Tower Semiconductor's Strategy Amidst Industry Challenges

Tower Semiconductor ( TSEM ), an Israeli-based contract chipmaker, recently released its fourth-quarter earnings report, showing a decline in revenue. The dip in revenue was due to a decrease in demand from the automotive sector, which is currently facing uncertain times. However, despite the ongoing Israel-Hamas conflict, the company's operations and supply chain were not affected. In fact, the semiconductor company's Nasdaq-listed shares rose by 8.1% to $30.95 in morning trade.

Several chipmakers, including STMicroelectronics, have indicated a surplus in the automotive sector. This is likely to put pressure on demand for companies like Tower Semiconductor ( TSEM ). STMicroelectronics predicted a more than 15% decline in its first-quarter revenue in January, attributed to softer automotive demand.

Tower Semiconductor ( TSEM ) specializes in the manufacturing of analog and mixed-signal chips primarily used in automobiles. For the three months ending on December 31, 2021, the company recorded revenue of $351.7 million, which indicates a decline of over 12% compared to the same period last year. The company announced that it plans to phase out certain lower margin products, but it did not provide any further details.

While Tower Semiconductor's ( TSEM ) facilities in Hokuriku, Japan experienced damage to some of their tools following an earthquake on January 1st, "work in progress" was affected and operations were temporarily suspended. However, both factories have since resumed full operations.

Looking ahead, Tower Semiconductor ( TSEM ) has projected its first-quarter revenue to be $325 million, with a margin of variation of 5% in either direction. The company reported adjusted earnings of 55 cents per share for the fourth quarter. CEO Russell Ellwanger remarked that despite the earthquake in Japan during the quarter, Tower still managed to surpass profit and revenue estimates. However, he also mentioned that they would have been higher if it were not for the natural disaster. Ellwanger also stated that in 2024, the company anticipates significant quarter-over-quarter growth throughout the year.

In 2023, Intel terminated its planned $5.4 billion acquisition of Tower Semiconductor ( TSEM ). However, Ellwanger stated that they were able to secure an agreement for high capacity at an Intel-owned factory in New Mexico to manufacture 65-nanometer chip flows for power management. Customer prototypes are expected to be available in the second half of 2024. "We were able to leverage off (the Intel termination) very well," Ellwanger said. However, "if the deal had gone through, I believe there are other things that we could have pursued that we are not currently doing."