Tower Semiconductor Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; separate Q4 financial results are not clearly provided. Financial statements are prepared under U.S. GAAP. Tower is an Israeli pure-play specialty semiconductor foundry operating seven fabs in Israel, the United States and Japan.
Financial performance and position
| Metric (USD millions, except per-share data) | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | 1,265.7 | 1,234.0 | +2.6% |
| Gross profit / margin | 233.3 / 18.4% | 229.7 / 18.6% | Profit +1.6%; margin down 0.2 pp |
| Operating profit / margin | 91.0 / 7.2% | 86.7 / 7.0% | Profit +5.0% |
| Net profit | 83.3 | 88.1 | -5.4% |
| Net profit attributable to Tower | 82.3 | 90.0 | -8.6% |
| Basic / diluted EPS | $0.77 / $0.76 | $0.85 / $0.84 | Lower year over year |
| Operating cash flow | 276.6 | 291.3 | -5.1% |
| Capital spending, net of equipment-sale proceeds | 256.5 | 172.2 | Up about 49% |
Revenue growth reflected higher wafer volumes, particularly from the Uozu 300mm fab in Japan; average selling price remained stable. Gross profit increased modestly as higher revenue was largely offset by higher production costs and depreciation. Lower net profit reflected higher other expenses and tax expense, partly offset by improved operating profit and financing income.
- Liquidity: Year-end cash and cash equivalents were $211.7 million, versus $355.6 million a year earlier. Current assets were $1,102.9 million and current liabilities $272.9 million.
- Liquid investments: Short-term deposits were $310.2 million and marketable securities $189.0 million. Together with cash, these totaled approximately $710.9 million; this excludes $12.5 million of long-term bank deposits.
- Debt: Current maturities of long-term debt were $106.5 million and long-term debt $283.8 million, or $390.3 million combined carrying value. The balance includes debentures, loans and lease liabilities. Tower reported covenant compliance at year-end.
- Cash investment: Cash capital expenditures were $313.7 million, partly offset by $57.1 million of equipment and fixed-asset sale proceeds. Debt repayments were $63.7 million.
Material changes and business developments
- Revenue rose 2.6%, while net profit attributable to Tower fell from $90.0 million to $82.3 million. Gross margin edged down, while operating margin improved.
- Capital expenditures increased substantially to expand capacity across the fabs, including the advanced 300mm facility in Japan. Property and equipment, net, rose to $839.2 million from $681.9 million.
- Revenue concentration remained significant: NTCJ, formerly PSCS, contributed 25% of 2020 revenue; five other customers each contributed 4%–11%. NTCJ’s ownership changed when Nuvoton acquired PSCS from Panasonic in September 2020.
- Revenue mix by customer headquarters shifted: the United States accounted for 44% of revenue, Japan 28%, other Asia 22% and Europe 6%.
Outlook, management commentary and risks
- Management said customer orders exceeded capacity at most of the seven fabs and expected elevated capacity investment to continue in 2021. Demand rose significantly in the second half of 2020 and into Q1 2021, particularly for RF products serving data-center and cloud-computing infrastructure. The filing provides no specific numerical revenue or earnings guidance.
- COVID-19 caused some supply-chain constraints and reduced employee attendance, but management reported no material adverse effect on 2020 results, no material order cancellations and no manufacturing-line stoppages.
- A September 2020 cyber event led Tower to halt some servers and operations at certain facilities for several days. Operations returned to full capability; management reported no material financial impact and said work in progress and customer and employee data remained protected. The company recorded an insurance receivable for incurred costs and was pursuing reimbursement.
- Key risks include demand exceeding available capacity, execution and funding of expansion plans, cyclical end markets, fixed-cost exposure if utilization falls, customer concentration, supply constraints, and competition and pricing pressure.
- Tower faces currency exposure, particularly to NIS and JPY movements, although it uses hedges and has natural offsets. Its debt requires scheduled repayments, including Series G debenture installments from 2021 through 2023 and TPSCo loan payments through 2025.
- The Fab 3 landlord disputes the adequacy of noise-abatement measures and claims potential rights affecting the lease. Tower disputes the claims; the lease extension runs through March 2027, but adjacent construction could disrupt operations.
- Tacoma, a counterparty to a proposed China fab project, entered bankruptcy and did not pay $9 million owed for prior services. Tower had accrued the amount, so it reported no 2020 impact on earnings or cash flows.
- The company does not anticipate dividends in the foreseeable future. Management stated that existing cash, deposits, marketable securities and operating cash flow should cover expected operating needs, capital spending and debt service; large strategic transactions could require additional financing.
Investor verification checklist
- Check whether expected 2021 demand translates into shipments and whether capacity expansion is delivered on time and within budget.
- Monitor customer concentration, particularly NTCJ’s share of revenue and the terms and continuity of the Japan manufacturing relationship.
- Reconcile cash, deposits and securities with total debt and upcoming principal repayments; assess the funding needs of continued high capital spending.
- Review the Fab 3 lease dispute and construction-related operational exposure, along with the status of cyber-insurance reimbursement.
- Assess foreign-exchange sensitivity and the assumptions behind the $15.3 million of unrecognized tax benefits and the allocation of taxable income across jurisdictions.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2020.