Q4 2020 Tower Semiconductor Ltd Earnings Call

Joining us today are Mister Russell El Lugar towers and Mister orange. I would now like to turn the conference over to mister Levy senior vice president of investor relations and corporate Communications. Miss Levy, please go ahead. Thank you and welcome to sour stomach pain doctor Financial results conference calls for the fourth quarter of fully of twenty-twenty before we begin I would like to remind you that some statements made during this call may be forward-looking and are subject to uncertainties and risk factors that could cause actual results to be different from the warranty expected these uncertainties and risk factors are fully disclosed in our phones 20th F4F three and six gay file with the Securities and Exchange Commission as well as violent with Israeli security Authority. They are also available on our website.

Dollars seems no obligation to update any such forward-looking statements. Please note that the fourth quarter and fully of twenty-twenty financial results have been prepared in accordance with U.S. Guests the financial life in today's learning release and in this earnings fall also include certain adjusted financial information that may be considered non-gaap Financial measures under regulation G and related with reporting wage is established with the Securities and Exchange Commission, the financial tables include a full explanation of these measures and the reconciliation of these non-gaap measures to the gaap financial measures now, I'm like to turn the call to our CEO. Mr. Russell and Russell, please go ahead.

Thank you.

I welcome everybody to our 2020 fourth quarter and fiscal year business and financial results. Thank you for joining our call.

We finished 2020 with revenues of 1266000000 dollars representing year-over-year 3% growth and 5% organic growth. We enter 2021 having completed a very strong fourth-quarter with revenues of $345 million having exceeded or mid-range guidance office which represented an eleven percent fourth quarter year-over-year total growth and 20% organic growth with resulting ibadah of 95.8 million off and net profit of $31.

Continue to maintain a healthy balance sheet that fully supports and enable us to add value while capitalizing business opportunities to facilitate future growth. We are Guided by the first quarter to a mid range of 345 million dollars counter to the typical q1 seasonality, which will represent a year to year of 15% total growth with a Gannett growth of 20% In addition from this 345 million Revenue base. We expect sequential quarterly Revenue growth throughout 2021.

Looking at the revenue breakdowns will first discuss the end markets and give numbers to the best of our ability and knowledge regarding the end markets our ICS or service.

Infrastructure Revenue, which predominantly is our RF Optical with a certain amount of advanced excretes was at about two hundred thirty million dollars.

Wireless was approximately $425 million dollars Automotive was a hundred and eighty million dollars which we serve with power ICS power discrete Imaging and are afraid of consumer including computing power management for home appliances in general accessories and home. Use security cameras was approximately 220 million volt industrial was approximately one hundred million dollars image sensors for high-end photography and medical applications was that about fifty million dollars Aerospace and defense was also at about fifty million dollars and there's an additional of about ten million of devices that we sold that will be divided among the end markets that I've spoken to but for which we don't have the granularity to break down further.

Analyzing the revenue by technology platform for our three corporate Focus being seamless connectivity green everything and interactive smart system off. The breakdown is as follows.

Seamless connectivity which for us is our of infrastructure and RF signal from mobile platforms total to approximately 36% of our corporate revenues or about $4,000 mobile was $280 at 22% 2020 / 2019 growth infrastructure, which is silicon germanium based including the initial silicon photonic. Trap was approximately $170 at 15% year-over-year growth.

Green everything our contribution being energy efficient power management ICS and power to streets was approximately four hundred five million dollars or 32% of our corporate office has power management ICS were $195 million flat year-over-year. However, 25% up organically power described total to $210 a decrease of 12% year-over-year interactive Smart Systems, which relates to our image sensors and non-imaging sensor offerings represented about 18% of our corporate revenues at about 230 million dollars having realized a 7% growth in 2020, despite significant contraction and medical predominantly stitched large die dental sensors.

Our business of about 14% of our corporate Revenue served various mixed-signal CMOS Technology's mainly computing.

And Specialty memory applications looking at our activities in our different business units within our analog business unit are still a germanium infrastructure business which provides technology for advanced Optical transceivers where we enjoy greater than 60% market share experienced double-digit growth in 2024 or 2019.

Customer forecast continue to show this elevated level of demand to be sustained through the remainder of 2021 and the next several years. There's an expected industry grow out of traffic of about a 15% cagr. Our opportunity is to mirror this growth and benefit from both a continued role out of five key infrastructure, which drives demand for a month and Telecom networks and buy data center build out which drives the band for a hundred through 800 gigabit-per-second transceivers at 500 and 800 gigabit-per-second. We also anticipate increased adoption of our silicon photonics platform further increasing our footprint.

In the optical market and providing new opportunities for growth as previously mentioned. We are well-positioned in this market having already announced a partnership within 5 form began volume production and We additionally have over 30 customers engaged with us at various stages of qualification and development last month. We announced participation in a dark programme developing a cipher platform with integrated lasers further differentiating our capabilities in this emerging market.

Our mobile business which provides components for a front ends in handsets grew as mentioned over 20% year-over-year due to a combination of increased market share loss overall Market recovery and the beginning of a transition to 5 G handsets growth was broad-based and included Rams of our newest 200 millimeter and 300 millimeter Technologies off as well as very strong demand for existing offerings.

Forecast for mobile or strong for 20 21 and we expect that 5G have sets which is previously mentioned require 30% to 50% more of content will increasingly Revolt older models over the next few years creating a sustained opportunity for growth in this market.

Or power. I see organic business grew 25% in 2020 / 2019 through games and market share.

Both at two hundred millimetre and 300 millimeter or across a wide range of voltages and applications. We see increasing demand for power management ICS and multiple applications including hybrid and a nice Vehicles as well as consumer e-bikes Computing and Industrial applications in 2020. We released a breakthrough power. I see two hundred millimetre technology package, which is now prototyping with multiple customers this technology offers over 35% power efficiency Improvement and or equivalent amount of diary Dakshin at twenty-four volts operation through an Innovative transistor design this new technology complements our platform leadership positions at lower voltages with our previously announced sixty-five nanometer b c d e 300 millimeter process and it higher voltages with our recently announced 140 volt re Surf and 200 volt SOI Technologies as validation to the value of a game.

Is power platforms customer?

Approaching us for long-term volume contracts for which we have already signed one significant one.

Looking at Power discrete sui see strong recovery from most customers included but not limited to our tier one must have customers.

Moving to our sensors and display business unit first to discuss CMOS image sensors in the past quarter with opec's we introduced a state-of-the-art indirect time-of-flight. I toss imager with unparalleled performance and accuracy and sensitivity based on Opex measurements. The sensor 70 accuracy are better meaning higher level higher performance package and the two otherwise industry-leading I tossed sensors in the market.

This sensor will enter volume production in the second quarter of this year. It is planned to be embedded in smartphones other devices for face recognition and 3D imaging applications such as fast autofocus off and artistic picture Focus blurring effects. The sensor is based upon our unique pixel level stacking state-of-the-art platform with the best and Industry less than 2 microns electrical connection pitch.

During last year we engaged in several programs of large x-ray sensors some already having moved to Productions. Our differentiation in this market is in pixel performance, especially sensitivity and linearity and in yields for 300 millimeter. We are the only Foundry to supply such centuries in mass production 300 millimeter tooling enables very high-strung and very importantly a design advantage to manufacture a full twenty one centimeter by 21 cm detector from one wafer and hence eliminating the need for expensive wafer tiling our next Generation industrial sensors on 300 millimeter using our state-of-the-art Global shutter pixels are also wrapping into mass production our pixel size of a 2.5 microns is the smallest in the world. We provide high-resolution sensors with current maximum resolutions of 288 megapixel with excellences. Yep.

And shutter efficiency for the display screening Market. We expect to see many of these new Machine Vision sensor products based on our sixty five nanometer 300 millimeter platform ramp to production this year the industrial Market continues to grow steadily and we expect to see nice growth of these high-resolution sensors tens of millions of dollars at high-margin the lifetime of such products as long five to eight years. So we expect high-margin steady business based on these products if we look at for example, one such industrial sensor Market manufacturing jobs TV, laptop smartphone among others. There is a need for display inspections which drives a large demand for very high resolution fast Global shutter sensors that meet the type form fax requirements of the Optics perfectly matched to our high-performance smallest in the industry 2.5 microns Global shutter pixel alongside the new 300 millimeter product adoption. We seen dead.

Bill increased 20 21 forecast

For existing 200 millimeter Advanced platforms beginning the Imaging area that for us was hit the hardest by COVID-19 in talex re we are encouraged to see an increase in purchase orders and customer forecasts now show second half of the Year fully recovering returning to pre COVID-19 rates.

Burlington on Imaging sensors and displays there are three end markets that we are focusing on for each of these we chose a customer development partner who has a differentiated capability off in the men's area. We are entering the men's microphone Market. This is the fast-growing Market with microphones being embedded not only in earbuds and cellular phones, but also in many combat operated devices speech recognition is being used in such devices for high-fidelity speech recognition differentiate a performance of high dynamic range and loud noise microphones are needed Thursday. We entered this Market with a partnership with genetics as press released in queue for 20. We're in the initial production ramped that are moving forward on developments for the best and Industry signal to do is figure of Merit.

Men's microphone is a large new serve market for us reported to a VIN a 1.2 billion Market size and 2019 with analyst projections of 1.7 billion in 20/24. The display Market is undergoing a dramatic change from LCD screens with LED backlighting into micro LED or micro OLED display off allowing substantially higher dynamic range with true black and higher brightness and entering the display area. We announced our partnership with a lady this partnership continues along with developments in preparation for mass production of their unique gallium nitride nanotubes based micro-led needs which offer unique figure of Merit superiority at substantially lower cost than existing volume manufacturing Solutions. In addition. We continue forward with our technology development of CMOS backplane for stitched charged. I'd micro wage

From the virtual reality Market with a significant market leader.

Moving to utilization our customer base continues to grow the demand of our own nation of the value of the previously described technology offerings to meet this increased demand. We are investing 150 million dollars to increase our capacity as well enable some existing to serve new higher-margin offerings. We are investing in Toonami fab, five two hundred millimetre McDowell hammocks up to 200 millimeter San Antonio Fab 920 off the meter and an additional investment and our lows of five seven three hundred millimeters site.

These expansions will have the potential of adding about a hundred.

Fifty million of Revenue on an annual basis once fully qualified and utilized we will begin to see some incremental Revenue benefit in the second half of 2021 targeting full capacity during the first half of 2022.

Fourth-quarter utilization levels where as follows McDowell hammock, Israel South one or six inch factory with a 64% utilization Fab to as it's 76 Newport Beach. I was at 75% utilization or San Antonio Factory Fab dine was at 67% utilization looking at rtps. Go Fabs in Japan utilization for the 8-inch found dead set about 65% rate and our 12-inch Foundry business was at about a 90% rate with that. I'd like to turn the call to our CFO Mister orange Razia orang wage.

Welcome everyone and thank you for joining us today today demonstrating double-digit percentage off with water and you know the revenue group as well as very strong margin growth and balance sheet Financial indicators. We also announced today a new 150 million dollar capacity expansion plans that we initiated in full of our seven Publications focused on our eighteen and twelve inch facility due to our customers Thursday and forecasts that are exceeding our current capacity. I will now move to our fourth-quarter and full-year p&l highlights and then discuss our balance sheet and cash flow financial statements.

Revenue for the fourth quarter of 2020 was 345 million dollar reflecting 11% Revenue growth has compelled to 3:10 million dollar in the pre-owned quarter and 10% off of when compared to three hundred and six million dollar in the 4th fourth quarter of 2019.

Looking at our organic revenues, which are defined as total revenue excluding revenues for no vote on Japan previously Panasonic semiconductor and including revenue for Maxima now San Antonio field office in the full school to reflect 20% quarter-over-quarter growth and 17% year over year ago.

Goals and operating profits for the fourth quarter of 2020 World seventy million dollar and $33 respectively Seventeen million dollar and forty million dollar a higher wage in the hotel respectively and fifteen million dollar in 14 million dollar higher than in the fourth quarter of 2019 Lexus net profit for the fourth quarter of 2020 was $30,000.20 basic earnings special.

28 cents diluted running special which is $16 higher as compared to net profit of $15 in the quarter. Maybe that was the fourth quarter of 2020 was 926 million dollar Seventeen million dollar higher as compared to seventy nine million dollar in the pre-owned quarter and 21 million dollar higher as compared to seventy five million dollar in the full photo of 2019 for the full year of 2020 Revenue was 1.266 dollars billion dollar thirty two million higher than in 2019 and goes and operating Pro Bowl 2020. Well, 233 million dollar and ninety 1 million dollar respectively as compelled to to Thirty million dollar and $87 in 2019 respectively month for 20 21 882 million dollar representing seventy cents diluted earnings per share as compared to $90 on it for $50.84 per share dead.

zero said 15-20

19th we also announced today a new a new capacity investment plan of $150 in the majority of our facilities do to customers demand forecasts that are affecting I'll call and maximum capacity capabilities. The investment is expected to be made in the coming twelve months in our fifth two facility in Israel have nine in Texas US Bank in Japan and fed seven involved with Japan. The equipment will begin to have incremental Revenue impact during the second half of 2021 and targeted to be fully qualified during the first quarter of 22. We believe the Catholics payments will be mostly made between mid twenty Twenty-One and the first quarter of 2026.

In addition in relation to the buildings and Facilities that are used by US because manufacturing the lease contract for such building and facility was extended full at least 8:30 to this list contract extension resulted in an increase in fixed assets and liabilities of approximately sixty million dollar recorded in our balance sheet under you have get ASC 842 named leases.

I would like now to describe our currency hedging activity in relation in relation to the to the Japanese Yen, since the majority portion of DPS cuz revenue is dominated Indiana and the vast majority of DPS Costco Union. We have initial stage, although most of our Japanese business and operations in order to mitigate part of the remaining and exposure. We executed 0 4 cylinder hedging transactions. This transaction has hedge currency fluctuations to be contained in a narrow range as compelled to the spot exchange range, right hence while the end game against the US dollar May fluctuate the impact on our margins is limited.

In addition in relation to the Japanese and impact on the balance sheet. We have a natural hedge on j p y cash and JPY loan balances due to the extent off to the extent the loan amount does not exceed the cash amount. This helps to partially protect us from potential impact of fluctuation lastly in relation wage fluctuation in the Israeli shekel currency. We have no weapon using this currency but since approx 10% of our costs are denominated in Israeli currency, and we have some liabilities anong English.

We also have a large portion of this currency Risk by a engaging zero-cost cylinder transactions to mitigate exposure resulting from our shuttle denominated costs and be investing a portion of our cash in Israeli marketable Securities denominated in the Israeli currency to mitigate exposure resulting from the shackle denominated payables and across looking at the balance sheet. We present a strong and stable financial position property and Equipment increased from $682. As of December Thirty One 2019 off the 839 million dollar as of December Thirty One twenty twenty

the increase is

Mainly due to a the twelve inch Fab capacity expansion program. We announced already in July 2019, which equipment mostly arrived during this year's building twenty-twenty and be approximately sixty million dollars recorded following the extension of the lease contract of the PS cuz building and facilities in Japan as I suck abilities under you have Gap ASC 842 as explained before

short-term and long-term debt balance in the balance sheet increased as well from 312 million as of the 1031 2019 to 390 million dollar as of December 5th, 2020 mostly due to the signing of the extension of the building and facility lease contract in Japan as described before this lease is treated as a capitalist them by increasing fixed assets and liabilities by approximately sixty million dollar amount other shareholders Equity reached a record of 1.45 billion dollar power Cup Table consists of more than eight million outstanding ordinary shells and an additional 2 million.

He's awfully literature resulting in a fully diluted share count of 110 million.

Current assets ratio defined as current assets divided by short-term liabilities was full and the last note on our cash flow with both in the fourth quarter of 2020 cash flow generated of operations was seventy-three million dollar investments in fixed assets. Mainly for manufacturing equipment will sixty four million dollar which included Investments to increase our 12-inch capacity in Japan. In addition. We repaired eight million dollar of our debt during the fourth quarter of 2024 the year twenty-twenty. We generated 277 million Asian. We paid $64 of that and we invested $257 in fixed-asset mainly for the purchase of manufacturing equipment including investment to increase our 12-inch capacity in Japan and allow release from July 2019.

No, I wish to turn the call back to the Operator Operator.

Thank you. Ladies and gentlemen at this time. We will begin the question-and-answer session. You have a question, please press star one if you wish to cancel off if you're using speaker equipment kindly lift a headset before pressing the numbers your questions will be pulled in the order. They are received. Please stand by while we pull for your questions.

The first question is from of Nederland Company, please go ahead.

Congratulations on all the great results exiting the year. It was still under a hundred and fifty million dollar cafe incremental catbacks investment. Maybe she could talk a little bit about the supply-demand environment. You know, this earnings cycle across Emmys capacities extremely tight demand is come in on a lot faster than expected. And so the industry is scrambling across the board to increase capacity. So obviously you're you're you're putting a hundred fifty million to increase capacity. I'm just wondering what your thoughts on the current supply-demand environment. What was kind of the basis of the hundred and fifty million in any thoughts on do you think that should be enough to Thursday meet the the surging demand that's happening across your business.

Well, certainly the investment is triggered by an increase in demand. We have a model as many companies will offer or do to have a you know, a prescribed Roi off of Investments that we make a hundred fifty million Investments with obviously mean that we have it pretty much spoken for Thursday.

The environment you are correct is a very strong demand environment that environment makes things sometimes challenging. It also took opportunities as you're making decisions off of an increased demand, we have some opportunity and benefits in that that increased demand is off of a good revenue for the factories were not fully utilized. So there's open utilization right now that can be used to grow revenue. And as you're looking at that you always have I think a loyalty to customers and their previous run rates, but on the increase in demand over time, you move that towards a different acts like not the previous run rate, but the incremental against previous run rates to where you would favor those that are going to be giving a higher-margin and that's a good thing so dead.

Not just the fact of an increased demand but as we continue to release new platforms, the increase of demand is against anomaly higher-margin. Yes, we expect them, you know anytime that you have a ramp itself the ramp costs money. So and for many many reasons you're you know, increasing headcount you're increasing and said other incentives are increasing your supply. So you don't see necessarily an immediate margin increase. In fact, maybe to the opposite you see a margin decrease as you start a rep but come the third fourth quarter through both increases in utilization as well as the ability to favor higher ASP mixes. We believed that will see a a very very nice marketing increase in the fourth quarter that would maintain as we then continued butyl is not just utilization but utilization capacity increases dub

450 million dollar investment so that hopefully that answers your

Question, I think it's a you know, that that that's helpful. And so to the the the margin point or in so, you know as the utilization rates start to kind of move up as you fill the Fabs and you know to Russells Point, you will be kind of migrating, you know, higher-margin process flow. So you'll be midnight shift into higher and higher profits loads. How do you thinking how are you thinking about the gross profit fall through kind of metric, you know, you talked about 50 to 55% off on incremental revenue is that you know, do you think that would be going up as you go to the third quarter in fourth quarter?

Any thoughts on the kind of gross margin?

Yes, I believe as indicated. I mean firstly yes on the long-term plan. We should see the 50% incremental. Margin maybe start seeing if you fall maybe a little bit Q3, but for sure starting Q4 because like Russell indicated, there should be time now that we are increasing our maybe employee base our cost of a working capital in order to be ready for that significant rent that we are facing off the additional equipment of course comes a maintenance contract and things like that. So those tools like mentioned by me and by Russell in the coal will arrive in the Pac-12 a month, but until will be qualified will take a few quarters and will contribute to the revenues of for sure if you fall you want you will see the 50% incremental month.

For the coming Auto you will still not see that of course.

Okay. So for the first couple quarters of this year, we should be thinking about you know below fifty percent kind of gross profit fall through until these things get qualified and then back in about fifty percent kind of Q3 to Q4. Yep. Yep. And then a question on the market you seeing an ice pack recovery and power discrete switch was down, you know, you said 12% year-over-year and twenty20. So any kind of specific color was driving kind of the rebound and that is it. It's, you know by region by End Market and then as another follow-up just on the automotive kind of shortages that are impacting Auto production any thoughts on on how that might be affecting your business. Thank you.

so as far as the

discreet itself we see

One an increase and Indiscreet against what we had in Q4. We see continued and reasonable increase in Q2 and in addition to 3 and you for staying at a a a good rate.

The my beliefs is that one of the big reasons for the discreet drop that was quite severe wage and the previous year was that a lot of discrete SAR served through distribution centers and distribution centers are by model is a good times. They have quite a bit of inventory because they're only differentiator is being able to supply parts when they're asked for I believe wage distribution centers react more quickly than anyone else whenever there's bad news and maybe overly correct when there's bad news. So if you have our customers that have a big portion of business going to diss T's that will always over correct. I think that that's one reason that there was such a big drop in Industries, but other than that I am

Necessarily have good reasoning for discrete dropping as our power management itself did not drop and I think that they more or less go hand-in-hand in markets Thursday, but that's what I believe was the reason for it, and it's it's coming back now will you know the distribution centers go to the inventory levels that they had before? I don't know, but we do see that snapping back home. However, I I am not saying that the streets are presently or in Q2 at the same levels as they had been in previous years. It's still not back to the to those levels off, but it is up against what we were seeing and in 2020 the other areas where we had been down in twenty-twenty and as I had stated previously the dental sensors are are coming back in full force and that we see a very nice increase in POS and forecasts that bring us back at least back home.

Capricho the times and you know potentially maybe even Beyond I'm industrial sensors. We had seen an impact even before COVID-19.

Business where we had growth in many areas last year and you know those levels that we had achieved through the growth. Well, maybe continue or at least stay at that same level as we had been off the all areas that were down last year are either fully recovering or recovering to a reasonable extent and that's a good thing. You know, when when you have off a fourth-quarter that I was a 20% organic growth year-over-year and within that you still have certain weaknesses and then on top of it to have that base entering the New Year and have the the week portions that are returning and the forecasts of growth that's a very nice position of a Nation, you know. Ties into your first name as well about. You know, how confident are we on the demand? That's the reason for confidence in the demand?

Okay, great. Thank you for sure.

The next question is from a causal Tanya of credits with please. Go ahead.

Hi, good afternoon Russell and maybe a couple of questions from my side first on on the demand. Obviously. We are actually seeing demand recovery page across all end markets, uh, which is pretty obvious. Uh, so clearly your outlook for the for the rest of the year seems pretty confident. What I'm trying to understand is uh, how much faith in that Outlook can we assume for some kind of new projects or customer wins that you're probably working on and and and could that be a meaningful contributor as we go into the service off of this year and maybe if you can shed some light on on those specific areas, I think you mentioned right off as one of the projects that you're working on, but I'm just trying to understand what are the new things that you're working behind the scenes that's one and and then second one is on capex. Obviously you're spending this hundred and fifty million, which is going to be spread over this year and probably next year off.

So just trying to understand how should we think about the capex number for this year and and if you're old model of 45 million per quarter of maintenance capex is still valid. Um, and what does that mean our 2021 capex? Thank you. Okay, so

On the last part of the question Mister shirazi will address that on the first part of the question.

I don't know that we have anything behind the scenes that we're working on that I would mention right now, you know, the things that our intentions are for reason, they're maybe mm Dimension but those things that we have mentioned that are big growth drivers in the company one for sure is silicon photonics. Um, if we look at the

2019 to 2020 Revenue increase was substantial by percentage not substantially amount of millions if we look at the 20 21 to 24 broadcast. It's remained substantial in percentage and becomes meaningful and millions as well. And then as you would look into 2022 and Beyond, you know it obviously as I stated wage may be obvious. Also what I stated in addition to buy where we press release going into volume production. We have 30 other customers and that's a quite a big wage base to be having working on the forward movement of

A silicon photonics platform that really complements an area where we already have a 60% market share. So I think that that's definitely a very strong look just at the Silicon germanium itself. We have multiple generations of silicon germanium. I talked about the two different area that you know, one being areas that is being driven by hunger gigabit-per-second to 800 gigabit-per-second capabilities. And I think that that's quite a big area with new platforms. So our what we call a ch5 platform which is you know, the our highest speed silicon germanium many customers are taping out to it those that had taped out to it or now going into higher volumes that getting qualified so as far as the growth

there's

Certainly, gross and new platforms and that I think is one of the strains that we always look at is having a very very aggressive roadmap tied with our customers as to what our customers are going after and needing if we look at our RSS Eliza sixty-five nanometer platform. We've released a more advanced platform and worked with customers actually to have a very very good Ellen a tied to that platform. So we're always doing more developments is that necessarily a new it's certainly a new platform that customers are taping out to and designing and working forward to where there's very very high demand and all of that becomes very exciting if we look at the number of assets and Q4. It was probably the highest ever in the company history. So, you know, there's certainly many new tape outs going on, but there are mainly off of the wage

Tivities that we've been talking about I toss should start growing in this year. Will it become an absolutely significant portion of revenue for the company in this year know how long it will not is it in and of itself a significant advancement and a base of what can grow in the future definitely so but across the board we have many many things that are happening if we look at, you know, the the non-imaging activities that I spoke to one area really that has grown already and will continue what we're doing in Mims in the men's microphone as I mentioned very specific customers and what I didn't give the name, but it's you know, I certainly won't speak to the forecast of a given customer and when we're entering new markets and states that we have it, you know, those specific three markets tied to certain customers and

I'm very differentiated platforms. It becomes a little difficult to talk about the degree of growth that we're expecting in it because it's it's information that obviously then goes to them and it's really their volumes. It's not my volume it becomes my volume, but it's their their market. So but certainly what we we think a lady is a very very strong opportunity. We think that the V opportunity we have is extremely strong and you know, honestly can be very very significant volumes and what we're doing with the men's microphone. We think is already dead strong and will continue to grow so across the board. If I talk about power management, we have a huge amount of activity happening in power management and wage, you know, this is as I say, it's been six you either have greatly improved performance got the same die size or a person you'd have a much cheaper wafer because of the reduction. Yep.

I saw this because of the the performance of the gym.

Six platform so I I again if I if I state that and I didn't say it in the call, but we did have the highest number of mass sets in in Q4. There's obviously then a lot of new activity that customers are doing designing to existing Advanced platforms and designing to new platforms that will be driving growth. So hopefully that answers your question.

Yep. No, that's very helpful wrestle.

Yeah on the topics question. Yeah, so I believe I said in the script that we believe that the Catholics payment will be mostly made between middle of twenty Twenty-One a the first quarter of twenty-two. So you may assume that most of it. I don't know ninety or one hundred million from the from that or even more will be paid in those recalls. Excuse 3 to 4:21. So maybe you you want to assume Thirty million on each one of them and there will be some that needed to be paid the key one key to us wage. They managed to walk facility and what first payment of the tools but it will not be significant. So if you ask me about the total forecast Thursday, I believe it should be q1 should be back to the levels that we see we saw before this year the 45 million dollar per quarter which we had before the other expansion birth.

Could be slightly up to 49 or 48 not more than that same for Q2 45 to 49 and Q3 and Beyond should have an additional month, maybe Thirty million dollar per quarter for capex So eventually until 1:20 to maybe slightly some push-ups to 2:22 a.m. We will exhaust the 150 million.

Okay, that's that's good. Thanks. All right.

The next question is from Cody of loop capital, please go ahead. Thanks for taking my questions and congrats on the progress. Hey, how bout the the capacity constraints that you are seeing? Do not quite work out in the numbers that you gave us for our utilization rates. I would have expected those rates to be higher. Is there just a timing issue or are you strategically setting aside capacity for what you may are saving your visibility to be much higher demand coming from I guess why is the utilization rates reasonable but not seeing that from others off.

I don't necessarily understand the question. The utilization rates were the utilization rates. The demand is very very high that goes beyond our own five percent model. So one would expect them. As I stated that there is room for growth above the utilization rates that I'd stay away because they were not at 85% Yeah, some of the capex that is being invested really is to address mixes and to be able to do higher-margin mixes, you know some utilization Czar a little bit low because

We report utilization in a very very objective way and it's against photolithography capability and I've stated that you know, multiple times that off every line because you're running different mixes in the line has other bottlenecks that are not necessarily photo capability. So as you're increasing demand a part of that capex is to enable a freeing of bottlenecks so you can maximize the photolithography itself. And that's part of this capex investment is as we're evolving as for the previous question new platforms are coming out you want to change the mix capability Factory. So some of it is changing mix capability, but we are also adding photolithography within this hundred fifty million dollar investment and not an insignificant amount.

Ography either. So the a lot of the capex that we're investing is to enable.

Existing lithography to do different mixes and additionally adding more lithography to it.

Does that answer your question coding? Hopefully it does it does Russell. Thank you very much. Let's see the the strings that you're seeing across the board could give us any quantification any color as to stratify being markets that you see as most in the highest demand in the most constraints. And then I guess just with Automotive likely in that list. Have you been able to massage capacity toward that in market demand may be outside of what time and how you would normally shift per customer need.

We have very few customers that we ship to that are hundred percent serving Automotive. So it's in the demand that we have from our customers off within whatever their run rate is whatever their allocation is. They really have the decisions themselves to move it to Automotive or not. Move it to Automotive month. We don't make very much decision on that if we're going to get more or less to Automotive because we don't necessarily have other than one customer I can think of we don't have any customers that I would say everything we ship to them is for automotive. So yeah, that really does more or less stand in their mind not that's not a decision we make

No.

As far as the end markets in the near-term we have very very strong demand for two hundred. Millimetre r s s l i what we call our cutie 9 p.m. We have very strong demand for 300 millimeter or ssli and we have very strong demand for for power management. Both really extremely strong demand two hundred a month later and strong demand as well at three hundred millimetre. So in the in the short-term, those are very very high demands in the mid to long-term. We have very big demand me an image sensors and the others maintain the when I say short-term, I don't mean that it ends but the the biggest short-term demand is really in the area of our FSL. I as far as demand increases, it's r o s s l i n power management and then in the it's a long-term, I would add the image sensor into that.

Right. Thank you very much. At least the image Central Business unit. So image sensor and displays.

Yes.

Thank you Cody. It's a good question.

The next question is from Natalia Winkler of Jeffries, please go ahead.

Hi Russell. Thank you for choosing my question. So I was wondering if you can give us some color about the the split of this venue capacity. This being added between two hundred and three hundred millimeters off. Like how do you think it would you know roughly fall between these two and then as we think about the you know, the total new Revenue Max 4:40 p.m. I think, you know our estimates before this book about 1.6 billion and now you're saying that this new capacity would add about $150 million per year. Is it fair to just kind of sum up these numbers and then think of the total as I said these

The second part of the question I have to think about for a minute. I the 1.6 was before we had a reduction in the Panasonic contract. That way you'd release the right. So I I don't know that you're dealing off of the the correct base at this point. But I'm sorry. The first part of the question was a $300 meter for 100 millimeter split. Um, the bulk of it is 200 millimeter as discussed previously. We added last year about all we invested last year about a hundred million dollars a month for 300 millimeter capacity increase and we're giving an additional multiple tens of millions of 300 millimeter, but the the bulk of the investment is 200 millimeter.

Understood that's very helpful. And then as we think about kind of longer-term, you know longer-term beyond 20 21 in terms of how long you would see to expand your capacity further. I would just trying to understand if there's kind of room for you to continue with Organic extension or if it's certain point. You'll you'll may be reaching kind of the max that you can add organically a 300 or 200 millimeters Fabs.

It's a very very good question two hundred millimetre. We have a reasonable amount of leeway. It's a question of

Working out whatever peripheral agreements moment wish to have or could have to increase the manufacturing footprint in our San Antonio Factory San Antonio's once it's on over a hundred acres of land that we own and it's it's a beautiful facility a very well-run facility. So we have if you will an infinite amount of build-out capability there. It's simply a question of striking the agreements to grow and I'm not trying to speak out of turn here whatever but it's you know, it's pretty obvious and some of the questions about Automotive. There's a lot going on right now in the legislation with regards to bills infrastructure bills chips acted cetera.

and they're becomes questions then about, you know, how pro-active the government wishes to be in order to build capabilities on Shore and do you know if we would be the right partner for them to start doing that with so that's as far as 200 millimeter footprint honestly we have

Huge opportunities you grow with adding additional clean room space some of that would be converting maybe gray area into white area with others is really adding additional buildings. So San Antonio is a is a prime spot that I would say we have if you will infinite expansion capability providing that off the Investments can get the right Roi and he comes to a degree. You know, what?

What and how much the government would wish to partner on that? I think one thing for sure is that the automotive needs become very very big in the South and very specifically San Antonio does a lot of Automotive manufacturing. So it's it's really in the

in the core of what the US wants to get done. San Antonio is also a place that we have put our Advanced silicon germanium flows as well. Which for RF communication is a very very big deal for the United States. So I will see but but to answer the the two hundred millimetre, we really have more or less potential for unlimited growth depending that the ROI becomes preferred to do it and Roi is always a you know, a good decision on a a business model and a financial model growing something organically wage is very very good on a margin basis because you you have a lot of fixed costs that's already absorbed in that factory or set of factories. So that's always a good thing on a long-term. The car is the up-front investment. And how much do you have to do and then depreciate and you know, if if there is abilities to partner with a government that becomes obviously advantageous maybe for both people.

on the other side the 300 millimeter we still have

40 to grow in our existing facility in Japan, however any growth at this point Beyond this incremental new investment that we're doing will necessitate facilities work as well and Facilities work becomes expensive So within 300 millimeter, there is a bill each to grow the growth is not unlimited and it becomes a question of

the ROI is doing facilities work for some finite additional growth versus the potential of doing the deal outside of organic growth.

You find my address of organically. We can also add not much, but we can add it to and into Nami. Yeah, and we are that was part of the in addition, Correct? I'm sorry. That is correct. And we have plans Beyond this investment. We're talking about to grow Toonami as well without needing to do facilities work. That's correct, but not unlimited. Yeah not too long.

I'm Steve. Thank you very much. So for me, it was good question. Thank you.

The next question is from Richard Shannon of Craig. Hello, please go ahead. Hi Richard. Hey Russell, how are you? Good. Thank you. Great choice a couple of questions on a similar theme Here you gave us some numbers about growth in a few different application markets. And if I got the numbers right you said mobile was 22% growth last year power ICS, at least organically was twenty-five and then you had silicon germanium / infrastructure at fifteen you seem to be talking fairly positively about all those markets here. How would you how would you see growth in each of those markets relative to those that performance you had last year they you know, similar better worse. How would you characterize those?

capable

I specifically didn't state.

I stated that will have growth in the company throughout the year. If I look at those markets itself and was going to to speak to it. Let's see a singles maintain growth in Silicon germanium.

of a

As I stated earlier a very very good growth and fifo will continue growth and in power and we'll see certainly go over your grown into screens. So I but and also continue to see I believe stronger but I I didn't get stupid and didn't really want to I didn't wish to he's okay. That's fair enough maybe in one of those areas in in are you talked about gaining share? Do you still expect to gain share in 2021?

Yes, sir.

Okay, where do we sit and share right now? Do you have a majority of the market? Do you think or getting close to that?

I'm sorry the question one more time, please return again on on are you said you're gaining share? Where do you sit with Cher today? Or are you at or close to a majority there?

There's multiple players there. I think we're probably sitting somewhere in the mid twenties.

Okay. All right, that's awful. And then in Silicon germanium, do you expect four hundred gig to be a material contributor to sales this year? Is it more in 2021?

20-21 is this year? I'm sorry 2022 sorry. Yeah, we're we're starting to see a growth in in in four hundred which in obviously it's not a 400 gig chip. It's you know, a a 4 by 100 or an eight by fifty but the month it will grow stronger what I think the the big deal is that we don't see a decrease in the hundred.

And okay at the you know, 400 growth is not.

cannibalizing the hundred gig Baseline

Okay, that's helpful. One last question for me. I suppose we could could could address this to all of your kind of new areas of of growth and identified a few of them in the non-imaging space like wage micro-led. When when do you see that opportunity kind of blossoming here? And as you said you've got a selected a first partner to help work in that area to what degree is the work done there or you know customer engagement. They're more broadening to see that that that pipeline grow, you know where we see micro-led becoming really big deal and I don't know one two, three or four years. How do you look at that?

Well, we you know that customer's I mentioned again today our customer there is a lady. Yes, as I stated. I I really don't want to talk about a lady as a guidance to us. I I number one. It's not proper for me to as far as my qled. I I think it's the right way to go. I've seen down a wires a very very exciting technology. I think that a lady that has an incorrect technology and very strong differentiation, but will micro LED grow certainly is a dumb twenty Twenty-One. I don't think so is a 2022. I think that that will start and I think 20 23 25 be very big or will become very big during those years, but I don't think 2021 is going to be huge at all for that but I think it will start to to grow in in 22 and would become significant and three four and five.

What is your thought?

I'm hearing similar time frames, but just want to get your sense as well. And that's that's helpful. I'm glad if it's if it's roughly speaking there. So I think it's all my questions. Thank you Russell.

Next question is from David Dooley a steelhead Securities, please go ahead. Hey David. Hey, thanks for taking my question. Nice results. Could you help just frame what you think or help us understand what the size of the photonic business is now about perhaps in twenty-twenty and what your goals are aspirations for that business.

Okay, I know exactly what it was in 2024 Us in in 2020. It was just shy of eight million dollars. If I look at twenty Twenty-One by forecast. It's you know, I'm Stan shal increase of that, you know, maybe a close to 3x increase and what we're seeing where do I think it will get too? I think it'll get to for us. I mean our targets would be to be in the office several hundred million. So I think that it's very possible for it to get there. But yeah, that would be our Target is for the photonics business to you know be sitting with some small amount of years certainly upwards of one hundred million dollars and I think with the target of getting between 2 and 300

And does this with the photonics revenue have above average gross margin similar to Silicon germanium?

Presently it certainly has well above average gross. Margin. It's very very high margins at present as anything goes into high-volume margins come down, but I believe it will stay very high mom and it'll I yeah, I think of those be among the highest margins we have in the company, excellent and then in in your prepared remarks took a long-term contract and I had some audio difficulties and so I just don't could you just elaborate about what what you what you were talking about them?

If I recall the exact statement, it was now paraphrasing it said that as a validation to the strength of the power platforms that we have. I have multiple customers asking us for a long-term Supply agreements. Now when they're asking for a long-term Supply agreement that takes on some term or some type of a lack of a take-or-pay agreement to where there's a certain volume at they're committed to buy and there's a certain volume that we commit to give them now customer really won't give you that unless your platforms very powerful if you've committed to use that platform. So that was the statement that I made and if Dad color to it that is color now that it would be involving to some level or take-or-pay agreement. I would expect a customer deposit liability number to be going up over time.

not necessarily a take-or-pay agreement doesn't necessarily need up for

Add money to take her pay agreement means that they have X amount of Wafers that they have to take per month. It could be against an upfront payment as well. But that's not necessarily how it is. I mean, it's it could be that long of an upfront payment to enable higher capacity of which they have, you know of which are committing a degree of that capacity to them but there's multiple different contracts can be done. Sometimes you would ask for it depending on what's being driven you to ask for upfront cash to help on investment and other times you wouldn't but but it regardless a take-or-pay agreement really means that they're committed to a certain amount of Wafers per month or per time.

Okay, the final question for me is you mentioned. I think the members microphone business. I I don't recall you talking about that in the past. I remember you talked about mens, but not specifically the product could you just elaborate as far as what the market opportunity is for for the company in this area Yeah. We actually press released it David Soul. But we we certainly talked about as also a press release but the market opportunity. I think I had stated that in 2019. The market itself off phone was reported to be 1.2 billion and its analysts believe it'll be 1.7 and a 2024 time frame something like that. Now that's the men's microphone itself the Silicon content off. I don't know if you take it 30% 25% 35% you know, but it would be somewhere in that the Silicon contents itself. So for us the overall men's microphone silicon business I suppose wage.

The surf Market is somewhere about a half billion dollars and I think the beauty seriously is that any time you enter a new certain Market?

Independent of how much market share of that you grow. It's incremental revenue and it sounds funny and I don't mean this to sound really a ridiculous, but it's infinite growth in that market because Sean serving it before so if you go from a zero to a 10% or a 15% market share, it's it's it's all incremental.

Gross not cannibalizing anything that you did before and so it's the I think the opportunity is very very big for us as stated. We have a good partner them you're working on on Extreme figures of Merit. Maybe the you know, the best signal-to-noise ratios in the industry. So that's your question I go but yeah, I believe that was maybe December but I'm not positive know we won't get back on the exact date of it. We could even get I'm sorry. I I forgot I'm sure I read it. I just forgot about it. I start off $500 tab that you just kind of highlighted. What what a reasonable expectation for you guys be ten or 20% market share here in a year or two or you know, it's not the same, you know, could you get fifty to a hundred dollars out of this business?

in a year or two

No, I don't think so to go from zero entry in a market to a customer partner that you're going with. I don't think that you would go to a hundred million dollars in two years, but I think that our Target would be to get to those levels.

Okay be within two years. At least I think that's not realistic now. Thank you very much. So the press release was December 21st, and the title is Tower semiconductor and walk around to mass production of events microphone products.

Thank you. Thank you.

The next question is from Lisa Thompson of investment research, please go ahead. Hey Lisa. Hello. So kind of getting interested in this photonic, if you're talking about you've mentioned something about a DARPA contract where you try to integrate lasers. I know that's a really big deal because that's really labor-intensive took a little bit. What's what what's going on with that?

Yeah, it's it's a project. It's called luminous. It's actually was released by DARPA itself. And not that we were the

the front-runner of everyone working. I believe my memory that's how it was with listed. So yeah, it's a it's a project with darker. It has dark with funding and it's been a great some lasers on a cycle platform. So, you know, basically in addition to all the passes that you put on the sifo you're now putting it into phosphide laser on it and making the connection with the you know to the ennema p and doing different metallization structures so that you have a not just a good function later but signals from a laser going right into the photonic sand dead.

So it's actually create an optical engine.

By putting the two together creating more of a single Optical engine. I mean, there's other Active Components that you would maybe think of adding as well interesting. Okay, and then just I'm I'm wondering what this new hundred fifty million dollar investment. Is that change your thinking at all about tax rate for this year or the minority income?

No, first four this year, it will not have significant impact because like mentioned before the manufacturing equipment tools will arrive and installed and down by the mostly this year. But until it will bring additional incremental margin and revenue will only be a little bit to 3 but mostly Q4 off and secondly this equipment is actually both also for Israel also for the US and also for the Japanese said that makes it pretty much the same like the profitability base of us, so I don't think it will impact the tax.

Yeah, I don't.

Think it will change the what we saw this year was very stable at about 6% all in effective tax rate. I believe it will be about the same.

Oh six percent. Yes. All right. And so no real change in minority and come either know it will not impact the change in minority. The Investments that we do in Japan will be like the previous model that we explained last year on the July nineteen announcement that it will be goes to it's a Foundry own custom Nails Target, you know the tools and it will be taxable in Israel. So it's good tax environment.

Okay, great. Thank you. That's all my questions.

The next question is from Ridgefield Gill of need him and Company, please go ahead.

Yeah, thanks. Just a quick follow-up some housekeeping. So or what was the the Panasonic Revenue in the maximum Revenue in in Q4, and for how long just to make sure we're remodeling it correctly?

Okay. So Panasonic is actually today in Japan semiconductor. So often in the past, it was supposed to be between 90 to 1:05 in the previous contact. The new contract is like we said the reduction of about 20, so it's between seventy to eighty five every quarter. That's the commitment and indeed. This is the the the Run rate that they were into fall and also for the yield so very stable and Maxime we announced before is gradually decreasing contract. I don't think we mentioned the number of that in the past, but you can assume that was in line with the previous quarters and which is a little bit lower than 2019 levels.

And just what was it 2019 just so we because of the contract with Maxim. We agreed with today request not to give number. Okay, you got it. Right and and and and so it's like I just I heard it correctly for the Panasonic. No Vuitton is now seventy eight seventy to seventy-five million a quarter and it's been stable 65 million 72.85 still got it. All right, so that that makes sense and you expect that to be kind of stable in 20 21 this year.

Yeah, yeah.

Okay, and just on the capex, so what is the is this like have it again? It's $150 incremental capex 022 last year. So life was I believe 256 million and 20 twenty. No, no, no. No, no, no. No, so let's it's incremental to the Baseline excluding that page one hundred million dollar that we had last year. So the Baseline which let me remind you the Baseline for and you can see 2018 and 2019 capex was 188 almost one eighty million. So 45 million of water. That's the Baseline 2020 was higher than that because we had this was 100 million dollar investment, which is done. That's yep. So for for meat of this year going forward to the Baseline of 45 million of water, which is 180 on Monday. You should the 150 with

which is

35 and a quarter right if it's played a little photo.

But you want you to like I mentioned before you want you to should be pretty low because payments will be starting to be made in the middle of the year. So q and Q2 is back to the page forty-five Forty Nine Million reporter, which was the Baseline in 2019.

And for middle of the year will go up by about thirty thirty-five important for the 150.

Okay. Thanks.

There are no further questions at this time. Mr. Ehlinger. Would you like to make your concluding statement?

I would thank you.

So really firstly my great appreciation to a worldwide employee base at all levels and it all functions against a very challenging difficult didn't work condition. They did not miss a beat finished the year with a very strong quarter and put us in a position to guide our first-quarter Revenue being the highest first quarter.

In a revenue base and the reading history we're excited to execute on the opportunities before us to realize quarterly sequential growth throughout the year.

We really have amazing customer Partners. We look forward to grow with you.

My many thanks to our investors. We greatly appreciate your support and really enjoy your interactions with that being said we invite you to any and all of the following upcoming events next Tuesday, February 23rd. We will celebrate our twentieth year of trading in the Tel Aviv stock exchange with a special virtual trade opening ceremony. We invite you to join that information won't be available on our website and social media platforms.

On the same day. We will also provide a virtual presentation for the Israeli Capital Market hosted by open himer Israel on March 9th 2021 will participate in the Susquehanna 10 a.m. Technology virtual conference. I suppose it's the 10th Annual technology conference. Probably not the 10th Annual virtual one, and hopefully it'll be the last virtual on June 11th 2021 will participate in the loop capital virtual spring conference. Please sign up for these we would look forward to the interactions. And otherwise, we always look forward to interactions and please contact. No eat any time you wish to speak. Thank you very very much. Bye. Thank you.

Thank you. This concludes the tower semiconductor fourth-quarter and full-year 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.