UPDATE 1-Israel's TowerJazz boosts growth prospects with Panasonic JV

Fri Dec 20, 2013 3:39am EST

By Tova Cohen and Sophie Knight

TEL AVIV/TOKYO Dec 20 (Reuters) - Israeli chipmaker TowerJazz Semiconductor Ltd will create a joint venture with Panasonic Corp to manufacture Panasonic's semiconductors for cars and other products, a move expected to boost TowerJazz's revenue by 65 percent.

Panasonic, which is wrapping up a multi-billion-dollar restructuring, will transfer three semiconductor factories in central Japan to the joint venture, which will be 51 percent owned by TowerJazz, the companies said on Friday.

TowerJazz will issue to Panasonic roughly $8 million in ordinary shares, to be calculated based on TowerJazz's average share value during March 2014. Panasonic will become a minority stakeholder in TowerJazz and the company's largest client.

"From day one this joint venture, of which we are the majority shareholder, will provide us with $400 million of annual profitable revenue," TowerJazz Chief Executive Russell Ellwanger told Reuters. "On top of that there is substantial added capacity available in those manufacturing facilities beyond the agreement with Panasonic."

TowerJazz already has customers seeking to have their products manufactured at the Japanese facilities, he said. The company said it might seek to consolidate Panasonic's factories with the other plant it owns in Japan that it acquired from Micron Technologies Inc.

The Israeli company's push into Japan is a boon for Panasonic, which lost 20.5 billion yen ($196.68 million) on its chip business in the last financial year, as other Japanese companies struggle to find buyers for their chip facilities after racking up similar losses.

Those include Fujitsu Ltd, which is still in negotiations with Taiwan Semiconductor Manufacturing Co Ltd to sell off a chip plant in Mie prefecture, although its CEO said it has opened discussions with a number of other companies too. Sources say that Renesas Electronics Corp is discussing the sale of one of its image sensor facility in Tsuruoka with Sony Corp.

Panasonic has committed to procuring chips from the joint venture for at least five years.

The deal with TowerJazz would not have a material impact on its results forecast for the fiscal year ending March 31, 2014, the company said. Separately, Panasonic said it would cease production at its chip factory in Okayama in southern Japan before March and reassign staff from there within the company.

The Japanese company is also looking to sell its five other chip plants in Indonesia, Malaysia and Singapore and is in negotiations with an unidentified buyer.

The deal, which is expected to close in April, will enable TowerJazz to achieve a $900 million annual run rate from the second quarter of 2014 and reach its target of $1 billion a year in revenue by 2015, Ellwanger said.

TowerJazz, which makes mobile phone chips as well as battery chargers and AC/DC adapters, now expects to post revenue of at least $225 million in the second quarter of 2014, up from $133 million in the year-earlier quarter.

Ellwanger said he hoped the loss-making company, which had a net loss of $78 million in the first nine months of 2013, would turn profitable by the fourth quarter of 2014.

TowerJazz will gain capacity to produce silicon wafers with a 300 mm (12-inch) diameter that can be used in x-ray machines, high-end image sensors and digital SLR cameras.

The company's chairman, Amir Elstein, said there was also huge potential in automotive-related components and that it was important for his company to close the gap between its brand strength and its performance in the capital market.

TowerJazz shares closed at $4.49 on Nasdaq on Thursday, off a year high of $8.67. Panasonic's share price closed up 0.2 percent at 1,215 yen in Tokyo on Friday, just under a three-year high of 1,233 hit the day before.

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