Tue, Jul 19, 2011 - Page 11 News List

Israel’s Tower hopeful of Japanese factory purchase

POTENTIAL:The US accounted for 80% of the customized chip maker’s sales last year and only 0.5% in Japan, but has hopes on gaining traction there and in South Korea

Bloomberg

Tower Semiconductor Ltd, an Israeli maker of customized chips, expects the acquisition of a Japanese factory to help it attain a quarterly sales target of US$250 million in 2014, chief executive Russell Ellwanger said.

The purchase of the facility, located in Nishiwaki City, is likely to boost revenue in the Asia-Pacific region, where Tower gets only 9 percent of sales, Ellwanger said in an interview in his office in Migdal Haemek, Israel.

“The capacity at the Nishiwaki factory we believe will be a big benefit,” Ellwanger said.

Tower has said the June 5 acquisition would almost double its manufacturing capacity.

Eighty percent of Tower’s sales last year came from the US, while just 0.5 percent was from Japan, which with the South Korean market offers huge potential, the CEO said. Tower, whose revenue has almost tripled in five years, aims to more than double quarterly sales from US$121 million in the first quarter of this year.

The Japanese plant is an hour-and-a-half flight from Seoul, where Tower sees a growing market for the chips it makes for LED lights and LCDs.

“The local proximity to [South] Korea we thought would be very accretive to growing the market that we are gaining very big traction in, as well as in other parts of the Asia Pacific,” Ellwanger said.

Two quarters of economic contraction in Japan may mean that companies there are “motivated to become profitable more quickly” and may be more ready to close factories and outsource manufacturing than they were before, according to Ellwanger.

Tower shares have fallen 31 percent in the past six months, compared with a 7 percent decline for the benchmark Tel Aviv 25 Index. The company’s main competitor, Taiwan’s Vanguard -International Semiconductor Corp (世界先進), has dropped 8.8 percent in the same period. Tower shares trade at 2.2 times estimated this year’s earnings, compared with a 19 times average for semiconductor companies.

The company has made two major acquisitions in the past three years, including the 2008 purchase of Jazz Technologies Inc that gave it radio-frequency capability. While Tower isn’t ruling out further purchases to add technology, it may wait before buying more factories, Ellwanger said.

“We would need to digest this capacity before we did [sic] another facility capacity,” Ellwanger said. “We are still active and have been looking at other technologies.”

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