Tower Semiconductor Ltd (TSEM) Q3 2021 Earnings Call Transcript

Image source: The Motley Fool.

Tower Semiconductor Ltd (TSEM 0.06%)
Q3 2021 Earnings Call
Nov 8, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Tower Semiconductor Third Quarter 2021 Results Conference Call. [Operator Instructions] Following management's prepared statements, instructions will be given for the question-and-answer session. [Operator Instructions]

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 -- Senior Vice President of Investor Relations and Corporate Communications

Thank you, and welcome to Tower Semiconductor financial results conference call for the third quarter of 2021.

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 Form 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 third quarter of 2021 financial results have been prepared in accordance with US GAAP. The financial tables and data in today's earning 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 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.

Now, I'd like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Russell Ellwanger -- Chief Executive Officer

Thank you, Noit. Welcome, everyone. Thank you for joining our call. Our revenue for the third quarter of the year was $387 million, a sequential revenue record for Tower, which represented 25% quarterly year-over-year total and 40% year-over-year organic growth. In the order of revenue dollars, the technology that drove the 40% organic growth was firstly RF-CMOS at about 75%, predominantly driven by RF-SOI. Second was sensors at about 65% Q3 versus Q3 '20 with industrial sensors as the major contributor. The third significant contributor was power IC at about 50% year-over-year organic increase.

We guide the fourth quarter of the year to continue to grow to a mid-range guidance of $410 million, representing quarterly year-over-year of 19% total growth and 26% organic growth, which according to mid-range guidance will yield an annual revenue of $1.506 billion for 2021, which would be a 19% total and 28% organic full-year growth against the $1.266 billion for 2020.

Looking into our specific businesses. During the third quarter, our RF mobile business was 26% of our revenues and is expected to continue to grow in the fourth quarter and into 2022. Growth is driven by market share increases, accelerated by increased RF content in 5G handsets, as 5G requires a most advanced technology for which we provide a higher value. This change in mix drives increases in margins. Demand is very strong in both 200 millimeter and 300 millimeter, providing returns on capacity investments to-date and giving confidence on the return for our present and planned investments.

The RF infrastructure business, serving telecom and datacom end markets with our industry-leading silicon germanium silicon photonics technology was about 13% of our corporate revenues. During Q3, we witnessed the first significant revenue ramp of our silicon photonics flows. This is the highest margin we serve and we expect it to be a meaningful contribution to our bottom line in 2022. This quarter, we announced the next generation silicon photonics process flow, which will include lasers and potentially other three, five components fully integrated into our high volume silicon process. This can more than double our revenue potential in this market with the laser being the most valuable single component in an optical communication system.

Last week, we announced a partnership with Anello Photonics to productize a new low loss waveguide technology both through Anello's own products, which include precision gyroscopes using silicon photonics to replace optical fiber cloud, as well as in a new foundry offering for a wide scope of applications in automotive LiDAR, bio-sensing and quantum computing.

Our power IC business was 16% of our total revenues with strength in automotive, industrial and consumer segments. We continue our strong position in automotive battery management area, additionally having now signed a long-term capacity agreement with a market leader. Automotive battery management is expected to significantly outpace the overall power IC market, due to the worldwide push for electrification of the vehicle. Beyond this market, we are gaining overall market share through technology leadership in what is the largest portion of the overall analog market.

Our power discrete was 16% of our revenues. Like power IC's, growth is broad-based, but led by automotive applications. As discussed last quarter, we anticipate the power discrete business to level off, while we focus our capex expansion on other higher margin segments.

Our imaging business represented more than 15% of our revenues. We continue to see very strong demand in the industrial and machine vision markets, as well as the medical and dental x-ray markets. Our customers in these areas are highly interested in securing capacity for the coming years, seeing long-term market demand.

Regarding display, we continue in a substantial partnership for the development of backplane micro OLEDs, mainly for the VR display market, a very fast growing market. The automotive portion of our business represented 12% of our corporate revenues this past quarter supported by most all of our technology flows. We have been a dependable supplier to the automotive market for many years with our industry-leading offerings in imaging and sensing, wireless and wireline communications, mixed signal and power management. We are not only continuing to invest in new capacity and technology roadmaps, but are also enabling innovative technologies such as solid state LiDARs based on our silicon photonics open platform.

We've recently partnered with the University of Southern California to announce a breakthrough development in LiDAR IC technology designed for advanced driver assistance system and ultimately self-driving cars. And, as stated, we've recently signed a long-term capacity agreement with a market leader in battery management solutions, ensuring a growing position serving this mega trend of vehicles' electrification.

Moving to utilization, the following are the third quarter foundry layers all numbers given in an eight-inch equivalents. As well, there is a full table of all numbers in our Q3 financial highlights presentation that will be available on our website at the end of this call. For 150 millimeter, 455,000 layers were processed, up 55%, as compared to Q3 2020 and up slightly from the previous quarter. For 200 millimeter, 6,197,000 layers were processed, up 28%, as compared to Q3 2020 and up 5%, as compared to the previous quarter. For 300 millimeter, 1,539,000 layers were processed, up 57% year-over-year and up 10%, as compared to the previous quarter.

We will now give more color on the revenue and margin impacts of our capacity growth, including the impact of investments in certain capability tools to enable a richer shipment volume mix. As stated, the Q4 2021 mid-range guidance represents a 26% year-over-year organic growth. We've created this growth through three vectors. Firstly, 50% of this is pure capacity increase. Secondly, 25% of the revenue increase is from a richer mix, meaning higher value, higher ASP shipment mix. Thirdly, 25% is by ASP increases of existing products, which customers participated in predominantly to secure a longer term committed capacity. All of the above contributes a strong increases in topline revenues and margins, targeting to be about 15% net profit margin in 2022.

In 2021, our organic growth resulted or will result in a Q4 2021 annualized organic revenue of $1.27 billion, slightly more than the 2020 total revenue. This $1.27 billion of revenue excludes the circa $400 million of Panasonic, now Nuvoton, and San Antonio Maxim long-term contracts that were part of the 2020 revenue. Including those long-term contracts, we end 2021 with mid-range fourth quarter revenue guidance, representing a $1.64 billion annualized revenue.

Longer term, our capex initiatives, which will experience full ramp in 2023 and with the addition of the initial 2023 revenue ramp of the Agrate factory should allow greater than 30% organic growth on top of the present 26% organic growth guided for the fourth quarter of 2021. From that point, revenue and margins should continue to increase as the Agrate fab continues to ramp through to 2026. Such capacity increases are fully spoken for by customers.

With that, I'd like to turn the call to our CFO, Mr. Shirazi. Oren, please.

Oren Shirazi -- Chief Financial Officer and Senior Vice President of Finance

Hi, everyone. We released our quarterly results today presenting an additional record revenue, reflecting 25% year-over-year total revenue increase for the third quarter of 2021 or 40% organic increase and resulting gain significant increases in our gross operating and net profit margins, as well as in cash flow from operating activities.

The revenue and margins increases are driven by the significant customer demand we continue to see in mostly all of our fabs. We are executing the $250 million capacity and capability capex expansion plans in our existing fabs as announced in previous quarters and the ramp up of the Agrate 12-inch factory being established in Italy.

I will start my review by analyzing the P&L highlights and then discuss our balance sheet and cash flow financial statements. Revenue for the third quarter of 2021 was $387 million, $76 million higher year-over-year, reflecting a 25% total revenue increase and 40% organic increase. Organic revenues are defined as total revenue, excluding revenue from Nuvoton in our Japan fabs and revenue from Maxim in our San Antonio fabs.

Gross and operating profits for the third quarter were $85 million and $44 million, respectively. This gross profit is 60% higher year-over-year and 16% higher quarter-over-quarter. And this operating profit is 131% higher year-over-year and 30% higher quarter-over-quarter.

Net profit for this quarter was $39 million or $0.36 basic and diluted earnings per share and adjusted net profit was $45 million, resulting in adjusted basic and diluted earnings per share of $0.42 and $0.41, respectively, as reconciled in today's press release statements. This net profit is 157% higher year-over-year and 27% higher quarter-over-quarter.

Comparing to the second quarter of 2021, the $25 million higher revenue in the past quarter resulted in $12 million higher gross profit, reflecting 47% incremental gross profit margin, $8 million higher net profit, reflecting 33% incremental net profit margin and $14 million higher EBITDA, reflecting 58% incremental EBITDA margin.

Moving to our cash flow report and forecast. During this past quarter, we achieved a record cash flow operations at a level of $107 million. We invested $88 million in fixed assets, mainly for manufacturing equipment and we repaid $29 million of our debt, mainly our principal payment toward bonds Series G issued in 2016.

As we announced in our February 2021 and August 2021 quarterly financial press releases, this year we ordered a significant amount of equipment tools to increase our capacity and capabilities in our existing 12-inch and eight-inch fabs in order to satisfy our customer demand. This equipment tools were mainly directed to fab 2 in Israel, fab 3 and 9 in the US, as well as fabs 5 and 7 in Japan.

The total amount of such approved and issued purchase orders was $250 million as announced, which are payable between mid-2021 and the end of 2022. In addition, we forecast that we will make capex payments for equipment tools for the newly built 12-inch Agrate factory in an amount of $160 million in 2022 and an additional $240 million in 2023.

Looking at the balance sheet, we demonstrated again a strong and stable financial position. Few points to note, shareholders' equity reached a record of $1.56 billion as of the end of the quarter; current assets ratio, defined as current assets divided by short-term liability, strong at a value of 3.8 times; deferred revenue and customers' advance balances under current liabilities and long-term liabilities in the balance sheet have increased by $19 million and $35 million, as compared to the end of Q2 '21 and the end of Q4 '20, respectively, and are expected to continue to increase, reflecting enhanced receipts from customers that have asked to secure more capacity and fund manufacturing equipment cost to grow their business potential and address their increasing demand.

And now, I would like to turn the call back to the operator. Operator?

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Rajvi Gill of Needham & Company. Please go ahead.

Rajvindra Gill -- Needham & Company -- Analyst

Yes. Thank you for taking my questions, and congrats on the strong momentum this year and the execution. And, Russell, I had a question on your comment about given the capacity that you're putting in place plus the capacity that will come from Agrate in Italy, you had mentioned a 30% organic increase in revenue on top of the 26% in Q4 of this year.

Wondering if you could elaborate a little bit further on how you're getting to that number? Any idea in terms of the timeline, the cadence of that revenue, growth, and how we should think about it maybe across product line, because that's a pretty strong, kind of, long-term potential organic growth rate that you're indicating to folks? Thank you.

Russell Ellwanger -- Chief Executive Officer

Thank you for the comment. And I think we would agree that it's a very strong target to be giving forecast, if you will. Specifically related to the fourth quarter of 2023, we have a good amount of capex that has been ordered and some that will still be ordered that will be coming fully online within 2023 even at the 200 millimeter levels. So to give really a huge amount of color on the ramp, I don't wish to do that at this point. We will give our guidance's for 2022 as we get into 2022.

But what I wanted to point out is that the growth avenues of the company remain very, very strong. I'm looking forward and that even from this 2023, where I'm talking about a 30% organic, I said above 30% organic actually, that is only the start of a ramp at Agrate itself. So the prospects are very good. Where I had mentioned previously of different areas where we're growing, you could assume that those should remain. We see a lot of strengths, as stated, in present ramping of silicon photonics.

I had stated that we see that we would believe that, that will be a significant contributor to margins next year as the present price per layer of SiPho exceeds all else that we make and for very good reasons. It's a platform that enables a lot, that takes a lot of capability to make. So it adds tremendous value to our customers and that will continue to grow. We're investing specific for silicon photonics growth and that will certainly not taper off in 2022, it will expand in 2022 and 2023.

I stated that our RF-SOI has benefited substantially from the content increases of 5G, but also for market share increases and that we see that growth continuing into 2022. That's certainly an engine that we continue to put fuel into, both as far as growing capacity and as far as being very aggressive in figures of merit to ensure that we have the best figures of merit in the world.

I've mentioned the sensor area to where we have very strong demand in industrial, stating customers are very involved in ensuring they have long-term demand there, but in addition mentioned display, which is not something that has been a substantial revenue stream for the company in the past, but something that we expect will become a very substantial revenue stream in the future, beginning most likely end of '23 and growing very, very strong in '24 and '25.

Silicon germanium has been a big business for us, continues to be a big business. At the present, if you noticed, I didn't mention silicon germanium as one of the growth drivers for our Q3, 40% organic growth and indeed it wasn't. Silicon germanium had very big growth in 2020 year for the benefit of the build of infrastructure for 5G and that infrastructure build, that was done in 2020, is what's enabling all of the growth that we have within the high-end mobile platforms right now. The infrastructure demand is down slightly or maybe even slightly more than slightly, but the data center demand is up.

So SiGe, although it's growing, is growing not great at this moment from Q2 to Q3 and Q4, but it is staying stable as we go forward into 400 gigabit per second, 800 gig per second and data center. The complexity of the laser drivers and the TIAs goes up substantially. So we would assume that, that will mean larger die and more wafers for those applications and hence the growth will still be driven in data center, due to the complexity of the parts that will be needed. But as well that takes into account the silicon photonics, which is one of the big areas of that 5G or that the SiPho will be used for within the data center.

So I think that that gives a summary of some of the areas of growth. One of the other underpinning areas that I'd mentioned is that of power management, having signed a long-term agreement with a leader in battery management, but having multiple platforms that really have market differentiation and looking forward to our increases in capacity to enable that market to takeoff for us as well. So, hopefully, that's enough color. I think it was a fairly detailed answer.

Rajvindra Gill -- Needham & Company -- Analyst

Yes. No, I appreciate all the great insight. Russell, just wondering, if you take kind of a bigger picture view, given the capacity constraints that you're seeing in the market, are you noticing any kind of fundamental changes in customer behavior? It would appear to be that the foundries, particularly high performance analog foundries, like yourself, would have a lot of leverage bargaining power in a capacity constraint environment and hence pricing power.

So just wondering if the position of your company in this capacity constrained environment is growing, given the importance of semiconductors for all these, kind of, growth markets? And you mentioned of the long-term supply agreement with this leading auto battery management supplier. Are you seeing more long-term supply agreements across certain customers? Is that a trend that you think is going to last given the capacity constrained environment?

Russell Ellwanger -- Chief Executive Officer

So the answer to the first part of the question, very, very candidly, I believe that we've enjoyed very strong customer relationships for multiple years of being with or based upon the fact that our advanced roadmaps are predominantly aligned with customer needs and customer pre-qualification in choosing the customers that we partner with for every next generation technology node.And certainly there is, I would believe across the board in a capacity constrained environment, more willingness of customers to invest in order to ensure capacity and that only makes sense if there is an abundance of capacity with low utilizations and obviously no one needs to invest not the manufacturer, not the customer to grow capacity when capacity is severely constrained, which is in the market right now, then customers are more than willing to participate to ensure that they have capacity corridor for the present and the future.

So I think that, that's eye opening in that way that customers are -- not eye opening necessarily, but customers are more willing to participate. But that is just the sign of the times, right? It's not that that's -- I think it's just the fact of the cycles that you're in and when capacity gets constrained, when utilization is very high, customers are more willing and there is more of a necessity to secure capacity. So that was -- I think, the first part of your question.

What is the second part, the...

Rajvindra Gill -- Needham & Company -- Analyst

No, I was just saying, I think you may have answered it already. But we're seeing across the industry this phenomenon where chip companies are entering into longer-term supply agreements with their end customers and then in turn the chip companies are entering into longer-term supply agreements with their foundry partners. And I was just wondering if this is something that, as you said, is the sign of the times versus something more permanent?

Russell Ellwanger -- Chief Executive Officer

I believe it will become more permanent. It's been catalyzed maybe because of the present, which there are many reasons why it happened. But I believe that it's a model that really makes sense and our customers really wish to partner into -- they know that our success is the key to their success and vice versa. So it takes some times, a few moves that are a little bit drastic, which was the market especially up and through now of this year as far as capacity constraints from certain suppliers that makes everyone think, oh, we have to address this maybe differently to ensure that in the long-term we have business continuity. And I think that that's good. Extremes put people more into a moderate median than if there were never an extreme.

Rajvindra Gill -- Needham & Company -- Analyst

I appreciate that. And for my -- just my last question, Oren, on the capex. So the Agrate fab will start to -- you will start to ramp that in calendar '22, and then continue it going forward, how do we think about the capex impact? Because I think when you announced the partnership with STMicro, which is a very interesting partnership, I believe that the capex discussion was still to be determined, you kind of mentioned that the potential capacity output that the staff would create, but wondering how to think about the capex trend line going forward?

Oren Shirazi -- Chief Financial Officer and Senior Vice President of Finance

Yes. So we said, like you mentioned, in the onset that we expected to share the capacity space to approximate one-third of the space that will be built there, which is in early stages. I mean, the building is -- I believe, already fully built and ready for tool install and tools are starting to roll in as we speak. And we really said, like you mentioned, that we will give more colors on the amount of investments at least for the foreseeable future until the end of the year and this is what I gave in my prepared remarks, that we will -- we expect to invest in that factory.

This year it will be nothing, because only tools were ordered, but still no payments would needed to be made, because usually payments are made after tool arrival with some payment terms. But next year should be $160 million, '22, and in year 2023 should be additional $240 million, so total of $400 million in the coming two years toward the capacity that we want to have there.

Rajvindra Gill -- Needham & Company -- Analyst

Thank you.

Operator

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

Lisa Thompson -- Zacks Investment Research -- Analyst

Good morning.

Russell Ellwanger -- Chief Executive Officer

Hi, Lisa.

Lisa Thompson -- Zacks Investment Research -- Analyst

Hi. So looking at all the moving parts in demand and pricing ability, where do you think 2023 you're going to be getting like your highest gross margins? Can you just kind of order which product lines?

Russell Ellwanger -- Chief Executive Officer

As stated, silicon photonics, we had our first substantial revenue quarter in Q3 and we see growth in that area throughout 2022, continued growth in '23 and insightful is the highest price per layer of what we serve. So from that, so I would expect will remain our highest gross margin and might even go higher depending on some other activities that we might be doing there. So I think SiPho will be the highest, SiGe stays very high, our stitch field sensors is very high margin. So I think that those would remain in the same areas.

Lisa Thompson -- Zacks Investment Research -- Analyst

And then after that, what will be the next in the line?

Russell Ellwanger -- Chief Executive Officer

We have very good margins in some areas of power management, in particular specialty flows for battery management for the electric vehicle. So that has very good margins. Overall, the imaging margins are very strong, even non-stitch field imaging margins are very strong. And the high-end RF-SOI is also very good. The point with RF-SOI is that you have really very, very good prices per layer. You have extensive substrates. So if you calculate the gross margin of the salt wafer, it's artificially lowered because the 300 millimeter or 200 millimeter RF-SOI substrate disproportionately high cost, but the outside of starting material, the contributing margin of the layers is very good.

Lisa Thompson -- Zacks Investment Research -- Analyst

Okay, good. That's helpful. And since you just said you've already got pulled out the Italian fab, what is actually going to be made there? And who is it going to be sold to?

Russell Ellwanger -- Chief Executive Officer

I said the capacity is spoken for.

Lisa Thompson -- Zacks Investment Research -- Analyst

Right.

Russell Ellwanger -- Chief Executive Officer

We've stated that our first flows that we're bringing out there is RF-SOI and then the second flow that we're bringing up there is display -- stitch field display.

Lisa Thompson -- Zacks Investment Research -- Analyst

And does that going to also European customers?

Russell Ellwanger -- Chief Executive Officer

We've not stated who it's going to, but I don't know that we've ever broken down as far as geography is to where the customers are. But the answer would be no.

Lisa Thompson -- Zacks Investment Research -- Analyst

Okay, great. Thank you. That's all my questions.

Operator

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

Russell Ellwanger -- Chief Executive Officer

Hey, Richard.

Richard Shannon -- Craig-Hallum -- Analyst

Russell, hi. How are you?

Russell Ellwanger -- Chief Executive Officer

Good. Thank you, please.

Richard Shannon -- Craig-Hallum -- Analyst

Excellent. Apologize for my scratchy voice here. Got a couple of, kind of, questions, kind of, weaving into the same general topic here, starting with your comments, this is also in the press release about achieving 15% net margins for this year and you talked about organic growth number. I'm wondering maybe if you can help us kind of leave this down to the total revenues here and the gross margins and therefore fall through that are built into that assumption?

And maybe if you can peripherally also talk about, kind of, the pricing dynamic that builds into that well, if you can talk about how much prices are going up or anything to kind of lead into those numbers that'd be a great start? And I'll probably follow-up on that.

Russell Ellwanger -- Chief Executive Officer

No, so specifically we will not give a guidance on revenue for 2022. So I think that was one of the things that you are asking for. But outside of that, the price increases you can get out of my statement of the breakdown of the organic growth for the fourth quarter. So I said that, that organic growth that was 26%, which would be somewhere about $65 million are quarterly then. So of that, I said 50% was pure capacity, about 25% was a richer mix and about 25% was ASP. So just doing the arithmetic that would mean 6%, 6.5% increase in ASP.

Richard Shannon -- Craig-Hallum -- Analyst

Okay. That's helpful. Maybe I'll ask the question slightly in a different way in the manner we spoken about in the last call, which talk about the incremental gross margin fall through for next year. Oren, you've talked about 50% to 55% as a range. From various comments I've heard so far, it might suggest that should be meaningfully higher, certainly pricing new flows like silicon photonics, etc. How should we think about that, Oren?

Oren Shirazi -- Chief Financial Officer and Senior Vice President of Finance

No, no, I believe the 50%, 55% is still valid and obviously you can also look at this, what you asked in this way that -- I mean, the previous year or previous quarters, our net profit margin was about 7% to 8%, this quarter was 10 point something. If we are adding 50% incremental gross and operating margin to the net margin, you may assume it depends on which geography it is, but between 35% to 42% incremental net profit margin. So obviously from a baseline of 10%, when we will add incremental 50% that has a fall through of incremental 35%, 40% after-tax. Obviously, it will be the way to achieve for ourselves target to be above 15% next year.

Yes, SiPho, of course, SiPho is higher than 50%, 55% incremental growth, but there is also other aspects, which are lower. SiPho, next year, I mean '22 is not -- I mean, it's big numbers, indefinite growth, compared to previous year, but still it's not something, which is that dramatic in volumes, as compared to the total, which causes the blended everything to be above this 55% range. So, all in all, if you add up 50%, 55% to incremental baseline, for any incremental revenue that you assume you should reach the ability to cross the 15% net profit margin across [Indecipherable]

Richard Shannon -- Craig-Hallum -- Analyst

Okay, perfect. That's very helpful, Oren. To follow-on one of your comments here in the silicon photonics, some good detail on the call here. Russell, maybe if you can talk about, like how does the customer profile build up in the application of those customers are ramping for next year? If you can give us some color there that would be a great help. Thank you.

Russell Ellwanger -- Chief Executive Officer

So we have customers for SiPho that are involved in LiDAR. So this is a pure solid state phased array instead of having a movable parts for the laser. That's one area of the SiPho, I mentioned specifically with the press release with Anello that this is a silicon photonics driven [Indecipherable], replacing optical fiber coil. And the bulk of the SiPho though is really -- it's to go into data center, it's to achieve the 400 to 800 gigabit per second capability. And the first and foremost customer that we had press released with was Inphi, as far as then being a SiPho customer and certainly their presence and abilities within having very high data rate capabilities, it's known. They were acquired by Marvell. So those are right now the three major areas that we're involved in.

Richard Shannon -- Craig-Hallum -- Analyst

Okay. That's helpful detail, Russell. My last quick question following up on the another one regarding the Agrate fab. In a prior question you'd answered with a couple of areas of focus here. I'm not sure, if those were intended to be the biggest ones in the first couple of years out of the gate or the earliest ones, but maybe if you can give us some more color on other areas, which are -- tend you to focus on that capacity?

Russell Ellwanger -- Chief Executive Officer

We really are focusing the initial capacity in those two areas, the RF-SOI, several different platforms of RF-SOI and stitch field display. So that's the initial focus that we have there.

Richard Shannon -- Craig-Hallum -- Analyst

Okay. Perfect. That's all for me. I'll jump in the line. Thank you.

Russell Ellwanger -- Chief Executive Officer

Thank you, Richard.

Operator

The next question is from Mark Lipacis of Jefferies. Please go ahead.

Mark Lipacis -- Jefferies -- Analyst

Hi. Thanks for taking my question. I don't know, maybe for Oren, the capex that you're putting up and projected to put up, is there -- are you -- can you quantify for us how this will impact the depreciation line in the cash flow statement and how -- and if you can quantify, perhaps could you give us a framework to think about the normal depreciation schedule for this capex? And when it -- when you might start depreciating it? Thank you.

Oren Shirazi -- Chief Financial Officer and Senior Vice President of Finance

All right. Yes, we as a rule depreciate our capex equipment tools over 15 years, one-five. The depreciation -- the capex for the Agrate factory, which I mentioned, will be $160 million next year and additional $240 million in '23. Will not be starting to be depreciating -- to be depreciated before the beginning of 2023. So next year you should see zero from that in depreciation, because until the tools will arrive and then there should be installation and qualification and it's part of our big chunk of tools that arrive at the same timing. So, under the rule, only once we will qualify everything. We will start to depreciate.

Usually, it's two to three quarters or even four, up to four quarters after the arrival of the tools. So it will not be next year, but you can start model it from 2023 in small amounts. I guess from the middle of 2023, from Q3 of 2023, it will be higher amount as we start to ramp. Also Russell indicated that we will seal some revenues from Agrate in his forecast for growth for Q4 '23. So obviously when there is revenue, there will be also cost and depreciation. So, that's about Agrate [Indecipherable]

The second part is the regular capex. So I updated about -- I mean, we already announced it in the past. I just gave an update that the $250 million that we already announced that we ordered this year, will be paid in -- you can call it linear outflows, almost linear from the middle of '21 to the end of '22. So, let's say, $40 million a quarter. And that's when it's paid. Usually depreciation starts one quarter after that. So additional $40 million. I mean, if it's linear $250 million over six quarter, additional $40 million of capex coming into depreciation, but over 15 years, right, so it is like $6 million a quarter -- a year, $6 million is such quarter is additional $6 million of layer.

I don't think it will impact much, because on the other hand we also purchased capex in the past, maybe a lower amount than that, but still there will. So whenever a new layer of depreciation starts to be amortized and an old layer the finished its depreciation from 15 years ago, that was purchased 15-years ago, terminates, so the delta shouldn't be, I believe, material amount. But of course you can model it very easily, just add $40 million of new capex every quarter.

Mark Lipacis -- Jefferies -- Analyst

Got you. Thank you, Oren. Very helpful.

Russell Ellwanger -- Chief Executive Officer

Thank you.

Operator

There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?

Russell Ellwanger -- Chief Executive Officer

Certainly. Thank you very much. Firstly, really I am excited about where we are, what's in front of us, the relationships we've developed with our customers, the markets that we're in, the figures of merits we've been able to achieve that benefit our customers in having differentiated products that -- as they designed to our flows and in an exciting time and in an exciting period for the company. The 15% net profit margin target that have given for 2022, I think, is a good step for the company. And I look forward to achieving it and to updating as we move forward on the topline value growth that obviously is very accretive to the bottom line margins.

We've recently issued our first corporate Sustainability or ESG Report, reviewing the variety of our global activities, providing in-depth information about our sustainability policies, programs and goals. As a company, we've always had an overriding focus to have a positive impact on society and to minimize any negative impact on our planet and to do what we can to have a positive impact on the planet. We're very proud of our activities. We invite you to read our report, it's available on our website.

We have a package that I referred to before the call or I'm sorry as I was talking about utilizations that will publish now that the call is ending, that summarizes all of the numbers, highlights, activities, utilizations in the company. Please as per your interest, look at that. I think, it's a complete package. And, lastly, we'll be participating at the 24th Annual Needham Growth Conference on January 10th and we look forward to meeting as many of you as possible during that event, albeit virtually, but still look forward to it very much.

With that, I thank you and look forward to updating you as interesting happen -- things happen in the company and definitely upon the end of the quarter. So, thank you very, very much.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Noit Levy -- Senior Vice President of Investor Relations and Corporate Communications

Russell Ellwanger -- Chief Executive Officer

Oren Shirazi -- Chief Financial Officer and Senior Vice President of Finance

Rajvindra Gill -- Needham & Company -- Analyst

Lisa Thompson -- Zacks Investment Research -- Analyst

Richard Shannon -- Craig-Hallum -- Analyst

Mark Lipacis -- Jefferies -- Analyst

More TSEM analysis

All earnings call transcripts