Israel's TowerJazz, Panasonic in joint venture for Japan chip plants

TEL AVIV/TOKYO Fri Dec 20, 2013 2:49am EST

Signs hang above the Panasonic booth on the second day of the Consumer Electronics Show (CES) in Las Vegas January 9, 2013. REUTERS/Rick Wilking

Signs hang above the Panasonic booth on the second day of the Consumer Electronics Show (CES) in Las Vegas January 9, 2013.

Credit: Reuters/Rick Wilking

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TEL AVIV/TOKYO (Reuters) - Israeli chipmaker TowerJazz (TSEM.O) will create a joint venture with Panasonic Corp (6752.T) to manufacture Panasonic's chips for cars and digital products, a move expected to boost TowerJazz's revenue by 65 percent.

Panasonic will transfer its three semiconductor factories in Japan to the joint venture, which will be held 51 percent by TowerJazz (TSEM.TA), the companies said on Friday.

Panasonic, which is wrapping up a multi-billion-dollar restructuring, has committed to acquiring its products from the joint venture for at least five years.

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 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 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-rays, high-end image sensors and digital SLR cameras.

The company's chairman, Amir Elstein, said there was also huge potential in automotive-related components.

Ellwanger said TowerJazz was approached by Panasonic, which sought to bring in TowerJazz's customers and capabilities.

The Israeli company already has a plant in Japan, which it acquired from Micron (MU.O), and it said it might seek to consolidate the facility with the Panasonic factories.

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.

Elstein said his company must close the gap between its brand strength and its performance in the capital market.

"This relates to getting to profitability," he said. "This will come soon."

(Reporting by Tova Cohen in Tel Aviv and Sophie Knight in Tokyo; editing by Crispian Balmer)

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