Tower Semiconductor back on the rise

Tower Semiconductor back on the rise

Russell Ellwanger, CEO of Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE:TSEM) from Migdal Ha’Emek, sounded satisfied this week at the first investors conference held by the company since the cancelation of Intel’s acquisition of the Israeli chipmaker.

He presented the company’s vision for the coming years and reiterated the forecast of $2.66 billion annual revenue sometime in the future. Although Ellwanger did not name a precise date to achieve the target but market analysts believe that this will happen in 2028. In 2023, Tower reported revenue of $1.42 billion.

Speaking at the conference, held at the Tel Aviv Stock Exchange (TASE), the Tower CEO said that the company had conquered two summits and is heading towards the next summit. He said that he had been in two minds on whether to stay at the company after the acquisition by Intel for more than a year or two, but aged 69, now that the acquisition has been canceled, he has taken a decision with his family to remain at Tower as long as he is able. “I will not retire until I will be so exhausted and weak that the board of directors will fire me,” he declared. His decision is because the company is his heritage through which he has been able to create, “So much value to help people and to leave his mark on their lives,” he explained to the investors at the conference.

At the start of 2022, Intel announced that it would acquire Tower for $5.4 billion ($53 per share) – a 60% premium on the market price at the time. Tower’s share price jumped 40% on the day of the announcement but then fell by tens of percentages as concerns grew that the deal would be canceled. In August 2023, Intel withdrew from the acquisition after failing to receive Chinese regulatory approval.

Does the stock still have room to rise?

Since the start of the war, and with a certain recovery in the chip industry, Tower’s share price has corrected upwards by about 40% since October and is currently trading at similar levels to when the Intel deal was announced in 2022 (a market cap of about $3.6 billion). Because of this, investors were mainly interested in the company’s plans for the future and wondered if the stock still had room to rise.

Three analysts who participated in the conference provide a clear answer when speaking to “Globes.” The stock, which is currently trading at a price of $32.80, should climb by more than 20% in their view, to $40. One even set a price target of $45, meaning an upside of 37%.

At Tower, they talk about two growth engines in the coming years – the opening of a plant in Italy, which it estimates will start producing revenue in the second half of this year, and a collaboration with Intel, which was announced about a month after the cancelation of the deal between them last year, in which Intel’s manufacturing contracting division will provide Tower with production services and allow it to double its capacity to produce chips at a relatively low cost.

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Bank Hapoalim senior equity research analyst Shay Zigelman said, “2024 will be a year of transition. After that, Tower revenue will grow at an average annual rate of 16%. Standardized net profit will grow at an average annual rate of 27%.” Zigelman estimates that the plant in Italy will generate revenue of $100 million as early as next year and in 2025, “Recovery in demand is expected, mainly for communication chips for smartphones, for carrier chips for electrical voltage management, and for chips related to AI applications.”

Oppenheimer senior equity analyst Sergey Vastchenok added, “Tower is priced at a deep discount compared with other companies in the field. Its profit multiplier for next year is less than 14, compared with 29 among other companies.” The reason, in his opinion, is, “The company, which specializes in production of analog chips (as opposed to digital chips), is not sufficiently known in foreign markets, and therefore is compared with companies that operate in the digital field, while the plant in Italy and the cooperation with Intel will be reflected in the next two years, and it is certainly possible that the stock will rise even before that.”

Strong presence in Asia and customers in China

Leader Capital Market head of research Sabina Levy is also optimistic and says, “Tower could act to further deepen its footprint in Asia. Already today, it operates in a wide geographical spread that provides it with significant business flexibility. Sales to the US make up about 46% of its revenue, Japan about 17%, Asia about 27% and Europe about 10%. We estimate that sales to Asia include a significant share of revenue from Chinese companies. Also, the company has designated about 40% of its production capacity at the new facility in Italy for the Chinese market (car, mobile and more.)”

Recently it was announced that Tower is interested in establishing a factory in India. The company still denies this, but Ellwanger has said that he met with India’s Minister of Electronics and Information Systems, and that the state gives incentive grants of up to 75% of the cost of building a factory, and “That’s pretty good, I don’t know any countries that offer such a scale of financing and as much as it makes sense for us to move forward, maybe something will happen there.” He added that building another plant (which according to reports could cost $8 billion) is definitely something “On the table for the long term.”

Published by Globes, Israel business news – en.globes.co.il – on March 21, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

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