Tower Semiconductor (TSEM) Q4 FY25 earnings call: guidance and Q&A

Clarification on the nature of the NVIDIA collaboration, specifically if Tower will be manufacturing transceivers or providing broader services within the module.

Tower's role in the module relates to the output parameters of its photonics, TIAs, or drivers, but the company does not directly ship photonics to NVIDIA. The partnership involves alignments on supply needs and commitments through module customers.

“the part of our role in the module is the output parameters of our photonics or of the TIA or of the drivers or of the -- for the pluggable or as well for the copper or optical cable. But the partnership is referring to the fact of alignments and needs directly and through our module customers and understandings of supply needs and commitments on supply shipments.”

asked by Mehdi Hosseini · answered by Russell Ellwanger

Whether the 5x capacity increase for silicon photonics and silicon germanium includes incremental demand from NVIDIA and its partners.

The 5x capacity increase refers to the total capacity being built to meet overall demand, including that from NVIDIA and partners. It targets a 5x increase in silicon wafer capacity compared to Q4 '25 shipments.

“Yes, that's referring to total demand. Well, I wouldn't say it's necessarily referring to total demand. It's an answer to demand, but it's the actual capacity that we're building. So if you look at what we had referred to as the $380 million run rate that we had in Q4, take off of that some small amount of NRE, which we don't specify, the silicon wafers that we shipped for the fourth quarter, that exact amount of silicon wafers by capacity, we plan to have 5x more of that in the fourth quarter of 2026.”

asked by Mehdi Hosseini · answered by Russell Ellwanger

Confirmation if Tower is shipping directly to NVIDIA or through resellers.

Tower does not ship photonics directly to NVIDIA; it ships through other module makers or integrators. Specific project details with NVIDIA beyond the press release cannot be disclosed.

“That is correct. We -- as far as the photonics itself, we do not ship that directly to NVIDIA. And as far as specifics of projects or activities that we're doing with NVIDIA, that anything that was not specifically stated in the PR, I would not be at liberty to talk about. But as far as the present photonics -- silicon-based photonics ICs, they are all being designed by and shipped through other module makers or integrators.”

asked by Tavy Rosner · answered by Russell Ellwanger

Inquiring if the additional CapEx could come online sooner than the stated end of 2026.

The biggest portion of the $920 million CapEx should be fully qualified by the third quarter of 2026, with tools arriving between now and mid-third quarter. While minor delays are possible, the capacity will be available and utilized due to committed demand.

“The capacity qualification ramp will be happening throughout the year. So it will -- the biggest portion of this $920 million should easily be online, I mean, fully qualified within the third quarter -- on or before the third quarter with growth happening in the first and the second quarter as well. The most recent orders that we've done also have tools that are coming in, in the second quarter.”

asked by Tavy Rosner · answered by Russell Ellwanger

Seeking more color on expectations for silicon photonics contribution in 2026 and 2027, given the 70% commitment and prepaid capacity.

The demand for SiPho is strong and committed, with visibility extending through 2028. The ramp profile is primarily an operational execution challenge, with technical work largely behind them. The company is confident in hitting its 2028 model due to customer commitments and prepayments.

“The demand is there. Certainly, we're very aware of the demand. Right now -- if your question is really on the ramp profile, the ramp profile is pure operational execution at this moment. I mean there's some technical execution still.”

asked by Cody Grant Acree · answered by Russell Ellwanger

Concerns about ongoing memory shortages or increased prices impacting unit volumes in the handset market and the mobile business.

There is concern about external market factors like memory shortages. The company works closely with customers for planning and has the flexibility to backfill capacity with other products if demand for certain lower-margin products declines, ensuring fixed costs are absorbed.

“Cody, I mean there's always a concern when you have something in the market that you yourself have no say in or control of. So yes, there's definitely a concern there. We work with our customers closely to understand what their inventory levels are.”

asked by Cody Grant Acree · answered by Russell Ellwanger

Clarification on whether the 2028 financial model represents a run rate or full-year achievement.

The company targets to achieve the model within the calendar year 2028, and definitely by run rate. While a full-year achievement is possible and desired, the commitment is for within the year.

“Yes. No, certainly, we will achieve it by run rate and we target to get a full year. But what we stated is that it would be achieved within the year. So we're -- our target and what I've stated is that is our target. One could definitely believe that we will hit it by run rate. And nominally, we'd love to hit it for full year. And it's possible.”

asked by Unknown Analyst · answered by Russell Ellwanger

Request for the exact dollar amount of the one-time tax benefit recorded in Q4.

The one-time tax benefit was approximately $10 million, representing the difference between the actual $1.5 million tax expense and an estimated $12 million-$13 million if a 15%-17% tax rate had applied to the $81 million pretax income.

“It's approximately the difference between if we had 15% tax or 16% or 17% by the model, which is about from the $81 million pretax income we should have like have a tax expense of about 15% to 17% of that. So about like $12 million, $13 million. Instead of that, we have $1.5 million. So the gap is about $10 million.”

asked by Lisa Thompson · answered by Oren Shirazi