Virgil,
Your calculations do make Tower's stock seem cheap. However, you must remember that we're trying to forecast the future and we shouldn't count on past results that much. I do believe TSEMF is a good long term buy, but not such a great opportunity.
Their Q3 margins of almost 28% - You're not going to see these anytime soon. Margins are going to drop considerabely over the next few quarters, and probably for the rest of '98.
After talking with TSEMF's CEO I understand that Tower will be uhrt by the over-capacity in the market, which should continue well into '98. TSEMF wasn't hurt by this over-capacity in '97 because its main customers (Motorola and NSM mainly) send in exceptionaly large orders, and thus TSEMF was in a special situation in '97. However, this has changed, and now TSEMF is fealing this over-capacity, and sales will move lower. Since the Semi. industry is a fixed cost one, margins will drop considerabely as sales fall lower.
Another thing one should remember - The currencies in the far east have dropped by as much as 50%, making it cheaper for the local manufacturers. This is not helpping improve prices in the world market.
The fact that TSEMF hasn't even begun to build its new fab, it will be behind several competitors technology wise - ot good. They plan to get over this by moving to new products EPROM and flash.
TSEMF might not soar as fast as many of you think, although I hope I'm wrong. Bear Stern's estimates for $1 in '98, don't seem too low anymore, and if things won't improve these numbers could even move lower. I'm following TSEMF for quite a while, and I am in constant talks with its management. I post my reports about TSEMF and other Israeli high-tech stocks at ariga.com but I'll also post at this thread, and on silicon investor from time to time.
Omer |
