Tower plans job cuts, outsourcing to reduce costs

Israel foundry Tower Semiconductor Ltd has initiated a cost-reduction plan designed to improve its gross, operating and net margins in fiscal year 2008 and beyond.

Tower has expanded its manufacturing capacity by more than 50 percent over the past several quarters and has increased its customer base and product portfolio, resulting in a quarterly sales run rate of nearly three times the mid-2005 run rate. Production volumes have also been growing consistently. To satisfy exceeding demand, the company recently announced a further expansion of its Fab2 capacity to be completed in 2008.

Tower expects payroll cost savings of greater than $5 million per annum through a combination of reduction in jobs, primarily in non-operational and service related functions, outsourcing non-core functions, as well as internal transitions and organizational changes. Such actions should result in stronger focus on close customer support.

The foundry also plans to save materials costs savings of greater than $10 million per annum through 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.

Tower also aims to achieve major savings for its capacity expansion by acquiring used tools from the winding-down fabs of Intel and AMD. These tools are bought at prices that are significantly below new tools prices, thereby shortening the return-on-investment period for these acquisitions.