Virgil,
TSEMF does seem undervalued at this price (and I do own some shares), but one must be very cautious, especially in this business. In your post you wrote Tower had never been unprofitable. Well, that's not the case. Since its public offering they have allways been profitable, but before they went public (back when they were called National Semi. Israel) they had some tough years, and they almost went banckrupt. That's when new investors bought the company from the then strugling NSM, and turned the company around (with the help of a strong market in the following years). I believe TSEMF's management team is a very good one, and the fact that they didn't lose money last year proves that, but there are several things that bother me :
1. The new fab - Tower hasn't received the grants it wanted, yet. Time is very important here, and if they don't start building soon, they'll have a technological gap to close. Working with '6 wafers means lower margins. This is a very critical issue, and I hope Tower starts building this new fab soon.
2. There is a capacity problem in the market (this has happened before). But this time there is also a crysis in the far-east, and this will probably have an affect on the demand side of the equation, which could mean this capacity problem will not go away so fast.
3. Tower now has a design center (that's good for future business, new products based on proprietary technology), but this means higher costs for the company. This won't help margins in the coming year. 1998 doesn't look that promissing for Tower, but I hope that by late '98 Tower will show growth again. The January affect could help the stock, but I believe it will only be a short term bounce in the price.
I'll post more in-depth reports regarding Tower at ariga.com after I talk with Mr. Nissan Cohen in the coming days. |
