TSEM: The Pandemic Continues to Take its Toll On End User Demand

By Lisa Thompson



Tower Semiconductor’s (NASDAQ:TSEM) Q2 revenues came in on target at $310 million up 1% year over year. Guidance for Q3 revenues was $320 million, and slightly below street expectations. While production has continued unimpeded by the pandemic, end user demand continues soft particularly for smartphones. Visibility is the same, but customers themselves are unsure of the demand they will have for their products.

Organic revenues in the quarter were flat year over year compared with up 10% in Q1 2020. This is the first quarter with the same contract terms with Panasonic as last year; all growth shown by the company is now just organic.

In 2020, only Q1 was affected by the contract renegotiation with Panasonic, making overall growth more attainable. The 2020 revenue forecast assumes flat Panasonic revenues after taking out $23 million for contract renegotiation in Q1, Maxim declines of $9 million (also by design in its contract), and some growth for the rest of the business, although this quarter did not show any after growing 10% in Q1.

The silicon germanium optical business continues to show good growth as 5G infrastructure suppliers and data centers continue to buy transistors and switches. The growth in Q2 was greater than Q1 and the company expects its output will grow 20% this year over the full year 2019. The San Antonio fab is expected to start contributing product shortly. Demand is primarily for 200G with some 400G. TSEM is also working on an 800G transceiver with its partner Infinera.

The mobile RF business is weak and handset sales are expected to decline 20% this year although TSEM continues to gain market share in this declining market.

Power ICs are expected to grow 20% this year.

Power discrete is still significantly down from last year but is showing some signs of life in Q3.

Sensors are expected to grow in the single digits this year. Particularly hard hit are dental x-ray sensors as dentists were shut down during the pandemic and where TSEM has a large market share. Industrial sensors are also affected. However fingerprint sensors for smartphones should go into volume production starting in Q4.

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