Tower Semiconductor Ltd. (TSEM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Tower Semiconductor Investor and Analyst Online Conference. [Operator Instructions] I would now like to hand over the conference to your speaker today, Noit Levi. Please go ahead.

Thank you very much. And welcome, everyone, to our conference call and online event for investor and analyst. Before we begin, I would like to thank you for joining, and I sure hope that everyone health and safety. I will review shortly the outline for today. After the short opening that I will do, we will have Russell providing some slides about the resilient growth company in a challenging environment and [indiscernible]. Later on, we will have our COO, Mr. Rafi Mor, discussing operational continuity and manufacturing capabilities. We will then move to our different GMs of our business units to discuss the leading analog ecosystem covering the mega trends, the technology solutions that we have, our unique position and value-add offerings and the growth drivers with the current market outlook. Then we will have our CFO, Oren Shirazi, discussing the financial stability and risk management. We will then open the call for 20 minutes of Q&A. And at the end, we will have a summary and closing remarks by our Chairman, Mr. Amir Elstein; and our CEO, Russell Ellwanger. Before we begin, I would just like to provide the safe harbor statement that this presentation contains forward-looking statements that are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties identified under the heading Risk Factors in our most recent filings that could cause actual results to differ materially from those described in the forward-looking statements. Now I would like to turn the call to our CEO, Mr. Russell Ellwanger.

Thank you, Noit, and thank you all for joining today. So crux of the message is about our semiconductor, growth company, a resilient growth company in the present challenging environment, really focusing on our tagline for analog value meet. The main messages that we'll be covering is as far as the business in the market, Q1, which is predominantly completed, fully on track with the guidance that we had given. Q2 outlook per as the beginning of the year expectation, quarter-over-quarter growth. Business unit activities continued focus on key analog industry growth drivers. Operationally, all factories are operating with no measurable impact of COVID-19. And our global/regional diversity minimizes potential future disruptions. Financially, have strong financial and coverage ratios with comfortable net cash position with cash 3x of our debt. On January 14, we presented at the financial conference in New York. The following slide shows the 5-year new trajectories of the company and ending with the year 2019. And we said that for 2020, our targets were overall growth with growth throughout the year. Organic growth low double digit and a substantial 300-millimeter capacity capability. This 300 millimeter have seen changes in the mix. For example, mobile segment is presently down a little bit, seeing other areas come up for infrastructure. In the other areas of our business, there are always some gives and takes. But overall, at present, we're seeing the same customer demand we had seen at the beginning of the year. Although, we are very, very clearly tracking on a daily basis the new changes and the near term As far as the focus of the company, it remains aligned to what we believe focuses the industry are to seamless connectivity, which we address with Wireless Everything, energy efficiency, so basically very efficient power management, proactive smart systems, which we are addressing with a variety of sensor offerings. This 2019, with everything, the RF group that we have, 31% of corporate revenue. The power management IPs as well as power discrete, 8% of corporate revenues, and sensors, 15% of the corporate revenue. A focus on this, [ we see ] is a very strong positive. Look at the 2022 versus 2019 projected growth of Tower's served markets. We see a content module in optical, the revenue base in the served market having about a 44% growth. If you include a new served market within that, silicon photonic at a 50% increase in the served available market. In the served available market, we are obviously -- will come in a few slides, gaining market share. If we look at the PMIC and discrete market or ourselves by having both increase the voltage range that we're serving and the intrinsic CAGR of these markets, and see our served market having an opportunity out of 22% growth from 2022 versus 2019 and/or additional image sensor, another analog sensor, see the served market growing at about 2% over those 3 years. New activity in VR, AR and display in a very new and growing served market shows hundreds of percent increase in served capabilities. We're very focused, maintaining the strategic direction of the company and focus on these areas themselves have a very good growth rate, our increasing portion of the served market within each of these segments. Specifically, [ at everything ] structure, we enjoy over 60% market share in optical transceivers on [ silicon germanium ]. The sensor is expected to grow at 13% CAGR. These are in progress moving from 10- to 25-gigabit per second. And in Silicon Photonics, [ which is ] very critical in the 400-gigabit family. We have [ Trinity ] platform with over 30 active customers at present. The wireless front-end, 5G, accelerating RF content with a growth of about 13% CAGR and expected for RF SOI in the next year. Within this segment, we have obviously been increasing market share with 2019 revenue for RF SOI over 2018 at a 40% growth in dollars and 13% CAGR [ BCD ] showed a very, very strong uptick here. What's driving that is the best of industry, 200 millimeter on 300-millimeter figure of merit with real time increases in capacity that is already spoken for by leading customers. Moving to management, energy efficiency. Within Power IC, best in the world, 100 millimeter, 5 nanometer of merit, a strong Tier 1 win. 200 millimeter, our served market through expanded voltage range offering with industry-leading figures of merit. Power discrete, we are 5 of the 6 worldwide leading discrete makers and continue within the business model of behind firewall development focus on the road map, buyers [ and need ] in discrete customers. Smart everything, image sensors, we have strong share in traditional markets, exhibiting good growth of about 9.5% CAGR that being x-ray, high-end photography, machine vision with best-in-the-world figures of merit and continued road map development. And long-term partnerships with absolute leaders for new, and hence, by definition, high-growth markets as the new served market for us. Example, under screen fingerprint and advanced time of flight for facial imaging. For non-imaging sensors and display, yes, we have differentiated gas, temperature and magnetic and nonmagnetic axial motion sensor, VR/AR novel display as well as edge AI devices. Okay. With semi market trends that I'm talking to, a very recent report from Viola talking about market opportunities in semi: a venture capital perspective. They stated that this era has opened 3 main market opportunities for semi company: next-gen datacenters, smart machinery, edge computing. These 3 mega trends that we are focused on [ go ] fully what is being looked at as good opportunities in semi as DC perspective. We continue to be excited of what we're doing for alignment and the projected growth and being involved in exciting new markets that are really driving activities throughout the world. We've recently rebranded the company, Tower Semiconductor, where analog and value meet. Our vision to provide the highest value analog semiconductor solution as validated by our customers, employees, shareholders, partners. Being a trusted long-term partner with a positive and sustainable impact on the world through innovative analog technologies and innovative manufacturing solutions, we stated our values rather than talking about value, we predominantly presented as just scalers, we wanted it to be differently, find something that we're calling value vectors as excellent, very simple of all that we do within our value, pursue excellence in all from ideation, product shipment, hence, deliver the best experience to our customers, employees then be realized by shareholders and partners. The 3 pillars of excellence, quality, efficiency and effectiveness. So we take them with excellence to having leadership leading the analog ecosystem with technology and manufacturing solutions in exciting and growing markets. Partnership, a long-term partner customers, employees and shareholders. Impact, taking a positive sustainable impact on the world through what we're creating and through how we're creating that. And lastly and importantly, having environment of innovation. And the way that we're viewing innovation, not the idea but not the initial we have something great that no one else has is taking that greatness by having excellence of the 3 segments and driving into an extremely effective utilization. Hence, having great ideas is a value. So we have rebranded the company, it's Tower Semiconductor. The overall underlying message, one strong global company. We believe we'll continue to grow in different regions, we'll continue to grow within the regions that we're in and with power for growing to our shareholders. With that, Rafi Mor, please?

Hi, everyone. I will discuss the business continuity. So as Russell mentioned, we are on track for the Q1 guidance, which by nature means that basically all our fabs, and you can see here that 7 fabs that we have, 2 in Israel, 2 in U.S. and 3 in Japan are working smoothly in light or in face of the current worldwide challenges. So basically, we are -- we made all the shipments as planned with good performance, a good cycle time, good yield, good [ OSD ]. Still, as you are all aware, basically, every country put restrictions, and we, as a company, took measures to ensure business continuity and safer environment for our employees. So we implemented work from home for all jobs that can do it remotely. Besides that, we implemented multiple protocols, including social distancing. So people can -- need to stay apart from each other, 6 feet or more. We minimized the frequency and attendance of face-to-face meeting. We are doing zoom video conference calls. We also, of course, increased the cleaning in the exit and the entrance in shift changes. We clean today much, much more. We gave hygiene education to everyone. We're also implementing temperature measurement at the entry of the facilities worldwide. And aligning with our customers, we basically swap the face-to-face customer visits to video conferencing. Coincidence or not, in the last 2 weeks, we are getting more business summary reports. So videoconferencing or zooming is a really efficient tool. I would say the same, by the way, for our employees. They are working -- some of them working remotely and still, we do not see any change in our operation right now. And last, we also, of course, restricted the travel for all employees worldwide. Besides those measures, we also were looking proactively on our supply chain. I would say at the bottom line, there is no lack of materials in all the sites as of today. We're basically controlling it. We discussed with many of our suppliers so there is no -- really no lack of materials so far, not materials, nor silicon nor parts. Still, we decided to increase our inventory to be on the safe side. So we basically proactively increasing the inventory for the materials and silicon. For the freight, again, we don't see any change in the air and sea freight. Although, as you're well aware, the passengers in airplanes were reduced significantly, and we were using like maybe 50%, close to 50% for our import, export using the passenger airplanes. So we swapped that to cargo airplanes right now. And the same, I mean, we don't see any significant impact to our export/import currently. There is some delay. So from time to time, when there is a complex tool breakage, we call experts from our vendors. So currently, no one can travel. So we mitigate that by local vendors from each side and with our expertise in towers -- in Tower Semi. Again, benefit of that is once everything the corona crisis, we'll have more experts in all sites, which is good. And again, we're continuing to assess the impact of this coronavirus situation. And we're really being proactive, proactive smart, thinking what can happen and trying to solve it as fast as possible. As of today, again, all the fabs are working smoothly and delivering as planned. For the next slide, again, what we can see here is all our 8-inch fabs globally. And this is basically our global capacity assurance. What we did years back is transferring a major platform, major technology platform from one fab to another, trying to maximize utilization at any point in time. If customer demand is above the capacity of 1 fab, we can basically offload very fast to the other fab which is qualified. So this allows us to maximize utilization at any point in time. But of course, in these days, it's also serving business continuity. If in the future, 1 fab, we need to be slowing down, then the other fab pretty fast can take the load. So again, just to summarize, currently, we don't see any impact to our operations. And we took all possible measures to keep our employees healthy and safe while continue manufacturing as planned. And with that, we'll move to Marco Racanelli, right?

Correct. Thank you, Rafi, and thank you, everyone, for joining. In the next few minutes, I'll review markets and growth opportunities that we see for our analog IC business, which includes both RF and power IC areas. Before diving into the material, I just wanted to provide some update on good term customer demand in this business, which is currently characterized by generally strengthening forecast for infrastructure-related customers, balanced by some weakness in forecasts for consumer, mobile and in handset we need the customers versus prior forecast. And all this, of course, consisted at the top level with Russell's prior comments on the overall business. With that said, let me jump in and talk about what do we see as the primary growth drivers for the business, and they're summarized on this slide. Four major areas, being expanding our 300-millimeter business. As many of you know, we have generated very strong platform in both RFSOI and power management, our 65-nanometer BCD technology, which had ramped to high volumes already and are adding quite a bit of capacity to our 300-millimeter factory and a very strong pipeline of demand. So marrying that large demand with the added capacity should result in a very good growth, 300-millimeter area for us in analog IC, both on the RF side and the power side. The second major area is, of course, capitalizing on the 5G opportunity, both on the infrastructure side, where, as we've talked about recently, we've already been seeing upside on our silicon germanium platform as it relates to optical connections of base stations as those are upgraded to 5G. And of course, on the mobile side, where 5G is providing increasing RF content in the handsets, which we can play into with our very strong technology base there. The next major area is to continue, of course, growth in optical datacom business. So this is the data center business, both in silicon germanium, which is our traditional business, with recovery in 100G that we expect and, in fact, are beginning to see this year as well as up and coming new standards such as the 400G standard that will be coming out that will provide growth over the next few years. And in addition to this more traditional business, our silicon photonic business, where we now have a very strong platform, a large customer base, so poised to grow over the next few years. And finally, the last major growth drivers to continue to gain share in our 200-millimeter power market, we talked about 300-millimeter in the first volt. 100-millimeter, we've expanded our technology base recently with announcements at the high-voltage end of the market, 140 volt and 200-volt technologies, and this is allowing us access to a larger overall market where we intend to gain share over the next several years. So in the next few minutes, I'll give pertinent slides on each of these topics and give a little bit more color on each. And I'll start with our 300-millimeter topic. And here we go. So in 300 millimeter, as you know, several years ago, we acquired a -- our first 300-millimeter facility, and that allowed us to shrink dimensions that we print on the wafers and access and upgrade our technology to access new areas of the markets that we served, and you can see the 300 millimeter as it relate to analog IC listed here. First, within RFSOI, we were able to improve our low noise amplifier performance, improve the digital density of the platform, and this has resulted now in high volumes in this technology. In silicon germanium, we are developing a 65-nanometer silicon germanium platform, and this promises a very long-term road map for silicon germanium, where we can marry the very high-performance silicon germanium with denser CMOS for more digital content integration, which will become important over the years to come. And finally, in low-voltage power management, where we have a leading-edge 65-nanometer BCD platform that is providing our customers a significant cost advantage and die site reduction advantage over the older 0.18 platforms at the low voltages. Let me talk a little bit more specifically about power management on the next slide where -- we can see this technology [ green ], the 300-millimeter, 65-nanometer BCD technology, which is designed to attack the low voltage part of the market. As you increase the voltage, the [indiscernible] that you could achieve in 300 millimeter becomes less and less important. So the higher voltage becomes the domain for 200-millimeter technology, while the low voltage is attacked by our 300-millimeter technology. And you can see that across this entire voltage range that represents the entirety of the power management market, we have significantly upgraded our technology over the last 1.5 years to 2 years. You can see the announcements that we've made on the right-hand side of the graph. And so now today, across this entire voltage range, we're able to provide customers a truly leading edge performance with best power efficiency across the entire range. And so we're really poised to take market share across this very large, and as you can see by the many applications, a very robust market in the years to come. Moving now to the RF side, where we participate both on the consumer side where we provide components built in our silicon germanium and RFSOI technologies for wireless front-end components for mobile handsets. And on the infrastructure side, where we provide optical fiber front-end components built in high performance silicon germanium and silicon photonics technology. The first on the consumer handset side, clearly, 5G, which is projected to grow to at least 1/4 of the market in the next few years of the total handset market, a 5G phone clearly has a lot more RF content than a 4G or older generation phones. This could, by the fact that there are more antennas and more frequencies that are being used in a 5G phone that's how you achieve the higher data rates in a 5G phone. The more antennas, more frequencies mean more switches are necessary to switch those frequencies around, and that's built in our RFSOI technologies -- low noise amplifiers are required for each antenna. There's typically at least one low noise amplifier that's built either in our silicon germanium or RFSOI technology and more antenna tuners. Each antenna typically now requires an antenna tuner. An antenna tuner built most typically in RFSOI, or possibly in the future, also in RF MEMS, all technologies that we serve. On the infrastructure side, as I mentioned, we're already seeing very good uptick in our silicon germanium business coming from this area, where we play is in the optical connections that interconnect the new 5G base stations or upgraded 5G base stations to the rest of the network. And those optical links are being upgraded from 10 gigabit per second to 25 gigabit per second to create enough of a pipe to support the higher data rates of the base station. And of course, the technology of choice for the transceivers within those connections is silicon germanium where we hold the very large market share. And in the future, we see silicon photonics also playing a role in this market. We've announced, for example, with Inphi, currently, our silicon photonic technology being used as interconnect between data centers and so potentially could also roll out in the telecom market, as you see here. Now the more interesting market for silicon photonics is the datacom market, and this slide describes the view of forward for the datacom, data center market, which we serve traditionally with our silicon germanium technology. We talked about having very high market share at 100 gigabit per second. You can see 100 gigabit per second is projected as a standard, is projected to continue to be very prolonged for many years to come. In addition, we have recently gained significant number of design wins at the 400-gigabit per second node. And you can see that is expected to ramp over the next few years. And we talked, again, about silicon photonics. As you can see from your -- on the right-hand side, the projected growth for silicon photonics. And we have already more than 30 active customers participating with us in this new platform. With that, I'll pass it on to Avi Strum, who will talk about our sensor business. Thank you.

Hello, and good morning, everyone. I will talk about the sensors business of Tower Semiconductor. I'll start with the one slide view of the areas that we are playing in and what the importance of those areas to our business. So on the left-hand side, you see the Tower traditional market where we have a substantial market share. The first one is the medical and dental X-ray sensors. Those that are 1 or 2 type wafer, very large sensors that even larger as they are, they are tied by our customers into an even larger detector for medical X-ray or X-ray dental. And this is a market that is growing, mainly because of the transition from amorphous silicon glass-based technologies to CMOS technology. This transition is continuously growing during the years. And we have no 200 millimeter as well as 300-millimeter products that are introduced now to the market. Second one is the high-end photography. High-end photography would be the cinema -- cinematography product. We have no cinematography products with several customers who are the leaders in this market. We are growing our market share also with leading DSLR and mirrorless cameras, although, this specific market is quite stagnant, but our market share is growing substantially, which means that our business is growing, mainly thanks to our excellent technology on our 300-millimeter fab in Uozu, Japan. And the third one is the industrial machine vision market. This is a very wide market going from the lower end of industrial, which would be the 2D barcode readers and up to very large, very high-resolution sensors or cameras for screen, large screen QA, like 100, 150, more than 200 megapixel sensors, all using our state-of-the-art global shutter technology that is almost a mask for good machine vision camera. So all those 3 markets, we are still growing and we expect to grow this year as well. On the right-hand side, what you can see are new emerging extremely high-growth markets, not just high-growth worldwide, but obviously, for us because those are new markets, and we have extremely good introduction with customers of technology on those 3 areas. The first one would be the under screen fingerprint. Now every phone that is -- have a fingerprint security moves to under screen fingerprint. There is one technology which we are not entertaining, and this is the ultrasound fingerprint technology because it's not silicon based. But everything is moving into optical fingerprint, whether it's under OLED or under LCD, 2 completely different solutions, 1 for the under OLED and the other 1 for the under LCD, and I'll explain it in the next slide. The most important part is that this is a very, very large market, on one hand. On the other hand, it is utilizing our very, very well-established CIS technology on 200-millimeter wafers. The next one is another security solution, which is time of flight, time of flight. We are having products not just for security, but the main usage of those sensors are for face recognition, also in cell phones and payment points for very high security. Those are 3D sensors using time-of-flight technology. And we are already engaged with 2 market leaders that are leading this time-of-flight market. The third one would be the VR display. This is not an image sensor. Those are displays. As you know, displays are currently based on a TFT glass technology, mainly similar to the displays of the high-end OLED cell phone market, but those displays have very poor resolution for VR. And the market is now starting to move into some other technology, among them micro OLED, which means much, much smaller pixels, much higher resolution, silicon-based. And here, we are engaged with market leaders in this VR goggles market, and this should be a huge market as the size of the display is very large, so number of wafers would be enormous, they demand. Now if we move to the technologies that we have developed throughout the years that allows us to have such good reputation and such good market engagement with customers, first one would be the global shutter for the industrial market. We have been in this market from the very beginning in 2007. We developed this global shutter technology on 200-millimeter wafers, 0.18 micron technology with all the leading customers in this area. Then we moved to a smaller pixel, a 3.6 micron pixel when we introduced the Intel's RealSense IR technology for 3D imaging. And then we developed a smaller pixel for the industrial market, a 2.8 micron pixel, again, on 200-millimeter wafers, but on 110-nanometer technology. And then we moved to 300 millimeter and developed the smallest in the world state-of-the-art global shutter pixel at a size of 2.5 micron. And today, this pixel is the basis of the products of -- the new product, the new product family of our customers going into a super high-resolution, using stitching technology that we have developed throughout the years on both 200 and 300 millimeter. In this case, it's stitching technology for global shutter pixels to create a higher than 200 megapixel industrial sensors. The next technology that we have developed in the past 2 years is a wafer stacking BSI technology, where on the left-hand side, you see a cross-section of this technology. There are basically 2 wafers there: one, the bottom one is a CMOS wafer with all the analog and digital circuits, and on top of it, there is the imager wafer, upside down, thin to a few microns to allow the light go into the pixel; and on top of it, those are the micro lenses that concentrate the light into the pixels. This technology is a state-of-the-art technology that allows us to connect electrically wafer-to-wafer on a pixel level, meaning billions of contacts of electrical contacts between the wafers themselves. So you see on the right-hand side, the connection what you see that Pixel-DB connected to the ADC-DB. It means an electrical connection on a pixel level for the product. So if we have, for example, a 20 megapixel sensor, it would mean 20 million connections like that between pixels. We have the smallest in the world contact pitch, which is lower than 2 micron, the best-in-class [ downtime ] of 7 electrons at 60 degrees C, and this allows us to develop with our customers' products that gives full frame of 20 megapixels at an extremely high frame rate of 500 frames per second going into 1,000 frames per second. And this technology serves us both in the high-end photography market and in the time-of-flight for face recognition market that I presented in the first slide. The next one is for fingerprint optical sensor. And here, the technology that is required, especially for the high end under OLED display sensors is the -- what is called a one-to-one sensor, which means a sensor without any lens. So the size of the sensor is quite large. It's more than 50-millimeter square, which means about 400 to 500 sensors per wafer, and hence, a very large amount of wafers that are required to supply this huge cellphone market. The technology for this one-to-one is not only the unique pixel technology that we have developed throughout the years on our well, well-established 0.18 CIS technology that would allow us to manufacture a lot of wafers without any additional unique CapEx for this manufacturing, but also a special optical filter solution for best performance. The solutions would be special IR cut filter that usually is not done in a silicon fab, so we outsource it with our partners. And another angle solution for the light to collect light that's coming only perpendicular to the surface, and this is something that we do in-house. And lastly, the technology that we have developed throughout the years, the stitching technology that allows us to manufacture with very high yields, the 1 dye per wafer for x-ray application. You see on the left-hand side, images of 1 dye per wafer on the top and 2 dyes per wafer in the bottom, those dyes are being tied by our customers into a very big detector. One dye per wafer on 300 millimeter would be more than 20 centimeter by 20-centimeter sensor, just cut from one 300-millimeter wafer. And this stitching technology, as I mentioned earlier, is serving us not just for x-ray and medical and dental applications, but also for large, high-end photography sensors as well as for a very large high resolution industrial sensors that I mentioned earlier. And with that, I would like to move to Dani Ashkenazi, who will talk about the TOPS business unit.

Thank you very much, Avi. First, I would like to start by similar to previous speakers to state that reviewing the situation today, we do not see any significant business or operational interruptions related to the coronavirus at the TOPS view. Minor ones we address regularly on a day-to-day basis. Looking at the 3 pillars below, it describes how we at the TOPS view add value to our customers. Starting at the left pillar, we engage in a long-term relationship with Tier 1 IDMs who provide us with stability through long-term volume commitments. The expertise we developed in transferring processes and doing co-development enable us to win leaders among the discrete makers, as I will show in my next slide. The center pillar describes the engagements we do for emerging markets with a company who developed a process IP and leverage our capabilities to take it with them to high-volume manufacturing, benefiting from our ability to do it in a record time. The example I will show you later is for macro LED display. The third pillar is a unique business model where we create value by licensing and transferring our own processes and offering service of engineering and operational management. A significant part of our long-term engagement with leading IDMs is in the MOSFET market. Our customers serve 60% of the power in MOSFET market, while we continue to expand our global capabilities, providing MOSFET development and manufacturing in 3 continents. We also enable transient voltage suppressor TVS manufacturing and development in 2 continents. The slide shows our partnership with Aledia to demonstrate our activity in emerging markets. We have high confidence with Aledia 3D nanowire GaN on-silicon technology and its supply chain partners. Unlike many of its competitors who are limited to 6-inch LED on Sapphire, Aledia technology is able to ramp with 8-inch and 12-inch silicon wafers benefiting the economy of scale. We diligently work with Aledia and its partners to assure we support that volume ramp in 8 inch and to be followed by 12 inch. And with that, I will move the presentation to our CFO, Mr. Oren Shirazi.

Thank you, Dani. Hello, everyone. So I would like to give you the highlights of our financials in this period and the focus on our financial stability and other very interesting financial analysis and ratios. So I'm at Page 42. So we, of course, I believe everybody is aware, have a very strong and stable financial balance sheet and position with net cash and financial ratios that I will analyze now. We have, of course, comfortable net cash position with $435 million of cash net of debt, and this is representing a total gross cash amount of more than $700 million, which is 3x the amount of the bank and bond debt that we have. Our debt-to-EBITDA ratio is 0.9x with minimal interest, which I will show later at about 2% average. So a ratio of below 1x, it's very good. Debt to EBITDA. Current ratio, of course, the ratio above 1x is good. We have a ratio of 4.3x, which is very good with a quick ratio of 3.5x, quick ratio defined later is current assets excluding inventories divided by current liabilities. Shareholders' equity is 70% of the total balance sheet, so a very strong ratio. And the cash that we have on hand plus the available credit line, which I will also review later, like, for example, $70 million from Wells Fargo available for us, all these together allow us to continue to focus on our growth activities. Second part is the inventory management and business continuity. So I believe Rafi Mor really presented it very nicely. We increased the inventory levels. We have a tight monitoring on the inventory levels. We see that we have a good level of inventory for the coming months. We saw, so far, no interruption to the major supply chain material, categories and no impact on export and import from our regions that we are manufacturing. With regard to business performance, so Russell discussed about it, we didn't update our Q1 guidance and -- which we provided before the COVID-19 outbreak occurred, which is a good sign, and we still forecast our customer revenue forecast of growth from Q1 to Q2. On the balance sheet, Page 43, we see what I believe is a very strong balance sheet. In green are the numbers of the cash and the debt, just that you will know what I'm talking later. So 4 main points. Net cash flow, $35 million, driving strong financial coverage and liquidity ratios. Cash from operations last year was $292 million positive that after $172 million of CapEx is resulting in $120 million positive free cash flow. I will later show the financial ratios and balance sheet indicators that we believe are stable and strong. And with regard to hedging, I talk about it every quarter, so there is no update here, but it's very important to say that our hedging policy is mitigating the currency fluctuations of the JPY and of the Israeli currency. We have no exposure to the euro currency. And we have 2 major exposures that are mitigated, the JPY to USD hedging that we do, usually with cylinder -- no 0 cost cylinder transactions are hedging our JPY cost net of our JPY revenue from Panasonic. And we have on the Israeli currency, the shekel NIS, what's called NIS-dollar hedging transaction also with 0 cost cylinder transactions and other type of transactions to hedge -- actually hedge fully the currency -- the Israeli currency possible fluctuations. Page 44 is the debt breakdown. So very comfortable situation with only the $122 million of bond Series G traded in the Israeli market and the $100 million bank loan from several Japanese banks that gave this loan to TPSCo, the Japanese entity, which we control and PSCS hold 49% of, and some machines leasing contracts that funded some machines that we purchased in the past of $54 million, so a very convenient schedule. Page 45 is some analysis on the liquidity ratio, then coverage ratio of the balance sheet and the cash and P&L. So debt service coverage ratio. So 3 indicators, total cash is, like I said before, 2.7x from total gross debt, which is very strong. Net cash $435 million and the gross bank and bond debt together divided by the EBITDA is only 0.9x, which is below 1, which is good. Current ratio of 4.3x, defined as current assets divided by current liabilities. Current ratio of 3.5x, defined as current assets excluding inventory divided by current liabilities. And the last point is that the cash is 39%, almost 40% of our total balance sheet, which is very good position to be certainly in this environment. And my last page are more into financial analysis of ratios. Tangible assets coverage ratio of almost 6x, which is the total assets in the balance sheet, excluding intangible assets, which is really tangible assets, which really has a tangible value. And net of short-term liabilities, all that divided by gross bank and bond debt, so we have $1.6 billion of tangible assets and only $276 million debt. So the ratio of 6x is very high, very strong. Of course, any ratio above 2x is very good, I believe. Interest coverage ratio is 49x, which is wonderful, which is the EBITDA divided by the interest expense. Cash coverage ratio over interest expenses of 123x, which is also a very good ratio, which is the total cash divided by the interest expenses. Fourth ratio is the interest expense to gross debt ratio, which actually is 0.02x, which is the 2%, which is not surprisingly the average interest that we are paying on our bank loan. It's a good number. And shareholders' equity being 70% of the total balance sheet. So shareholders' equity is at $1.35 billion from $1.93 billion of total balance sheet, so 70%, meaning that only 30% is liabilities on the total balance sheet, which is -- again, shows stability and strength of the company. Noit?

Okay. So we will now open the Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Cody Acree.

Guys, congratulations on the progress you made here. Just a couple of quick ones. Let's say, on the M&A front, as we've seen a lot of companies struggle here, valuations have come down in a group. Are you starting to see any M&A opportunities that are starting to look attractive from a valuation standpoint?

So Cody, I'll respond to that. Okay. The -- on an M&A front, we give over the past long term to look at activities that would be accretive to our product portfolio as well as very strongly past years looking at additional 300-millimeter capacity growth. And that is one network continually beneath the 300-millimeter capacity. Probably, at this point, additional opportunities are sitting there and some of the opportunities that we're pursuing seem like the other party is maybe more interested to move a bit more quickly. The thing for us at this point, as far as M&A is to take advantage of [ all these ] overall worldwide environment with the benefit of growth. To be very, very careful at this point in understanding that cash conservation is maybe very critical. I think we're doing all possible we can to get forecast, what downsides could possibly occur as or added in its place to mitigate. And when such a downside would happen, it might be that something happens that we cannot meet, in which case I'm saying that cash is a king is very, very true. We look now at progressing on the deals that we have been pursuing though looking at it from a very strong standpoint of cash conservation as well. But we're still extremely active in the M&A front not at a point that something would be of a political requirement to announce, but multiple activities moving forward and moving forward as well. We believe we'll be able to capitalize on. We think that other opportunities are coming, maybe as well within 300 millimeter, but certainly with acquisitions to increase our served market.

Thank you, Oren -- sorry, Russell. Oren, this question is for you. Could you maybe just walk us through your incremental margin drivers? You've been very, very consistent about a fid 50% -- mid-50% incremental margin. I guess, is that the case for 2021? And is there -- are there levers that maybe are starting to mature that can be a driver in the mix that we haven't been focusing on?

Yes. I think, I mean, there is no update. I mean, really, the 50% -- 50% to 55% incremental margin over any incremental growth is still the case for the EBITDA and the operating profit and gross profit. The only thing maybe we -- related to what something we did say in the past, which is that we ordered the $100 million of tools for Uozu and seeing that was in Uozu in full utilization in the last few quarters, as we reported, I mean. So we are installing the tools, and of course, once they will start to bring additional revenue, so we do expect that the other margins are a little bit better than the 50%. But overall, for our model, I think 50% to 55% is certainly relevant for 2021.

Your following question comes from the line of Richard Shannon.

I think I'll ask 2 of them here. First one is in the power market. Obviously, a very large and diverse market here. I think you've sized it as an $11 billion TAM. Kind of a few sub-questions here. What is the degree to which that TAM represents a merchant market or is there any internal built in there? And then can you talk about the desire of any of these Tier 1s or even Tier 2 power makers out there that may be using internal that may want to outsource and open up even more opportunity for you?

Would you like to answer that?

Yes. Certainly, I can chime in. So the market -- the total market is about $17.3 billion. I think that we represented the low voltage part is, as we say, about $11 billion. And that does include IBM and foundry business. IBM, meaning companies that have their own factories and build their own product as well as foundry -- as well as those that use foundries like ourselves. Generally speaking, we believe about 30% of the market is foundry directed and 70% is IBM business. That sounds very precise number. There's isn't a very precise one out there. That's roughly an assumption that we believe to be correct. The trend generally has been to increase the output, particularly on the IC side. And if you take a technology like our 65-nanometer BCD technology, for example, not many traditional power companies or analog companies have the ability to access a 300-millimeter, 65-nanometer technology such as that. With the exception of maybe TI and maybe 1 or 2 others, the rest of the market really would depend on foundries for technologies such as those. So the bottom line is, yes, the total market includes both what is foundry as well as what is captive business. But we believe with the technologies that we put in place that we will be able to gain share, not just within the foundry piece of that space but also enable those companies to grow their market and take a little market share from the total of the market.

Okay. That's a great perspective, Marco. I appreciate that. My follow-on question, possibly for you or maybe Russell is on the kind of the wireless and RFSOI side. Obviously, with the ongoing trade tensions, which may be in a pause at this moment. But trade tensions between the U.S. and China with a lot of the major RF guys in the U.S., a lot of the Chinese OEMs may be looking for alternative sources. Are you seeing any benefits to your business either in the past or possibly going forward of gaining share with customers who may be supplying from outside the U.S. in that space? And if so, can you quantify or characterize how important that could be?

Yes. So in general, because we do have significant amount of manufacturing outside of the U.S. with -- I've been in Israel and in Japan producing RFSOI. We have seen some upside and some momentum from Asia related customer that prefer to be outside the U.S. And our major competitor traditionally has been global foundries, which primarily manufacturers in the U.S., although they also have some factories outside, but for RFSOI, primarily, it's been traditionally in the U.S. And so in that respect, we've been able to gain some share in China and in Asia in general. We do, of course, have the ability to manufacture inside the U.S. So for those customers that prefer being inside the U.S., we provide that option as well with Newport Beach and San Antonia also running some RFSOI today. But in general, yes, it's been positive for us.

Your following question comes from the line of Lisa Thompson.

Thank you for giving us this update. I think everyone is really concerned about current business, and I'm glad to hear that your production continues without interruption. So I think that -- I think really what I want to hear is more like what is your thinking on demand now versus what you started the year at? And particularly in consumer, which you said you thought was weak on the handset side. Can you talk about that a little bit more?

Lisa, can you please repeat the question?

Yes. I was glad to hear that your production has continued uninterrupted. But could you talk a little bit more about your thinking on demand from what you were thinking earlier in the year till now, especially on the consumer side?

Yes. As stated at the beginning of the call, at present, our customer demand really has not shifted very strongly as far as the overall demand that we're seeing in our factories. I had stated that at the January financial conference in New York that we had spoken to quarter-over-quarter growth. And we still see a Q2 that would be larger than Q1. We have seen some shift and that was -- at this point, some shift from mobile going down to infrastructure going up. But other than that, the customer forecasts at present seem very stable.

Your following question comes from the line of [ Earl Yigal ].

Thank you for all the insight today. This is very helpful. Just to follow-up on that, Russell and Oren, the commitment to you seeing sequential growth in the second quarter, a lot of your RFSOI customers have lowered their numbers because of the impact on the smartphone side. It seems like you're able to offset that with the ramp on the data center side. But as we kind of go throughout the year, are you seeing any other impact on automotive or industrial? Almost every single auto plant in the U.S. has been shut down, same thing in Europe. Just wondering if there's any impact that you're seeing on your image sensor or power management business into auto or industrial? And any kind of thoughts on an inventory build versus, say, demand signals? Any color there would be helpful.

That's a very good question. As stated, we have not seen drops in forecast other than within mobile as a general trend. If anything, we see an increase in infrastructure, and we've actually seen increases, actually fairly strong increases with power management, meaning mainly the power management ICs and some of our discrete customers also asking for relatively big increases against their initial forecast. At this point, if some of that is being used to build an inventory out of sheer fear, then maybe there will be supply chain disruption. I don't have an extreme visibility on that at the moment. But as I state, Q2 is on track with what we said at the beginning of the year and then Q3, Q4 forecast still are coming in quite strong.

Your following question comes from the line of [ Natalia Wenker ].

My question was about the rollout of 200 to 300-millimeter silicon in Uozu. Could you kindly give an update on that? Is it going ahead -- according to schedule? Or are you seeing any delays potentially from the equipment companies in relation to COVID?

The question was for the 300-millimeter expansion, that was the gist of the question?

Yes, yes.

No, we're seeing everything moving as per schedule.

Your following question comes from the line of Richard Shannon.

Probably for Russell or Marco. On silicon photonics, you've talked about adding 30 active customers. Can you characterize this customer base here? How much of the Tier 1s or any Tier 1s that most people would kind of view as leaders in the optical [ of arts ] aren't using your or -- and also kind of characterize when you might start to see the revenue materiality from these engagements?

Marco, would you like to speak to this and then maybe I'll add something later.

Yes, sure. So if you were talking to customers we referenced, really you run the gamut. We certainly have some Tier 1 customers in the space and also all the way down to start of the set. It's a very hot area.

There are no further questions. Please continue.

Okay. So we are moving now to the summary and closing remarks. We will begin with Russell Ellwanger, our CEO.

So again, I thank you shareholders for your faith and trust in the company. As analysts, for your interest in the company. We're certainly entering times or in the midst of times that have a good amount of uncertainty to them. I think the overriding message that we would like you to leave with is that, Amir as the Chairman and myself as CEO, I think that we've tried very hard to focus, to drive a company that don't have sustainability within it and that has a business path that ensures growth over time. And that is the important thing that we're doing that we focused on and that we really -- very, very strong about, our balance sheet is strong. I think that we're in a position that should somewhere or somehow a major disruption occur, we'll be able to weather it well. But the bigger and most important thing is to be a team that's proactive and smartly proactive to try to foresee everything that can go wrong and to do all within your power to prevent it from going wrong. And I think we've done that. On the midterm, long term, we are involved in the right markets with the right customers, producing really the absolute correct platform that allows differentiation over time. So with that, I would like to turn the time over to our Chairman, Amir Elstein. Thank you.

Thank you, Russell, and the Tower Semiconductor management team. Good morning, everyone. I'd like to deliver a few closing statements. If you see, the title of this slide is not only a true reflection of our reality today, it is a true reflection of what we have built Tower Semiconductor to be over a decade now. This is our operational and business culture, a resilient growth company in a challenging environment through today, through yesterday, and we'll make it through tomorrow. The 3 key messages below this title is, maybe viewed as self-growth time. However, I simply viewed those as an honest and proud reflection of what we have achieved. We have a well experienced, mature and strong global company with solid, enviable balance sheet and net cash financial position, exceptional analog technology solutions and manufacturing capabilities, a multinational team with high-level expertise and talent. All this enables excellence in leadership, partnership, impact and innovation. In regards to business leadership and Tier 1 customers acquisition, we have established long-term partnerships based upon unparalleled trust, mutual roadmap and ensured success. We are passionate and committed to lead the analog ecosystem, an exciting growth markets, providing strong competitive advantage with full circle value creation. This summary slide at the end of the impressive management presentation reflects solid, strong business potential. With the effective leadership team under Russell, I can describe our current position as of loaded spring ready to push forward and create enormous future value. I thank you for your support and trust in Tower Semiconductor. And I want to assure you that we are absolutely committed to deliver exceptional value. Thank you.

Thank you, Amir, and I thank everybody for joining the call. Again, we have great appreciation for investors that have stayed with us and have watched us make a huge transition over the years to being the leading analog foundry in the world. And our commitment is to continue on our path by doing everything that Amir just summarized here. I thank the management of the company for their cooperation and especially for -- at this point, the absolute proactivity to have everything in order, to plan out everything that could go wrong and to address it to a point that we have, at this time, mitigated everything that could have come our way. And our commitment is to continue with that. I thank our employees worldwide. Extremely grateful to our customers for their faith in us and to all of our partners. Thank you, and I look forward to, at a minimum, speak with you at May 13 when we release our Q1 financials. Thank you, again. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.