Company's Q3 2025 Earnings Call: Contradictions Emerge on SiPho Capacity, Utilization, and Market Growth

Date of Call: November 10, 2025

Financials Results

• Revenue: $396M, up 7% YOY and up 6% sequentially (Q3 2025)
• EPS: $0.48 basic and $0.47 diluted, up from $0.42 basic and $0.41 diluted in Q2 2025
• Gross Margin: 24% (Q3 2025; $93M gross profit, up 16% sequentially from $80M in Q2 2025)
• Operating Margin: Operating profit $51M (≈12.9% of revenue), up 27% sequentially vs $40M in Q2 2025

Guidance:

• Q4 2025 revenue guided to $440M ±5% (record quarter).
• 2025 silicon photonics revenue targeted >$220M; Q4 SiPho run rate >$320M; plan to increase SiPho start capability by >3x within ~4 quarters.
• Additional $300M CapEx added to prior $350M (total SiPho/SiGe CapEx plan $650M); CapEx expected to enable capacity in H2'26.
• Long-term target at full loading: $2.7B revenue, $560M operating profit, $500M net profit.
• Newport Beach lease extension: $105M upfront cash; $6M/quarter P&L COGS impact booked over 5 years.

Business Commentary:

• Revenue Growth and Market Demand:
• Tower Semiconductor reported Q3 2025 revenue of $396 million, resulting in a net profit of $54 million.
• The company guided a Q4 revenue record of $440 million, plus/minus 5%.

• This growth was driven by increasing demand momentum in its served markets and the impact of manufacturing capability expansions for new silicon photonics and silicon germanium capabilities.

• Silicon Photonics Expansion:

• Silicon Photonics business grew by approximately 70% compared to the third quarter of 2024, reaching $52 million in Q3 2025.
• The demand surge is attributed to a strong ramp in 1.6T products and robust 400G and 800G demand.

• Tower is expanding capacity with its advanced SiPho platforms in Fab 9, San Antonio, and expects multiple thousands of revenue wafers in Q4 2025.

• RF Infrastructure and Silicon Germanium Growth:

• RF infrastructure business increased its contribution to corporate revenue from $67 million (18%) in Q3 2024 to $107 million (27%) in Q3 2025.
• Silicon germanium demand is rising due to data center build-outs and the adoption of linear pluggable optics, with RF infrastructure expected to grow by 75% for the year.

• Tower started silicon germanium production in Fab 2, with contributions projected to ramp throughout 2026 and deliver high volumes thereafter.

• SiGe and Display Technologies:

• Display technologies represented 14% of Q3 2025 corporate revenue and are expected to show mid-teens full-year-over-year growth.
• The growth is driven by the supply of OLED display backplane silicon and advancements in machine vision, where Tower supplies a second-largest player and other key customers.<
  

  Sentiment Analysis:

  Overall Tone: Positive

  • CEO: "we guide our fourth quarter to be a revenue record of $440 million, plus/minus 5%"; CEO: "present and future pathway for unprecedented growth"; CFO: "assets totaled over $3 billion...shareholders' equity reached a record of $2.8 billion."
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Q&A:

• Question from Cody Acree (Investment Bank): You said that the incremental $300 million was already considered in your $2.77 billion total revenue expectations long term. Is that right?
  Response: Yes — the additional $300M is included in the long-term $2.7B revenue target and may accelerate the timing to achieve it.

• Question from Cody Acree (Investment Bank): What’s the give and take of that extra CapEx; what accelerated pace do you expect?
  Response: The extra CapEx accelerates reaching the $500M net profit run rate, enabling higher profits sooner.

• Question from Cody Acree (Investment Bank): Can you talk about applications driving the aggressive growth in RF infrastructure?
  Response: Data-center build-outs: high-volume 400G/800G and a rapid ramp into 1.6T (≈30% of starts) are the primary drivers.

• Question from Tavy Rosner (Barclays Bank PLC, Research Division): Who are your main competitors in silicon photonics and are you considering raising prices given the supply-demand imbalance?
  Response: Not pursuing opportunistic price hikes; focused on long-term customer partnerships and expanding capacity instead of price gouging.

• Question from Tavy Rosner (Barclays Bank PLC, Research Division): Do you see changes in competitive dynamics or others deploying capital to take share?
  Response: Competitors may try, but Tower's manufacturing and technology leadership make it difficult for others to displace them today.

• Question from Richard Shannon (Craig-Hallum Capital Group LLC, Research Division): You said the shift to silicon photonics is permanent—can you explain?
  Response: SiPho offers durable cost and performance advantages vs EML (e.g., ~half the lasers), driving long-term market-share stickiness.

• Question from Richard Shannon (Craig-Hallum Capital Group LLC, Research Division): What mix do you expect of 1.6T versus slower speeds next year?
  Response: 1.6T is ~1/3 of current starts and is expected to exceed 50% within several quarters next year.

• Question from Richard Shannon (Craig-Hallum Capital Group LLC, Research Division): What timeframe to reach full utilization for the increased SiPho capacity (3x)?
  Response: Full installation expected in H1'26 with start capability in H2'26; shipments lag ~3–4 months after starts, so revenue ramps mainly H2'26 (could extend into Q1'27).

• Question from Richard Shannon (Craig-Hallum Capital Group LLC, Research Division): How should we think about gross-margin fall-through and depreciation with SiPho growth?
  Response: Q3 gross margin 24% ($93M); incremental margins ~50% expected, partially offset by Newport Beach $6M/quarter COGS and additional depreciation (~$10M/quarter as $600M CapEx phases in).

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division): Are you baking in increased content on transceivers (receive side) as part of the opportunity?
  Response: Receive is incremental but currently the 3x capacity plan is driven mostly by transmit; 300mm receive production begins in Q4 and receive will add content later.

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division): How would the 3x SiPho capacity increase split between increased content versus units shipped?
  Response: The 3x increase primarily reflects units (transmit); very little receive content is included today.

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division): Would you need to increase capacity again as customers migrate to receive SiGe with SiPho?
  Response: Yes — Tower would expand capacity as receive demand grows and it has platforms ready to support that expansion.

• Question from Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division): Any update on packaging R&D and commercialization timing (CPO/NPO)?
  Response: Working with a leading packaging house on CPO/NPO and TSV; progress is real but CPO commercialization is likely a few years away.

• Question from Lisa Thompson (Zacks Investment Research, Inc.): Is 3.2T likely to require a new technology or can existing approaches solve it?
  Response: Do not expect an entirely new technology; working on three modulation pathways (including indium phosphide options) and believe 3.2T is addressable.

• Question from Lisa Thompson (Zacks Investment Research, Inc.): Is SiPho revenue totally gated by capacity—if you can build it, is demand there?
  Response: Yes — demand exists; revenue is currently capacity-constrained.

• Question from Lisa Thompson (Zacks Investment Research, Inc.): When will you start reporting Agrate utilization?
  Response: They could start reporting Agrate utilization anytime; currently in the first ramp but willing to disclose utilization metrics.

• Question from Richard Shannon (Craig-Hallum Capital Group LLC, Research Division): How do you plan to secure more 300mm capacity—partnerships, greenfield, or organic?
  Response: Would pursue organic options rather than ST/Intel-style partnerships; more detail to be provided in the Q4 release.

Contradiction Point 1

SiPho Capacity Increase and Utilization

It involves differing statements about the capacity increase and utilization timeline for Silicon Photonics, which impacts production and sales expectations.

When do you expect full utilization of silicon photonics, and how is capacity growth split between content and transceiver units shipped? - Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division)

2025Q3: We expect to achieve full utilization within the first half of '26, with increased capacity available in the second half. - Russell Ellwanger(CEO & Director)

Are you fully booked through year-end? Do you have capacity to support near-term growth? - Cody Grant Acree (The Benchmark Company, LLC, Research Division)

2025Q2: We are at 60% utilization in Fab 2 and Fab 9. While focused on current customer qualifications, there's capacity for immediate upsides. - Russell C. Ellwanger (CEO & Director)

Contradiction Point 2

SiPho Market Growth and Demand

It involves differing statements about the expected market growth and demand for Silicon Photonics, impacting revenue projections.

Is the additional $300 million CapEx already included in the long-term total revenue guidance of $2.77 billion? What is the expected accelerated pace of capital spending, and what are the trade-offs associated with that additional CapEx? - Cody Acree (Investment Bank)

2025Q3: For SiPho, we expect to double 2024 revenues in 2025. - Russell C. Ellwanger (CEO & Director)

Can you discuss the Silicon Photonics receive function and its market potential? - Richard Cutts Shannon (Craig-Hallum Capital Group LLC, Research Division)

2025Q2: We expect a doubling in SiPho demand by the end of 2026 compared to current levels. - Russell C. Ellwanger (CEO & Director)

Contradiction Point 3

Silicon Photonics Growth and Market Share

It involves the rate of growth and market share of the silicon photonics segment, which is a key focus area for the company's growth strategy.

When do you expect full utilization of silicon photonics, and how is the capacity increase split between content growth and transceiver unit shipments? - Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division)

2025Q3: We expect to achieve full utilization within the first half of '26, with increased capacity available in the second half. - Russell Ellwanger(CEO & Director)

Did you achieve the $150 million run rate target for silicon photonics in Q4, and is this assumption still valid for 2025? - Matthew Bryson (Wedbush)

2024Q4: We remain confident in our ability to execute as we continue to ramp towards our target of $150 million annualized revenue for 2025. - Russell Ellwanger(CEO & Director)

Contradiction Point 4

Capacity Increase and Utilization in Silicon Photonics

It involves differing expectations regarding the timing and extent of capacity increases and full utilization in the silicon photonics segment, which is crucial for understanding the company's growth strategy and production capabilities.

When do you expect full utilization of silicon photonics, and how is the capacity increase split between content growth and transceiver units shipped? - Mehdi Hosseini (Susquehanna Financial Group, LLLP, Research Division)

2025Q3: We expect to achieve full utilization within the first half of '26, with increased capacity available in the second half. - Russell Ellwanger(CEO & Director)

Can you update us on the utilization status of silicon germanium and silicon photonics, and the timeline for capacity expansion? - Richard Shannon (Craig Hallum)

2025Q1: SiGe and SiPho have continued growth and high demand. Capacity increases are expected in Q2 and further increments in Q3 and Q4, supported by cross qualifications and additional capacity. - Russell Ellwanger(CEO & Director)