By Tova Cohen
PARIS (Reuters) - Israeli chip maker Tower Semiconductor Ltd. (TSEM.O: Quote, Profile, Research, Stock Buzz) (TSEM.TA: Quote, Profile, Research, Stock Buzz) would prefer to raise debt, not equity, to fund a planned expansion at its Fab 2 plant, the company's chief executive said on Thursday.
"I certainly don't want to dilute at $1.80 a share," Russell Ellwanger said at the Reuters Global Technology, Media and Telecoms Summit in Paris, referring to Tower's share price.
"Our preference would be to try to do some type of a debt vehicle," he said, adding that such debt could quickly be serviced from the gain that expansion would bring.
Tower, a small player in a $20-billion-a-year chip industry, has carved out a niche as a specialty maker of image sensors used in the fast-growing market for medical and dental x-rays, mobile phone cameras and digital cameras, as well as radio-frequency chips and embedded memory chips.
Tower is currently completing an expansion at its Fab 2 plant in northern Israel, which has brought capacity to 24,000 wafers per month from 16,000. It is eventually looking to expand to 40,000 wafers a month but has no solid plan yet.
"We do have demand beyond our present capacity and hence that demand will result in capacity expansion," he said. "Long-term debt, short-term debt, there's a whole variety of things one can go after."
Tower recently restructured its $530 million in bank debt, converting $160 million into equity. The remaining debt starts to be repayable in the second half of 2009.
Noting that Tower has a positive cash flow, Ellwanger said it estimated incremental revenue from the expansion would bring a margin of 65 percent, though even a margin of 55 percent would allow the debt to be serviced easily. Continued...
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