Can Tower's Price Be Talked Up?

Globes writes:

Tower has not disclosed the value of the contract with International Rectifiers (IR) announced today, but company CEO Russell Ellwanger says IR has undertaken to order 1,000 silicon wafers per week, while for its part Tower has undertaken to supply at least 2,000 wafers per week. In other words, this is a take-or-pay contract, with obligations on both sides. IR will finance the extra equipment required to manufacture its product. Revenue under the agreement will be recognized in the second half of 2007.

Tower's market cap is $115 million. What are you doing wrong, if the business is making progress but not the share? Ellwanger "The fundamentals at the company are right. We gave good forecasts for the third quarter in the past, and we haven't changed them, so we intend to meet them. We're on a good path, and we are executing on everything we promised. We had two quarters with record revenue, and the third quarter will continue the trend. For the fourth quarter, we promised positive cash flow from operations, and we hope to deliver. That will undoubtedly be a great thing for the investors. We also hope that that if we continue with good performance, the share will catch up with the trend. It simply must happen, because we're achieving all our goals. I think that perhaps we haven't explained the Tower story sufficiently well in the US. We had a small road show in New York at the Unterberg conference, for example, but it's our responsibility to get the message across better. In October, we hope to visit more institutional investors, and to give the matter emphasis."

Tower will have to persuade these investors that its balance sheet, with the huge debt to the banks, is not a millstone around its neck as far as performance is concerned, and does not represent a risk. On the revenue side, it will have to persuade them that all these contracts it has announced recently will be translated into a high growth rate. In that respect, there is one more thing that could provide the company with some upside in the near future, even if Ellwanger doesn't mention it explicitly: the acquisition of M-Systems by SanDisk. SanDisk is committed to Tower, and has proved this several times in the past. It seems only logical that the controllers M-Systems currently procures elsewhere will start to be produced, at least in part, at Tower, after the takeover by SanDisk is completed.