Tower Semiconductor - Q4 2023

Transcript

Operator (participant)

Fourth quarter and full year 2023 financial results conference call. All participants are currently in a listen-only mode. Following management's prepared statements, instructions will be given for the question-and-answer session. For operator assistance during the conference, please press star zero.

As a reminder, this conference is being recorded, February 14, 2024. 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.

Noit Levy (SVP of Investor Relations and Corporate Communications.)

Thank you, and welcome to Tower financial results conference call for the fourth quarter and full year of 2023. 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 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 such forward-looking statements. Please note that the fourth quarter and full year of 2023 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 requirements as established with the Securities and Exchange Commission.

The financial tables include a full explanation of these measures and the reconciliation of these non-GAAP measures to the GAAP financial measures. Please note we have a supporting slide deck that complements today's conference call. This presentation is accessible on our company's website and is also integrated into today's webcast for your convenience. Now I'd like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Russell Ellwanger (CEO)

Thank you, Noit. Welcome, everybody. Thank you for joining our call today. During today's call, we will discuss our financial results for the fourth quarter and the full year of 2023, and share our strategic direction and expected growth outlook for 2024. To begin, as is known, on January 1st of this year, there was an earthquake in Japan in a surrounding area to our facilities at Hokuriku. We are grateful that no employee suffered any physical harm through this event.

Due to state-of-the-art building practices, we did not suffer facility structural damage. We did suffer tool damage and scrap of some percentage of work in progress at both factories, as well as cessation of operations. Our dedicated and most capable employees have recovered both factories to full operation with staff levels currently to the level set in the annual plan.

2023 was marked by an industry-wide slowdown, resulting in an annual revenue of $1.42 billion. As we transition into 2024, there are clear indicators of market recovery. We are realizing renewed demand across several of our key market segments. We will give more color on this as we continue the call. Revenue for the fourth quarter was $352 million.

At this revenue level, fab utilizations were: Fab 1, 6-inch, was about 60%. Fab 2, 8-inch, was about 75%. Fab 3 remained at about 40%. Fab 5, 8-inch, was about 40%. Fab 7, 12-inch, was about 70%. Fab 9, 8-inch, was also about 70%. As a validation of our value-added products and next-generation customer-aligned roadmaps, we not only maintained our blended average selling price per layer but saw an increase of about 4% in 2023 over 2022.

This was not due to price increases, but rather due to value-add products resulting in a richer mix and is a reason for maintaining good margins in a period of industry pullback. Anticipating shifting market dynamics and customer demand, we are actively optimizing our operations through a consolidation of our 6-inch activities into our 8-inch operations in Migdal HaEmek, Israel.

As part of this optimization process, we will phase out certain lower-margin products in our 6-inch offerings, aligning to our long-term strategic goals and financial model, while porting certain activities to the Fab 2, 8-inch. For example, a high-value technology serving a next-generation advanced computed tomography CT scan machine into our 200-millimeter factory, ensuring continuity and even greater efficiency for this technology, which will require several hundred 200-millimeter wafers per CT machine.

A breakdown of our 2023 revenue per end market is as follows, shown in slide three in the supporting slide deck. Sensors and displays represented 20%, RF Mobile Business 22%, RF Infrastructure Business 10%, Power IC Business 24%, Discrete 15%, Mixed Signal CMOS 7%, and there is about 2% of miscellaneous for this period. Revenue breakdown by end market is as follows. Please reference slide four. Infrastructure revenue, which is predominantly RF optical with a certain amount of advanced discretes, was 11%.

Wireless was approximately 22%. Automotive 17%, which we serve with Power ICs, with discretes, with imagers, and with RF radar. Consumer, in which we consider compute power management for general accessories and home appliances, and home-use security cameras, was approximately 13%. Industrial about 7%. Image sensors for high-end photography and medical applications are about 7%. Aerospace and defense is about 4%.

There is about 2% of mixed signal CMOS where we do not have exact end market knowledge. Additionally, about 14% of power device revenue, for which we do not have granularity on the exact end market application, which serve multiple of the above-mentioned segments, such as automotive, industrial, wireless, and consumer. Lastly, an additional 3% divided among the end markets that we've spoken about but of which we cannot granularize.

Specific on RF Mobile, we are experiencing a rebound in the mobile market, running presently at high utilization for both 200-millimeter and 300-millimeter RF-SOI capacity, with additional capacity coming online throughout 2024 and 2025. Our capacity planning is and will continue to pay off, having met our initial targets at the Agrate, Italy, facility, having qualified and shipped our first products with a planned ramp throughout this year, supported by an already executed double-digit number of production tape-outs to meet the increasing demands shown in our customers' forecasts.

Wisely partnering with ST and hence leveraging the ST buildout, we reduce the impact on margins of the new manufacturing activity. But as is in any new capacity ramp from scratch, there is an initial headwind on margins. This should be fully absorbed and become accretive margins within the first half of 2025, with the planned completion of the present-phase capacity ramp in the Agrate facility.

Looking forward, we are prototyping new 200-millimeter and 300-millimeter technologies - please see slide five - with best-in-industry efficiency as measured by Ron x Coff and output power as measured by breakdown voltage, winning new customers and design slots, while beginning conversations with customers about 6G requirements. Prior to the adoption of new wireless standards such as 6G, we see additional AI and mobile AR/VR applications having the potential to drive a stronger handset refresh market over the next several years to further benefit our RF business.

RF infrastructure: we are strongly positioned supplying AI infrastructure growth in part by our previously announced silicon photonics partnership with InnoLight, the global number one optical module provider, and Marvell, a tier one optical connectivity provider, as well as with a total of over 50 additional customers currently using our silicon photonics foundry platforms.

In addition to our current Silicon Photonics production supplying 400G and 800G AI, data center, and data comm infrastructure, we are investing with our lead customers in new technologies, enabling more efficient 1.6T systems through innovation in both materials and architectures, including options for co-package optics.

We continue to expand the Silicon Photonics application space by working with leaders in automotive and commercial LIDAR to enable Silicon Photonics-based future frequency-modulated continuous wave that can create solid-state cost-effective LIDAR solutions with better resolution and capability than possible with other technologies. Please see slide six.

Leveraging our incumbent position, we continue to work with our previously announced silicon germanium customers, including MACOM, Broadcom, and Semtech, and many others, to develop next-generation optical components for pluggable transceivers, active cables, and for LPOs, linear pluggable optics, to not only support faster data transmission rates for single wavelengths but also to reduce latency and power consumption for data centers supporting generative AI and machine learning applications.

Finally, we just recently announced our partnership with Renesas, a global conglomerate and market leader in supporting the rapidly growing satellite broadband market. Today, our silicon germanium products can go into beamformer terrestrial antenna terminals, where each user terminal requires more than 250 silicon germanium transceivers. For reference, please see slides seven and eight.

Longer term, the industry is exploring ways to incorporate satellite reception into handsets, which could create an even larger market opportunity, including a change of cadence in next-generation mobile platform refresh adoption. With multiple fab qualifications for silicon germanium, we are well-positioned to support the capacity needed for these expanding markets.

Looking at our power business: while 200-millimeter power is undergoing some level of inventory correction driven in part by automotive, we continue to see very strong demand for our 300-millimeter power management BCD platforms, where advanced power performance and increased digital processing creates the ideal match for the smaller sizes needed for power, audio, battery management ICs with a broad feature catalog pick-and-choose modular platform. Please see slide nine.

In addition, the advanced power performance makes it an excellent technology solution to deliver high power to computing processors and AI accelerators within data centers. This platform fits many power and mixed signal applications and is therefore being chosen by tier one companies for a wide range of applications, which are now running at high volume in our Uozu factory in Japan.

We have recently delivered successful first silicon from our most advanced and feature-rich 65-nanometer BCD platform to a tier one customer and are working together, bringing initial products to market on this most advanced platform.

Regarding progress in Albuquerque, we have initial full-flow material completed while making meaningful progress in qualifying the technology to enable further ramp of both existing customers as well as new high-volume power and mixed signal customers, and will begin customer prototyping in the second half of 2024 towards full qualification and production in 2025 and obviously beyond. Moving to sensors and displays, our machine vision market is expected to get back to high demand levels in 2024.

This rebound is mainly driven by the Chinese machine vision camera market, where our customers and their customers are gaining significant share in factory automation and embedded robotic camera systems. For this market, we are completing the development of a small-pixel global shutter roadmap scalable to various resolutions from mainstream 5-megapixel to 12-megapixel sensors to very high-resolution sensors of up to 325-megapixel, enabled by our advanced proprietary stitching technology. Printing sensors larger than the lithography frame size.

Please see slide 10. In the medical market, we've developed a new 12-inch 65-nanometer Leanflow as a comparative answer to non-CMOS, non-silicon IGZO, Indium Gallium Zinc Oxide, thin-film transistor technology. Please reference slide 11. This enabled customers to retain the high performance of CMOS imagers, namely low-dose X-ray sensitivity and high frame rate, at cost levels now competitive to IGZO.

As mentioned, as a key technology being moved from 6-inch to 8-inch, we are producing new photon counting sensors for next-generation CT scanner, a new market for us, with a silicon SAM of about $300 million. In this market, we partner with an absolute leader to provide a unique technology which allows scanning at lower doses with much higher resolution due to energy separation.

In addition, we are expanding our high-end photography portfolio, capitalizing on our leadership position and learnings in the cinematography and broadcasting market, where in one instance, the end customer is an iconic industry leader. Revenue guidance for the first quarter of 2024 is $325 million, ±5%, in line with industry seasonality and in spite of the impact of the earthquake in Japan. Looking throughout 2024, we target notable quarter-over-quarter sequential growth.

We left 2023 with multiple powerful doors having been opened, catalyzed through the unrealized merger deal. Tower is in the best position in its history based upon financial strength, technical offerings, operational performance tied with growing operational capacity, and backed by strategic customer partnerships, the strength of which cannot be overstated. We enter 2024 with strong focus on strategic value-add growth, addressing both immediate and longer-term objectives.

What is this strategic value-add growth based upon? Market expansion with growing capacity and innovation, both based upon strategic partnerships. For market expansion, we continue intensifying our efforts in several markets where we see substantial demand and opportunities. RF infrastructure, with very strong focus on silicon photonics and a complete power offering, are two areas poised for robust growth that we are well positioned to serve.

Innovation: In order to meet the evolving needs of customers and to outpace the competition, innovation remains at the core of our value proposition. In this call, we've discussed several areas of best-in-industry figures of merit. Strategic partnership: We believe in the singular power of collaboration. We are expanding our partnerships with existing customers, leaders in their respective markets, as well as new customers, with ideas and excitement poised to become leaders as well. With that, I'm pleased to turn the call to our CFO, Mr. Oren Shirazi. Oren, please.

Oren Shirazi (CFO)

Hello, everyone. We are listing today our quarterly and annual financial results. For Q4 2023, we reported revenues of $352 million, gross profit of $84 million, and net profit of $54 million. For the full year, we reported revenues of $1.42 billion, gross profit of $354 million, and net profit of $518 million, which included $290 million net profit impact of the merger contract termination fee received from Intel.

I will start my review by analyzing the P&L highlights, followed by our balance sheet and CapEx plans. Revenue for Q4 was $352 million as compared to $358 million in the pre-quarter, and gross profit for Q4 was $84 million as compared to $87 million in pre-quarter. Operating profit for Q4 was $45 million, and net profit was $54 million, or $0.49 basic and $0.48 diluted earnings per share.

Operating and net profit for the third quarter included the net impact of merger contract termination fee we received from Intel in the amount of $314 million net of associated cost included in operating profit, and an amount of $290 million net of tax included in net profit based on a 7.5% preferred income tax rate as applicable to us in Israel. Including the termination fees, operating profit for the third quarter was $362 million, and net profit was $342 million, or $3.10 basic and $3.07 diluted earnings per share.

For the full year, revenue was $1.42 billion as compared to $168 billion in 2022, and gross profit was $354 million as compared to $466 million in 2022. Operating profit for the full year was $547 million and included $314 million net from the Intel merger contract termination fee compared to operating profit of $312 million in 2022.

Net profit for the full year was $518 million, or $4.70 basic and $4.66 diluted earnings per share, and included $290 million net due to the payment by Intel of a merger contract termination fee compared to net profit of $265 million, or $2.42 basic and $2.39 diluted earnings per share in 2022. Moving to the balance sheet and future CapEx and cash plans, our balance sheet as of the end of December 2023 totaled $2.9 billion, primarily comprised of $1.2 billion of fixed assets, mostly machinery and equipment, and $1.7 billion of current assets.

Current assets ratio, reflecting the multiple by which current assets are larger than short-term liabilities, is very strong by a multiple of 6.2x as compared to 3.9x as of the end of 2022. Shareholders' equity increased by 29% as compared to its amount at the end of 2022 and reached a total of $2.4 billion.

Our strong financial position enables us to plan the following investments in strategic opportunities that are aligned to our vision. Approximately $500 million of total aggregate cash was allocated to make investments in equipment and other CapEx items required for the 12-inch factory in Agrate, Italy, following the previously announced STMicroelectronics partnership agreement signed in 2021. We already invested $100 million in 2022, an additional $200 million in 2023, and the remaining $200 million will be paid during 2024 and 2025.

In addition, as previously announced, we will invest up to $300 million to buy equipment and other CapEx items that we will own in Intel's fab in New Mexico, enabling Tower to ramp up this fab capacity and capabilities for our customers. In addition, we expect our maintenance CapEx baseline level to remain, as previously announced, at about $200 million per annum.

Lastly, we expect to invest additional cash to acquire more capability CapEx tools and other assets to expand our future technology offering, including increasing our SiGe and RF-SOI capacity and technological offering to enhance our flexibility to support our customers from our different sites and change our product mix to result in a richer mix from a margins perspective.

All the above is aligned to our business strategy as well as our financial model, as presented by the company in our pre-quarter call in November, which financial model outlined our revenue target of $2.66 billion per annum that could be achieved by loading our existing factories at 85% utilization and that should result in $500 million annual net profit based on the specified assumptions that were outlined. Now, I'd like to turn the call back to our CEO, Mr. Russell Ellwanger.

Russell Ellwanger (CEO)

Yeah. Maybe we would open up to questions, and from there, we can go ahead, and I'll give a closing.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Cody Acree of Benchmark. Please go ahead.

Russell Ellwanger (CEO)

Hey, Cody.

David Williams (Equity Research Analyst)

Hey. Good afternoon or good morning. This is actually David Williams. I'm for Cody this morning.

Russell Ellwanger (CEO)

Oh, okay.

David Williams (Equity Research Analyst)

Russell, thanks for all the great color as usual. But wanted to dig in a bit on the impact on the revenue side and maybe even on the margins from the transition or the shutting down of that 6-inch and moving to 8-inch. Seems like there should be some nice margin tailwinds there, but also just kind of what that revenue impact could look like over the next couple of quarters as you port that over?

Russell Ellwanger (CEO)

Oren?

Oren Shirazi (CFO)

Yeah. It will not impact the margins at all, this Fab 1, because anyway, that's the oldest fab we had built 40 years ago in 1984. It was very nice, highly utilized. But in recent year or two, it's about at the break-even point. So it did not really contribute to the margins. So there will not be any deficiency to the margins. So it will be pretty much break-even. The revenues, we didn't disclose publicly, but it's immaterial, really, to the total amount. And it's already baked into our financial model that we presented in previous time.

David Williams (Equity Research Analyst)

Okay. Great. Yeah. It seems like that might have been margin dilutive, and you might get a tailwind from that. And in addition to the economics of moving that 6-inch to the 8-inch, is that fair to say?

Russell Ellwanger (CEO)

It is. But over the next few quarters, we've been well aligned with customers and getting prepared for this. And if anything, revenues will be higher through some pull-ins of end-of-life activities. So over the next two, three quarters, if anything, it's going to be beneficial, not negative, but on a small level.

David Williams (Equity Research Analyst)

Okay. All right. Great. Thanks so much for that. And then maybe just on the rebound that you're talking about, what is maybe can you point to this giving you that confidence? Is it really the near-term order rates that are forecast from customers, or are you getting better longer-term visibility of the customer demand?

Russell Ellwanger (CEO)

That's a combination of both. Had stated that we're targeting notable quarter-over-quarter growth throughout the year. If we look at our forecasts on most all of the core businesses that we have, there's good, strong double-digit growth in the year but really driven off of the second half, not very much off of the first half. With the exception right now, the RF-SOI is very strong.

And as well, we have certain mixed-signal and power also going into mobile platforms. That's very high at the moment. So that's two areas of really increase in forecast. Had mentioned that I think fortuitous but based upon good planning. When we started the activity in Italy, the Agrate facility, we had by plan going to be shipping our first qual wafers in the fourth quarter of 2023. And that is right now an area where we really do need capacity.

As the capacity is coming online quarter over quarter, it's fully spoken for throughout this year and by forecast for 2025 as well when it hits the full capacity of this ramp phase in the second quarter of 2025. In the area of the RF-SOI and some other mobile applications, we have seen a very big pickup in orders. In the area of silicon germanium and silicon photonics, we see very strong forecasts for which we've not yet received the POs but really in Q2, Q3, Q4.

And that's very real. If I look at SiPh, year-over-year growth in silicon photonics by forecast is multiple hundreds of %. Then our 300-millimeter power is also very strong growth year-over-year as well as the 300-millimeter mixed signal, which is serving some of these mobile applications that I had said.

If I look again at our core CIS activities, had mentioned the industrial sensors. That's doubling from present run rate in Q3, Q4. Now, as said, these are customer forecasts. They're not yet POs, but our customers are pretty good about forecasting. We are fairly good about what we put in the system.

So across many of our segments, we see very strong growth coming in this year but backed in the second half. That's what gets us very exciting is that either with new technologies that are now gaining new market shares for us and for our customers or a rebound in the market itself, both have the same accretive benefit on revenue and ultimately on margins.

One area that we do have weakness now and we don't see an increase coming quickly is that of our 200-millimeter power management predominantly being done in our factory in Tonami, Japan. I think anyone that looked at the TI release knows that I think TI is a pretty good bellwether of across-the-board power management. That market is weak right now.

A big portion of what was being served in that market for us was automotive in particular, battery management. And that has pulled back. So that's the one area that I don't see yet by customer forecast a rebound. But most everything else that we're doing, I think, looks very good, at least in the second half and some already having started in the first half. Hopefully, that answers your question. I tried to make it very complete.

David Williams (Equity Research Analyst)

No. Very, very great color. Thanks for that, Russell. And then maybe just one last one for Oren. Just kind of given the trough that we're seeing in revenue next quarter, how should we think about the gross margin and just given the mix and that revenue base there and all the moving pieces? And I appreciate the help here, and thank you.

Oren Shirazi (CFO)

I believe you should assume that the baseline of Q4 actual, which resulted in, I believe, 24% gross profit is the baseline for Q1. And now, since the revenue guidance is indicating about $25-$27 million lower revenue, then you should apply the 50% incremental model whether we go up or down.

David Williams (Equity Research Analyst)

Great. Thanks again.

Russell Ellwanger (CEO)

Thank you. Good questions.

Operator (participant)

The next question is from Richard Shannon of Craig-Hallum. Please go ahead.

Russell Ellwanger (CEO)

Hey, Richard.

Richard Shannon (Senior Research Analyst)

Russell, hi. How are you? Hi, Oren. Thanks for taking my questions. I'm actually going to follow up on the gross margin question and appreciate the thoughts here, Oren, as to how to think about the first quarter here. I think I heard from one of you two about some sort of impact here from the ST Micro Agrate fab ramping up here.

I wondered what that effect might be because it doesn't seem like you're necessarily seeing it here in the first quarter. How do we think about that? And then as the lower margin products in fab one roll off, does that give us any thought process for a higher yielding of gross margins in your model? I think I heard you say no, Oren, but I just want to make sure.

Oren Shirazi (CFO)

Yeah. I think my previous answer that to assume 50% incremental on the revenue increase or decrease is considering all that, meaning, let's say, if currently the gross profit was whatever it was, $84 million, and if one assumes $25 million revenue reduction, so it should be attributed to 50% of that gross profit instead of 84, 50% of 24. So it's $72 million.

Yes. What Russell mentioned is true about the fact that we will start since we start, like Russell said, from scratch, the Agrate factory, until it will reach the break-even point, which Russell indicated in a year from now, may influence a little bit on the margins. We didn't specify the amount. It could be some lower margins, but it will be offset by other activities and richer mix. So I think it's already in the numbers that I specified before.

Richard Shannon (Senior Research Analyst)

Okay. Fair enough. Thanks for that clarification, Oren. Russell, kind of going on your press release and your comments here on the call about notable growth after this first quarter here and your guidance saying more in the second half here, trying to put numbers together and think about the total year, I think the fair question to ask here is, do you think you're going to grow your total revenues in 2024 over 2023? It seems like it'd be right in that range, but just want to get a sense of how do we interpret notable.

Russell Ellwanger (CEO)

I would expect that we grow our revenue 2024 over 2023.

Oren Shirazi (CFO)

Yes.

Richard Shannon (Senior Research Analyst)

Okay. Excellent. That's great to hear. Let's see. Maybe a couple of questions in.

Russell Ellwanger (CEO)

I'll actually be very disappointed if we don't.

Richard Shannon (Senior Research Analyst)

Okay. Excellent. That's great to hear. Quick question in the data center area here. It sounds like you're seeing some pickup here. But want to get a sense of kind of exposure in some of the growth drivers here. You talked about higher-end datacom, 800 gig. I'm wondering if there's any way that you know or you can quantify how much your business is 800 gig. And then you've talked about today and in the past about linear pluggable optics, LPO. Do you think that's going to be a sizable part of the market down the road?

Russell Ellwanger (CEO)

What I think isn't necessarily that critical. Yeah. I believe that there's major advantages in it that should be implemented. How big it will get, I don't know. I think it could, and it does have benefits. It certainly would be beneficial for us in the offerings that we give.

But I'm not a market analyst. I think that's really more of a question for you than me. But from the technical benefit, yes, I think that there's strong benefit there. As far as what you said about data center, though, I did want to state, I have not yet seen other than in silicon photonics, we have not yet seen a big uptick in POs. We've seen an uptick in forecast. And there's sometimes a difference between the two. But I'm confident in the forecast, and that will be picking up in the second, third, and fourth quarter as far as POs and ultimately shipments.

For what we're doing with our customers and what's being done in the end customer, I was delightfully surprised in an executive meeting with a big integrator in the second half of 2023 to hear how much of their present volume is going into 800G. It was certainly much higher than the standard analyst reports were saying was 800G. That's, I think, very obviously driven by AI. So how much is now going into 800G? Again, that's an overall market analyst statement, not mine. But quite a bit of what we're shipping will be going into that. I believe most all of what we're doing in SiPh is added at the 800G and obviously targeting into the 1.6T.

Richard Shannon (Senior Research Analyst)

Okay. That's helpful. Two quick questions. I will jump out of line. You've talked very positively about silicon photonics, and I think it's a very small piece of your revenues within the company, much less in data center. How should we think about this over the next couple few years, big picture about how much of this becomes part of your data center business? I don't know if you'd want to give a percentage of that business and how fast that can grow or just any context of this area that you seem very excited about.

Russell Ellwanger (CEO)

Yeah. So I see by all of our own plans and by customer alignments that SiPh will be a predominant portion of data center market and elsewhere as well, but data center definitely, and realize that we have both passive and active SiPh. The activity that we have going on on integrated laser is pretty exceptional.

We are the only pure-play foundry that has that. Those are very, very high-dollar, high-value systems as well as what we're doing now with SiPh that, for example, we're shipping to InnoLight. But I wouldn't say that it's an insignificant amount of our revenue presently. If I look at what we're having in our forecast for 2024, the SiPh revenue is not insignificant.

Richard Shannon (Senior Research Analyst)

Okay. Well, thanks for that clarification, Russell. My last question. I'll jump on the line here. Obviously, you have a very strong balance sheet here, and I think you're probably going to be free cash flow positive to some degree this year. How do we think about your plan for the cash here as it continues to grow?

Oren Shirazi (CFO)

Hi. So first, I don't forecast we will be positive for cash flow and we did not and we were not also in Q4, in Q3 because of the big CapEx that we have for Agrate and also for Intel. They are exceeding our cash flow operations.

Richard Shannon (Senior Research Analyst)

Not for Intel, for the Albuquerque capacity?

Oren Shirazi (CFO)

Yes. For the Intel fab, for our capacity, our CapEx tools, our equipment that will be in the Intel fab in Albuquerque. So these $300 million and the Agrate remaining of $200 million plus the other CapEx that we have run rate of every year of $200 million, this exceeds the cash flow operation. So I don't think it so it will not be positive. But still, it's good that we have the cash on the balance sheet so we can fund it, all that.

And like I mentioned in my prepared remarks, we still have to pay we didn't pay at anything towards the $300 million for Fab 11, for Intel's Fab 11, for our tools there. And we still have $200 million for Agrate, and we have $200 million for maintenance. In addition to that, like I mentioned, we are planning to invest to increase the capacity of SiPh and SiGe in our various sites so we have flexibility.

Richard Shannon (Senior Research Analyst)

Okay. Great. Thanks for that clarification, guys. Keep up the good work. Thank you.

Oren Shirazi (CFO)

Thank you, Richard.

Operator (participant)

The next question is from Lisa Thompson of Zacks Investment Research. Please go ahead.

Lisa Thompson (Senior Technology Analyst)

Hello. I just have a quick question a little bit about the finances. Oren, so given your plans for this year, what would be the CapEx expenditure by quarter? And then given that and your nice $1.2 billion in cash, what should we expect for interest income?

Oren Shirazi (CFO)

Okay. Interest income, you can see in the balance sheet the cash amounts we have. You can assume that we and on the other hand, we have $200 million of loans. The loans are carrying 2%. Our investments are currently I mean, we enjoyed this year also from rates of between 6%-7% interest on deposits and yields on marketable securities. So we did really good.

Currently, the interest rates are a little bit lower in the world. So instead of getting an excellent 6.5%-7% that we got last year, maybe you should assume 5% or 5.5%. And of course, not on the entire cash amounts because some of that is for working capital required all the time. But for the majority of our cash, we invest it in deposits and about $150 million in marketable securities. So I would assume 5.5% of that.

For CapEx, I actually said in the beginning, we have $200 million for maintenance CapEx, the sustainable level. So it's $50 million a quarter, right? On top of that, you should assume I mean, I said $200 million remaining for Agrate. That's in the coming one and a half years. So if you want, you can divide it by 6 to reach the quarterly CapEx for Agrate Fab. And for the Fab 11X, the tools for that fab, I assume the $300 million will be paid in the coming 2-2.5 years. So everybody can make their assumptions. Overall, for sure, the CapEx should be more than $100 million per quarter, between $100 million-$150 million.

Lisa Thompson (Senior Technology Analyst)

Okay. Great. Thanks. And so just take that off the cash balance? No, because you're going to generate a little bit in operating income, right?

Oren Shirazi (CFO)

Yes. But like I answered before to, I believe, Richard, cash flow operations is typically lower than $100-$150 million a quarter, right?

Lisa Thompson (Senior Technology Analyst)

Right. Right. So definitely negative cash flow, obviously. All right. Great. Thank you. That helps a lot. That's all. That's my only question.

Operator (participant)

This concludes the question-and-answer session. Mr. Ellwanger, would you like to make your concluding statement?

Russell Ellwanger (CEO)

Thank you. Thank you for joining the call. It really is a very exciting time for the company. As stated in the press release itself, it is probably the best position Tower has ever been in in its history in all aspects: in our financial strength, in our technology offering, and in our operational capability. And that then all underpinned by the customer partnerships. It's an amazing place to be. Look forward to tracking our progress over the year and reporting on it.

In the upcoming short period, on February 29th, Dr. Racanelli, our President, will host one-on-one meetings at the Susquehanna Technology Conference in New York. On March 19th, we will be hosting an investor conference in Tel Aviv Stock Exchange at the TASE building itself. Overall, appreciate your continued support and confidence. Our team is eager and ready to seize opportunities ahead and to drive value for our customers and stakeholders. Thank you. And look forward to follow-up conversations.

Operator (participant)

Thank you. This concludes Tower Semiconductor's conference call. Thank you for your participation. You may go ahead and disconnect.