TOWER SEMICONDUCTOR LIMITED conference call transcript, #694691
March 31, 2000, 11:30 a.m. EST
KCSA Worldwide
Yoav Nissan Cohen
Operator Good morning, ladies and gentlemen, and welcome to the Tower Semiconductor conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press the star followed by the zero on your touchtone phone. As a reminder, ladies and gentlemen, this conference call is being recorded.
I would now like to introduce your host for today's conference, Dr. Yoav Nissan Cohen the Co-Chief Executive Officer of Tower Semiconductors. Please go ahead, sir.
Y. Cohen Good morning, everybody. Thank you for joining us for this conference call regarding our recent development. On Monday, March 27th, we issued a press release announcing an agreement with Toshiba for the transfer of advancing technology from Toshiba to Tower. From all the questions, shared discussions and even erroneous media coverage it seems that there is some misunderstanding and confusion regarding the exact meaning and significance of our announcement.
The purpose of this teleconference is to specifically address these developments within the bigger picture. Therefore we'll not speak here about any other issues. All these other issues will be addressed at the proper time in the future. Thank you for your understanding on this.
As many of you are quite aware, we have been planning for quite some time for the possibility of the new state-of-the-art second sub. This is an ambitious and major undertaking, requiring several key components. First and foremost, we need the most advanced semi technology available. Without it, the new fab would be irrelevant. Second is the major financing required to build such a plant, approximately $1.3 billion. Third, our committed customers who plan to use the facility to manufacture their products. And the last is active support and financial grant of the Israeli government. Clearly each of these elements is essential, all four are critical.
The Toshiba agreement refers to the first of these elements, the technology milestone. The agreement has three aspects. First, Toshiba has agreed to transfer to Tower the most advanced semi technology details and train our senior technology team in this application. Second, Toshiba, following the due diligence on Tower, decided to also invest in us. An initial small equity investment of $10 million was an option for investing significantly more at a later stage. Finally, Toshiba is interested to become a customer and has secured capacity on location in the new facility.
Having a technology partner such as Toshiba enables us to move to the next step and ensure the financing and government support for the project. Clearly it is crucial to have the technology secured in order to sign in a major strategic partner who will also become a major customer of the new fab. At this time we are in advanced negotiations to finalize an agreement with such a strategic partner. We will report on such developments as soon as appropriate.
In terms of the Israeli government support, the Toshiba agreement has substantially helped secure these assets as well. The President of Toshiba Semiconductor, Mr. Miamoto [sp?], came personally to Israel to sign the agreement with Tower. During the visit he met with the most senior government officials, including Prime Minister Yel Bhirach [sp]. In all our meetings we have received very positive indications from the government representatives regarding the importance of our project to the country. So we are very optimistic that the financial incentive package will be approved.
To summarize, the agreement with Toshiba is a major milestone towards our second fab. The next step will be to finalize the agreement with our proposed financial strategic partner, secure the government grant and start constructing the facility.
I would like to remind you that some of my statements are forward looking and are subject to risks and uncertainties as listed in our press release.
With this, I conclude my opening statements and I would like to open the call for your questions. Please be reminded again that I plan only to answer questions regarding the Toshiba agreement and its implications the our second fab project. Thank you.
Operator Thank you, Dr. Cohen. Ladies and gentlemen, at this time if you have a question, you will need to press the one on your touchtone phone and you will hear a tone acknowledging your request. Your questions will be taken in the order that they are received. If your question has already been answered, you may remove yourself by pressing the pound key. Also if you're using a speaker phone, please pick up your handset before pressing the buttons. One moment for the first question.
Mr. Ed Hawkins, please go ahead.
E. Hawkins Okay. Good morning, Yoav, and good morning everybody out there at Tower Semiconductor and thank you for this conference call and congratulations on the Toshiba agreement. Could you just say, Yoav, I know you can't say anything definitively, but you expressed optimism about the Israeli, the government's approval, etc. In terms of closing all the elements needed to start construction of Fab II, would you say that we're 80% there, 90% there or can you just help us in terms of how close we may be?
Dr. Cohen Okay, thank you, Ed, for the question. We are very optimistic. You have to understand that we believed all the time that the major barrier to get to a Fab II was the technology. And having signed such a significant deal with such a major player in the semiconductor area, Toshiba, and getting the technology from a company which is an expert in doing these kinds of projects is a major milestone for us, major achievement for the company.
It's hard to speak in terms of percentages, but definitely we did most of the way in our opinion which makes the next step so much easier and we could see the approach of the government and the attitude of the government officials towards the project once we came with Toshiba. And I can tell you that all of the responses that we got from all the government representatives were very positive and it makes us very optimistic. Similarly we feel that signing a strategic investor which was also going to become a large customer of the facility is a question of time now, but the major difficulty that we had was the technology. We would not be able to close such agreement without having one of the leading technology sources in world.
E. Hawkins Okay, thank you. I just have a couple more quick question. Thank you, Yoav. So is it safe to say, Yoav, that for the most part your major strategic partner from the financial end or other potential customers, everybody's just really waiting on the final word from the government and if that turns out to be positive then we're ready to dig some dirt?
Dr. Cohen Well, yeah, the answer is positive. These are the two major issues that we still have to resolve of course and again I'm optimistic this will be completed within the next few months.
E. Hawkins Oh, within the next few months?
Dr. Cohen Well, weeks, months. This kind of government approval processes take some time, but we are generally not waiting and right now we are running on a fast lane and fast track to the facility. We are already spending money on the different aspects such as the technology and we will initiate very soon the design. We have already interviewed three major engineering companies among the major ... the biggest engineering companies in the world to construct such a facility and we are going to select one of them very soon and start the process. So we are not waiting for anything, we are just assuming that everything is going to fall in place and we are starting to spend money and executing the plan, assuming that everything is going to fall in place.
E. Hawkins Cool. Now the current financial package that's been put together between all the various players, Yoav, if that goes off as according, as we the way it looks right now and there has been some speculation about a secondary, etc., and stuff like that, could you help us all about what Tower's plans are on that as to how the Yaffa [sp] Brothers might contribute to this situation or if you can just help us out on any uncertainty that has crept into the picture on that?
Dr. Cohen Okay. I've seen so much speculation about it that it is really getting out of control. Basically we do not have any decisions about a secondary at this stage. Obviously we need to raise more equity for the projects and it is very clear we prefer to have this equity coming from the financial strategic investor who is also going to become a customer in the facility and this is what I referred to as the negotiations that are taking place right now. So this is definitely the preferred way to raise equity, but we haven't excluded other possibilities and we'll see. If the stock price will be very high and I know that it is very different than what we are seeing today, but maybe eventually we will go into a secondary offering, but there is no decision about this and it is not clear at all how and when we are going to do that.
E. Hawkins Okay, thank you, sir, and just one final thing. I know you don't want to talk about this today and I'm not going to ask you anything specific, but isn't it safe to say, Yoav, at Siphon [sp] that there have been some major developments at Siphon both on feasibility of the technology, as well as strategic relationships that they have got that for the most part concluded and that the world will find out sooner or later?
Dr. Cohen Well, you will not get from me an exact statement of that. Let me tell you that indeed we had major developments on the technology over the last six months, the announcement about Acer for us is a major milestone being the first customer to receive a commission production from us is definitely a major development, very important for us. But I think that I made it clear that I don't want to talk too much about anything else except for the announcement and I will very happy to discuss all these issues in the quarterly conference call which is expected in a few weeks.
E. Hawkins Okay. Thank you very much, Yoav.
Dr. Cohen Thank you.
Operator Shane Forbes, please go ahead.
S. Forbes Thank you for this opportunity to ask these questions. Can you tell me when Fab II, if all this approval takes place, when's the earliest Fab II would begin operation?
Dr. Cohen Okay. Again, it's important to understand that right now we are moving on the fastest track possible, we are not delaying anything. We are really running as fast as we can and that would mean that we are going to initiate the final design and the final design will take place in Q2. In Q3 at some point we would like to be able to start excavating and break ground for the construction of the facility. This is supposed to take about a year, so in Q3 of next year we hope to be able to start rolling in equipment to the facility and sometime in Q4 of next year to able to run the first prototypes in the facility. That would mean that we will be able to start commercial production early 2002. It seems to us that this is the fastest realistic and we would like very much to be able to do it and if possible pull it even farther.
S. Forbes Okay, thank you. Now, is this going to be a copy exact version of some Toshiba facility or is this something else?
Dr. Cohen Okay, it's an excellent question. Going to the details here, ideally we'd like to do an exact copy at least of the logic process in order to minimize the risk. There might be some point and we have to already start stopping our engineers who always come with ideas how you can do things better, so we have to be very careful because our engineers always like to improve and get things more efficient and less costly or any other advantage they see. And we would like to postpone all these improvement projects for a later stage and start by having a copy exact. At the same time there will be some engineering projects that we will have to do and this is referring to installing our specialized modules such as the Microflash and such as the CMOS image [inaudible] on the base line of Toshiba technology. So it will probably start again as a copy exact of Toshiba logic process, but pretty soon after we would like to be able to run our specialized models as well.
S. Forges Talking about the Microflash, how relevant was Microflash in Toshiba's decision to make the strategic investment if it comes to pass?
Dr. Cohen This is not something that was the key for the agreement. Definitely it's very positive from everybody's point of view to have what they call the icing on the cake. This facility is well justified without the Microflash, just having a very advanced leading [inaudible], but definitely having the advantage of the Microflash is an opportunity that everybody is looking at and is potentially going to add value to all participants.
S. Forbes Okay and I guess the last question for the types of products ... so this would be the kind of fab that would place you into competition with people like TSMC and USCD and the Asian fabs? Would those be the kinds of general logic chips that you'd be running through and you'd be competing for customers with them?
Dr. Cohen Okay, it's a good question. You know that this is not our strategy is to compete head to head with them, but in reality, yes we will have a certain percentage of the facility that will run a standard CMOS logic, the most advanced CMOS logic and seem to be running pretty much similar technologies to the technologies that they're running. We think that we will not have any issues to compete with them head to head, but at the same time our strategy is definitely to specialize as much as we can. So we would like to put these specialized modules and at the same time run as high, as large a portion of the capacity with these as specialized technologies. Because we believe that we can get better margins and also have better ability to keep the customers with that if you offer them more value. But we will not be shy of competing head to head with the Taiwanese and even without having the most advanced technology, we were able to receive the Fab of the Year Award from Motorola and that is practically including all the foundaries so we are not concerned too much about competing, but we think that we are going to improve our results and have better relations with our customers if we add more value with our specialized technology.
S. Forbes Right, great. Thanks a lot.
Dr. Cohen Thank you.
Operator Ladies and gentlemen, if there are any additional questions, please press the one at this time. Remember to pick up your handset before doing so.
Mr. John Talucci, please go ahead.
J. Talucci I would like to commend you on your achievements over the last few weeks and months. My question is I guess a result of the agreement or not the agreement, but the award you received from Motorola. This agreement with Toshiba, would this preclude you from joining into an agreement with Motorola for capacity from your new Fab II?
Dr. Cohen No, the answer is no. Motorola is a good customer, a large customer and would like to stay a customer. And if you'd like to keep Motorola as a customer for the long term they will have to be also a customer for our new facility and there is nothing that precludes them from being so.
J. Talucci Okay. Another question with regards to there has been a lot of mention about a secondary, what about just having some of your customers also be investors, wouldn't that provide a stronger longevity for your markets?
Dr. Cohen Absolutely and I will just repeat what I told to Ed before. These are stipulations about the secondary and the preferred way for us to raise the equity is through agreements with strategic investors who are also going to become our customers for the facility. These can be from the current customers and these can be new customers that will join only for our Fab II. There is always the possibility, as I said, that the stock price will be very high and we'll feel that it will make sense. We might go into a secondary, but there is no decision at this stage to do it.
J. Talucci Okay, well thank you very much. That's all I have to add other than I am an investor in your company and I might not be strategic, but I look at it that way and I thank you very much for your time.
Dr. Cohen Okay, thank you.
Operator Dr. Cohen, there are no further questions at this time. Please continue with any closing comments.
Dr. Cohen Okay, thank you, everybody, for attending the conference call. We believe that this agreement is very significant, very critical step in our ways towards Fab II. We believe that the next steps are going to be much easier having Toshiba as a partner and we will speak to you again in a few weeks in the quarterly conference call. Thank you.
Operator Ladies and gentlemen, that does conclude our conference for today. You may all disconnect and thank you for participating. |
