Tower Semiconductor (TSEM) Q1 FY26 earnings call: guidance and Q&A

How does Tower's content and opportunity change as the industry transitions from pluggable transceivers to near-package optics (NPO) and co-package optics (CPO)?

Russell stated that content will evolve with integrated lasers, different material modulators for higher speeds, and Through-Silicon Via for 3D packaging. He emphasized that pluggables will remain strong through 2030, with NPO and XPO emerging and preceding CPO. Tower expects to maintain leadership in these new form factors, leveraging its current strong position in pluggables.

“Pluggables are not going away at all. Pluggables will stay extremely strong at least through the 2030.”

asked by Mehdi Hosseini · answered by Russell Ellwanger

Given extended visibility for SiPho, does this translate to visibility for SiGe, and is there a ratio to understand SiGe opportunities?

Russell confirmed that SiPho and SiGe are very much hand-in-hand, as increased SiPho ports drive a similar increase in demand for SiGe-based TIAs and drivers. He noted that SiPho demands higher margins than SiGe, leading to lower revenue growth for SiGe compared to SiPho, but unit volumes track closely.

“As the ports increase and the movement to SiPho increases, that obviously, the SiPho grows. As the ports increase as well, the need for TIAs and drivers increases pretty much at the same ratio.”

asked by Mehdi Hosseini · answered by Russell Ellwanger

Clarify if the $1.3 billion commitment is for 2027 wafer delivery, and what level of visibility would prompt an update to the long-term financial model.

Russell confirmed the $1.3 billion is for wafer delivery in 2027, and represents only a portion of the full volume demand from those customers. He indicated that an update to the financial model with higher numbers is likely within the next few quarters, driven by increasing 300-millimeter SiPho capacity, which is not yet included in the current model.

“The timing of updating a model to higher numbers, I would believe, will be within the next quarters.”

asked by Cody Acree · answered by Russell Ellwanger

What is the potential revenue capacity scale for SiPho from the Japan expansion, and are there concerns about a SiPho capacity shortage before this expansion is complete?

Russell explained that the new Fab 7 shell in Uozu is expected to be ready for tools by H1 2028, with an interim step to increase capacity within existing TPSCo footprint using tools applicable to the full build. He expressed confidence in meeting customer demand in 2027 through these interim steps and existing footprint expansion, mitigating worries about a shortage.

“Our plan is certainly to meet customers' demand within '27 while developing. Developing meaning building the shell that is substantially big.”

asked by Richard Shannon · answered by Russell Ellwanger

How did gross margins increase so significantly in Q1 FY26 despite sequentially lower revenues?

Oren stated that the increase is consistent with their model, which assumes incremental revenue contributes 59% to gross profit. The Q1 FY26 gross margin reached 27%, up from 20% in Q1 FY25, indicating progression towards their 39% target at $2.8 billion annual revenue. This is primarily due to selling more newer, higher-margin products.

“In our model, you'll see that we assumed incremental revenue coming at 59% to the gross profit over a baseline, which was 20% a year ago.”

asked by Lisa Thompson · answered by Oren Shirazi

What is Tower's current SiPho market share and where is it headed, considering competitors like GlobalFoundries and TSMC?

Russell stated that he believes Tower is "certainly the leading market share and by far, the leading market share in silicon photonics presently" and sees no reason for that to change. He declined to give a specific percentage.

“I think that we're certainly the leading market share and by far, the leading market share in silicon photonics presently. And I see no reason why that should change.”

asked by Sreekrishnan Sankarnarayanan · answered by Russell Ellwanger

How should one think about RF mobile performance in 2026 versus 2025, given the Q1 QoQ decline?

Russell explained that the Q1 QoQ decline was due to a strong Q4 2025 and the ongoing transition from 200mm to 300mm RFSOI. He expects full-year 2026 RFSOI revenue (200mm + 300mm) to be down YoY, but anticipates record growth for 300mm RFSOI in 2027 and 2028 due to multiple awarded design wins for future phone models.

“I would see the whole year being down against the previous year even at 300-millimeter. But then I would expect that in '27 and '28, it will be record growth for the RFSOI at 300-millimeter.”

asked by Mehdi Hosseini · answered by Russell Ellwanger

How does Tower compete with TSMC's "one-stop shop" approach for CPO, especially with large integrated players like NVIDIA, and how does Tower's hybrid strategy fit?

Russell acknowledged TSMC's dominance in deep digital content but highlighted Tower's value in providing superior PICs (Photonic Integrated Circuits) with advanced modulation using 3, 5, and other materials. He suggested that Tower's PICs could become reference designs for major integrators, potentially used by TSMC in their COUPE platform, emphasizing Tower's focus on modulation for CPO. He noted that TSMC as a one-stop shop for extreme deep digital content is 100% accurate.

“I believe that the big benefit that we will add is by having PICs that are extremely beneficial because of the performance of the PIC itself.”

asked by Cody Acree · answered by Russell Ellwanger