Tower slashes headcount, operating costs

By Ann Steffora Mutschler, Senior Editor -- 12/4/2007

Following a $33 million Q3 net loss reported last month, and with the aim of improving gross, operating and net margins in its fiscal year 2008, Midgal Haemek, Israel-based specialty foundry Tower Semiconductor Ltd. said today it has initiated a cost-reduction plan that includes layoffs, materials sourcing, reduced capital expenditures and acquisition of used semiconductor manufacturing equipment.

Specifically, Tower said it expects to achieve payroll cost savings of more than $5 million per year by reducing jobs, primarily in non-operational and service related functions, as well as by outsourcing non-core functions, and internal transitions and organizational changes. The company has not specified exactly how many jobs will be cut.

Second, the foundry expects to achieve materials costs savings of more than $10 million annually by multiple sourcing of materials and spare parts by several vendors, substitution of expensive materials and parts by less expensive alternatives as well as price negotiations with suppliers.

Third, the company is aiming to reduce capital expenditures through better program efficiencies and longer term win-win alignments with key suppliers.

Finally, in its capacity expansion, Tower said it will acquire used semiconductor manufacturing tools from Intel and AMD’s fabs that are being ramped down.

Tower reminded that it has expanded its manufacturing capacity by more than 50 percent over the past several quarters and has increased its customer base and product portfolio, which have resulted in a quarterly sales run rate of nearly three times the mid 2005 run rate.

In addition, production volumes have been growing consistently and to satisfy exceeding demand from its customers, Tower said recently that it will further expand its Fab2 capacity to be completed next year.

This growth plan along with the cost-reduction plan detailed above are expected to help Tower recognize annual cost savings of approximately $20 million.

During its fiscal year 2007, Tower completed other cost-reduction activities that drove down the Fab2 production cost per wafer by 25 percent, primarily due to the volume ramp that was accomplished while maintaining non-operational headcount almost flat, coupled by operational efficiency improvements.

Also, in August, Tower said it would outsource the management of spare parts inventories to EMA. 

Russell Ellwanger, CEO of Tower added in a statement, “While we continue our expansion and project further growth in sales, we are mindful to continuously promote and improve corporate efficiencies. Every measure is taken to accomplish the aggressive cost reduction goals whilst improving Tower's ability to perform and deliver. We are confident that these measures, coupled with the business expansion initiatives, result in a stronger and more competitive Tower and hence help accelerate our move to profitability.”

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