Chipmaker TowerJazz second-quarter profit drops less than forecast, to expand capacity

TEL AVIV (Reuters) - Chip manufacturer TowerJazz posted a drop in second quarter profit as revenue fell due to a price cut for a renewed contract, and said it would invest $100 million (£81.11 million) to expand production capacity at a plant in Japan to meet growing demand.

The logo of Israeli chipmaker TowerJazz is seen at their offices in Migdal HaEmek, northern Israel September 13, 2017. Picture taken September 13, 2017. REUTERS/Ronen Zvulun

The Israeli company, which specialises in analogue chips used in cars, medical sensors and power management, posted on Monday diluted earnings per share excluding one-time items of 24 cents in the quarter, down from 42 cents a year earlier. Revenue slipped to $306 million from $335 million.

This slightly beat forecasts for adjusted EPS of 22 cents on revenue of $303 million, according to I/B/E/S data from Refinitiv.

TowerJazz said its renewed contract to supply Panasonic Corp from their joint venture reduced revenue by $22 million in the quarter due to a price adjustment.

It expects third-quarter revenue in a range of 5% above or below $312 million. Analysts were forecasting $307 million in revenue.

TowerJazz’s shares were up 10.7% to $20.28 in premarket trade on Nasdaq. They have gained 23% since the start of the year.

Due to forecasted customer demand exceeding current capacity at its joint venture with Panasonic in Japan, TowerJazz said it will expand capacity for power management and image sensors platforms and radio frequency chips for mobile devices. It will allocate about $100 million for this with capacity targeted to be installed in the first half of 2020.

“We think 5G will be a very good growth driver for us and maybe starting to be already,” Chief Executive Russell Ellwanger told Reuters.

He also expects to see growth from automotive applications including sensors such as lidar for use in autonomous vehicles and battery management for electric cars.

“If you look at headwinds the industry had during Q1 and Q2, many in our segment had to reguide due to the (U.S.-China) trade wars and we are going through that still showing growth,” Ellwanger said.

Reporting by Tova Cohen; editing by Emelia Sithole-Matarise