Want to see TSEM full AI Analyst Report?
Tower (TSEM) Risk Analysis
Risk Overview Q4, 2020
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1We are a foreign private issuer and, as a result, the public reporting and disclosure rules to which we are subject, and the corporate governance practices that we are permitted to follow, may provide less protection to our investors than is accorded to investors under rules applicable to domestic U.S. issuers.
We report under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as a foreign private issuer, which means we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including the proxy rules and the rules requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form 8-K. We intend to furnish quarterly reports to the SEC on Form 6-K for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act, although the information we furnish may not be the same as the information that is required in quarterly reports on Form 10-Q for U.S. domestic issuers. Foreign private issuers are also exempt from Regulation FD (Fair Disclosure), aimed at preventing issuers from making selective disclosures of material information. Also, as a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Listing Rules of the Nasdaq Stock Market for domestic U.S. issuers. The public reporting and disclosure rules to which we are subject under the Exchange Act, and the corporate governance practices that we are permitted to follow, may provide less protection to our investors than is accorded to investors under rules applicable to domestic U.S. issuers.
- Accounting & Financial Operations - Risk 2We do not typically operate with any significant backlog, which makes it difficult for us to forecast our revenues and margins in future periods.
Our customers generally do not place purchase orders far in advance, partly due to the cyclical nature of the semiconductor industry. Since our expense levels are based in part on our expectations of future revenues, we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls caused by cancellations, rescheduling of orders or lower actual orders than quantities forecasted. Rescheduling may relate to quantities or delivery dates, and, sometimes, to the specifications of the products we are shipping. Consequently, we cannot be certain that orders on backlog will be shipped when expected or at all. We expect that, in the future, our revenues in any quarter will continue to be substantially dependent upon purchase orders received in the immediately preceding quarter or two. We cannot assure you that any of our customers will continue to place orders with us in the future at the same levels as in prior periods. For these reasons, our backlog at any given date may not be a reliable indicator of our future revenues and, as a result, revenue and margins' forecasts, targets and guidance that we provide from time to time, may fall short of expectations.
- Accounting & Financial Operations - Risk 3Our financial results may fluctuate from quarter to quarter, making it difficult to predict our future performance.
Our revenues, expenses and operating results may fluctuate significantly from quarter to quarter due to a number of factors, some of which are beyond our control. These factors include, among others: the cyclical nature of the semiconductor industry and the volatility of the markets served by our customers; changes in the economic conditions of geographical regions where our customers and their markets are located; our ability to conclude and materialize business development and acquisition transactions for capacity expansion; inventory and supply chain management of our customers; the loss of a key customer, not attracting new designs from key customers, postponement of an order from a key customer or the rescheduling or cancellation of large orders; the occurrence of accounts receivable write-offs, failure of a key customer to pay accounts receivable in a timely manner, the financial condition of certain of our customers and the regulatory or other payment difficulties that may be imposed in a region in which customers reside; the occurrence of an unexpected event, such as environmental events, an epidemic or pandemic (such as COVID-19), industrial accidents such as fire or explosions, electricity outage, affecting the manufacturing process and shipping quality products without charging our customers significant additional costs; completing capacity expansions and recruitment of personnel in a timely manner to address product demands by our customers; mergers and acquisitions in the semiconductor industry and their effect on our market share; our ability to satisfy our customers' demand for quality and timely production; the timing and volume of orders from customers; our ability to obtain raw materials and equipment on a timely and cost-effective basis; price erosion in the industry and our ability to negotiate prices with our current and new customers; our susceptibility to intellectual property rights' disputes; our dependency on export licenses and other permits required for our operations and the sale of our products; our ability to maintain existing partners and to enter into new partnerships and technology and supply alliances on mutually beneficial terms; interest, price index and currency rate fluctuations that were not hedged; technological changes and short product life cycles; timing for the design and qualification of new products; and changes in accounting rules affecting our results. Due to these factors and risks, it is difficult to predict our future performance and any fluctuations in future performance from expectations may ultimately negatively affect our operating results and financial position.
- Debt & Financing - Risk 4We may be required to obtain financing for strategic opportunities, which may dilute the holdings of our shareholders and/or require us to incur additional debt.
In order to invest in strategic opportunities in support of our acquisition and capacity growth plans and/or business development activities, or a joint partnership or another large transaction to expand our capacity, we may use our current cash balance, deposits and/or investments in marketable securities or may be required to secure additional funds from financing sources, including through public or private offerings of equity and/or debt and/or re-financing or other financing alternatives. In May 2020, we filed a shelf registration statement with the Israel Securities Authority, following the expiration of our previously filed 2016 shelf, which provides us with a platform for future public fundraisings in Israel, in which case we would publish a supplemental shelf takedown report containing specific information about the terms of any such transaction. The timing, terms, size and pricing of any future fundraising would be subject to the then-prevailing capital market conditions and our business and financial situation. There is no assurance that we will be able to obtain sufficient funding, if at all, from these financing sources or other sources in a timely manner (or on commercially reasonable terms) for said purposes, which may adversely affect our financial position and operations, and any sources of financing that we are able to secure may dilute the holdings of our shareholders and/or require us to incur additional debt.
- Corporate Activity and Growth - Risk 5Reliance on acquisitions and/or gaining additional capacity for growth involves risks that may adversely affect our future revenues, business and operating results.
We may decide to try to attract new customers and expand the existing business with current customers and/ or new served markets by expanding our manufacturing footprint and business through acquisitions and joint ventures, as we have done in the past, and/or through obtaining access to additional manufacturing capacity, with or without third-party collaboration. Our success at such expansion is dependent, in part, on finding suitable partners and targets for acquisitions, successfully negotiating with the seller and/ or partner a reasonable price for the acquisition or engagement, successfully financing and consummating such expansion plans, integrating the acquired facilities into our business efficiently and effectively to achieve desired synergies and anticipated benefits, and loading the facilities in an amount that may at least cover their operating and other costs. We cannot assure you that we will be successful in executing this business strategy or that we will succeed to increase our market presence and attract new customers and business and/or expand business with our current customers through that strategy, in order to operate any such acquired capacity profitably. This strategy involves many risks, each of which may negatively affect our profitability and financial position, including the following: Other foundries may bid against us to acquire potential targets. This competition may result in decreased availability of, or increased prices for, suitable acquisition candidates; We may not be able to obtain the necessary regulatory or other approvals, and as a result, or for other reasons, we may fail to consummate certain acquisitions; Potential acquisitions and execution of an expansion plan may require the dedication of substantial management effort, time and resources which may divert management from our existing business operations or other strategic opportunities; We may not be able to retain experienced management and skilled employees from the businesses we acquire and, if we cannot retain such personnel, we may not be able to attract new skilled employees and experienced management to replace them; We may purchase a company with excessive unknown contingent liabilities and/ or a cost structure that is not as beneficial as anticipated from the preliminary evaluation or that includes high cost that may result in losses incurred by us if we do not succeed in maintaining high manufacturing levels to cover its cost; We may not be able to obtain sufficient financing which could limit our ability to engage in certain acquisitions and strategic engagements; and The amount or terms of financing actually required before and after acquisition may vary from our expectations, resulting in a need for more funding that may not be available to us in order to finance the acquisition, the operations of the target acquisition and/or the acquisition of additional equipment that may be required to increase and/or adjust the target's manufacturing line to address our customer demand and specific technology flows, which may adversely affect our liquidity and balance sheet position.
Risk Highlights Q4, 2020
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 43
- Manufacturing - Risk 1If certain of the integrated circuits we manufacture are defective and integrated into products, we may be subject to product liability claims or other claims which could damage our reputation and harm our business.
Our customers integrate our custom integrated circuits into their products, which they then sell to end users. If these products are defective or malfunction, we may be subject to product liability claims, as well as possible recalls, safety alerts or advisory notices relating to the product. We cannot assure you that our insurance policies will compensate us fully for claims that may be made against us. In addition, we may be unable to obtain insurance in the future at satisfactory rates, with adequate coverage, or at all. Product liability claims or product recalls in the future, regardless of their ultimate outcome, may have a material adverse effect on our business, reputation, financial condition and our ability to attract and retain customers.
- Manufacturing - Risk 2ChangedBecause we may manufacture wafers based on forecasted demand, rather than actual orders from customers, we may be left with excess inventory.
We target manufacturing wafers in an amount matching each customer's specific purchase order; however, on occasion, we may produce wafers in excess of a customer's orders based on forecasted customer demand, because we may forecast future excess demand or because of future capacity constraints. If we manufacture more wafers than are actually ordered by customers, we may be left with excess inventory that may ultimately become obsolete and must be scrapped or sold at a significant discount. Significant amounts of obsolete inventory may have a negative impact on our financial results.
- Manufacturing - Risk 3ChangedThe production lines of our fabs may stop for certain periods of time due to power outages, water leaks, chemical leaks, supply chain or other issues.
There are many events that may occur which may adversely affect the manufacturing process in our manufacturing facilities. From time to time, we experience high utilization rates in certain of our manufacturing lines and/or areas, which cause bottlenecks in production lines that may adversely affect our cycle time, yield and delivery schedule. A power outage, even of very limited duration, and/or water leaks, chemical leaks, shortage of parts or other materials which are required for our supply chain or other issues, may result in a loss of wafers in production, deterioration of our fab yield, cycle time and substantial downtime to reset equipment before resuming production, thereby potentially causing an immediate loss of revenue and profitability in a particular period. In addition, affected customers may elect to transfer their product orders to other fabs. While we try to mitigate any potential damage caused by such events and have insurance coverage, which may compensate us partially or fully against certain types of damages, we cannot ensure that such events will not have a negative effect on the Company.
- Manufacturing - Risk 4Possible product returns could harm our business.
Products manufactured by us may be returned within specified periods if they are defective or otherwise fail to meet prior agreed upon specifications. Future product returns may have an adverse effect on our business and financial results.
- Manufacturing - Risk 5Our financial results may be adversely affected if we are unable to operate our facilities at satisfactory utilization rates necessary to generate and maintain positive and sustainable gross, operating and net profits.
As is common in our industry, a large portion of our total costs is comprised of fixed costs, associated mainly with our manufacturing facilities, while our variable costs are relatively small. Therefore, while during periods when our facilities manufacture at high utilization rates we are able to cover our costs, at times when the utilization rate is low, the reduced revenues may not cover all of the costs since a large portion are fixed costs which remain constant, irrespective of the number of wafers manufactured. In addition, our depreciation costs and capital expenditure investments, as common in our industry, are relatively high. Our financial results, including our gross, operating and net profits, may be adversely impacted if customer demand for our products is not sufficient to enable us to operate our facilities consistently at satisfactory utilization rates necessary to generate and maintain revenue levels that would cover all of our costs.
- Manufacturing - Risk 6ChangedOur fabs' production performance metrics and business could be significantly harmed by natural disasters, particularly earthquakes, and fires.
Our fabs in Israel, southern California and Japan are located in areas which are generally susceptible to seismic activity. Due to the complex and delicate nature of our manufacturing processes, our facilities are particularly sensitive to the effects of vibrations associated with even minor earthquakes. We cannot be certain that precautions that any of our fabs have taken to seismically upgrade the fabs will be adequate to protect our facilities in the event of an earthquake. Earthquakes may lead to fire in the fabs or other material damage. Also, we use highly flammable materials such as silane and hydrogen in our manufacturing processes and are therefore subject to risk arising from fire, which cannot be completely eliminated. Any damage resulting from earthquakes, other natural disasters and fires could seriously disrupt production, cause a loss of wafers in production, deterioration of our fab yield and substantial downtime to reset equipment before resuming production, which could cause a material adverse effect on our business, revenue and profits. Although we maintain insurance policies to mitigate any potential losses that may be caused by earthquakes, other natural disasters and fires, including business interruption insurance, our insurance coverage may not compensate us fully for all of the losses we may incur.
- Manufacturing - Risk 7ChangedWe may experience difficulty achieving acceptable device yields, product performance and delivery times in the future as a result of manufacturing problems.
The process technology for the manufacture of semiconductor wafers is highly complex, requires advanced and costly equipment and is constantly being modified in an effort to improve device yields, product performance and delivery times. Microscopic impurities such as dust and other contaminants, difficulties in the production process, defects in the key materials and tools used to manufacture wafers and other factors can cause wafers to be rejected or individual semiconductors on specific wafers to be non-functional. Although we continuously enhance our manufacturing capabilities and efficiency, from time to time we have experienced production difficulties that have caused delivery delays and quality control problems. Manufacturing issues we may face include difficulties in upgrading or expanding existing facilities; unexpected breakdowns in our manufacturing equipment and/or related facility systems; unexpected events, such as an electricity outage, affecting the manufacturing process; difficulties in changing or upgrading our process technologies; raw material shortages or impurities; delays in delivery or shortages of spare parts; and difficulties in maintenance and upgrade of our equipment. Should such problems occur to a material degree, we may suffer loss of income, loss of reputation and/or a loss of customers, any of which may adversely impact our business, revenues, financial results and financial condition.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.