Key Takeaways:
Tower Semiconductor reported Q2 revenue of $460 million, up 24 percent year over year, beating the $454.7 million consensus.
"I'm truly excited to share with you the status, progress, and future outlook potentials for Tower," CEO Russell Ellwanger said on the earnings call.
Gross profit rose 72 percent to $138 million, with gross margin hitting a record 30 percent. Operating profit more than doubled to $90 million, and net profit climbed 95 percent to $91 million. Diluted EPS nearly doubled to $0.79 from $0.41 a year earlier. Adjusted EPS came in at $0.88, topping Wall Street expectations of $0.76.
Management guided Q3 revenue to $520 million at the midpoint, implying an annualized run rate above $2 billion for the first time. CFO Oren Shirazi said the revised 2028 revenue target is $760 million above the February 2026 model, with gross profit $510 million higher. The company now targets $3.6 billion in revenue with a 33 percent net margin, up from $2.84 billion and 26 percent previously.
Silicon photonics drove the quarter. Revenue from the segment increased more than 60 percent sequentially and over 270 percent year over year, reaching an annualized run rate above $680 million. Tower targets a $1 billion run rate by Q4 2026 as previously announced capacity expansion completes qualification. The company disclosed customer contracts representing approximately $1.3 billion in silicon photonics revenue for 2027, with higher growth expected in 2028.
RF infrastructure, which includes silicon photonics, accounted for 49 percent of Q2 revenue, growing 43 percent sequentially and more than 140 percent year over year. RF mobile represented 12 percent of revenue, with 300mm RF SOI revenue down 14 percent year over year as Tower consolidates manufacturing into Fab 7. Power management grew year over year to 14 percent of revenue, driven by high-performance-computing power delivery. Sensor/Display held at 12 percent, with demand surging in machine vision for semiconductor and EV battery inspection.
Tower announced a dual-track 300mm expansion in Japan supported by METI. Track 1 repurposes the Arai facility for silicon photonics and advanced packaging, with production readiness expected in Q4 2027. Track 2 constructs an adjacent fab that will more than quadruple Japanese 300mm output, targeting operational status by Q4 2028. The company said the expansion will be funded through internal cash generation with no equity dilution, and has already received $290 million in customer prepayments.
The $920 million silicon photonics and silicon germanium capital expenditure program is on track, with roughly half paid through Q2 2026. Tower also signed a multi-year epitaxial wafer supply agreement with IQE for III-V materials and reached a milestone with Marvell, shipping multi-million coherent optical modules. Ellwanger said Tower remains qualified at lead customers worldwide with contracts lasting through 2028, pushing back against competition from GlobalFoundries, STMicro and Samsung.
Shares rose 3.03 percent to $241.42 on Tuesday. The stock trades 36 percent above its 200-day moving average of $169.57 but 7.2 percent below its 50-day average of $248.38.
The guidance raise points to management's expectation that AI-driven optical connectivity demand will accelerate through 2027. Investors will watch the Q4 2026 silicon photonics run rate milestone and the Track 1 Japan qualification timeline as the next events to monitor.
This article is for informational purposes only and does not constitute investment advice.
