Tower Semiconductor Ltd. — Interim / Quarterly Report 2004

Oct 21, 2004

TOWER SEMICONDUCTOR LTD. ANNOUNCES THIRD QUARTER AND NINE MONTHS 2004 RESULTS

MIGDAL HAEMEK, Israel – October 21, 2004 – Tower Semiconductor Ltd. (NASDAQ: TSEM; TASE: TSEM) today announced results for the third quarter and nine months ended September 30, 2004.

Revenues for the third quarter of 2004 totaled $35.1 million, an increase of 118 percent over $16.1 million reported in the third quarter of 2003. This is compared to revenues of $33.7 million in the second quarter of 2004.

The loss in the third quarter of 2004 was $39.4 million, or $0.60 per share, compared to a loss of $37.1 million, or $0.77 per share, in the third quarter of 2003, and compared to a loss of $36.5 million, or $0.55 per share, for the second quarter of 2004. The loss for the third quarter of 2004 includes $29.7 million of depreciation and amortization.

Revenues for the nine months ended September 30, 2004, were $96.0 million, an increase of 131 percent over revenues of $41.5 million for the nine months ended September 30, 2003. The company reported a loss of $114.4 million, or $1.78 per share in the nine months ended September 30, 2004, compared to a loss of $68.3 million, or $1.49 per share, in the nine months ended September 30, 2003. The increase in loss, as compared with the nine months ended September 30, 2003, is primarily attributed to depreciation and amortization, which was $83.2 million on the nine months ended September 30, 2004 vs. $29.6 million in the parallel period of 2003.

"Tower achieved quarter over quarter revenues growth, in spite of the industry-wide challenging market condition," said Carmel Vernia, chairman and chief executive officer of Tower. "Looking to the near future, demand and average sale price are expected to decline, resulting in lower Q4-2004 and Q1-2005 sales. Our long-term outlook remains positive based on new customers that are in various stages of designing and prototyping into the fabs. We expect to see demand increase starting in Q2-2005."

The company expects Q-4 2004 revenues to be in the range of $30 million and $33 million. The company is now targeting for positive EBITDA in the second half of 2005.

"We continue to see progress in our specialized technologies," added Mr. Vernia. "We've added two new 0.18-micron CMOS image sensor committed customers this quarter and are running prototype silicon for a 0.18-micron embedded flash customer. We also increased the amount of mixed signal designs into our fabs, all of which are expected to increase our production levels during 2005."

Further to the dismissal of the class action filed in the United States District Court for the Southern District of New York on behalf of the shareholders of the company against the company and certain of its directors and shareholders, the company was informed in September 2004 that one of the lead plaintiffs filed a notice of appeal of the decision dismissing the complaint. The Company believes that the complaint is without merit and will continue to vigorously contest it.

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The company will host a conference call to discuss these results on Thursday, October 21, 2004 at 10:00 a.m. Eastern time / 16:00 Israel time. To participate, call 1-800-500-0177 (U.S. toll-free number) or 1-719-457-2679 (international) and mention ID code: TOWER. Callers in Israel are invited to call locally, at 03-925-5910. The conference call also will be Webcast live at www.companyboardroom.com and at www.towersemi.com. The call will be available on both Web sites for replay for 90 days.

About Tower Semiconductor Ltd.

Tower Semiconductor LTD. is a pure-play independent wafer foundry established in 1993. The company manufactures integrated circuits with geometries ranging from 1.0 to 0.13 micron; it also provides complementary technical services and design support. In addition to digital CMOS process technology, Tower offers advanced non-volatile memory solutions, mixed-signal and CMOS image-sensor technologies. To provide world-class customer service, the company maintains two manufacturing facilities: Fab 1 has process technologies from 1.0 to 0.35 micron and can produce up to 16,000 150mm wafers per month. Fab 2 features 0.18-micron and below process technologies, including foundry-standard technology. When fully equipped, Fab 2 is expected to offer full production capacity of 33,000 200mm wafers per month. The Tower Web site is located at www.towersemi.com.

Safe Harbor

This press release includes forward-looking statements, which are subject to risks and uncertainties. Actual results may vary from those projected or implied by such forward-looking statements. Potential risks and uncertainties include, without limitation, risks and uncertainties associated with: (i) the completion of the equipment installation, technology transfer and ramp-up of production in Fab 2, (ii) having sufficient funds to complete the Fab 2 project, (iii) the cyclical nature of the semiconductor industry and the resulting periodic overcapacity, (iv) operating our facilities at satisfactory utilization rates, (v) the effect that our expected decrease in sales in the coming quarters will have on our ability to meet certain of the covenants stipulated in our amended facility agreement, which we currently forecast we may not meet in the next several quarters, (vi) our ability to capitalize on increases in demand for foundry services, (vii) meeting the conditions to receive Israeli government grants and tax benefits approved for Fab 2 and obtaining the approval of the Israeli Investment Center to extend the five-year investment period under our Fab 2 approved enterprise program, (viii) attracting additional customers, (ix) not receiving orders from our wafer partners and technology providers, (x) failing to maintain and develop our technology processes and services, (xi) competing effectively, (xii) our large amount of debt, and (xiii) achieving acceptable device yields, product performance and delivery times. A more complete discussion of risks and uncertainties that may affect the accuracy of forward-looking statements included in this press release or which may otherwise affect our business is included under the heading "Risk Factors" in our most recent Annual Report on Form 20-F and in our Form F-3, as amended, as were filed with the Securities and Exchange Commission and the Israel Securities Authority.

PR Agency Contact

Matt Beevers

Pacifico, Inc.

+1 (408) 293-8600

mbeevers@pacifico.com

Investor Relations Contact

Sheldon Lutch

IR & Communications

+1 (212) 268 1816

sheldon@fusionir.com

Corporate Contact

Michael Axelrod

Tower Semiconductor USA

+1 (408) 330 6871

pr@towersemi.com

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Tower Semiconductor LTD. and Subsidiary Consolidated Balance Sheets (dollars in thousands, except share data and per share data)

	September 30, 2004	December 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$ 21,877	$ 12,448
Designated cash and short-term interest-bearing deposits	36,576	44,042
Trade accounts receivable	25,961	11,631
Other receivables	18,385	11,073
Inventories	30,371	19,382
Other current assets	1,243	1,729
Total current assets	134,413	100,305
LONG-TERM INVESTMENTS
Long-term interest-bearing deposits designated for Fab 2 operations	4,934	4,848
Other long-term investments	6,000	6,000
	10,934	10,848
PROPERTY AND EQUIPMENT, NET	613,561	568,412
OTHER ASSETS, NET	97,961	108,770
TOTAL ASSETS	$ 856,869	$ 788,335
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable	$ 61,202	$ 40,249
Other current liabilities	9,082	9,564
Total current liabilities	70,284	49,813
LONG-TERM DEBT	497,000	431,000
CONVERTIBLE DEBENTURES	25,643	25,783
LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES	65,069	46,347
OTHER LONG-TERM LIABILITIES	7,792	5,935
Total liabilities	665,788	558,878
SHAREHOLDERS' EQUITY
Ordinary shares	16,260	13,150
Additional paid-in capital	517,258	427,881
Proceeds on account of share capital	--	16,428
Shareholder receivables	(26)	(26)
Accumulated deficit	(333,339)	(218,904)
	200,153	238,529
Treasury stock, at cost	(9,072)	(9,072)
Total shareholders' equity	191,081	229,457
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 856,869	$ 788,335

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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except share data and per share data)

	Nine months ended September 30,		Three months ended September 30,
	2004	2003	2004	2003
SALES	$ 95,990	$ 41,545	$ 35,091	$ 16,074
COST OF SALES	162,242	75,816	57,843	38,548
GROSS LOSS	(66,252)	(34,271)	(22,752)	(22,474)
OPERATING COSTS AND EXPENSES
Research and development	11,208	12,551	3,952	3,895
Marketing, general and administrative	16,176	17,064	5,155	6,300
	27,384	29,615	9,107	10,195
OPERATING LOSS	(93,636)	(63,886)	(31,859)	(32,669)
FINANCING EXPENSE, NET	(20,907)	(4,293)	(7,567)	(4,264)
OTHER INCOME (EXPENSE), NET	108	(87)	14	(153)
LOSS FOR THE PERIOD	$ (114,435)	$ (68,266)	$ (39,412)	$ (37,086)

BASIC LOSS PER ORDINARY SHARE

Loss per share (*)	$ (1.78)	$ (1.49)	$ (0.60)	$ (0.77)
Weighted average number of ordinary shares outstanding - in thousands (**)	64,392	45,788	65,625	48,360

(*) Basic and diluted loss per share data in accordance with U.S. GAAP are the same as the Isr. GAAP data for the nine and three months periods ended September 30, 2004 and 2003

(**) Weighted average number of ordinary shares outstanding in accordance with U.S. GAAP would be 64,280 thousands and 65,625 thousands for the nine and three months ended September 30, 2004 [45,788 thousands and 48,360 thousands in the nine and three months ended September 30, 2003, respectively].