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Technology Stocks : TSEM --Tower Semiconductor Ltd. -- Ignore unavailable to you. Want to Upgrade?

To: wang who wrote (33)	4/8/2000 7:12:00 PM
From: ahhaha	Read Replies (1) \| Respond to of 60

I posted this over on Yahoo: by: ahhaha_I 4/1/00 10:16 pm Msg: 3316 of 3502 Consider the fact that during the CC Yoav said initially the modules constructed at the new joint venture fab will be according to what Toshiba wants rather than what TSEM may want. This is an important concession because Toshiba wants inferior margin product which will sell now and keep them competitive. Yoav wants the fab to be constructed so that applicable modifications to change the output mix will not require major cost. The idea is to move towards product that is better margined for TSEM (e.g. ACER deal). What we have here is a major conflict of interest unless Toshiba can be factored into a plan to provide Toshiba a way to benefit from evolving to a new mix de-emphasizing sensor flash. That means that Toshiba must agree to embrace the wider output now and all parties must sit down and figure out how each will benefit from that strategy. and this: by: ahhaha_I 4/2/00 11:21 am Msg: 3318 of 3502 Yoav said that virtually all of the initial output would be determined by Toshiba at the CC. The only reason I remembered that was that it surprised me. When he said that he had a conciliatory tone. These were the replies: by: mvlj 4/2/00 8:30 am Msg: 3317 of 3502 Toshiba only get part of the new Fab's production capacity (eom) Initially, the fab will output almost exclusively to Toshiba since TSEM's engineers will be trained by Toshiba. What else can they be trained to do except what Toshiba knows? and: by: apotelesmatic (35/M/Houston, TX) 4/2/00 1:48 pm Msg: 3320 of 3502 Optimistic, not conciliatory Actually what Yoav really said was that the TSEM engineers had all sorts of ideas about how to improve the existing conventional Toshiba processes but that TSEM had to be careful not to try to do too many of those new things at one time lest they slow/complicate the building of Fab 2. The alternative approach of essentially duplicating a Toshiba Fab first, then slowly but surely transfering capacity to TSEM's proprietary processes (i.e., to the point where the proprietary products ultimately represent the principal output), has been chosen instead, and this makes economic sense. Yoav's tone did not strike me as conciliatory, but rather as optimistic and confident. This is a stretch of the transcript, but I think it is essentially correct. However, I assert that his tone was conciliatory. It had to be considering that he is between a rock and a hard place. The Israeli government would not have entered the deal had Toshiba not entered. TSEM had to concede quite a lot that is not divulged. Nonetheless, that won't be material later and is just nominally so now. I am making an issue out of "conciliatory" because the implied conciliation will have the effect of impacting downstream earnings coming from current operations. Why? They talk about a commitment of $1.3 billion for the fab. I estimate $2.0 billion. This estimate is based on two factors: average overrun on such plants historically and complexity of new technology involved. TSEM will have to make sure they have a robust and deep pocket partner for the third slot. TSEM will have to make more concessions to the new unknown partner just like they did with Toshiba. Again, given the potential here these issues are not all that significant, but they almost assuredly will effect earnings as income is diverted to supprt all the unknown bridging costs that develop once dirt is broken. Most likely the recent weakness was a reflection of that recognition, not the possibility of a secondary. Accordingly without further news one can't expect this stock to run away just yet.