golden 19 pandemic in its effects.

While viewing various regional changes in rates and impacts.

We continue to ensure and are committed to provide reliable.

Technology and manufacturing solution.

Diligently taking action to reduce health and business risk to our employees customers suppliers and partners.

We strictly adhere to all government guideline and our dedicated workforce continues to meet all of our customer business needs.

We have implemented many health and safety guidelines within our workplace.

Uninsured flexibility for remote work, if and when needed.

Visits to and from customers suppliers and partners as well as internal employee meeting.

Convene through video conference calls to minimize face to face incorrect.

To date and since the beginning of this pandemic.

All of our worldwide manufacturing sites.

Operate without interruption.

Yeah.

Can you just see no material impact on our supply chain.

[noise] continuously monitor the situation globally and drive required measures and actions to ensure business continuity and the safe environment.

Many of our measures go well beyond those required by governmental instruction and regulation.

Looking at our different business unit activities.

Within the analog IC business unit.

Our silicon germanium optical business continues to show strain driven by both Fiveg infrastructure and data center demand.

Our second quarter was much stronger than the first quarter and we anticipate this trend continuing through the remainder of this year and into 2021.

Realizing at least a 20% twentytwenty over 2019 yearly revenue growth in silicon germanium output.

This is due to our high market share tied to the Fiveg infrastructure rollout the rebound in data center orders and as well from what appears to be increased demand for bandwidth due to enhanced work from home protocols around the globe.

Considering the silicon germanium market growth, we're in good position to support increasing demand being in the final stages of qualifying Selectra germanium capacity at our San Antonio facility, providing further shipment to capacity above the increase silicon germanium capacity.

That we have built in our Newport Beach facility.

We continue to invest a new technology.

And wins with tier one customers.

An example announced in Q2.

As our partnership with Infinera.

To deliver an advanced 800 gigabit per second optical transceiver, using our advanced silicon germanium technology.

Currently most transceivers, we are shipping or at the 100 gigabit per second with some amount of 400 gigabit per second note.

800 gigabit per second represents two generation advancement technology first what most of our customers are building today.

And maintaining our long term roadmap leadership position.

Along with advancements in Silicon germanium, we continue to advance our silicon photonics platform expected to ramp to higher volumes in the coming years with the 400 gigabit per second node.

Our mobile RF business experienced very strong growth through 2019.

And in the first quarter of 2020.

Due to a combination of increased market share.

Ramp of our 300 millimeter RFS III technology.

And overall RF market content growth with the start of Fiveg handset rollout.

As we discussed last quarter it has been well advertised as an industry.

The coals that 19 has slowed the mobile market.

Resulting as per analysts and about a 20% market pullback.

A strong verification of our market cases.

We forecast, although lower than our started the year pre cobot expectations, a 10% to 15% increase in mobile 2020 over 2019 revenue.

Against this decreasing market backdrop.

We remain bullish about prospects for further growth due to fiveg adoption and our strong design win pipeline.

But our short term cautious as our customers have less visibility than is typical.

Our power IC business remains solid as we continue to gain overall market share. Despite some cobot 19 related market impacts primarily in the automotive sector. For example battery management products for electric vehicles.

According to customer forecast due to a broad power IC application coverage.

We should see also in this sector about a 20% year over year revenue growth Twentytwenty over 29 team.

Last quarter, we announced a breakthrough power IC technology Gen six.

That offers over 35% power efficiency improvement and or equivalent amount of diary reduction at 24, Volte operation through innovative transistor design.

This quarter, we have engaged with several customers on this platform and are seeing strong acceptance towards initial designs.

This new technology complements our platform leadership at lower voltage.

With our previously announced 65 nanometer BCD 300 millimeter process.

And at higher voltage with our recently announced 140 volt and 200 gold resource and as to why technologies.

The combination of these segment leading technologies are crosses large voltage range should continue to enable share gains in is very large portion of the analog market for years to come.

[noise] their power discrete business predominantly tier one MOSFET customers is realizing some recovery in the third quarter of 2020.

However, this business is significantly down.

Twentytwenty over 29 team.

Our customers continue to express caution.

But also continue with us on advanced MOSFET co development.

Moving to our sensor business unit, we forecast single digit year over year growth.

In spite of several segments being strongly adversely impacted by combined 19.

For example, dental X Ray sensors, where we have major market share.

The impact is mainly seen in the form of customer requests to push out orders.

Dental clinics were closed for a long period and are still not back to full speed, hence customers are very inventory cautious.

Industrial senses.

Sorry, industrial sensors, namely manufacturing line inspections is also down as a function of reduced new manufacturing line build out [noise].

Due to our very strong SAS platform and compatibility of fingerprint sensors, namely the under OLED, one on one sensor and the under LCD lens type modules.

We were developed and qualified in very short time.

We target our first volume production revenue in the fourth quarter wrapping throughout 2021.

Our time, a flight program is moving along very well.

We are prototype being the first sensor to our lead customer this quarter.

And planned strapped to production.

In the first half of next year.

This would be our first product moving to mass production utilizing our stacked wafer BS by pixel level bonding platform.

In the area of non imaging sensors, we have started the production ramp of a novel Mems microphone product line.

And expect this business to grow nicely.

In addition, we're making progress on several fronts of next generation displays, which we are developing as leaders in the industry.

Expecting to ramp to production as early as 2022.

Looking at utilization rates during the second quarter, we saw the following.

Migdal Haemek, Israel Fab, one are sufficient factory.

We were at 60% utilization similar to last quarter.

Fab to the eight inch factory was at 70% similar as well to last quarter.

Newport Beach, California was at about 70% in utilization.

Showing substantial increase as compared to the previous quarter.

And presently moving towards or 85% utilization model.

To the line being loaded with a strong increase in demand for silicon germanium for Fiveg infrastructure and data centers.

Our San Antonio factory was at 70% utilization and increases compared to the previous quarter.

Looking at our TPS go Fabs in Japan utilization for the eight inch foundry business was it about 60% and increases compared to the previous quarter.

Our 12 inch foundry business utilization was at 85% at our capacity utilization model.

The capacity expansion project for this 300 millimeter fab is progressing according to plan.

Hence being able to support additional wafer starts and increasing the capacity output of the 85% utilization model.

To summarize we are motivated with the degree of customer interaction and acceptance of our recent developments.

Namely an advanced silicon photonics in very high speed Silicon germanium.

And the entire backside elimination and stack wafersense are offering.

As well as our newly served markets in display.

These activities in addition to our present strong and growing core business.

Back our confidence in our strategy and roadmap and will be additionally, accretive when all end markets revive to previous patterns.

We focus to continue smoothed production and global capacity assurance in order to meet current and forecasted demand.

Our thoughts are with the people affected and the healthcare professionals working tirelessly, helping those in need.

And wish everyone safety security and good health during this challenging time.

With that I'd like to turn the call to our CFO Oren Shirazi corn.

Welcome everyone to our call today to start and in relation to us at a description of koby of 19, I am satisfied the lower benefits during fab operated during this interim period with no interruption.

We have not missed any day of production all treatment and have succeeded in managing those supply chain efficiency efficiently to avoid any ROE inventories shortage.

We completed the quarter presenting revenue of $310 million achieving quarter over quarter in the overall you live in a world as well as quarter over quarter margins will.

As I wouldn't show in my balance sheet analyses of the company is in a very strong and stable financial incurs position.

Our balance sheet as of June 30, Twentytwenty reflects our current assets ratio of 3.5.

We achieved critical Joe those equity or 1.9 billion dollar while total balance sheet and total assets exceeded 2 billion dollar.

I will now provide the beyond that highlights for the second quarter, and then discuss focused flow and balance sheet financial statement.

Revenues for the second quarter of Twentytwenty, we'll see other than $10 million, an increase of compared to $300 million into first quarter of twentytwenty on $306 million.

The second quarter of 29 team.

Gross profit operating profit EBITDA and net profit for the second quarter of Twentytwenty old higher as compared to the first what those twentytwenty.

Gross and operating profit for the second quarter of Twentytwenty will 58 million dollar mtwenty $2 million compared to 53 million dollar and $16 million into breo quarter.

Respectively, representing 5 million dollar incremental increase each oh, 50% incremental gross margin over the 10 million dollar 11.

Net profit for the second quarter of Twentytwenty was $19 million.

Well the theme.

Since Bill show basic ending with that.

An increase of compared to $17 million are all point $16 per basic and diluted earnings Bill show into Breo quarter.

The increase in income Tuxes expenses into second quarter of Twentytwenty Biondo.

On build to the real quarters is mainly due to the higher revenue, we heard from our Newport Beach Fab as well of the Japanese Victorias consistent with receives a report on the increased utilization rates in Newport Beach, and upon where the tops rates vary from 21% associated with them.

These inquiries into Japanese fixed or is the revenue and utilization also resulted in higher non controlling interest amount for the second quarter of twentytwenty beyond that as compared to previous quarter.

Comparing to the second quarter of 2019 gross and operating profit for the second quarter of Twentytwenty will each 4 million dollar higher as compared to gross and operating profits of 53 million dollar and $18 million respectively. In the second quarter of 29 team.

Net profits in the second quarter of 2019 was 21 million dollar oil 20 cents basic and diluted earnings both true, which is a 2 million dollar increase in profit or two cents bills are higher than compared to $90 million.

Or 18 cents basic and diluted built show in the second quarter of Twentytwenty.

For market growth perspective in the second quarter ILS Twentytwenty cash flow generated formulation was 67 million dollar.

One investments in fixed assets net mainly for Capex.

Were 63 million dollar, which included payments related to the 300 million millimeter facility capacity expansion program.

In addition, we repaid 5 million dollar or followed it.

In the first half of Twentytwenty cash flow generated from operations was 135 million dollar what investment in fixed assets net where 125 million dollar which included also payments related to the 300 millimeter facility expansion in Japan.

We also repaid.

In the first half of this field 29 million dollar of our scheduled it.

Looking to the balance sheet, which isn't a strong and stable financial position measure of total shareholders equity reached a record of $1.4 billion total assets and total balance sheet totaled 2 billion dollar.

Current asset ratio defines us kind to us it's divided by Scholten liabilities was three point fivex.

Shorten that in the amount of $80 million includes $38 million principal payments of debentures serious G. Two repaid during the next 12 month as well as $42 million current maturities of bank loans and capital lease Labeet.

In addition to the company's writing and made Twentytwenty stunned opened boomer look and evaluating kobani, but it's fully owned by S&P Global ratings completed its unaudited ratings, our view for the company and after him a gold grade credit rating and want to the US Junior 18 go Oh.

Oh, yeah dub at a minor.

I would now like to describe our currency hedging activities.

In a diligent in relation to Japanese yen since the majority portion of DPF goes revenue is doing denominated in yen and the vast majority of TPS Costar in yen whatever natural hedge over most of our Japan business and operations.

Other to mitigate part of the remaining yen exposure, we executed zero cost.

Cylinder hedging transactions device zero cost it into the productions hedge currency fluctuations to be contained in the middle range as compared to this both exchange rate, hence why did the yen rate against the dollar may fluctuate the impact on our margins is limited.

In addition in relation to the Japanese yen impact on the balance sheet, we're not trying to hedge on JP, why kish and JP way loan balances to extend the loan amount does not exceed the kish among.

This helps to bizarrely protect us one potential impact of yen fluctuations.

Lastly in relation to fluctuations in the Israeli shekel currency, we have no revenues in these currency since approximately 10% of our cost are denominated in the vertical unsi and we have some liabilities denominated in chicken.

We also had a large portion of this currency at least by hey, engaging zero cost transactions.

To mitigate exposure, resulting from our the Miss denominator Cork and be investing a portion of our cash in Israeli marketable securities denominated in the Israeli currency to mitigate exposure, resulting from our shuttle denominated liabilities.

And the last note on our share count as of June 30, Twentytwenty, We had one other than 7 million outstanding already know shells and to fully diluted share count was 109 million simply goes embryo quarters.

No I wish to send a cold but to the operator operator.

[laughter].

Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one.

If you wish to cancel your request please press star too.

If you are using speaker equipment kindly lift your handset before pressing the numbers your questions will be pulled any order in the I received please standby of only poll for your questions.

The first question is from Rajvindra Gill with Needham and company. Please go ahead.

Yeah. Thanks for taking my questions I appreciate it just a question.

On the organic sequential growth in organic year over year growth rate I was wondering if you could provide that information given some of the the a the end markets that you talked about.

[noise] [noise] [noise] [noise]. So I think we're also talked about that most of the organic growth was in decide GE in Newport Beach for the data centers and.

Fiveg and the in a was all its full there sorry.

So for us and if you want local.

No I'm talking about the actual number what was the organic sequential growth number and in their organic year over year growth number.

Well get back on that very shortly I don't have it off the top of my head.

Okay.

So.

You see some some strengthen and insight on the five year and data center.

And the continuing.

Where are we in terms of that kind of that capacity expansion to the supports this demand and you also mentioned that the San Antonio facility is a is above Newport Beach.

Maybe you could talk little about what are the steps you're taking there to.

Make sure you have adequate capacity.

[noise]. So if you recall, we built out quite a bit of capacity in 2018 and stated that we would be building additional.

30, plus capacity in 19 about the time that data center at pulled back a bit.

We did complete the capacity build out.

And.

As stated we also within that built capacity in San Antonio.

So off of the president and start levels, we could go somewhere about.

I'd say, 30%, 35% higher.

Off of the.

Right now.

Very high start levels that Brad.

Okay, great and on the.

Mobile side.

You talked about the mobile markets tend to slow down you know given what's happened with cobot.

I'm not sure I heard it did you are you confirmed me.

Your 10% to 15% year over year growth, an artificial why despite the market pullback I, just didnt hear that part and and and How's Fiveg, helping you kind of offset that potential you did we finished the overall market.

Yes, we are.

Restating.

A growth of 10% to 15% year over year in Rss alive. So that is what I stated.

And stating that that was against a backdrop. According to analysts have a market that has about a 20 point pull back so I think that that's quite substantial and.

Certainly indicative of gaining substantial market share.

The.

Fiveg rollout is certainly helpful because of more content.

I don't have tremendous granularity at this moment as to how many parts are specifically going into a fiveg phone first LTV.

But the a stated as the Fiveg rollout continues with the percentage of content growing within that that has a benefit for everybody but.

But.

But I believe that the.

10 to 15.

Percent year over year revenue increase is very very much driven by the the market share increases that we have.

And as stated we had started the year believe that's much higher.

But it has pulled back the market has pulled back but in spite of the market pulling back we will still recognize growth.

[noise]. Thank you.

To your previous question I apologize on the year over year. It was a a zero percent on the organic.

Cost of.

Pull back very strong within Discretes.

And the.

Present that outlook would be a 5%.

Increase inorganic.

Quarter over quarter in Q3 versus Q2.

But still.

Backfilling against a substantial decrease in discrete.

Market.

The next question is from a household Tanya of credit Suisse. Please go ahead.

Hi, good afternoon.

They're not get can you help us understand.

These new contracts or projects that are ramping up on the sensing side you mentioned.

The fingerprint and at the time looks like project.

Can you provide a bit more color as to how should we think about the size of those opportunities.

Is it confined to a one customer at this point or are you are already engaging with multiple customers on on goes to Oh, well design wins in.

And how should we think about that opportunity in 2021, when those projects start to ramp up.

And then secondly, Oh.

Just think about.

Oh, that's part of your business for more biased specifically smartphones.

Can you help us understand what exactly are you involved in Oh on on the upside is it a switch as they did and then is.

Hi.

Multiplexers duplex service, what what kind of product are you, making and and how should we think about the adoption of Oh, Oh artifice artificial like a in in terms of smartphone so going forward.

Anyone usually like when could be a significant part or is it still going to be a fairly small pardon.

Mix.

Local spot side you spot.

<unk>.

Okay.

So long question I recall, the second part very clearly that was what are we doing within the mobile platform for the RF content.

So on that.

We serve a variety of different power amplifiers with silicon germanium.

Including Standalone low noise amplifiers.

We have combined switch LNA is that we do with 65 nanometer Rs Esa lie.

We have a lot of two way radio switches that we're doing in general at 203 hundred millimeter and that's all RFS ally.

We have.

So LNA switches and just the.

PPA controllers, so thats the the bulk of what we're producing within the RF content.

And our antenna tuners, sorry, as one also antenna tuners.

And within the antenna tuners, we have in addition.

A line that we're producing with them with a with Mems.

Yeah. So what I was trying to understand that's helpful or what I was trying to understand is that obviously in those categories, whether its use or Ellen knees.

There is a market, which is split between gallium nitride silicon germanium RFS, Hawaii. So how are you thinking about their adoption of these different technologies and what kind of suits you. The most oh when it comes to where the market moves with what kind of Oh chemical compound the market.

So it.

Certainly the gallium arsenide, p. A's or a mainstay for a variety of applications the side GPH is.

Our aimed at different activities and a lot of that deals for example, with Bluetooth peers.

The.

LNA itself and the Standalone LNA banks are I believe predominantly done in silicon germanium.

And that's.

Where we have a very strong capability and offering.

And then the integrated Cmos LNA with them.

Integrated LNA switch is done with RFS, Hawaii and in our case.

So and that the P.A. controllers are RF Cmos.

And.

When I believe we're standing very strong in all of the offerings that we have there on the switches themselves and and.

Antenna tuners, or we're dealing with RFS align I believe that thats the whole market is with RFS ally.

If you recall some.

You know for five years ago, plus minus that was predominantly in gallium arsenide PMD.

And that move totally to the RFS III because of the.

[noise] reduce cost and improve performance. So that is I think at this point all switches for all.

Practical.

Offices are done with RFS ally.

As far as right, that's a significant amount of business for us and it certainly is its.

It's a big business and we see 2021.

As stated with a 20 point pulled back we're seeing a 10 to 15 point increase in revenue year over year.

We stated that 19 over 18, we saw and over 50% increase since year over year, which is certainly much much bigger than the market itself crew. So obviously a function of market share.

And the 35 point Delta this year against the market pullback and what we're showing.

Obviously also indicative of market share increase.

Our customers are.

Very strongly indicating.

Huh.

A return to not just normalcy, but a return to growth.

In the.

Beginning of 2021, and they're very very bullish about their forecasts. So I believe that it will be a us very strong.

Growth engine for us throughout 2021, and an area that were continually.

Working on to actually increase capabilities and capacities.

Does that answer your second question I hope it does yep.

Yeah, Yeah, I think that was really help Russell and then just coming back to the first one that was on fingerprint and it'll take a flight design wins that you. Okay. So where did the school like what is the size of the customer traction that youre seeing in and how should we think about the opportunity for anyone.

Its multiple customers that were doing with the fingerprint both the one to one under OLED and the.

Other more standard under LCD script on fingerprint.

So multiple customers, where you're looking at.

Several tens of thousands of wafer opportunity within that space and it's a question now of.

US showing our capabilities were stating that the first volume production will be shipped in the fourth quarter.

And then those parts that were shipping have to have differentiated benefit for the customer the customer also show differentiate benefit within their respective markets to grow but it can be quite substantial.

And as stated.

For us one of the.

Beauties of that market is that we were able to very very quickly.

Developed and qualify flows because of a very very strong in diverse Cie S. Core that we have throughout the company. So Cmos image sensor throughout the company.

And take advantage of as a market need.

As far as the time, a flight theres a variety of applications are going out for time a flight.

It's predominantly at 300 millimeter and its focused with backside elimination and stacked wafers.

And that is also more than one customer with.

Blue chip customers that.

Our signed up on long term agreements of course, we have to perform.

But.

That is a very very substantial market for us.

Okay. That's very helpful. Thanks Russell.

Thank you.

The next question is from Mark let that this of Jefferies. Please go ahead.

Hi, Thanks for taking my questions Russell first first one I have a couple of questions first one for you I think.

When you talk about visibility from your clients are do you are you the views at your clients or are taking orders from their their customers on a non cancelable nonrefundable basis, and and is that how you is that how you guys are normally operated operating and then on the same topic when you're getting.

Orders from clot customers are they asking for short lead time windows or are they asking you to run hot batches wafers through your fast because they also are getting orders with request for short lead times.

Good questions Mark the answer to the first question is the.

Contracts that we have really.

Our very dependent upon the customers and the type of business we're doing.

Within the.

Power Discretes.

Or customers are.

For the most part held to a forecast very closely that doesn't mean that we don't.

Give a lot of leeway its partnerships and within what we do with those discretes, it's more or less sole sourced everything that we sell so the ability then to be malleable, if someone's demand is really down and to hold them to previous forecast.

Nominally that's doesn't help either person if they don't need the the wafers. So your work out a deal and you you try to come up with something Thats a win win for both people.

In the case of our standard foundry business.

[music].

From the moment that we start wafers.

Customers must take the wafers or at least take them to an inventory point of when they say stop the wafers. So once the wafer started in the fab or normal T's and C's is that.

Obviously, if a customer wishes to cancel something they can.

But they would take it to the inventory point of when they would cancel it which for the most part doesn't make much sense for a customer now it depending on the customer themselves.

The T's and C's can vary as to if they want to put something on hold how long can it be on hold for before they either have to pay to that inventory point or until the wafers have to be completed through the line, but again that depends on on the customer the t's and c's relationship and the amount of business, but but thats.

Predominantly how the the T's and C's Wood said about customer.

I'm, giving a purchase order for the most part of purchase order can be cancelled before the wafers or started without any liability.

And so that was that part now as far as are our customer visibility.

At this point.

Especially in the mobile sector.

We have.

Not to special area I think across the board, we have very good interactions and very candid.

Updates forecasting.

It's very accurate with our customers and it's rare that.

A forecast changes drastically within a four or five month period.

What our mobile customers are telling us now and it's not a fact of us not having visibility with them, it's them, having less visibility on their customers than they've had in the past.

And that's where we stated that we're cautious about the mobile side in the short term because our customers really are not stating the same degrees of visibility that they had in the past.

I.

I don't think that Thats really the case with other customers for the most part as stated in alum. One of Roger's question was on the organic growth. So we've stated very clearly that and it's known in the industry that the power discrete them offsets are down.

Pretty substantially and it's starting to come back, but it's down substantially and so that business is down several tens of millions.

We are working with them when there are upside capabilities and when they see that they might ask for a short lead time.

And it's to the benefit because they have an upside some certain skew of some certain amount of wafers that we'll go ahead and we'll take.

So I believe.

Anytime, especially in weaker markets.

Customers.

Well as soon as they have an opportunity they get I'm very excited they do that opportunity and to be able to at any given time start wafers and expedite well below the normal cycle times that you have in the factory it only enhances the relationship because its.

Many times.

If there is a an immediate needs that they need to pulling for.

If they don't supply that business, it's either lost because of the opportunity at the end customer is gone or the end customer might.

Try to buy from someone else.

So anytime that we get an urgent upside request.

Well go Africa strongly as we can.

Now that is not necessarily.

In times when the market is weak.

In times when the market is very strong. It's the same type of thing in fact, I would say maybe when times when the market is strong there's more upside requests because the end customer or integrator. If you will has an opportunity that they don't see how they can get fulfilled because everyone's supply chain is full.

And those are where you sometimes get very very big.

Upsides, if you can somehow pull off either a substantial amount of pull ins or start wafers and ship them well under the normal lead time and cycle times of the factory.

So I I think is it steady state. It's you know sometimes it's more sometimes it's less.

I'm the only thing that we're seeing right now that's.

I'm going back to.

The first question on Peos and visibility.

Our customers in the mobile space are saying that they have less visibility.

But we have seen a very very big reduction in the forecast.

The.

Image sensors for dental X Ray.

And that's one of the areas, where it's very very nice that.

Other than the power discrete and the.

On this.

Predominant portion of the image sensor business as well as.

If we look at them some industrial sensors for manufacturing line.

But even without the C. I ask businesses single digit up this year or should be according to present forecast, which shows growth in other markets other than that but when you talk about organic growth. If you have certain markets, where you have a fall out of.

Because of the environment of a you know many tens of millions of dollars.

And in order to have a 5% organic growth that we're talking about you have to have very very big market showings in other areas because they obviously have to first make up for the gap of the segments that are down and then themselves a 5% number as a nice percent number of growth.

If everything was as per normalcy, and the X Ray was where it has been in the.

[noise] dental X rays, I'm, sorry, dental X rays, and Discretes, where they they have been.

The organic growth would be extremely high but that's it is what it is and where.

Very fortunate I think that we are very diverse on their end markets that were not restricted to any single market and that even in the markets that are pulling back a big market that we serve such as the mobile that.

Our market share growth is big enough that we see this 15 point increase year over year first the 20 point down that the analysts speak about.

Hopefully that answered your question I tried to give a thorough answer.

Yeah, that's great color. Thank you for that and I had a follow up if I may I I've a question on the automotive business can you remind us.

You know roughly what your automotive exposure is and is it mostly in the in discrete and the reason I ask is that it seems like you know a number companies are calling in Q2, the bottom for the automotive business. It seems like the factories are coming back online and you know a large bank in the U.S.

I think last week or two weeks ago reported June quarter on auto long originate auto loan originations up at the highest levels ever. So it seems like automotive is somewhat spring potentially spring loaded and ready to go once the factories come back online and I wondered just if you could remind us the exposure there.

Were you know whether customers are starting to give you any visibility on on in that vertical market and that's all I had thank you.

Good question.

So as you're well aware we.

Have a long term agreements with Maxim in San Antonio.

I'm a good portion of that factory serves automotives and that's not what I mean, Maxim is as a big automotive player.

Very good automotive player.

We can't say exactly how much of that is serving automotive or not serving automotive but in that regard. The contract is a very solid contract. So we.

We would not see something going down or coming back up as it's a contract on an amount of volume. That's purchased I think Maxim just released they had very good financials I believe so.

I think that's.

A good thing, but so that's one area of automotive.

In the.

Other areas of automotive that we do we have silicon germanium for safety, we had press release that we serve denso and Toyota with side G. for radar and.

I believe that we see.

Good visibility and very strong.

Optimism for upticks there the other area that we serve very strongly as stated in the call is.

Electric vehicle battery management and.

I have not yet seen a big rebound in that.

And then we have a diversity of other automotive products that we make but on that.

Any single one in any single end market is not necessarily big but the combination is reasonable.

Great. That's very helpful. Thank you.

The next question is from Richard Shannon of Craig Hallum. Please go ahead.

Oh, Russell and Oren, Thanks for taking my questions as well, maybe I'll follow up on the topic of RFS. A why obviously you had a nice growing share in that business years ago, and then I think jeter, perhaps with some aggressive competitive pricing backed off a little bit here and now you've really seen nice resurgence here.

Including with Western share gains here do you know what your share position is relatively speaking if you can if you do can you share it with us and it is there any natural limit to two where that could go.

The second part is easier to answer the on the natural limit I would say not we have extremely strong advanced slows a 200 millimeter that are being used for some of the most advanced activities in the world.

And then we have a is so 200 millimeter obviously, we have a lot of factories a lot I think.

As a reasonable amount of factories that eight inch and the utilization numbers that I. Just gave was for example, the.

Factory in Migdal, Haemek, because it's 70% utilization.

Some of that.

Delta of the 70 to the model is because of a downtick right now and RFS ally.

So.

We.

Can can grow that we've also.

Talked about the fact of adding capability Capex at 200 millimeter.

Reasonable amount of that capability Capex is again for a very advanced 200 millimeter RFS alive capabilities and platforms.

So.

I don't see it's at 200 millimeter that we have a really foreseeable boundary that we can get beyond I think.

On the growth that we've had we can continue to grow at done even at last year's rate at 50% for a number of years and not going into a a gate depending on how we would like to set up the factories on the mixes that we're running in the factories.

The 300 millimeter is a little bit of a different story, we've expanded our 300 millimeter capability.

We'll probably need to further 300 millimeter capability.

In the end of 2021 2022 timeframe.

For not just our ADESA lie but for other areas as well at this point without further expansion.

Either organically or inorganically, whatever form that might take.

We would probably hit a wall at the end of 2021 on 300 millimeter growth in RFS alive, but that is not our plan to hit that wall.

Okay, I guess that leads to my my last question here Oh Russell is on 300 millimeter how do we how do we think about that expansion here, whether it's a internal one and that whose odour or maybe some other internal approach versus getting some access externally I know you talked about a prior partner.

Who I think because it's a recently resolved or disintegrated.

That seems to take that opportunity way, where where do you think you're going to get that and how soon do you need to make or some sort of a decision or activity here that will kinda.

Provide that certainty as you get to calendar 22.

Yeah, I'm not sure what you're referring to about having talked about a partner that dissolved away I don't know of any partner that we talked about for 300 millimeter publicly.

Period, I don't know of any that's dissolved away. So I'm not sure Richard maybe we can talk about that later offline. If you had some questions. There I don't believe we ever said something like that.

But the organic growth we've done a lot of.

[noise] internal exercises as to what it would take and cost to grow a substantial amount internally and we could weaken.

Go almost a three X the present capacity with organic investment and we might go ahead and do that it is expensive.

We're also.

Pursuing other inorganic activities of a variety of different models and we continue to pursue those.

And you know more than that I can state without staying getting into things that I don't want to release that are not yet released on some because of.

Maybe agreements have not talking about things before there are done deal and others because it doesn't make a lot of sense to talk about things before you know that they're going to happen.

But obviously.

We've had.

I think a good track record on M&A is that were.

Beneficial to both the seller on the buyer.

And we're working on those models continually be it under whatever condition that might be.

At this point.

We were asked last quarter I believe in this in the Q on a if the cobot environments enhances or decreases the M&A activity landscape.

And I would say from an opportunity standpoint, it enhances it.

A gets the deal done standpoint, it decreases it right. It's it's not simple.

Two.

Completed deal.

When you're not face to face with people.

And if that's where you're out so are there things we're working on.

Mr. Ellinger airline has been you did.

I'm, sorry, I don't know where that cut off to the phone muted automatically I don't know why.

Could you. Please tell me where you stop hearing me because I do apologize.

Well I think is what the last five to eight seconds of what you're well Oh. Good [laughter]. Okay. So anyway, what I was stating is.

We have I believe.

Have you know plus minus EUR, six plus minus months to to make a a strong decision if we don't move forward.

In.

An avenue of doing things inorganically to invest organically.

<unk>.

Okay Thats the best fit because the 300, there's always appreciate the detail.

Oh, you're very welcome. Thank you I appreciate the question.

Thanks.

The next question is from Krish Sankar of Cowen. Please go ahead.

Hi, Thanks for taking my question I two of them Russell if I recall it correctly I think in the prepared comments you said the yodle Silicon germanium revenue was gonna grow 20 person do whatever you did predominately driven by the Fiveg data center that put all the old for gaining market share on top you've already Holly.

Two thirds monkey shouldn't that segment.

So you're correct, we enjoy a very very high market share I.

There is more customers that come into the market and.

Those that enter into the market are not yet necessarily very very big on a revenue basis.

So in increasing market share.

On a revenue basis I don't believe that we have increased our market share substantially as we already enjoy a very very high market share percent.

And.

If you for for example to go from 60% to 65% no Thats, a a 5.8% to 12% increase in share that I don't know, it's a little bit hard to measure, but we do enjoy a very very high market share within the.

Hi end side, you optical now that being said the growth that we see really is.

Around fiveg built out with existing customers and certainly data center very strong with existing customers as well as other activities with data streaming.

So those are the major reasons that we see the growth right now.

Got it goes it's very helpful. Let me just as a follow up Oh, it's not a big part of your business today, but you know at the end of last year, you guys announced a partnership with the lead you know on Mike <unk> Leidy. When do you think from a realistic standpoint, Dod business peak, so well all when you think might really be gets into mass production.

I think that that's.

Not unfair for you to ask me at all it's would be improper for me to answer it.

Ladies is.

The only press release customer that we've talked about with.

No no wire microarray DFI well.

So anything that I would say there is very related to them.

And I don't think that I should talk very specifically about any single customers market. So I. It's.

I think that that would not be proper for me to answer and if I was a lady I probably wouldn't be very happy if somebody was talking about something that could be reflected back to be my market [noise] very strongly so I apologize, but I I don't think its proper feed answer the question.

Talking about a Lady however, I am just specifically I think that's an incredible technology and I think they're moving along very well.

So having a fair enough. Thanks Russell.

The next question is from Lisa Thompson I'm Zacks investment research. Please go ahead.

Hi aren't I just have some a quick quick.

Housekeeping question, So you talk that right.

Sales at Newport Beach engine in Japan are increasing substantially so does that change your thinking on the tax rate. This year at all that's it's still 4%.

Yeah, I think you can also already see that in Q2 financial we showed very nice very positive and who the incremental gross profit margin and operating profit margin on EBITDA margin incremental.

250, 60% because of decide you and also Japan like you mentioned and indeed, you see the fixed line went up.

Because and I also we filled out in my prepared comments is while the total does indeed inquiries associated Weve also the 300 millimeter obviously inside you. It easy insights, we each have a tuck slates of 21% to 30% as opposed to.

Paul as these three tend to tops business that wasn't mall and then in Israeli sites, though to the much less.

Ducs slate.

Okay, and the corollary to that.

We should expect minority income to increase sequentially.

Uh huh.

Yes, yes, so again, the gross the gross and operating and EBITDA incremental margins will be better then they all it and the then there will be an increase to the toxins or non component holding them on it but eventually of course, all dock is very beneficial to the nets brophy because the growth Museum.

The most a high margin business units that we have.

Right. Okay, great. That's all I have for questions. Thank you.

The next question is from David duly of Steelhead Securities. Please go ahead.

Yeah. Thanks for taking my questions I was just wondering.

In the second half of this calendar year in September and December quarters, what would you expect the capex levels to be where we go back down to the 45 million dollar run rate or where we still stay at these elevated run rates that we're currently running.

Yeah, we will stay in this level and even go up as we mentioned already in the last year.

Once we approve the that's really what at least in July last year.

The 100 million dollar a capex full well and we also spoke about additional capex full it'd be aside because elimination.

I will jump on it also we spoke about Qt nine I think we said 20 million. So all in all its more than $120 million topics.

We are buying to satisfy existing the man those the tools actually almost all of them only the arrived and Oh in final installation phase if some of them already installed.

And the these payment of $120 million Eve.

In the beginning we were thinking it would it be spread the.

Oh linearly in D.C. or as you'll see from their financials. It you can assume duthie tad like.

Less than 50% of this amount is already in Q1 Q2 was paid.

A little bit more than 50% of this amount will be added to the $40 million to $45 million.

Hello model. So you can expect for Q3 Q4. In addition to the aglow model or more than 50% of the 120 million, though which means that that these studies will be higher amounts then was in Q1 Q2.

Okay. Okay, what can we expect for gross margins in the third quarter.

Okay. So are you should expect does whatever we had in Q2 Q2 gross margin the baseline against the $310 million revenue. So we mentioned that the a increase.

For the me, but I was going to us because you know 10 million dollar for the revenue.

We mentioned that these will be mainly from a site.

And also and won't rule, which means that if 50, plus or even 60% incremental gross margin.

Okay. So the drop breaks it accelerate here in the upcoming quarter 'cause it the mix of side she is higher.

Yes.

Okay I'm, hoping for me.

Could you just give us the.

Dollar revenue number four side you now so we have a base number and also did you have any 10% customer during the quarter. Thank you.

Right.

Oh.

So on decide you.

It's about $40 million don't want to give an exact number it's a little bit Nols to 40 million though.

Besides your revenue in the second question, our 10% customer.

The other then in front of Sony We don't have.

Thank you, but no Sonic is I mean, I guess you will you know that it's between 70 to 85 million go up in the quarter. So it's about 25% right.

Thank you.

There are no further questions at this time, Mr. Allinder would you like to make her concluding statement.

Certainly.

Firstly I thank everybody for.

There are time in their interest in the company for attending the call I really think the analyst for their questions thought they were very good questions enjoyed the the dialogue.

In the short term.

We will be participating in the Jefferies Twentytwenty virtual semiconductor I T hardware and communications infrastructure Summit again September 1st and second.

We will also be holding virtual Indy hours during September and October.

For which additional information will be provided shortly.

And just as a as a very last comments.

Although.

Times are a little bit difficult right now.

We obviously stay very positive and optimistic about the ability of people to pull together and make things happen.

As a company, we see that very strong in the company.

We've been able to continue.

With all of that we can.

Controller attempt to control and I think execute pretty flawlessly.

We've completed.

Or.

Semi annual global business alignment meeting within the past several weeks and very encouraged with how we're sitting with our customers with the excitement of the market with existing and new platforms.

And the overall partnership.

Within the company and within the company with the customers. So we look forward to completing the year strong.

And just to scene.

Very strong resurgence as everything gets back to previous trends and patterns and having the market share gross be able to be very very evident on top of.

Core business, that's back at normal run rates.

With that I. Thank you all very very much and wish you too.

I'm stay safe and healthy thank you.

This concludes the Towerjazz second quarter 2020 results conference call. Thank you for your participation you May go ahead and disconnect.

[music] [noise].

[music].

Thank you and welcome to power semiconductor <unk> financial results conference call for the second quartile of 2020.

Before we begin I would like to remind you that some statements made during this call maybe forward looking and are subject to uncertainties and <unk> gold that could cause actual results could be different from those aren't expected.

These uncertainties and risks buckled up what did they go see level false 20-F F. Four X three day filed with the Securities and exchange want Michigan, a glass filings with the Israeli Securities Authority they'll also available on our website.

Oh, it feels no obligation to update any such forward looking state.

Please note that the second quartile 20 clinic financial results have been good back in accordance with U.S. gift and find that sounds tables, and I think they're earning 30 any todays earnings call. It also includes stricken adjusted financial information that may be can see they'll nongaap financial measures under like relation Gi and secondly, bullpen acquirements established.

The Securities and Exchange Commission.

The financial tables include the flip declination of these measures and the reconciliation of these non-GAAP measures. So the GAAP financial measure.

Now I'd like to turn the call to all of the C. O me Serasa that longer I felt please go ahead.

Thank you know it [laughter] and thank you everybody for joining our call today discussing our second quarter of 2020 business and financial results.

Second quarter revenues met our guidance at $310 million.

Resulting in EBITDA of 82 million.

Net profit of $19 million.

We further strengthened our financial position, having achieved record in shareholders equity and total balance sheet.

During the quarter, we continued our capacity expansion plan over 300 millimeter facility.

As well as certain incremental capability Catholic [noise].

300 millimeter and 200 millimeter [noise].

As shown by the increased levels of investment and equipment to $63 million to support existing and future capacity technology them out.

Later, Oren Shirazi, our CFO will provide an in depth reveal her second quarter financial result balance sheet and main financial activities.

Regarding the third quarter to be a mid range of 320 million supported by higher utilization rates will try who will review later.

Addressing the Golden 19 pandemic and its effects.

While viewing various regional changes in rates it impacts.

We continue to ensure and are committed to provide reliable.

Technology and manufacturing solution.

Diligently taking action to reduce health and business risk to our employees customers suppliers and partners.

We strictly adhere to all government guideline and our dedicated workforce continues to meet all of our customer business needs.

We have implemented many health and safety guidelines within our workplace.

Uninsured flexibility for remote work, if and when needed.

Visits to and from customers suppliers and partners as well as internal employee meeting.

Being through video conference call to minimize face to face interaction.

To date and since the beginning of this pandemic.

All of our worldwide manufacturing site.

Operate without interruption.

Yes.

Can you just see no material impact on our supply chain.

Continuously monitoring the situation globally and drive required measures and actions to ensure business continuity at a safe environment.

Many of our measures go well beyond social required by governmental instruction and regulation.

Looking at are different business unit activities.

Within the analog IC business unit.

Our silicon germanium optical business continues to show strain driven by both Fiveg infrastructure.

Data center demand.

Our second quarter was much stronger than the first quarter and we anticipate this trend continuing through the remainder of this year and into 2021.

Realizing at least a 20% twentytwenty over 2019 yearly revenue growth in silicon germanium output.

This is due to our high market share.

Tied to the Fiveg infrastructure roll out the rebound in data center orders and as well from what appears to be increased demand for bandwidth due to enhanced work from home protocols around the globe.

Considering the silicon germanium market growth.

In good position to support increasing demand being in the final stages of qualifying Selectra germanium capacity at our San Antonio facility.

Lighting further shipment to capacity above the increase silicon germanium capacity that we have built in or Newport Beach facility.

We continue to invest a new technology.

Wins with tier one customers.

An example announced in Q2.

As our partnership with Infinera.

To deliver and advanced 800 gigabit per second optical transceiver, using our advanced Silicon germanium technology.

Currently most transceivers, we are shipping or at the 100 gigabit per second with some amount of 400 gigabit per second note.

800 gigabit per second represents two generation advancement technology first what most of our customers are bolting today.

In.

Maintaining our long term roadmap leadership position.

Along with advancements in Silicon germanium, we continue to advance our silicon photonics platform expected drop to higher volumes in the coming years with a 400 gigabit per second node.

Our mobile RF business experienced very strong growth through 2019.

And in the first quarter of 2020.

Due to a combination of increased market share.

Wrap of our 300 millimeter RFS III technology.

And overall RF market content growth with the start of Fiveg handset rollout.

As we discussed last quarter it has been well advertised as an industry.

The coal fired 19 has slowed the mobile market.

Resulting as per annum it in about a 20% market pullback.

A strong verification of our market cases.

We forecast, although lower than our started the year pre called that expectation, a 10% to 15% increase in mobile 2020 over 2019 revenue.

Against this decreasing market backdrop.

We remain bullish about prospects for further growth due to fiveg adoption and our strong design win pipeline.

But our short term cautious as our customers have less visibility than is typical.

Our power IC business remains solid as we continue to gain overall market share. Despite some cobot 19 related market impacts primarily in the automotive sector. For example battery management products for electric vehicles.

According to customer forecast due to our broad power IC application coverage.

We should see also in this sector about a 20% year over year revenue growth Twentytwenty over 29 team.

Last quarter, we announced a breakthrough power IC technology Gen six.

That offers over 35% power efficiency improvement and or equivalent amount of diary reduction at 24 bolt operation through innovative transistor design.

This quarter, we have engaged with several customers on this platform and are seeing strong acceptance towards initial design.

This new technology complements our platform leadership at lower voltage.

With our previously announced 65 nanometer BCD 300 millimeter process.

And at higher voltage with our recently announced hundred 40 volt at 200 gold resource and ESL why technologies.

The combination of these segment leading technologies are crosses large voltage range should continue to enable share gains in this very large portion of the analog market for years to come.

Our power discrete business predominantly tier one MOSFET customers is realizing some recovery in the third quarter of 2020.

However, this business is significantly down.

Twentytwenty over 29 team.

Our customers continue to express caution.

But also continue with us on advanced MOSFET co development.

Moving to our sensor business unit, we forecast single digit year over year growth.

In spite of several segments being strongly adversely impacted by combined 19.

For example, dental X Ray sensors, where we have major market share.

The impact is mainly seen in the form of customer requests to push out orders.

Dental clinics were closed for a long period and are still not back to full speed, hence customers are very inventory cautious.

Industrial senses.

Sorry, industrial sensors, namely manufacturing line inspections is also down as a function of reduced new manufacturing line build out [noise].

Due to our very strong SAS platform and compatibility of fingerprint sensors, namely the under OLED, one on one sensor and the under LCD lens type modules.

We were developed and qualified in very short time.

We target our first volume production revenue in the fourth quarter wrapping throughout 2021.

Our time, a flight program is moving along very well.

We are prototype being the first sensor to our lead customer this quarter.

And planned strapped to production.

In the first half of next year.

This would be our first product moving to mass production utilizing our stacked wafer BS by pixel level body platform.

In the area of non imaging sensors, we have started the production ramp of a novel Mems microphone product line.

And I expect this business to grow nicely.

In addition, we're making progress on several fronts of next generation displays, which we are developing with leaders in the industry.

Expecting to ramp to production as early as 2022.

Looking at utilization rates during the second quarter, we saw the following.

Migdal Haemek, Israel Fab, one intersection factory.

We were at 60% utilization similar to last quarter.

Fab to the eight inch factory was at 70% similar as well to last quarter.

Newport Beach, California was at about 70% in utilization.

Showing substantial increase as compared to the previous quarter.

And presently moving towards your 85% utilization model.

Through the line being loaded with a strong increase in demand for silicon germanium for Fiveg infrastructure and data centers.

Our San Antonio factory was at 70% utilization and increases compared to the previous quarter.

Looking at our TPS go Fabs in Japan utilization for the eight inch foundry business was at about 60% and increases compared to the previous quarter.

Our 12 inch foundry business utilization was at 85% at our capacity utilization model.

The capacity expansion project for this 300 millimeter habit is progressing according to plan.

And being able to support additional wafer starts and increasing the capacity output of the 85% utilization model.

To summarize we are motivated with the degree of customer interaction and acceptance of our recent developments.

Namely an advanced silicon photonics, and very high speed Silicon germanium.

The entire backside elimination and stacked wafersense are offering as well as our newly served markets in display.

These activities in addition to our present strong and growing core business.

Back our confidence in our strategy and roadmap and will be additionally, accretive when all end markets revive to previous patterns.

We focus to continue smoothed production and global capacity assurance in order to meet current Unforecasted demand.

Our thoughts are with the people affected and the healthcare professionals working tirelessly, helping those in need.

And wish everyone safety security and good health during this challenging time.

With that I'd like to turn the call to our CFO Oren Shirazi corn.

Welcome everyone to our call today to stopped and in relation to us It a description of koby of 19.

I am satisfied that are going to quit doing fab operated joining this entire period with no interruption.

We have not missed any day of production all treatment and have succeeded in managing our supply chain efficient efficiently to avoiding any role inventories showed that.

We completed the quarter presenting revenue of $310 million achieving quarter over quarter and the overall you live in a world as well as Cordova what their margins.

As I wouldn't show in my balance sheet analyses of the company than a very strong and stable for an uncertain because position.

Oh, the balance sheets as of June 30, Twentytwenty reflects our current assets ratio of 3.5.

We achieved critical Joe those equity or 1.9 billion dollar while total balance sheet and built off it exceeded 2 billion dollar [noise].

I will now provide the beyond that highlight for the second quarter, and then discuss our cash flow and balance sheet financial statement.

Revenue for the second quarter of Twentytwenty, we'll see other than $10 million, an increase of compared to $300 million into first quarter of 22 empty on $306 million.

The second quarter of 29 thing.

Growth, both keep operating profit EBITDA and that broke before the second quarter of Twentytwenty old higher as compared to the first what those twentytwenty.

Gross and operating profit for the second quarter of Twentytwenty with 58 million dollar mtwenty $2 million compared to 53 million dollar and extremely ongoing that breo quartile.

Respectively, representing 5 million dollar incremental increase each oh, 50% incremental gross margin over the 10 million dollar revenue.

Net profit for the second quarter of Twentytwenty was $19 million.

Well the theme.

Since Bill show basic ended with that.

Inquiries as compared to $17 million are all point $16 per basic and diluted earnings per share into Brazil quota.

The increase in income Tuxes expenses into second quarter of Twentytwenty PMDA compared to the real quarters is mainly due to the high revenue as we head from our Newport Beach Fab as well as the Japanese Victoria consistent with refer to as a result on the increased utilization rates in Newport Beach and upon.

Well the tux right vary from 21% associated with them.

This increasing the Japanese fixed or 11, you'll end utilization also resulted in higher non controlling interest amount for the second quarter of twentytwenty beyond that as compared to previous quarter.

Comparing to the second quarter of 2019 gross and operating profit for the second quarter Iltwenty 20 will each for maybe on dollar higher as compared to gross and operating profits of 53 million dollar and $18 million respectively. In the second quarter of 29.

That's perfect into second quarter of 29, Tianwo $21 million oil Glenn defense.

Basic and diluted earnings both true, which is a 2 million dollar increase in profit Oh, two cents bills are higher than compared to $90 million.

Or 18 cents basic and diluted Bill show in the second quarter of Twentytwenty.

For market growth perspective in the second quarter Twentytwenty cash flow generated formulation was 67 million dollar.

What investments in fixed assets net mainly folk upics were 63 million dollar which included payments related to 300 million millimeter facility capacity expansion program.

In addition, we repaid 5 million dollar followed it.

In the first half of Twentytwenty cash flow generated from operations was 135 million dollar what investment in fixed up that net where 125 million dollar which included also payments related to the 300 millimeter the facility expansion in Japan.

We also we paid.

In the first couple of these 29 million dollar of our scheduled it.

Looking to the balance sheet with isn't a strong and stable financial position measure us total shareholders equity reached a record of $1.4 billion total assets and build our balance sheet totaled 2 billion dollar.

Current asset ratio you find us kind to us it's divided by Scholten liabilities was three point fivex.

Shorten that in the amount of $80 million includes $38 million principal payments of B benches serious G. Two repaid during the next 12 month as well as $42 million current maturities of bank loans and capital lease lobbied.

In addition to the company's writing and made Twentytwenty standup and pull my lot anybody racing company that is fully owned by S&P Global ratings completed its on all other things I feel for the company and offering them a cohort credit rating and want to the of junior 18 go.

Oh, yeah dub at a minor.

I would now like to describe all currency hedging activities.

In a diligent in relation to Japanese yen since the majority portion of vehicles revenue or is doing denominated in yen and the vast majority of TPS costar in yen whatever natural hedge over most of our average upon business and operations.

In order to meet the bulk of the remaining yen exposure, we executed zero cost.

Cylinder hedging transactions device zero cost it into the production is hedged.

Turning to see fluctuations will be content in the middle range as compared to this both exchange rate, hence why did the yen rate against the dollar may fluctuate the impact on margins is limited.

In addition in relation to the Japanese yen embarked on the balance sheet, we have I'm not trying to hedge on JP, why kish and JP way loan balances to the extent the loan amount does not exceed the kish among.

These threats to bizarrely protect us one potential impact of yen fluctuations.

Lastly in relation to fluctuations in vivo distributor currency, we have no revenues in these currency since approximately 10% of our cost Oh denominated in the vertical unsi and we have some liabilities denominated in chicken.

We also had a large portion of this currency at least by hey, engaging zero cost transactions.

To mitigate exposure, resulting from our the Miss denominator Cork and be investing a portion of our cash in Israeli marketable securities denominated in the Israeli currency to mitigate exposure, resulting from our shuttle denominated liabilities.

And the last note on our share count as of June 30, Twentytwenty, We had one other than 7 million outstanding already know shale and to fully diluted share count was 109 million simply goes embryo quarters.

No I wish to send a cold but to the operator operator.

[laughter].

Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one.

If you wish to cancel your request please press star too.

If you are using speaker equipment kindly lift your handset before pressing the numbers your questions will be pulled in the order. They are received please standby of only poll for your questions.

The first question is from Rajvindra Gill with Needham and company. Please go ahead.

Yeah. Thanks for taking my questions I appreciate it I just a question.

On the organic sequential growth in organic year over year growth rate I was wondering if you could provide that information given some of the the a the end markets that you talked about.

[noise] [noise] [noise] [noise]. So I think we're also talked about that most of the organic growth was in decide GE in Newport Beach for the data centers and.

The fiveg and the in a was all its full there sorry.

So for us and if you want local.

No I'm talking about the actual number what was the organic sequential growth number and in their organic year over year growth number.

Well get back on that very shortly I don't have it off the top of my head.

Okay.

So.

You see some some strength in insight on the five year and data center.

And the continuing.

Where are we in terms of that kind of that capacity expansion to support this demand in.

You also mentioned that the San Antonio facility is a is above Newport Beach.

Maybe you could talk little about one of the steps, we're taking care to.

Make sure you have adequate capacity.

[noise]. So if you recall, we built out quite a bit of capacity in 2018 and stated that we would be building additional.

30, plus capacity in 19 about the time that study data center at pulled back a bit.

We did complete the capacity build out.

And.

As stated we also within that built capacity in San Antonio.

So off of the president start levels.

We could go somewhere about.

I'd say, 30%, 35% higher.

Off of the.

Right now.

Very high start levels that Brad.

Okay, great and on the.

Mobile side.

You talked about the mobile Mark you tend to slow down given what's happened with coated.

I'm not sure I heard it did you are you confirmed me your 10% to 15% year over year growth an artificial why despite the market pullback I, just didnt hear that part and and and how its fiveg, helping you kind of offset that potential you did we just the overall market.

Yes, we are.

Restating a growth of 10% to 15% year over year in Rss alive. So that is what I stated.

And stating that that was against a backdrop. According to analysts have a market that has about a 20 point pull back. So I think that that's quite substantial and certainly indicative of gaining substantial market share.

And.

The Fiveg rollout is certainly helpful because of more content.

I don't have tremendous granularity at this moment as to how many parts are specifically going into a fiveg phone first LTV.

But the stated as the Fiveg rollout continues with the percentage of content growing within that that has a benefit for everybody but.

But.

But I believe that the.

10 to 15.

Percent year over year revenue increase.

It's very very much driven by the the market share increases that we have.

And as stated we had started the year believe much much higher.

But it has pulled back the market has pulled back but in spite of the market pulling back we will still recognize growth.

[noise]. Thank you.

To your previous question I apologize on the year over year.

It was a zero percent on the organic.

Cost of.

Pull back very strong within Discretes.

And the.

Present that outlook would be a 5%.

Increase inorganic.

Quarter over quarter in Q3 versus Q2.

But still.

Backfilling against a substantial decrease in discrete.

Market.

The next question is from a Halsall Tanya of credit Suisse. Please go ahead.

Hi, Good afternoon, Oh, Yeah, I'm not going can you help us understand.

These new contracts or projects that are ramping up on the sensing side you mentioned.

The fingerprint and at the time looks like project.

Can you provide a bit more color as to how should we think about the size of those opportunities.

Is it up and fine to one customer at this point or are you are already engaging with multiple customers on goes to Oh design wins in.

And how should we think about that opportunity in 2021, when those projects start to ramp up.

And then secondly, Oh.

Just do you think about.

Oh, that's part of your business for more biased specifically smartphones.

I can help us understand what exactly are you involved in Oh on on the upside is it a switch as they did and then is.

Multiplexers duplex service, what what kind of product are you, making and and how should we think about the adoption of Oh artifice artificial like a in in terms of smartphones are going forward and 2021 like willing to be a significant part or is it still going to be a fairly small.

Well mix.

Small side you spot.

<unk>.

Okay.

So long question I recall, the second part very clearly that was what are we doing within the mobile platform for the RF content.

So on that's we serve a variety of different power amplifiers with silicon germanium.

Including.

Standalone low noise amplifiers.

We have combined switch LNA is that we do with 65 nanometer Rs Esa lie.

We have.

A lot of two way radio switches that we're doing in general at 203 hundred millimeter and that's all RFS ally.

We have.

So LNA switches and just the.

P.A. controllers. So that's the the bulk of what we're producing within the RF content.

And our antenna tuners site and also antenna tuners.

And within the antenna tuners would have in addition.

Hey line that we're producing with them with a with Mems.

Yeah. So what I was trying to understand that's helpful or what I was trying to understand is that obviously in those categories, whether its use or Ellen knees.

There is a market, which is split between gallium nitride silicon germanium RFS, Hawaii. So how are you thinking about the adoption of these different technologies and what kind of suits you. The most when it comes to where the market moves with what kind of Oh chemical compound the market develops.

So it.

Certainly the gallium arsenide, p. A's or a mainstay for a variety of applications. The side you PA is.

Our aimed at different activities and a lot of that deals for example, with Bluetooth peers.

The.

LNA itself and the Standalone LNA banks are I believe predominately done in silicon germanium.

And that's.

Where we have a very strong capability and offering.

And then the integrated Cmos LNA with them.

Integrated LNA switch is it's done with RFS ally and in our case.

So and that the PPA controllers are RF Cmos.

And.

When I believe were standing very strong in all of the offerings that we have there on the switches themselves and and.

Antenna tuners, or we're dealing with RFS align I believe that thats the whole market is with RFS ally.

If you recall some.

You know for five years ago, plus minus that was predominantly in gallium arsenide P. Hamed.

And I am not move totally to the RFS III because of the.

[noise] reduce cost and improve performance. So that is I think at this point all switches for all.

Practical.

Offices are done with RFS alike.

As far as right, it's a significant amount of business for us It certainly is its.

It's a big business and we see 2021.

As stated with a 20 point pull back we're seeing a 10 to 15 point increase in revenue year over year.

We stated that 19 over 18, we saw an almost 50% increase since year over year, which is certainly much much bigger than the market itself grew so obviously a function of market share.

And the 35 point Delta this year against the market pull back and what we're showing.

Obviously also indicative of market share increase.

Our customers are.

Very strongly indicating.

<unk>.

A return to not just normalcy, but a return to growth.

In the.

Beginning of 2021, and they're very very bullish about their forecasts. So I believe that it will be a us very strong.

Growth engine for us throughout 2021, and an area that were continually.

Working on to actually increase capabilities and capacities.

Does that answer your second question I hope it does yep.

Yeah, Yeah, I think that was really help Russell and then just coming back through the first one that was on fingerprint and Oh okay.

Thank you.

So where did the school according to the size of the customer traction that youre seeing in and how should we think about the opportunity for anyone.

Its multiple customers that were doing with the fingerprint both the one to one under OLED Andy.

[music].

Other more standard under LCD script on fingerprint.

So multiple customers, where you're looking at.

Several tens of thousands of wafer opportunity within that space and it's a question now of.

Yes, showing our capabilities were stating that the first volume production will be shipped in the fourth quarter.

And then those parts that were shipping have to have.

Differentiated benefit for the customer the customer also show differentiated benefit within their respective markets to grow but it can be quite substantial.

And as stated the for US one of the.

Beauties of that market is that we were able to very very quickly.

Developed and qualify slows because of a very very strong and diverse see I S. Core that we have throughout the company. So Cmos image sensor throughout the company.

And take advantage of a market need.

As far as the time of flight, there's a variety of applications are going out for time the flight.

It's predominantly at 300 millimeter and its focused with backside elimination and stacked wafers.

And that is also more than one customer with.

Blue chip customers that.

Our signed up on long term agreements of course, we have to perform.

But.

That is a very very substantial market for us.

Okay. That's very helpful. Thanks Russell.

Thank you.

The next question is from Mark lift that this of Jefferies. Please go ahead.

Hi, Thanks for taking my questions Russell first first one I have a couple of questions first one for you I think.

When you talk about visibility from your clients are do you are you the view that your clients or are taking orders from their their customers on a non cancelable nonrefundable basis, and and is that how you is that how you guys are normally operated operating and then on the same topic when you're getting.

[noise] orders from clot customers are they asking for short lead time windows or are they asking you to run hop batches waivers through your fast because they also are getting orders with request for short lead times.

Good questions Mark the answer to the first question is the.

Contracts that we have really.

Our very dependent upon the customers and the type of business we're doing.

Within the.

Power Discretes.

Our customers are.

For the most part held to a forecast very closely that doesn't mean that we don't.

Give a lot of leeway its partnerships and within what we do with those discretes, it's more or less sole sourced everything that we sell so the ability then to be malleable, if someone's demand is really down and to hold them to previous forecast.

Nominally that's doesn't help either person if they don't need the the wafers. So you work out a deal and you you try to come up with something Thats a win win for both people.

In the case of our standard foundry business.

[music].

From the moment that we start wafers.

Customers must take the wafers or at least take them to an inventory point of when they say stop the wafers. So once the wafer start in the fab or normal T's and C's is that.

Obviously, if a customer wishes to cancel something they can.

But they would take it to the inventory point of when they would cancel it which for the most part doesn't make much sense for a customer now it depending on the customer themselves.

The T's and C's can vary as to if they want to put something on hold how long can it be on hold for before they either have to pay to that inventory point or until the wafers have to be completed through the line, but again that depends on on the customer the t's and c's relationship and the amount of business, but but thats.

Predominantly how the the T's and C's Wood said about customer.

On giving a purchase order for the most part of purchase order can be cancelled before.

The wafers or started without any liability.

So that was that part out now as far as are our customer visibility.

At this point.

Specially in the mobile sector.

We have.

Well not just special there I I think across the board, we have very good interactions and very candid.

Updates forecasting.

That's very accurate with our customers and it's rare that.

A forecast changes drastically within a four or five month period.

What our mobile customers are telling us now and it's not a fact of us not having visibility with them, it's them, having less visibility on their customers than they've had in the past.

And that's where we stated that we're cautious about the mobile side in the short term because our customers really are not stating the same degrees of visibility that they had in the past.

I.

I don't think that Thats really the case with other customers for the most part as stated in alum one of Rogers questions of was on the organic growth. So we've stated very clearly that and it's known in the industry that the power discrete them offsets are down.

Pretty substantially and it's starting to come back, but it's down substantially and so that business is down several tens of millions.

We are working with them when there are upside capabilities and when they see that they might ask for a short lead time.

And it's to the benefit because they have an upside some certain skew some.

Some certain amount of wafers that we'll go ahead and we will take.

So I believe.

Anytime, especially in weaker markets.

Customers.

But as soon as they have an opportunity they get I'm very excited to do that opportunity and to be able to at any given time start wafers and expedite well below the normal cycle times that you have in the factory it only enhances the relationship because its.

Many times.

If there is a an immediate needs that they need a pulling for.

If they don't supply that business, it's either lost because of the opportunity the end customer is gone or the end customer might.

Try to buy from someone else.

So anytime that we get an urgent upside request.

Well go Africa strongly as we can.

Now that is not necessarily.

In times when the market is weak.

In times when the market is very strong. It's the same type of thing in fact, I would say maybe when times when the market is strong there's more upside requests because the end customer or integrator. If you will has an opportunity that they don't see how they can get fulfilled because everyone supply chain is full.

And those are aware you, sometimes get very very big.

Upsides, if you can somehow pull off either a substantial amount of pull ins or start wafers and ship them well under the normal lead time and cycle times of the factory.

So I I think is at steady state. It's you know, sometimes it's more sometimes it's less.

The only thing that we're seeing right now that's.

I'm going back to.

The first question on Peos and visibility.

Our customers in the mobile space are saying that they have less visibility.

But we have seen a very very big reduction in the forecast.

Of.

The.

Image sensors for dental X Ray.

And that's one of the areas, where it's very very nice that.

Other than the power discrete and the.

On this.

Predominant portion of the image sensor business as well as.

If we look at some industrial sensors for manufacturing line.

But even with that the C. I ask businesses single digit up this year or should be according to present forecast, which shows growth in other markets other than that but when you talk about organic growth. If you have certain markets, where you have a fall out of.

Because of the environment of many tens of millions of dollars.

And in order to have a 5% organic growth that we're talking about you have to have very very big market show wins in other areas.

Because they obviously have to first make up for the gap.

The segments that are down and then themselves a 5% number as a nice percent number of growth.

If everything was as per normalcy, and the X Ray was where it has been in the.

Dental X rays, I'm, sorry, dental X rays, and Discretes where were they they have been.

The organic growth would be extremely high but that it is what it is and where.

Very fortunate I think that we are very diverse on their end markets that were not restricted to any single market and that even in the markets that are pulling back a big market that we serve such as the mobile that our market share growth is big enough that we see this 15 point increase year over year.

First the 20 point down that the analysts speak about.

Hopefully that answered your question I tried to give a thorough answer but yeah. That's great color. Thank you for that and I had a follow up if I may I a question on the automotive business can you remind us.

Roughly what your automotive exposure is and is it mostly ended in discrete and the reason I ask is that it seems like you know a number companies are calling in Q2, the bottom for the automotive business. It seems like the the factories are coming back online and you know a large bank in the U.S.

I think last week or two weeks ago recorded June quarter on auto long originate auto loan originations up at the highest levels ever so.

Seems like automotive, it's somewhat spring potentially spring loaded.

And ready to go once the factories come back online and I wondered just if you could remind us the exposure there where you know whether the customers are starting to give you any visibility on on in that vertical market and that's all ahead. Thank you.

Good question.

So as you're well aware we.

Have a long term agreements with Maxim in San Antonio.

A good portion of that factory serves automotive and that's known any Maxim is as a big automotive player.

Very good automotive player.

We can say exactly how much of that is serving automotive or not serving automotive but in that regard. The contract is a very solid contract. So.

We would not see something going down or coming back up as it's a contract on an amount of volume that's purchased and I think Maxim just released they had very good financials I believe so.

I think that's.

A good thing, but so that's one area of automotive.

In the.

Other areas of automotive that we do we have silicon germanium.

For safety, we had press release that we serve Densifying Toyota with Fiveg for on radar and.

I believe that we see.

Good visibility and very strong.

Optimism for upticks there the other area that we serve very strongly as stated in the call is.

Electric vehicle battery management and.

I have not yet seen a big rebound in that.

And then we have a diversity of other automotive products that we make but on that.

Any single one in any single end market is not necessarily big but the combination is reasonable.

Great. That's very helpful. Thank you.

The next question is from Richard Shannon of Craig Hallum. Please go ahead.

Oh, Russell and Oren. Thanks for taking my question as well, maybe I'll follow up on the topic of RFS, Hawaii, Obviously, you had a nice growing share in that business years ago, and then I think Judah, perhaps as some aggressive competitive pricing backed off a little bit here and now you've really seen nice resurgence here.

Including with Western share gains here do you know what's your share position is relatively speaking if you can you do can you share it with us and it is there any natural limit to two where that could go.

The second part is easier to answer the the natural limit I would say not we have extremely strong advanced slows a 200 millimeter that are being used for some of the most advanced activities in the world.

And then we have a so 200 millimeter obviously, we have a lot of factories a lot I think.

As a reasonable amount of factories that eight inch and the utilization numbers that I. Just gave was for example, the.

Factory in Migdal Haemek was at 70% utilization.

Some of that.

Delta the 70 to the model is because of a downtick right now and RFS ally.

So.

We.

Can can grow that we've also.

Talked about the fact of adding capability Capex at 200 millimeter.

Reasonable amount of that capability Capex is again for a very advanced 200 millimeter RFS alive capabilities and platforms.

So.

I don't see it's at 200 millimeter that we have a really foreseeable boundary that we can get beyond I think.

From the the growth that we've had we can continue to grow at done even at last year's rate at 50% for a number of years and not run into a gate depending on how we would like to set up the factories on the mixes that we're running in the factories.

The 300 millimeter is a little bit of a different story, we've expanded our 300 millimeter capability.

We'll probably need to further 300 millimeter capability.

In the end of 2021 2022 timeframe.

For not just our ADESA lie but for other areas as well at this point.

Without further expansion.

Either organically or inorganically, whatever form that might take.

We would probably hit a wall at the end of 2021 on 300 millimeter growth in RFS alive, but that is not our plan to hit that wall.

Okay, and I guess at least my my last question here Oh Russell is on 300 millimeter how do we how do we think about that expansion here, whether it's a internal and that whose odour or maybe some other internal approach versus getting some access externally I know you talked about a prior partner.

Who I think because it's a recently solved or disintegrated.

So that's used to take that opportunity away, where where do you think you're going to get that and how soon do you need to make a some sort of a decision or activity here that will kind of provide that certainly as you get to calendar 22.

Yeah, I'm not sure what you're referring to about having talked about a partner that dissolve the way I don't know of any partner that we talked about for 300 millimeter publicly.

Period, I don't know of any thats dissolved away. So I'm not sure Richard maybe we can talk about that later offline. If you have some questions. There I don't believe we ever said something like that.

But the organic growth we've done.

A lot of.

[noise] internal exercises as to what it would take and cost to grow a substantial amount internally and we could weaken.

Go almost a three X the present capacity with organic investment.

And we might go ahead and do that it is expensive.

We're also.

Pursuing other inorganic activities of a variety of different models and we continue to pursue those.

[music].

And.

More than that I can state without saying you know getting into things that I don't want to release that are not yet released.

Some because of.

Maybe agreements I'm not talking about things before there are done deal and others because it doesn't make a lot of sense to talk about things before you know that they're going to happen.

But obviously.

We've had.

I think a good track record on M&A is that were.

[music].

Beneficial to both the seller on the buyer.

And we're working on those models continually be at under whatever the condition that might be.

At this point.

We were asked last quarter I believe in most in the Q on a if the cobot environments enhances or decreases.

The M&A activity landscape.

And I would say from an opportunity standpoint, it enhances it.

Eight get the deal done standpoint, it decreases.

It's it's not simple.

Two.

Completed deal.

When you are not face to face with people.

Yes, it's that's where you're out so are there things we're working on.

Mr. L. linger in line has been you did.

I'm, sorry, I don't know where that cut off to the phone muted automatically I don't know why.

It could you. Please tell me where you stop hearing me because I do apologize.

Well I think is what the last five to eight seconds of what you're well Oh. Good [laughter]. Okay. So anyway, what I was stating is.

We have I believe.

[noise] of.

Plus minus EUR, six plus minus months to to make a a strong decision if we don't move forward.

[noise] in.

An avenue of doing things inorganically to invest organically.

<unk>.

Okay, Thats, certainly doesn't matter, but always appreciate the detail.

Oh, you're very welcome. Thank you I appreciate the question.

Thanks.

The next question is from Krish Sankar of Cowen. Please go ahead.

Hi, Thanks for taking my question I have two of them Russell if I recall it correctly I think in the prepared comments you said the yodle silicon germanium revenue all there's going to grow 20 puts them do other will yield is good predominately driven by the Fiveg data center that put our yields the gaining market share on top you've already Holly.

Two thirds market shouldn't that segment.

So you're correct, we enjoy a very very high market share I.

There's more customers that come into the market and.

Those that enter into the market are not yet necessarily very very big on a revenue basis.

So in increasing market share.

On a revenue basis I don't believe that we have increased our market share substantially as we already enjoy a very very high market share percent.

And.

If you for for example to go from 60% to 65% no Thats, a a 5.8% to 12% increase in share that I don't know, it's a little bit hard to measure, but we do enjoy a very very high market share within the.

Hi end side, you optical now that being said the growth that we see really is.

Around fiveg built out with existing customers and certainly data center very strong with existing customers as well as other activities with data streaming.

So those are the major reasons that we see the growth right now.

Got it goes it's very helpful. Let me just as a follow up Oh, it's not a big part of your business today, but you know at the end of last year, you guys announced a partnership with a lead you to on Mike Leidy. When do you think from a realistic standpoint, Dod business seeks have.

All been using might really be gets into mass production.

I think that that's.

Not unfair for you to ask me at all it's would be improper for me to answer it.

A lady is.

The only press release customer that we've talked about with no wire micro DFI well I'm. So anything that I would say there is very related to them.

And I don't think that I should talk very specifically about any single customers market. So I it's <unk>.

I think that that would not be proper for me to answer and if I was a lady I probably wouldn't be very happy if somebody was talking about something that could be reflected back to be my market very strongly so I apologize, but I I.

I don't think its proper feed answer the question.

Talking about a Lady however, I am just specifically I think that's an incredible technology and I think they're moving along very well.

Good enough said enough. Thanks Russell.

The next question is from Lisa Thompson I'm Zacks investment research. Please go ahead.

Hi aren't I just have some a quick quick.

Housekeeping question, So you talk that right.

Sales at Newport Beach engine in Japan are increasing substantially so does that change your thinking on the tax rate. This year at all is it still 4%.

Yeah, I think you can also already see that's in Q2 financial we showed very nice very positive even go the incremental gross profit margin and operating profit margin EBITDA margin and comment on it.

<unk> to 50, 60% because of these side you and also due upon like you mentioned and did you see the fixed line went up.

Because and I also we felt that in my prepared comments or does the while the total does indeed.

The increase associated Weve also the three I was wondering if at all if it's a inside you [noise].

It is in sites, we each have a tough place or when do you want to 30% as opposed to.

Probably at least three tend to tops business.

Got it wasn't mall in in Israeli sites that to the much less.

Stocks slate.

Okay, and and the corollary to that.

We should expect minority income to increase sequentially well here goes on.

Yes, yes, so again, the gross the goals and operating and EBITDA incremental margins will be better then the analyst and the then there will be an increased due to toxins or non ocwen potent mold intermodal, but eventually of course, all dock is very beneficial to the nets brophy because the growth.

For using the most a high margin business units that we have.

Right. Okay, great. That's all I have for questions. Thank you.

The next question is from David duly of Steelhead Securities. Please go ahead.

Yeah. Thanks for taking my question I was just wondering in the second half of this calendar year in September and December quarter, what would you expect the capex levels to be where we go back down to the $45 million run rate or where we still stay at these elevated run rates that we're currently running.

Yeah, we will stay in this level and even go up it as we mentioned already in the last year.

Once we approve the that's what he was at least in July last year.

The 100 million dollar a capex full was little.

And we also spoke about additional topics full it it'd be aside because elimination.

I will jump on it also we spoke about Qt nine I think we said 20 million. So all in all its more than $120 million topics.

We are buying to satisfy existing the man those the tools externally almost all of them away the arrived and Oh in final installation phases, some of them already installed and the these payment of $120 million All Eve.

Hey into beginning we were thinking it would it be spread the.

Oh linearly in D.C. or as you'll see from their financials. It you can assume duthie tad like.

Less than 50% of these amounts already in Q1 Q2 was paid.

A little bit more than 50% of this amount will be added to the $40 million to $45 million.

Hello model. So you can expect for Q3 Q4. In addition to the aglow model or more than 50% of the 120 million, though which means that these studies will be higher amount then was in Q1 Q2.

Okay, Okay and.

What can we expect for gross margins in the third quarter.

Okay. So are you should expect does whatever we had in Q2 Q2 gross margins the baseline against the $310 million revenue. So we mentioned that the a inquiries.

Well that means that he's gone as he said you know 10 million dollar for the revenue.

We mentioned that it wouldn't be mainly from a site.

And also and won't rule, which means that it's 50, plus well, even 60% incremental gross margin.

Okay. So the drop rate to accelerate here in the upcoming quarter 'cause it the mix of psyche is higher.

Yes.

Okay, I don't think for me.

Could you just give us the.

Our revenue number four side you now so we have a base number and also did you have any 10% customers during the quarter. Thank you.

[music].

Oh.

Oh, so on decide you.

It's about 40 million dollar don't want to give exact number it's a little bit north to 40 million though.

Besides your revenue in the second question at 10% customer.

The other than it's been a funny, we don't have.

Thank you.

On a funny give I mean, I guess you will you know that it's between 70 to 85 million dollar for the quarter. So it's about 25% is right.

Thank you.

There are no further questions at this time, Mr. Allinder would you like to make your concluding statement.

Certainly.

Firstly I thank everybody for.

Their time and their interest in the company for attending the call I really think the analysts for their questions thought they were very good questions enjoyed the the dialogue.

In the short term.

We will be participating in the Jefferies Twentytwenty virtual semiconductor I T hardware in communications infrastructure Summit again September 1st and second.

We will also be holding virtual mdrs during September and October.

For which additional information will be provided shortly.

And just as a as a very last comments.

Although.

Times are a little bit difficult right now.

We obviously stay very positive an optimistic.

About the ability of people to pull together and make things happen.

As a company, we see that very strong in the company.

We've been able to continue.

With all that we can.

Controller attempt to control and I think execute pretty flawlessly.

We've completed.

Or.

Semi annual global business alignment meeting with them the past several weeks and very encouraged with how we're sitting with our customers with the excitement of the market with existing and new platforms.

And the overall partnership.

Within the company and within the company with the customers. So we look forward to completely new year strong.

And just to scene.

Very strong resurgence as everything gets back to previous trends and patterns and having the market share growth be able to be very very evident on top of.

Core business, that's back at normal run rates.

With that I. Thank you all very very much and wish you too.

I am stay safe and healthy thank you.

This concludes the Towerjazz second quarter 2020 results conference call. Thank you for your participation you May go ahead and disconnect.