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Tower Semiconductor Ltd
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Ladies and gentlemen, thank you for standing by. Welcome to the Tower Semiconductor Fourth Quarter and Full Year 2020 Results Conference Call. All participants are currently present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, February 17, 2021.
Joining us today are Mr. Russell Ellwanger, Tower's CEO; and Mr. Oren Shirazi, CFO.
I would now like to turn the conference over to Ms. Noit Levy, Senior Vice President of Investor Relations and Corporate Communications. Ms. Levy, please go ahead.
Thank you and welcome to Tower Semiconductor financial results conference call for the fourth quarter and full year of 2020. Before we begin, I would like to remind you that some statements made during this call may be forward-looking and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our forms 20-F, F-4, F-3 and 6-K filed with the Securities and Exchange Commission, as well as filings with the Israeli Securities Authority. They are also available on our website.
Tower assumes no obligation to update any such forward-looking statements. Please note that the fourth quarter and full year of 2020 financial results have been prepared in accordance with U.S. GAAP. The financial tables and data in today's earnings release and in this earnings call also include certain adjusted financial information that may be considered non-GAAP financial measures under Regulation G and related reporting requirement is established with the Securities and Exchange Commission. The financial tables include the full explanation of these measures and the reconciliation of these non-GAAP measures to the GAAP financial measures.
Now, I'd like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.
Thank you, Noit. I welcome everybody to our 2020 fourth quarter and fiscal year business and financial results. Thank you for joining our call.
We finished 2020 with revenues of $1.266 billion, representing year-over-year 3% growth and 5% organic growth. We entered 2021, having completed a very strong fourth quarter with revenues of $345 million, having exceeded our mid-range guidance, which represented an 11% fourth quarter year-over-year total growth and 20% organic growth, with resulting EBITDA of $95.8 million, a net profit of $31 million.
We continue to maintain a healthy balance sheet that fully supports and enable us to add value, while capitalizing business opportunities to facilitate future growth. We are guiding the first quarter to a mid-range of $345 million, counter to the typical Q1 seasonality, which will represent a year-to-year 15% total growth, with an organic growth of 20%. In addition, from this $345 million revenue base, we expect sequential quarterly revenue growth throughout 2021.
Looking at the revenue breakdown, we'll first discuss the end markets and give numbers to the best of our ability knowledge, regarding the end markets RICs are serving. Infrastructure revenue, which predominantly is our RF optical, with a certain amount of advanced discretes, was at about $230 million.
Wireless was approximately $425 million. Automotive was $180 million, which we serve with power ICs, power discretes, imaging and RF radar. Consumer, including computing, power management for home appliances and general accessories, and home-use security cameras was approximately $220 million. Industrial was approximately $100 million. Image sensors for high-end photography and medical applications, was at about $50 million.
Aerospace and defense was also at about $50 million. And there is an additional of about $10 million of devices that we sold that will be divided among the end markets that I've spoken to, but for which we don't have the granularity to break down further. Analyzing the revenue by technology platform for our three corporate focus being seamless connectivity, green everything and interactive smart system.
The breakdown is as for follows. Seamless connectivity, which for us is RF infrastructure and RF signal for mobile platforms, total to approximately 36% of our corporate revenues or about $450 million. Mobile was $280 million a 22% 2020 over 2019 growth. Infrastructure which is silicon germanium based, including the initial silicon photonic trial was approximately $170 million, a 15% year-over-year growth.
Green Everything, our contribution being energy-efficient power management ICs and power discretes was approximately $405 million or 32% of our corporate revenues. Power management ICs were $195 million, flat year-over-year, however 25% up organically. Power discretes totaled to $210 million, a decrease of 12% year-over-year.
Interactive Smart systems which relates to our image sensors and non imaging sensor offerings, represented about 18% of our corporate revenues at about $230 million, having realized a 7% growth in 2020 despite significant contraction in medical predominantly stitched large die dental sensors. The rest of our business of about 14% of our corporate revenue served various mixed-signal CMOS technologies, mainly computing and specialty memory applications.
Looking at our activities in our different business units. Within our Analog business unit, our silicon germanium infrastructure business, which provides technology for advanced optical transceivers, where we enjoy greater than 60% market share, experienced double-digit growth in 2020 versus 2019. Customer forecasts continue to show this elevated level of demand to be sustained through the remainder of 2021.
In the next several years, there's an expected industry growth of data traffic of about a 15% CAGR. Our opportunity is to mirror this growth and benefit from both the continued rollout of 5G infrastructure, which drives demand for a 25 gigabit per second transceivers in telecom networks and by data center build-out, which drives demand for 100 through 800 gigabit per second transceivers.
At 400 and 800 gigabit per second, we also anticipate increased adoption of our silicon photonics platform, further increasing our footprint in the optical market and providing new opportunities for growth. As previously mentioned, we are well positioned in this market, having already announced a partnership with Inphi for which we began volume production, and we additionally have over 30 customers engaged with us at various stages of qualification and development.
Last month, we announced participation in a DARPA program, developing a cycle platform with integrated lasers further differentiating our capabilities in this emerging market. Our mobile business, which provides components for our front ends and handsets, grew as mentioned over 20% year-over-year, due to a combination of increased market share, overall market recovery and the beginning of a transition to 5G handsets. Growth was broad-based and included ramps of our newest 200-millimeter and 300-millimeter technologies as well as very strong demand for existing offerings.
Forecast for mobile are strong for 2021 and we expect that 5G handsets, which as previously mentioned require 30% to 50% more RF content, will increasingly replace older models over the next few years, creating a sustained opportunity for growth in this market.
Our Power IC organic business grew 25% in 2020 over 2019, through gains in market share both at 200-millimeter and 300-millimeter across a wide range of voltages and applications. We see increasing demand for power management ICs in multiple applications including hybrid and electric vehicles, as well as consumer e-bikes, computing and industrial applications.
In 2020, we released a breakthrough Power IC, 200-millimeter technology Gen6, which is now prototyping with multiple customers. This technology offers over 35% power efficiency improvement and/or equivalent amount of die-area reduction at 24-volt operation through an innovative transistor design. This new technology complements our platform leadership positions at lower voltages with our previously announced 65-nanometer BCD or 300-millimeter process and at higher voltages with our recently announced 140 Volt RESURF and 200 Volt SOI technology. As validation to the value of these power platforms, customers are approaching us for long-term volume contracts for which we have already signed one significant one. Looking at power discretes, we see strong recovery from most customers included but not limited to our Tier 1 MOSFET customers.
Moving to our sensors and display business unit; first to discuss CMOS image sensors. In the past quarter with OPIX, we introduced a state-of-the-art indirect time-of-flight iToF imager with unparalleled performance and accuracy and sensitivity. Based on OPIX measurements, the sensor 17 accuracy are better, meaning higher level, higher performance than the two otherwise industry-leading iToF sensors in the market.
This sensor will enter volume production in the second quarter of this year. It is planned to be embedded in smartphones and other devices for face recognition and 3D imaging applications such as fast autofocus and artistic picture focused blurring effects. The sensor is based upon our unique pixel level stacking, state-of-the-art platform with the best in industry less than 2-micron electrical connection pitch.
During last year, we engaged in several programs of large x-ray sensors, some already having moved to production. Our differentiation in this market is in pixel performance, especially sensitivity and linearity and in yields.
For 300-millimeter, we are the only foundry to supply switch sensors, in mass production. 300-millimeter tooling enables very high yields. And very importantly, a design advantage to manufacture a full, 21 centimeter, by 21 centimeter detector from one wafer and hence eliminating, the need for expensive wafer tiling.
Our next-generation industrial sensors on 300-millimeter, using our state-of-the-art global shutter pixels are also ramping into mass production. Our pixel size of 2.5 micron is the smallest in the world. We provide high-resolution sensors, with current maximum resolutions of 288 megapixels, with excellent sensitivity and shutter efficiency, for the display screening market.
We expect to see many of these new machine vision sensor products, based on our 65-nanometer, 300-millimeter platform, ramped to production this year. The industrial market continues to grow steadily. And we expect to see nice growth of these high-resolution sensors, tens of millions of dollars, at a high margin. The lifetime of such products is long, five to eight years.
So we expect, high margin, steady business based on these products. If we look at for example one such industrial sensor market, manufacturing lines for TV, laptop, smartphone, among others, there is a need for display inspections which drives a large demand for very high resolution, fast global cheddar sensors, that meet the tight form fact requirements of the optics, perfectly matched to our high performance smallest in the industry 2.5 micron global shutter pixel.
Alongside, the new 300-millimeter product adoption, we see notable increased 2021 forecast, for our existing 200-millimeter advanced platforms. The imaging area that for us was hit the hardest by COVID was dental X-ray. We are encouraged to see an initial increase in purchase orders and customer forecasts, now show second half of the year fully recovering, returning to pre-COVID run rates.
Moving to non imaging sensors and displays, there are three end markets that we are focusing on. For each of these, we chose a customer development partner, who has a differentiated capability. In the MEMS area, we are entering the MEMS microphone market. This is a fast-growing market, with microphones being embedded not only in ear buds and cellular phones, but also in many command operated devices.
Speech recognition AI is being used in such devices. For high fidelity speech recognition differentiated performance of high dynamic range and low-noise microphones are needed. We entered this market, with a partnership with GMEMS, as press released in Q4 2020. And we are in the initial production ramp, at are moving forward on developments for the best-in-industry, signal-to-noise figure of merit.
MEMS microphone is a large new serve market for us, reported to have been a $1.2 billion market size in 2019, with analyst projections of $1.7 billion in 2024. The display market is undergoing a dramatic change from LCD based screens led backlighting, into micro LED or micro OLED displays, allowing substantially higher dynamic range with true black and higher brightness.
In entering this display area, we announced our partnership with Aledia. This partnership continues well, with developments in preparation for mass production of their unique Gallium nitride nanotubes based micro LEDs which offer unique figure of merit superiority, at substantially lower cost, than existing volume manufacturing solutions.
In addition, we continue forward with our technology development of CMOS backplane, for stitched large die micro OLED array for the virtual reality market with a significant market leader.
Moving to utilization. Our customer base continues to grow. The demand of our customers existing and new continues to grow and grow strongly. This is good validation of the value of the previously described technology offerings. To meet this increased demand we are investing $150 million to increase our capacity, as well enable some existing capacity to serve new higher-margin offerings. We are investing in Tonami Fab 5, 200-millimeter, Mal hemic Fab 2, 200-millimeter; San Antonio Fab 9 200-millimeter and an additional investment in our Uozu Fab 7, 300-millimeter site.
These expansions will have the potential of adding about $150 million of revenue on an annual basis once fully qualified and utilized. We will begin to see some incremental revenue benefit in the second half of 2021 targeting full revenue capacity during the first half of 2022.
Fourth quarter utilization levels were as follows: Migdal Haemek Israel Fab 1, our 6-inch factory was at 64% utilization. Fab 2 is at 76%. Newport Beach Fab 3 was at 75% utilization. Our San Antonio Factory Fab 9 was at 67% utilization. Looking at our T Fabs in Japan utilization for the 8-inch foundry business is at about 65% rate. And our 12-inch foundry business was at about a 90% rate.
With that I'd like to turn the call to our CFO Mr. Oren Shirazi. Oren?
Thank you, Russell. Welcome everyone to our call and thank you for joining us today. We will start fourth quarter 2020 results today demonstrating double-digit percentage quarter-over-quarter and year-over-year revenue growth, as well as very strong margin growth and balance sheet financial indicators. We also announced today a new $150 million capacity expansion plan that we initiated in 4 of our 7 publications focused on our 8-inch and 12-inch facility then due to our customers' demand forecast that are exceeding our current capacity.
I will now move to our fourth quarter and full year P&L highlights and then discuss our balance sheet and cash flow financial statements. Revenue for the fourth quarter of 2020 was $345 million reflecting 11% revenue growth as compared to $310 million in the prior quarter and 13% revenue growth when compared to $306 million in the fourth quarter of 2019.
Looking at our organic revenues which are defined as total revenue excluding revenues from Novellus Japan, previously Panasonic semiconductor and excluding revenue from Maxim in our Fanconi Fab, revenue in the fourth quarter reflects 20% quarter-over-quarter growth and 17% year-over-year growth.
Gross and operating profit for the fourth quarter of 2020 were $70 million and $33 million respectively, $17 million and $14 million higher than in the prior quarter respectively and $15 million and $14 million higher than in the fourth quarter of 2019 respectively.
Net profit for the fourth quarter of 2020 was $31 million or $0.20 basic earnings per share or $0.28 diluted earnings per share which is $16 million higher as compared to net profit of $15 million in the prior quarter. EBITDA for the fourth quarter of 2020 was $96 million, $17 million higher as compared to $79 million in the prior quarter and $21 million higher as compared to $75 million in the fourth quarter of 2019.
For the full year of 2020, revenue was $1.266 billion, $32 million higher than in 2019 and gross and operating profits for 2020 were $233 million and $91 million respectively as compared to $230 million and $87 million in 2019 respectively. Net profit for 2020 was $82 million, representing $0.70 diluted earnings per share, as compared to $90 million net profit or $0.84 per share diluted in 2019.
We also announced today a new capacity investment plan of $150 million in the majority of our facilities due to customer demand forecasts that are exceeding our current common capacity capabilities. The investment is expected to be made in the coming 12 months in our Fab 2 facility in Israel, Fab 9 in Texas US; Feb 5 in Tonami Japan; and Fab 7 in Uozu Japan.
The equipment will begin to have incremental revenue impact during the second half of 2021 and targeted to be fully qualified during the first quarter of 2022. We believe the CapEx payments will be mostly made between mid-2021 and the first quarter of 2022.
In addition in relation to the buildings and facilities that are used by us for TPSCo’s manufacturing, the lease contract for such building facility was extended for at least 2032. This lease contract extension resulted in an increase in fixed assets and liabilities of approximately $60 million recorded in our balance sheet under US GAAP ASC 842 named leases.
I would like now to describe our currency hedging activities. In relation to the Japanese yen, since the majority portion of TPSCo's revenue is dominated in yen and the vast majority of the TPSCo's cost costs are in yen, we have a natural hedge over most of our Japanese business and operations.
In order to mitigate part of the remaining yen exposure, we execute zero cost cylinder hedging transactions. These transactions had hedged currency fluctuations to be contained in a narrow range as compared to the spot exchange rate. Hence, while the yen rate against the US dollar may fluctuate, the impact on our margins is limited.
In addition in relation to the Japanese yen impact on the balance sheet, we have a natural hedge on JPY cash and JPY loan balances due to the extent -- to the extent the loan amount does not exceed the cash amount. This helps to partially protect us from potential impact of yen fluctuations.
Lastly, in relation to fluctuation in the Israeli shekel currency, we have no revenues in this currency. But since approximately 10% of our costs are denominated in Israeli currency and we have some liabilities denominated in niche, we also hedge a large portion of this currency risk by a, engaging zero cost cylinder transactions to mitigate exposure resulting from our shekel denominated costs; and b, investing a portion of our cash in Israeli market securities denominated in the Israeli currency to mitigate exposure resulting from the shekel denominated payables and accruals.
Looking at the balance sheet, we present a strong and stable financial position. Property and Equipment increased from $682 million as of December 31, 2019 to $839 million as of December 31, 2020. The increase is mainly due to a the 12-inch fab capacity expansion program we announced already in July 2019, which equipment mostly arrived during this year – during 2020; and b, approximately $60 million recorded following the extension of the lease contract of TPS for the building and facilities in Japan, as assets and liabilities under US GAAP ASC 842 as explained before.
Short-term and long-term debt balance in the balance sheet increased as well from $312 million as of December 31, 2019 to $390 million as of December 31, 2020 mostly due to the signing of the extension of the building and facility lease contract in Japan. As described before, this lease is treated as a capital lease, thereby increasing fixed assets and liabilities by approximately $60 million net.
Our shareholders' equity reached a record of $1.45 billion. Our cap table consists of 108 million outstanding ordinary shares and an additional two million ESOP-related shares, resulting in a fully diluted share count of $110 million. Current assets ratio, defined as current assets divided by short-term liabilities was 4x.
And the last note on our cash flow report. In the fourth quarter of 2020 cash flow generated from operations was $73 million. Investments in fixed assets mainly for manufacturing equipment were $64 million, which included investments to increase our 12-inch fab capacity in Japan.
In addition, we repaid $8 million of our debt during the fourth quarter of 2020. For the year 2020, we generated $277 million cash from operations. We paid $64 million of debt and we invested $257 million in fixed assets, mainly for the purchase of manufacturing equipment, including investments to increase our 12-inch Fab capacity in Japan under our release from July 2019.
And now, I wish to turn the call back to the operator. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Rajvindra Gill of Needham & Company. Please go ahead.
Congratulations on all the great results exiting the year. Russell on the $150 million CapEx, incremental CapEx investment maybe you could talk a little bit about the supply demand environment this earnings cycle across semis capacity is extremely tight. Demand has come in a lot faster than expected. And so the industry is scrambling across the board to increase capacity. So obviously, you're putting $150 million to increase the capacity. I'm just wondering, what your thoughts are on the current supply demand environment. What was kind of the basis of the $150 million? Any thoughts on – do you think that should be enough to meet the surge in demand that's happening across your business?
Well, certainly, the investment is triggered by an increase in demand. We have a model, as many companies will or do, to have a prescribed ROI off of investments that we make, $150 million investment would obviously mean that we have it pretty spoken for.
The environment, you are correct, is a very strong demand environment. That environment makes things sometimes challenging. It also gives opportunities, as you're making decisions off of an increased demand, we have some opportunity and benefit in that that increased demand is off of a good revenue base where the factories were not fully utilized. So there is open utilization right now that can be used to grow revenue.
And as you're looking at that, you always have to have, I think, a loyalty to customers and their previous run rates. But on the increase in demand, over time you move that towards a different mix, like not the previous run rate, but the incremental against previous run rates, to where you would favor those that are going to be giving a higher margin and that's a good thing.
So not just the fact of an increased demand, but as we continue to release new platforms the increase of demand is against a nominally higher margins. We expect that in the any time that you have a ramp itself, to ramp costs money. And for many, many reasons you're increasing headcount, your increasing other incentives, you're increasing your supply. So you don't see necessarily an immediate margin increase. In fact, maybe to the opposite, you see a margin decrease as you start a ramp.
But come in the third fourth quarter, through both increases in utilization as well as the ability to favor higher ASP mixes, we believe that we'll see a very, very nice margin increase the fourth quarter, that would maintain, as we then continue the -- not just utilization, but utilization capacity increases, that will come through this $150 million investment. So, hopefully, that answers your question. I think it's --
Yes, it does. No, that's helpful. And so, to the margin point, Oren. So as the utilization rates start to kind of move up as you fill the fab. And to Russell's point, you will be kind of migrating higher margin in process flow, but you'll be mix shifting to higher ASPs and higher process flows.
How you are thinking -- how are you thinking about the gross profit fall through kind of metric? You talked about 50% to 55% on incremental revenue. Is that -- do you think that would be going up as you go to the third quarter and fourth quarter? Any thoughts on the kind of gross margin?
Yes. So, I believe, as Russell indicated, I mean, firstly yes on the long-term plan we should see the 50% incremental margin, maybe starting Q4. Maybe a little bit Q3, but for sure starting Q4, because, like Russell indicated, there should be time now that we are increasing our maybe employee base, our cost, our working capital in order to be ready for that significant ramp that we are facing with the additional equipment, of course, comes a maintenance contract and things like that.
So those tools, like mentioned by me and by Russell in the call will arrive in the coming 12 months. But until we'll be qualified, it will take a few quarters and we'll contribute to the revenue. So for sure, Q4 or Q1, you will see the 50% incremental margin. For the coming quarter or two you will still not see that of course.
Okay. So for the first couple of quarters of this year, we should be thinking about below 50% kind of gross profit fall through until these things get qualified and then getting above 50% kind of Q3, Q4?
Yes. Yes. Certainly, Q4 yes.
Certainly, Q4. Okay. And then on a question Russell on the end market, you're seeing a nice recovery in power discretes, which was down as you said 12% year-over-year. And 2020 -- so any kind of specific color on what's driving kind of the rebound in that? Is it by region? By end market? And then another follow-up just on the automotive kind of shortages that are impacting auto production. Any thoughts on how that might be affecting your business? Thank you.
So as far as the discrete itself, we see Q1 an increase in discrete against what we had in Q4. We see continued and reasonable increase in Q2 and in Q3 and Q4 staying at a good rate. The -- my belief is that, one of the big reasons for the discrete drop that was quite severe in the previous year was that a lot of discretes are served through distribution centers and distribution centers are by model in good times, they have quite a bit of inventory because their only differentiator is being able to supply parts where they're asked for. I believe that distribution centers react more quickly than anyone else. Whenever there's bad news and maybe overly correct when there's bad news.
So if you have our customers that have a big portion of business going to distis that will always overcorrect. I think that that's one reason that there was such a big drop in discrete. But other than that I didn't necessarily have good reasoning for discrete's dropping as our power management itself did not drop. And I think that they more or less go hand-in-hand and in market. So -- but that's what I believe was the reason for it. And it's coming back now. We'll -- the distribution centers go to the inventory levels that they had before I don't know. But we do see that snapping back.
However, I am not saying that discretes are presently in Q2 at the same levels as they had been in previous years. It's still not back to those levels. But it is up against what we were seeing in 2020. The other areas where we had been down in 2020. And as I had stated previously the dental sensors are coming back in full force. And that we see a very nice increase in POs and forecast that bring us back at least back to pre COVID times and potentially maybe even beyond.
On industrial sensors we had seen an impact even before COVID, mainly driven, I think through some trade wars and decrease of some manufacturing lines being built for, which obviously industrial sensors are used for and industrial sensors are -- they're humming right now.
So I think maybe one of the beauties that I think of is that we've -- in our own business where we had growth in many areas last year and those levels that we had achieved through the growth will maybe continue or at least stay at that same level as we have been.
The all areas that were down last year are either fully recovering or recovering to a reasonable extent. And that's a good thing when you have a fourth quarter that has a 20% organic growth year-over-year. And within that you still have certain weaknesses. And then on top of it to have that base entering into the new year, and have the weak portions that are returning and the forecast of growth. That's a very nice position.
Combination, yeah.
It ties into your first question as well about how confident are we on the demand. That's the reason for confidence in the demand.
Okay, great. Thank you. Appreciate it.
The next question is from Achal Sultania of Credit Suisse. Please go ahead.
Hi, good afternoon Russell and Oren. Maybe a couple of questions from my side. First on the demand, obviously, we are actually seeing demand recovery across all end markets, which is pretty obvious. So clearly your outlook for the rest of the year seems pretty confident, what I'm trying to understand is how much within that outlook can we assume for some new projects or customer wins that you're probably working on? And could that be a meaningful contributor as we go into the second half of this year? And maybe if you can shed some light on those specific areas, I think you mentioned iToF as one of the projects that you're working on, but I'm just trying to understand what are the new things that you're working behind the scenes? That's one.
And the second one is on CapEx. Obviously, you're spending this $150 million, which is going to be spread over this year and probably next year. So just trying to understand how should we think about the CapEx number for this year? And if your old model of $45 million per quarter of maintenance CapEx is still valid and what does that mean for full year 2021 CapEx? Thank you.
Okay. So on the last part of the question, Mr. Shirazi will address that. On the first part of the question, I don't know that we have anything behind the scenes that we're working on that I would mention right now. The things that I mentioned for a reason there may be too premature to mention. But those things that we have mentioned that are big growth drivers in the company one for sure is silicon photonics.
If we look at the 2019 to 2020 revenue, increase was substantial by percentage not substantially amount of millions. If we look at the 2021 to 2020 forecast, it's remained substantial in percentage and becomes meaningful in millions as well. And then as you would look into 2022 and beyond, obviously, as I stated, maybe I'll be as off of what I stated. In addition to Inphi where we press release going into volume production we have 30 other customers. And that's quite a big customer base to be having -- working on the forward movement of a silicon photonics platform that really complements an area where we already have a 60% market share. So I think that that's definitely very strong.
If we look just at the silicon-germanium itself, we have multiple generations of silicon-germanium. I talked about the two different areas one being areas that is being driven by 100 gigabit per second to 800 gigabit per second capabilities. And I think that that's quite a big area with new platforms.
So our what we call H5 platform, which is our highest speeds click in germanium many customers taping out to it those that had taped out to it are now going into higher volumes that getting qualified. So as far as the growth there's certainly growth in new platforms. And that I think is one of the strengths that we always look at is having a very, very aggressive road map tied with our customers as to what our customers are going after and needing.
If we look at our RF-SOI, the 65-nanometer platform we've released a more advanced platform and worked with customers actually to have a very, very good LNA tied to that platform. So we're always doing more developments. Is that necessarily new? It's certainly a new platform that customers are taping out to and designing and working forward to where there's very, very demand and all of that becomes very exciting.
If we look at the number of mass sets in Q4, it was probably the highest ever in the company history. So there's certainly many new tape-outs going on, but they are mainly off of the activities that we've been talking about. iTOFs should start growing in this year. Will it become an absolutely significant portion of revenue for the company this year? No, I mean it will not. Is it in and of itself a significant advancement and a base of what can grow in the future? Definitely. So - -but across the board, we have many, many things that are happening.
If we look at the non-imaging activities that I spoke to one area really that has grown already and will continue is what we're doing in MEMS -- in the MEMS microphone. As I mentioned very specific customers and when I didn't give the name but it's -- I certainly won't speak to the forecast of a given customer.
And when we're entering new markets and state that we have it those specific three markets tied to certain customers and very differentiated platforms. It becomes a little difficult to talk about the degree of growth that we're expecting in it because it's information that obviously then goes to them and it's really their volumes. It's not my volume. It becomes my volume, but it's their market.
So -- but certainly what we think Aledia is a very, very strong opportunity. We think that the VR opportunity we have is extremely strong. And honestly it can be very, very significant volumes. And what we're doing with the MEMS microphone, we think is already strong and will continue to grow. So across the board if I talk about power management, we have a huge amount of activity happening in power management. And this is as I say that with Gen6, you either have greatly improved performance got the same die size or a person can have a much cheaper wafer because of the reduction in die size because of the performance of the Gen6 platform.
So, I -- again if I state that -- and I didn't say it in the call but we did have the highest number of assets in Q4. There's obviously then a lot of new activity that customers are doing designing to existing advanced platforms and designing to new platforms that will be driving growth. So, hopefully that answers your question.
Yes. No, that's very helpful. Russell.
Yes. On the CapEx question. Yes. So I believe I said in the script that we believe that the CapEx payment will be mostly made between middle of 2021 and the first quarter of '22. So you may assume that most of it I don't know $90 million or $100 million from that or even more will be paid in those three quarters Q3, Q4, and Q1. So, maybe you want to assume $30 million in each one of them.
And there will be some that needed to be paid Q1, Q2 as payments towards facility and towards the first payment of the tools, but it will not be significant. So, if you ask me about the total forecast, I believe it should be -- Q1 should be back to the levels that we see -- we saw before this year at the $45 million per quarter, which we had before the other expansion could be slightly up to $49 million or $48 million not more than that; same for Q2, $45 million to $49 million; and Q3 and beyond should have an additional maybe $30 million per quarter for CapEx. So, eventually until Q1 2022, maybe slightly some pushouts to Q2 2022, we will exhaust the $150 million.
Okay, that’s clear. Thanks Oren.
The next question is from Cody Acree of Loop Capital. Please go ahead.
Thanks for taking my questions and congrats on the progress.
Cody, thank you.
Hey. The capacity constraints that you are seeing do not quite work out in the numbers that you gave us for utilization rates. I would have expected those rates to be higher. Is there just a timing issue, or are you strategically setting aside capacity for what you now are seeing in your visibility to be much higher demand coming? I guess why is the utilization rates reasonable but not seeing that from others.
I don't necessarily understand the question. The utilization rates were the utilization rates the demand is very, very high. That goes beyond our 85% model. So, one would expect and as I stated that there is room for growth above the utilization rates that I stated because they were not at 85%.
Now, some of the CapEx that is being invested really is to address mixes and to be able to do higher margin mixes. Some utilizations are a little bit low because we report utilization and a very, very objective way and it's against photolithography capability. And I've stated that multiple times that every line because you're running different mixes in the line has other bottlenecks that are not necessarily photo capability. So as you're increasing demand part of that CapEx is to enable a freeing of bottlenecks so you can maximize the photolithography itself.
And that's part of this CapEx investment is as we're evolving as for the previous question, new platforms are coming out you want to change the mix capability of the factory. So some of it is changing mix capability, but we are also adding photolithography within this $150 million investment and not an insignificant amount of photolithography either. So a lot of the CapEx that we're investing is to enable existing lithography to do different mixes and additionally adding more lithography to it. Does that answer your question Cody? Hopefully it does.
It does. Russell. Thank you very much. Let's see the strength that you're seeing across the board could you give us any quantification any color to stratify the end markets that you see as most in the highest demand and the most constraints? And then I guess just with automotive likely in that list, have you been able to massage capacity toward that in market demand maybe outside of what you would -- how you would normally shift per customer need?
We have very few customers that we ship to that are 100% serving automotive. So it's in the demand that we have from our customers within whatever their run rate is, whatever their allocation is, they really have the decisions themselves to move it to automotive or not move it to automotive. We don't make very much decision on that, if we're going to give more or less to automotive because we don't necessarily have other than one customer that I can think of we don't have any customers that I would say everything we ship to them is for automotive. So that really does more or less stand in their mind. It's not a decision we make.
Now as far as the end markets, in the near-term we have very, very strong demand for 200-millimeter RFSOI what we call our QT9 platform. We have very strong demand for 300-millimeter of RFSOI and we have very strong demand for power management both really extremely strong demand to 200-millimeter and strong demand as well as 300-millimeter. So in the short-term, those are very, very high demand.
In the mid to long-term, we have very big demand within image sensors and the others maintain the -- but when I say short-term, I don't mean that it ends. But the biggest short-term demand is really in the area of RFSOI. As far as demand increases it's RFSOI and power management. And then in the -- into long-term I would add the image sensor into that.
Great. Thank you very much guys.
At least the image sensors business unit so image sensor in displace.
Yes.
Thank you, Cody. It was good question.
The next question is from Natalia Winkler of Jefferies. Please go ahead.
Hi, Russell. Thank you for taking my question. So I was wondering if you can give us some color about the split of the new capacity that's being added between 200 and 300 millimeters. Like how do you think it would roughly fall between these two?
And then as we think about the total new revenue max for TESM, I think our estimates before this were about $1.6 billion. And now you're saying that this new capacity would add about $150 million per year. Is it fair to just kind of sum up these numbers and then think of the total as a sum of these?
The second part of the question I'll have to think about for a minute. I -- the $1.6 million was before we had a reduction in the Panasonic contract that we had released last year right, so I don't know that you're dealing off of the correct base at this point.
But -- and I'm sorry the first part of the question, it was a 300-millimeter to 200-millimeter split. The bulk of it is 200-millimeter. As discussed previously, we added last year about -- we invested last year about $100 million for 300-millimeter capacity increase. And we're giving an additional multiple tens of millions of 300-millimeter, but the bulk of the investment is 200-millimeter.
Understood. That's very helpful. And then as we think about kind of longer-term, longer-term beyond 2021 in terms of how you would see to expand your capacity further. I was just trying to understand if there's kind of room for you to continue with organic expansion, or if at a certain point you may be reaching kind of the max that you can add organically at 300 or 200-millimeter fabs?
It's a very, very good question. 200-millimeter, we have a reasonable amount of leeway that's a question of working out whatever peripheral agreements one would wish to have or could have to increase the manufacturing footprint in our San Antonio factory. San Antonio sits on over 100 acres of land that we own. And it's a beautiful facility, a very well-run facility. So we have, if you will an infinite amount of build out capability there.
It's simply a question of striking the right agreements to grow. And I'm not trying to speak out of turn here or whatever, but it's pretty obvious and some of the questions about automotive. There's a lot going on right now in the US legislation with regards to bills, infrastructure bills, CHIPS Act, et cetera.
And there becomes questions then about how proactive the government wishes to be in order to build capabilities onshore, and if we would be the right partner for them to start doing that with. So that's as far as 200-millimeter footprint, honestly. we have huge opportunities to grow with adding additional clean room space. Some of that would be converting maybe gray area into wide area, others is really adding additional buildings. So San Antonio is a prime spot that I would say, we have, if you will infinite expansion capability providing that the investments can get the right ROI. And that becomes – to a degree what – what and how much the government will wish to partner on that.
I think one thing for sure is that, the automotive needs become very, very big in the US and very specifically San Antonio does a lot of automotive manufacturing. So it sits really in the core of what the US wants to get done. San Antonio is also a place that we have put our advanced silicon germanium flows as well, which for RF communication is a very, very big deal for the United States.
So we'll see. But to answer the 200-millimeter, we really have more or less potential for unlimited growth depending that the ROI becomes proper to do it and ROI is always a good decision. On a business model and a financial model growing something organically is very, very good on a margin basis, because you have a lot of fixed cost that's already absorbed in that factory or a set of factories. So that's always a good thing on the long term.
The question is the upfront investment and how much do you have to do and then depreciate, and if there is abilities to partner with the government that becomes obviously advantageous maybe for both people. Okay. On the other side, the 300-millimeter, we still have capability to grow in our existing facility in Japan. However, any growth at this point beyond this incremental new investment that we're doing will necessitate facilities work as well, and facilities work becomes expensive. So within 300-millimeter, there is ability to grow. The growth is not unlimited. And it becomes a question of the ROI is doing facilities work for some finite additional growth versus the potential of doing a deal outside of organic growth.
If I may add, Russell, organically we can also add not much, but we can add in Fab 2 and in Tonami.
Yeah. And we are. That was part of the year.
Yeah, but in addition.
In addition correct. I'm sorry. That is correct. And we have plans beyond this investment we're talking about to grow Tonami as well, without needing to do facilities were. That's correct. But not unlimited.
Yeah, not infinite.
Thank you very much. That's it for me.
That's good question. Thank you.
The next question is from Richard Shannon of Craig-Hallum. Please go ahead.
Hi, Richard.
Hey, Russell, how are you?
Good. Thank you.
Great. I guess a couple of questions on a similar theme here. You gave us some numbers about growth in a few different application markets. And if I got the numbers right, you said, mobile was 22% growth last year power ICs at least organically it was 25% and then you had silicon germanium/infrastructure at 15%. You seem to be talking fairly positively about all those markets here. How would you see growth in each of those markets relative to those – that performance you had last year? Are they similar better or worse? How would you characterize those?
I specifically didn't state. I stated that, we'll have growth in the company throughout the year. And if I look at those markets, itself and was going to speak to it, let's see. I think, we'll maintain growth in silicon germanium, a as I stated earlier a very, very good growth in FIFO. We'll continue growth in power. And we'll see, certainly year-over-year growth within discrete. So I -- but -- and RFC Mall will also continue to see, I believe, strong growth. But I didn't get to and didn't really want to -- I didn't wish to give numbers.
Okay. That's fair enough. Maybe in one of those areas in RF, you talked about gaining share. Do you still expect to gain share in 2021?
Yes, sir.
Okay. And where do we sit in share right now? Is this -- do you have a majority of the market you think, or getting closer to that?
I'm sorry, the question one more time, please Richard? I …
Again on, RFSOI, you said you're gaining share, where do you sit with share today? Are you at or close to a majority there?
There's multiple players there. I think, we're probably sitting somewhere in the mid-20s.
Okay. All right. That's helpful. And then, in silicon germanium, do you expect 400-gig to be a material contributor to sales this year, or is it more in 2021?
Well, 2021, is this year.
I'm sorry, 2022 sorry.
Yeah. Yeah. We're starting to see a growth in 400 which, obviously, it's not a 400-gig chip. It's a four by 100 or an eight by 50.
Right.
But, the little grows stronger. What I think the big deal is that, we don't see a decrease in the 100.
Okay.
And it figures that the, 400 growth is not cannibalizing the 100-gig baseline.
Okay. That's helpful. One last question for me, I suppose we could address this to all of your kind of new areas of growth. And you identified a few of them in the non-imaging space like, like micro LED. When do you see that opportunity kind of blossoming here? And as you said, you've kind of selected a first partner to help work in that area.
To what degree is the work done there, or customer engagement there, more broadening to see that pipeline grow, where we see micro led becoming a really big deal. And I don't know one to three or four years. How do you look at that?
Well, we know that customer, as I mentioned, again, today our customer there is Aledia.
Yes, sir.
And as I stated, I really don't want to talk about Aledia's guidance to us. Number one it's not proper for me too. As far as micro LED, I think it's the right way to go. I think down a wire is a very, very exciting technology. I think that Aledia has an incredible technology and very strong differentiation.
But will micro LAD grow? Certainly, is it on 2021? I don't think so. Is it 2022? I think that that will start. And I think 2023, 2024 will be very big, or will become very big during those years. But I don't think 2021 is going to be huge at all for that but I think it will start to grow in 2022 and will become significant in 2023, 2024 and 2025. What is your thought?
I'm hearing similar timeframes, but just want to get your sense as well. And that's helpful. I'm glad if it fits, roughly speaking there. I think that's all my questions. Thank you, Russell.
Thank you.
Next question is from David Duley of Steelhead Securities. Please go ahead.
Hi, David.
Hi. Thanks for taking my question. Nice results. Could you help just frame what you think -- or help us understand what the size of the photonics business is now perhaps in 2020, and what your goals or aspirations are for that business?
Okay. I know exactly what it was in 2020 for us. In 2020, it was just shy of $8 million. If I look at 2021 by forecast, it's a substantial increase of that maybe close to 3x increase in what we're seeing, where do I think it will get to? I think it will get to for us, I mean our targets would be to be in the several hundred million. So I think that it's very possible for it to get there. But yeah that would be -- our target is for the photonics business to be sitting within some small amount of years, certainly upwards of $100 million. And I think with the target of getting between $200 million and $300 million.
And does this -- will the photonics revenue have above-average gross margin similar to silicon germanium?
Presently it certainly has well-above average gross margin. It's very, very high margins at present. As anything goes into high volume, margins come down but I believe it will stay very high margin. But it will -- yeah, I think it will be among the highest margins we have in the company.
Excellent. And then in your prepared remarks, you mentioned something about a long-term contract and I had some audio difficulties. And so I just don't -- could you just elaborate about what you were talking about there?
If I recall the exact statements, it was now paraphrasing. It said that as a validation to the strength of the power platforms that we have. We have multiple customers asking us for long-term supply agreements. Now when they're asking for a long-term supply agreement that takes on some term or some type of a take-or-pay agreement to where there's a certain volume that they're committed to buy. And there's a certain volume that we commit to give them. Now customer really won't give you that unless your platform is very powerful, because they're committed to use that platform. So that was the statement that I made. And to add color to it that is color now that it would be involving to some level a take-or-pay agreement.
So we would expect a customer deposit liability number to be going up over time?
Not necessarily a take-or-pay agreement doesn't necessarily mean upfront money. The take-or-pay agreement means that they have x amount of wafers that they have to take per month. It could be against an upfront payment as well, but that's not necessarily how it is. I mean, it's -- it could be that they give an upfront payment to enable higher capacity of which are committing to a degree of that capacity to them. But there's multiple different contracts that can be done. Sometimes you would ask for depending on what's being driven, you'd ask for upfront cash to help on an investment and other times you wouldn't. But regardless a take-or-pay agreement really means that they're committed to a certain amount of wafers per month or per time period.
Okay. The final question from me is you mentioned I think the MEMS microphone business. I don't recall you talking about that in the past. I remember you've talked about MEMS, but not specifically that type of product. Could you just elaborate as far as what the market opportunity is for the company in this area?
Yes. We actually press released it David. So we certainly talked about it as also a press release. But the market opportunity, I think, I had stated that in 2019 the market itself MEMS microphone was reported to be $1.2 billion. And its -- some analysts believe it will be $1.7 billion in the 2024 time frame something like that. Now that's the MEMS microphone itself. The silicon content, I don't know if you take it 30%, 25%, 35% and but it would be somewhere in that the silicon content itself. So for us the overall MEMS microphone silicon business, I suppose that the SURF market is somewhere about $500 million.
And I think the beauty, seriously is that anytime you enter a new served market independent of how much market share that you grow its incremental revenue. And it sounds funny and I don't mean this to sound really ridiculous, but it's infinite growth in that market because shorten serving it before. So if you go from a 0% to a 10% or a 15% market share it's all incremental growth not cannibalizing anything that you did before.
And so it's -- I think the opportunity is very, very big for us. As stated we have a good partner there and you're working on extreme figures of merit maybe the best signal-to-noise ratios in the industry. So did that answer your question I hope? But there is around it. It's -- I believe the PR was maybe December, but I'm not positive. No we won't get back on the exact date of that. We could even…
Okay. I'm sorry, I forgot -- I'm sure I read it I just forgot about it. As far as the $500 million TAM that you just kind of highlighted -- so would a reasonable expectation for you guys be 10% or 20% market share here in a year or two, or is that the kind of -- can you get $50 million to $100 million out of this business?
In a year or two? No, I don't think so. To go from a zero entry in a market to a customer partner that you're going with I don't think that you would go to $100 million in two years. But I think that our target would be to get to those levels. But it wouldn't be within two years.
Okay. Thank you.
I think that's not realistic. Thank you very much. So the press release was December 21 and the title is Tower Semiconductor and GMEMS Announce the Ramp to Mass Production of MEMS Microphone Products.
Thank you.
Thank you.
The next question is from Lisa Thompson of Zacks Investment Research. Please go ahead.
Hi, Lisa.
Hello. So I'm kind of getting interested in this photonics thing you're talking about. You mentioned something about a DARPA contract, where you try to integrate lasers? I know that's a really big deal because it's really labor-intensive. Can you talk a little bit about what's going on with that?
Yes. It's a project it's called Luminus. It's actually was released by DARPA itself. And that we were the front-runner of everyone working I believe to my memory that's how it was listed. So yes, it's a project with DARPA. It has DARPA funding and it's to integrate lasers on a SiPho platform. So basically in addition to all the passes that you put on the SiPho, you're now putting an indium phosphide laser on it and making the connections the -- to the InP and doing different metalization structures so that you have not just a good function laser, but signals from a laser going right into the photonics and doing it on board.
So it's to actually create an optical engine by putting the two together?
Creating more of a single optical engine. I mean, there's other active components that you would maybe think of adding as well.
Interesting. Okay. And then, just, I'm wondering with this new $150 million investment, does that change your thinking at all about tax rate for this year or the minority income?
So, first, for this year, it will not have a significant impact, because, like I mentioned before, the manufacturing equipment tools will arrive and they’re installed and qualified mostly this year, but until it will bring additional incremental margin and revenue will only be a little bit Q3, but mostly Q4.
And secondly, this equipment is actually bought also for Israel, also for the U.S. fabs and also for the Japanese fab. The mix is pretty much the same like the profitability base of us. So I don't think it will impact the tax. I don't think it will change the -- what we saw this year was very stable at about 6%. All-in effective tax rate, I believe, it will be about the same.
6%.
Yes.
All right. And so, no real change in minority income either?
No, it will not impact the change in minority. The investments that we do in Japan will be like the previous model that we explained last year on the July 19 announcement, that it will be -- goes to -- it's a foundry customers. This is the target of the acquisition of the tools and it will be taxable in Israel. So it's a good tax environment.
Okay. Great. Thank you. That’s all my questions.
Welcome.
The next question is from Rajvindra Gill of Needham & Company. Please go ahead.
Yes. Thanks. Just a quick follow-up, some housekeeping. So, Oren, what was the Panasonic revenue and the Maxim revenue in Q4 and for 2020? Just to make sure we're modeling it correctly.
Okay. So, Panasonic is actually today in Nuvoton Japan, previously Panasonic Semiconductor. So in the past it was supposed to be between $90 million to $105 million in the previous contract. The new contract is, like we said, a reduction of about $20 million. So it's between $70 million to $85 million every quarter. That's the commitment. And indeed this is the run rate that they were in Q4 and also for the year, so very stable.
And Maxim, like we announced before, is gradually decreasing contract. I don't think we mentioned the number of that in the past. But you can assume that Q4 was in line with the previous quarters than -- which is a little bit lower than 2019 level.
And just what was it in 2019? Just so --
Because of the contract with Maxim, we agreed to their request, not to give the exact number.
Okay. Got it. Got it. Right. And -- so, just so I heard it correctly. So the Panasonic Nuvoton is now $70 million to $75 million a quarter. And it's been stable, or $85 million?
$70 million to $85 million per quarter.
Okay. Got it. All right. So that makes sense. And you expect that to be kind of stable in 2021 this year?
Yes.
Okay. And just on the CapEx. So what is the -- just so I have it again it's a $150 million incremental CapEx to last year. So last year was I believe $256 million in 2020?
No, no, no. So let's -- it's incremental to the baseline excluding that Uozu $100 million that we had last year. So the baseline which let me remind you the baseline for -- and you can see 2018 and 2019 CapEx was $180 million -- almost $180 million so $40 million to $45 million a quarter. That's the baseline. 2020 was higher than that because we had this was $100 million investment which is done behind us.
So for – from mid of this year going forward to the baseline of $45 million a quarter which is $180 million annual run rate you should add the $150 million which is approximately $35 million a quarter right, if it's spread over four quarter. But Q1, Q2 -- like I mentioned before Q1, Q2 should be pretty low because payments will be starting to be made in the middle of the year. So Q1, Q2 is back to the baseline of $45 million, $49 million a quarter which was the baseline in 2019 and for middle of the year will go up by about $30 million $35 million a quarter for the $150 million. Clear?
Okay. Thanks.
There are no further questions at this time. Mr. Ellwanger would you like to make your concluding statement?
I would. Thank you. So really firstly my great appreciation to our worldwide employee base at all levels and in all functions, against a very challenging, difficult COVID-driven work condition, they did not miss a beat, finished the year with a very strong quarter and put us in a position to guide our first quarter revenue being the highest first quarter and a revenue base in the company history. We're excited to execute on the opportunities before us to realize quarterly sequential growth throughout the year.
We really have amazing customer partners. We look forward to grow with you. My many thanks to our investors, we greatly appreciate your support and really enjoy our interactions.
With that being said, we invite you to any and all of the following upcoming events. Next Tuesday, February 23 we will celebrate our 20th year of trading in the Tel Aviv stock Exchange with a special virtual trade opening ceremony. We invite you to join information will be available on our website and social media platforms. On the same day we will also provide a virtual presentation of the Israeli capital market hosted by Oppenheimer Israel.
On March 9, 2021 we'll participate in the Susquehanna 10th Annual Technology Virtual conference. I suppose it's the 10th annual Technology conference, probably not the 10th annual virtual one. And hopefully it will be the last virtual one. On March 11, 2021 we participate in the Loop Capital Virtual Spring conference. Please sign up for these. We would look forward to the interactions and otherwise, we always look forward to interactions. And please contact Noit anytime you wish to speak. Thank you very, very much. Bye-bye. Thank you.
Thank you. This concludes the Tower Semiconductor fourth quarter and full year 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.