Tower Semiconductor Q1 2025 Earnings Report

Tower Semiconductor EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.36
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $0.40

Tower Semiconductor Revenue Results

• Actual Revenue: $358.17 million
• Expected Revenue: $358.09 million
• Beat/Miss: Beat by +$78.00 thousand
• YoY Revenue Growth: +9.40%

Tower Semiconductor Announcement Details

• Quarter: Q1 2025
• Date: 5/14/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 14, 2025
• Conference Call Time: 10:00AM ET

Tower Semiconductor (NASDAQ:TSEM), an independent semiconductor foundry, focus on specialty process technologies to manufacture analog intensive mixed-signal semiconductor devices in Israel, the United States, Japan, Europe, and internationally. It provides various customizable process technologies, including SiGe, BiCMOS, mixed signal/CMOS, RF CMOS, CMOS image sensor, integrated power management, and MEMS. The Company also provides design enablement platform for quick and accurate design cycle, as well as transfer optimization and development process services to integrated device manufacturers and fabless companies. It serves various markets, such as consumer electronics, personal computers, communications, automotive, industrial, aerospace, military, and medical device products. The company was incorporated in 1993 and is headquartered in Migdal Haemek, Israel.

Tower Semiconductor Q1 2025 Earnings Call Transcript

Key Takeaways

• Tower reported Q1 2025 revenue of $358 million and net profit of $40 million, and guided Q2 to $372 million ± 5% with sequential growth expected throughout 2025.
• The RF infrastructure segment surged from 14% to 22% of revenue year-over-year, driven by record silicon photonics and silicon germanium ramps, with an 800 G to 1.6 T optical transceiver market expected to grow at a 49% CAGR.
• Power management revenues jumped from 10% to 18% of sales on a new 300 mm BCD envelope tracker platform and strong high-voltage 200 mm demand for automotive and industrial applications.
• With a global footprint and proactive cross-qualification of processes across fabs, Tower believes it can redirect capacity to mitigate tariff-related uncertainties and capture demand anywhere it emerges.
• Machine vision and 3D depth-sensor imaging orders have rebounded as customers burn off inventories and place new orders for global-shutter and SPAD pixel technologies, with 2H 2025 revenue upside anticipated.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Tower Semiconductor First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer speakers' there'll a Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms.

[Operator]

Noit Levy, Senior Vice President of Investor Relations and Human Resources. Please go ahead.

[Noit Levy, Senior Vice President of Investor Relations & Corporate Communications at Tower Semiconductor]

Thank you, and welcome to Tower Financial Results Conference Call for the First Quarter of twenty twenty five. Before we begin, I would like to remind you that some statements made during this call may be forward looking and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our Forms 20 F and six ks filed with the Securities and Exchange Commission, as well as filings with the Israeli Security Authority. They are also available on our website. Tower assumes no obligation to update any such forward looking statements.

[Noit Levy, Senior Vice President of Investor Relations & Corporate Communications at Tower Semiconductor]

Please note that the first quarter of twenty twenty five financial results have been prepared in accordance with U. S. GAAP. The financial tables and data in today's earnings release and in this earnings call also include certain adjusted financial information that may be considered non GAAP financial measures under Regulation G and related reporting requirements as established with the Securities and Exchange Commission. The financial tables include a full explanation of these measures and a reconciliation of these non GAAP measures to the GAAP financial measures.

[Noit Levy, Senior Vice President of Investor Relations & Corporate Communications at Tower Semiconductor]

We have a supporting slide deck that complements today's conference call. This presentation is accessible on our company's website and is also integrated into today's webcast for your convenience. Now, I'd like to turn the call to our CEO, Mr. Russell Elwanger. Russell, please go ahead.

[Russell Ellwanger, CEO at Tower Semiconductor]

Hello, everyone. Thank you for joining our call today. It is a pleasure to have the opportunity update on our activities and progress. We opened 2025 with a quarterly revenue of $358,000,000 with a net profit of $40,000,000 We guide the second quarter of twenty twenty five to a midpoint of $372,000,000 plus or minus 5% and affirm our target for year over year growth with sequential revenue increases throughout 2025 and with strong acceleration in the second half as our multi fab capacity investments complete customer qualifications and ramp into production. The overall market experienced uncertainty due to tariffs and related policy shifts.

[Russell Ellwanger, CEO at Tower Semiconductor]

However, tower offers a clear advantage to our customers through our global footprint and proactive cross qualification of all major process flows across our sites. Our global manufacturing flexibility, combined with the strength of our wide technical offerings, give us an immediate opportunity to grow wherever demand emerges or constraints occur. We will now present first quarter twenty twenty five revenue breakdown whilst adding some flavor for the year. Please reference Slide number four. In looking at our first quarter revenue breakdown, we see two significant year over year shifts.

[Russell Ellwanger, CEO at Tower Semiconductor]

Firstly, RF Infrastructure has grown from 14% of our total revenue in Q1 twenty twenty five to 22%, and this at a higher corporate revenue level. Secondly, Power grew from 10% to 18% of our corporate revenue, a very important shift resulting from a share gain in a new served market, which we will refer to shortly. In our RF infrastructure business, we continue to see growth driven by data center and AI expansions served by our silicon photonics and silicon germanium technologies for optical fiber communications. The first quarter of twenty twenty five continued record revenue levels for these two technologies. As we look toward the second quarter, we see further strong sequential increases with continued growth forecasted in the third and again in the fourth quarter of the year.

[Russell Ellwanger, CEO at Tower Semiconductor]

Silicon photonics continues to displace traditional EML solutions at 800 gigabit per second and is anticipated to increase further at 1.6 terabit per second for which we are presently in a production ramp. The market shift to silicon photonics combined with the expected 800 gs and 1.6T optical transceiver five year CAGR of 49% based on light counting reports, provides ample opportunity for tower revenue and blended margin growth in the years to come. Please reference slide number five. In addition to being a driver within these strong market dynamics, we continue to invest in next generations of technology to maintain our very high market share in silicon photonics. For example, this past quarter, we announced a new technology that enabled InnoLight to reduce the number of external lasers used per 800 gs module by a factor of two, and hence substantially reducing the transceiver cost.

[Russell Ellwanger, CEO at Tower Semiconductor]

We also announced with OpenLight the achievement of a 400 gigabit per lane modulator performance enabling next generations of 3.2T products. To our knowledge, this is the first demonstration of a 400 gigabit per second modulator integrated on an eight inches silicon wafer. Please reference slide number six. Along with silicon photonics, silicon germanium is growing strongly with continued adoption for TIAs and drivers in optical modules, which are benefiting from the same strong market dynamics. Longer term, we see adoption of silicon germanium in satellite terrestrial receivers, as well as in low noise amplifiers for the most advanced handsets, providing additional growth factors for this high margin segment of our business.

[Russell Ellwanger, CEO at Tower Semiconductor]

In 2024, the handset market demonstrated about 7% growth, with towers RF SOI year over year growth being at about 30%. This year, the handset market is currently forecasted to see flat to minimal growth, creating a situation where our RF SOI customers are now burning off some inventories. However, our handset markets are overall growth, being more than compensated by a new served market for tower, namely envelope cracker served by our highly differentiated custom developed power management 300 millimeter BCD platform. We expect this to continue to grow and provide a strong revenue stream for multiple years. Finally, in power management, we are seeing a strong rebound in both our high voltage 200 millimeter platforms as well as continued strong growth in our 300 millimeter BCD platforms.

[Russell Ellwanger, CEO at Tower Semiconductor]

Our higher voltage 200 millimeter power business serving automotive, industrial and consumer applications are in the midst of a strong ramp. In 300 millimeter BCD, we are primarily benefiting from the strong ramp of new business serving the handset market, namely envelope tracker, as previously mentioned. An envelope tracker is used in advanced handsets to improve battery life by interacting closely with the baseband to dynamically adjust the operating point of the power amplifier, minimizing wasted energy. Our current ramp is in support of a major new handset with a newly introduced custom baseband that is coupled with our direct customers envelope tracker. The 300 millimeter business is expected to grow strongly as we continue to qualify additional products and ramp the large capacity we have available in the Albuquerque facility.

[Russell Ellwanger, CEO at Tower Semiconductor]

We are seeing a market rebound in our machine vision sensor business, both in 200 millimeter and 300 millimeter. Customers have consumed their inventories and are placing orders not just for existing SKUs, but also for new sockets, demonstrating refreshed vibrance in this market. This includes not only the traditional machine vision market using our global shutter pixel technology, but also three d depth centers direct time of flight based on our SPAD pixel technology for robotics and auto focus applications. The impact of this rebound is expected to be seen in the revenue of the second half of this year. Utilization.

[Russell Ellwanger, CEO at Tower Semiconductor]

In the first quarter, Fab '2, we continued to build the additional SiGe capacity, operated at approximately 55% utilization. Fab three is at 80% utilization, FabFive at 65%, growing with the increased high voltage power management demand, and FabSeven 300 millimeter was fully utilized with the highest process layers to date, with additional activities allowing us to be well above our 85% utilization model. Fab nine was at 70% utilization. To note, as previously stated, Fab two and Fab nine are in the midst of repurposing towards silicon germanium and silicon photonics with available capacity awaiting full customer qualification. In summary, we are pleased with progress across all areas.

[Russell Ellwanger, CEO at Tower Semiconductor]

We reaffirm quarter over quarter revenue growth for the year. Silicon photonics and SiGe demand remains strong, in fact very strong, with Tier one customer alignment on next generation co development in 203 millimeter. Our 200 millimeter high voltage power is experiencing high demand with continued strong interest in 300 millimeter 65 nanometer and finer line BCD programs. The industrial image market is rebounding on top of a stable medical and camera imaging business, and we remain confident in the realization of high volume display activities. With that, I'd like to turn the call to our CFO, Mr.

[Russell Ellwanger, CEO at Tower Semiconductor]

Oren Shirazi. Oren, please.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

Thank you, Russell. Hello, everyone. Earlier today, we released our financial results for the first quarter of twenty twenty five. For the first quarter of twenty twenty five, we reported revenue of $358,000,000 representing a $31,000,000 or 9% year over year revenue increase compared to the same quarter in 2024. Gross profit and operating profit for the first quarter of twenty twenty five were $73,000,000 and $33,000,000 respectively, similar to the same quarter in 2024.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

This gross profit and operating profit benefited from the year over year revenue increase. This benefit was offset by the agrata fab fixed cost which, as previously communicated, commenced operations during the fourth quarter of twenty twenty four. Net profit for the first quarter of twenty twenty five was $40,000,000 reflecting $0.36 basic earnings per share and $0.35 diluted earnings per share. Net profit for the first quarter of twenty twenty four was $45,000,000 or $0.40 basic and diluted earnings per share and included a non recurring income tax benefit. Moving to our balance sheet and future CapEx and cash plans.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

Our balance sheet remains very strong evidenced by the following indicators and financial ratios. As of the March 2025, our assets totaled $3,100,000,000 primarily comprised of $1,300,000,000 in fixed assets, predominantly comprised of fab machinery and $1,700,000,000 of current assets. Current assets ratio is very strong at about 7x, while shareholders' equity reached a record of $2,700,000,000 at the March 2025. An additional indication of our financial strength has been awarded to us last week by Standard and Poor's Israel recent annual rating review, which reaffirmed our rating as IAA stable endorsing a stable outlook for the company. Our strong financial position allows us to invest in strategic opportunities that support our corporate vision as follows: one, we've committed to pay up to $300,000,000 to acquire equipment and CapEx in the 12 inches New Mexico fab, 15% of which has been paid and the remaining 85% is forecasted to be paid as we ramp up qualifications by end of twenty twenty six.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

As part of the STMicro partnership, 500,000,000 in cash are allocated for this Italy Twelve inches fab equipment. We've already invested 80% of such amount and the balance is expected by the end of twenty twenty five. And three, for our high margin FIFO and SIJI business, we announced we will invest $350,000,000 to expand our capacity in our eight inches fabs in Israel and Texas and in our 12 inches Wozu fab in Japan. Twenty Five Percent of such amount has been paid to date, the remaining 75% is expected to be paid by end of twenty twenty six. All of these investments, including the CIFO and CIG CapEx, are fully reflected in our previously presented strategic and financial model.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

Under this model, we target $2,700,000,000 in annual revenue at full loading of our existing fabs, including Agrate and New Mexico five sixty million dollars in annual operating profits and $500,000,000 in annual net profits. That concludes my prepared remarks. Now I'd like to turn the call back to the operator, so we can take your questions.

[Operator]

Thank you. Thank you. We will now go to the first question. And your first question comes from the line of Cody Acree from The Benchmark Company. Please go ahead.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Yes. Thanks guys for taking my questions and congrats on the progress. Russell, congrats on the new Envelope Tracking business. If we can just start there, can you just maybe help us size that business revenue wise today and then your expectations for the year and maybe as you look into the next few quarters?

[Russell Ellwanger, CEO at Tower Semiconductor]

I'm not sure I really should, being that it's very specific to a certain customer and I think not difficult to find out who that customer is. It has reached very high volumes and will continue at even higher volumes, and we were talking thousands of wafers per month.

[Russell Ellwanger, CEO at Tower Semiconductor]

But, I don't think it would

[Russell Ellwanger, CEO at Tower Semiconductor]

be proper for me to give more color than that, especially with your own reporting. I think you would specifically know exactly who we're talking about.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

And this is, gonna be accounted for in your RF mobile business. Is that correct?

[Russell Ellwanger, CEO at Tower Semiconductor]

No. The envelope tracker is in the power management.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

In power management. Okay. Awesome. That was what I talked

[Russell Ellwanger, CEO at Tower Semiconductor]

about, the increase from the 12% to the 18%.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

In the 300 millimeter, right. Okay. Awesome. Can you maybe help us with the size of your SiPho business this quarter and your expectations for the rest of the year?

[Russell Ellwanger, CEO at Tower Semiconductor]

Certainly. I think this is just in line with what we talked about when we entered the year. And there's no difference right now in what we're seeing in the growth. We finished the previous year with SIFO at about $105,000,000 and we said that we would see a doubling of that within 2025. And that's everything pretty much on track for that to occur.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. Great. And then lastly, can you maybe just actually two more questions. Can you just talk about the tone of business that you may be getting from customers in your conversations both officially and unofficially, I guess, as you're just talking to them and getting their read on the impact of the current tariff landscape?

[Russell Ellwanger, CEO at Tower Semiconductor]

There's certainly discussion about tariffs and a potential impact. We've not seen any yet and our customers aren't really seeing an impact. There's potentially some fear not as far as our manufacturing, which is stated, we do have the ability through cross qualifications to manufacture in many different global locations depending on customer needs or desires. But there's some potential fear that if you look at the very end market, for example, some of the power management going into power tools that are being produced in China, that potentially could have a softening in the end market of the China products being sold into The US. None of that has been realized yet, but there's some concern there.

[Russell Ellwanger, CEO at Tower Semiconductor]

However, we have not seen any pullback in orders, nor a discussion of pullback in orders, due to any concerns on tariffs. And some of that again is because of our ability to support our customers in manufacturing and shipping from various global location.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Great. Thanks for the help there. And then just lastly, any thoughts or comments around the Indian project that was in the media the last couple weeks about the possible tabling of that project?

[Russell Ellwanger, CEO at Tower Semiconductor]

A very good question, Cody. Let me just think for a second so that I answer it properly and ethically correct. So I did read the article. It came as a surprise because we stopped the project. And at our request, we withdrew from the project some five, six months ago.

[Russell Ellwanger, CEO at Tower Semiconductor]

I will say without breaking any type of confidentiality agreements that we had that the article itself was % baseless, really no truth in anything that it said. It was Tower that withdrew from it. The reasons we withdrew are very good reasons. But, again, out of confidentiality, it would not be proper for me to go into those reasons. However, we never press released anything about the India project.

[Russell Ellwanger, CEO at Tower Semiconductor]

It was released by others, not by us even during the time that we were engaged. But why we didn't press release anything is we never had any formal agreement to go forward. We were working on an opportunity as one should always look at and develop every opportunity that's good for your customers, good for your shareholders, good for your business, and it could have been a a very good thing. But ultimately, for reasons that we thought were very good, we withdrew from the project. Unlike anything that was in the article, it was Tower that withdrew.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Thanks for all the help, and, congrats on all the progress.

[Russell Ellwanger, CEO at Tower Semiconductor]

You. Very good questions, Cody, and thank you always for your interest in Good Question.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Thank you.

[Operator]

Thank you. We will now go to our next question. One moment please. And your next question comes from the line of Richard Shannon from Craig Hallum. Please go ahead.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Well, hi Russell and Lauren. Thanks for taking my questions. Maybe I'll start with first one on silicon photonics. I prepared to ask you about the competitive dynamics here and I think you made a brief remark to that. I guess I'd love to get your sense of, given the few other founders have started talking a little bit about silicon photonics for transceivers, whether you're seeing anything specifically.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

And then maybe as a follow on in this general topic, silicon photonics, how do you see the 1.6 generation shaping up from a revenue point of view versus the 800 gig generation that you're already obviously doing very well in?

[Russell Ellwanger, CEO at Tower Semiconductor]

So I didn't honestly follow the first part of your question. Maybe you could restate it, but I'll answer the second part. The 1.6 t, we are in a ramp right now with, additional customers saying that they will be ramping strongly in the second half. So, we are, it's very real. We're supplying it in a in a good fashion, and these are eight by 200 channels.

[Russell Ellwanger, CEO at Tower Semiconductor]

So I'm moving along very well. And I wanted to if you could really just restate the first part of the question because

[Russell Ellwanger, CEO at Tower Semiconductor]

I I didn't pick up what the question was.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Sure. It's just based on, on competitive dynamics of silicon photonics. We've seen a couple other foundries, talk about either in earnings calls or in other events about, you know, getting into the transceiver part of the market here. So just, wanted to get your sense of whether you're seeing any of that.

[Russell Ellwanger, CEO at Tower Semiconductor]

We would estimate our market share somewhere about 80%. Now, anytime that you have a very strong market share, you have to work very hard to protect it. And the best way to do that is shipping wafers that perform well on time and having customer aligned roadmaps that their next generation needs are ready and available before they need them. So that's where we're engaged right now. It's a very big growing market.

[Russell Ellwanger, CEO at Tower Semiconductor]

As I stated, if you look at the analyst report, it's meant to have a 49% CAGR. And having customer live roadmap that

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

I'm sorry?

[Russell Ellwanger, CEO at Tower Semiconductor]

Their next generation needs already and available before they It's forecast to have a 49 per are you there? Hello?

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

I'm here. Yes.

[Russell Ellwanger, CEO at Tower Semiconductor]

Okay. A 49% CAGR, so it's a very big growth market. Our point will be to maintain very strong share as that market is growing. But it is a very big market. It's also a very high value product, high value products drive very high margins.

[Russell Ellwanger, CEO at Tower Semiconductor]

So hopefully that answers your question. But at present, we are serving four of the top five producers, you know, as far as optical integrators. And I think in a sole position with four of the top five.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. Excellent. Appreciate that feedback. My next question, Russell, is regarding, tenant utilization. Sounds like you're cross fertilizing, processes across multiple fabs, which you described already here today, which makes total sense here.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

But I want to get a sense of when we start to see this complete and start to see greater capacity available here. And I guess my question is specifically oriented towards silicon germanium, silicon photonics. Wanna know whether or, you know, is that utilization pretty much %? And when does that spigot open up here, you know, to see you know, it sounds like you have great demand here. I'd love to get a sense of when we start to see acceleration.

[Russell Ellwanger, CEO at Tower Semiconductor]

Yes, to restate what I said during the prepared remarks, for the SiGe and SiFo as a combined infrastructure business, we see continued growth, record revenue presently. And we see that growing in Q2, growing additionally in Q3 and growing additionally in Q4. So if you were talking about capacity opening up, that's the only way that that could happen. When there's big demand, obviously we're running as many as we can presently. But the cross qualifications as well as even within Newport Beach, additional capacity capability being added.

[Russell Ellwanger, CEO at Tower Semiconductor]

So that's happening real time. And you'll see it as we anticipate that you'll see it in Q2 and then incrementally higher q three and again incrementally higher in q four.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. Last question, I'll

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

jump on the line here. Just wanted to ask kind of big picture, longer term thinking out, you know, couple years or if you want to pick a different frame here. And looking at some of the big picture or the biggest drivers of your top line here, obviously RF Infrastructure with the two segments we talked about today is going to be one. I would imagine fit in their power RF SOI with the new capacity. Then your last earnings call, specifically mentioned in your closing remarks about OLED and on silicon backplanes here.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

I wonder if you kind of rank order which ones you think are going to be the biggest dollar contributors over a two year timeframe or whatever you'd like to pick Russell?

[Russell Ellwanger, CEO at Tower Semiconductor]

On incremental dollar growth and especially the margin impact of it, the biggest contributor will be RF infrastructure. Power on absolute dollars should continue to be a big growth driver. RF mobile, as stated, has pulled back a bit within the first quarter as compared to where we were at during 2024. But, we expect that as well to, snap back and have very strong growth in 'twenty six and 'twenty seven. So I think that those will be the biggest.

[Russell Ellwanger, CEO at Tower Semiconductor]

The display, we're confident of display realizing big revenue growth. There's activities happening, customer forecasts that are happening, but it has not been accomplished yet. So I don't want to overstate that.

[Russell Ellwanger, CEO at Tower Semiconductor]

The

[Russell Ellwanger, CEO at Tower Semiconductor]

biggest confidence in the future is what's happening presently. The activities are there, the revenue not yet. So upon starting to get into a few thousand wafer per month of backplane shipment, that's when I'll be much more confident on the growth driver of the display. But to get to the few thousand wafer a month, I'm confident in that presently on display itself. And again, what we do with the OLED is the backplane, the silicon backplane.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. Appreciate that perspective. I'll jump out of line. Thanks, Russell.

[Russell Ellwanger, CEO at Tower Semiconductor]

Yeah. Thank you, Richard. Very good questions. Thanks.

[Operator]

Thank you. Your next question comes from

[Matthew Bryson, MD - Equity Research at Wedbush Securities]

the line of Matt Bryson from Wedbush. Please go ahead. Thanks for taking my questions. Just with the RF mobile business, I think it's at it's either at the lowest point or close to lowest point that it to hit. Can you tell us whether or not this might be a bottom?

[Matthew Bryson, MD - Equity Research at Wedbush Securities]

How far customers are in terms of reducing their inventories? And I guess, is it all inventory reduction? Or I think there's been a bit of effort in China to ramp up domestic production on the RF side. Is that affecting the business at all?

[Russell Ellwanger, CEO at Tower Semiconductor]

So by forecast, we see the mobile business growing throughout the year, the RF mobile, so RF SOI specifically in the front end module. So it should be growing throughout the year against the Q1. So I would, at least from forecast, I would say that, yes, this Q1 was the lowest point. Now on the base business itself, you are correct. There has been a drive in China and possibly something that came as a little bit of a surprise and maybe a negative impact of trying to get the Chinese regulatory approval was needing to show them, our customers and different numbers from our customers.

[Russell Ellwanger, CEO at Tower Semiconductor]

And potentially that drove some further drive for some of our very big Chinese customer to give more market share into China. So that is part of what we're seeing as well. We have one customer to where they are sourcing more of their volume percentage inside of the country itself.

[Matthew Bryson, MD - Equity Research at Wedbush Securities]

Awesome. I I I really appreciate the the color. That was that that was all all I have.

[Russell Ellwanger, CEO at Tower Semiconductor]

Thank you very much.

[Operator]

Thank you. Your next question comes from the line of Lisa Thompson from Zacks Investment Research. Please go ahead.

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

Good morning. I'd just like to ask a little bit more about your sales and how it relates to tariffs. I know at the year end you said 42% of revenues go to The US, but I believe that just means that's where you send the bill. Do you actually have what percent of product or so do you have coming from outside The US to The US?

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

Like we said in the financials, you're right, 42% of our revenues are for U. S. Customers. Usually, the shipping of the goods is not done to U. S, it's done to where the customer asks us to send it for continued work, which usually is I mean, it's not usually, there is a lot of regions in the world according to the customer request.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

It can be Philippines, Thailand, in order to package them and test them and put them into a final end product according to the customer request. Doesn't matter that the corporate is in The US for this case.

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

So the 42 is just who you bill, right? It's not where it goes.

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

It's the headquarter of the parent company that we bill. That's how we do It's not the place that we ship to the product. Because again, we ship what we are doing to next to packaging houses and to the next station in the chain, in the supply chain, right?

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

Correct. So that would mean possibly that very little of that revenue actually goes physically to The U. S. And would be captured by tariffs,

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

right?

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

Yes,

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

exactly, yeah, A very small part of that physically enters from us to The U.

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

Right, that's good to know. And just one small question, do expect operating expenses to stay above the $40,000,000 level from the rest of the year?

[Oren Shirazi, CFO & Senior VP of Finance at Tower Semiconductor]

We expect it to remain about flat at this current level of $40,000,000 a quarter, right? Yes.

[Lisa Thompson, Senior Analyst at Zacks Small Cap Research]

Okay, great. Thank you so much. That's all my questions.

[Operator]

Thank you. Our next question is a follow-up from Cody Acree from The Benchmark Company. Please go ahead.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Hey guys, thanks for letting me back in line here. Just a couple quick questions. The volume that you're seeing from Agrate, has that started in earnest?

[Russell Ellwanger, CEO at Tower Semiconductor]

Seth, do you want? Yes. In Q4, it actually started in earnest.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Any thoughts on that ramp, Russell, throughout the year?

[Russell Ellwanger, CEO at Tower Semiconductor]

Q two will be a reasonable number. Q three, q '4, we expect will be higher by forecast. That was something that I had mentioned previously that we see the, q one revenue as the low. The bulk of our RF SOI at this point is 300 millimeter, not 200 millimeter. And by design, we've tried to move all of the 300 millimeter into the agrati factory for multiple reasons, not the least of which is allowing then more capacity in Fab seven, for the SiGe and silicon photonics growth for new 300 millimeter platforms.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. Thanks. That's very helpful. And then you you mentioned, the envelope tracking power management business, and you mentioned New Mexico in the same breath. You're not ramping that in New Mexico yet.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Is that right? Or is that is that the plan? Are you are you ramping wafers in New Mexico already?

[Russell Ellwanger, CEO at Tower Semiconductor]

That specific project is being worked in New Mexico. It is not yet ramped in New Mexico. Right now, that is coming out of the Wozu factory in Japan.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. Great. Thank you. And then lastly, could you just, I'm sorry I'm going slow on this update. But can you recover your conversation or your explanation about what's happened in China in the RF mobile business?

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

You mentioned a customer, the qualification process and, some regulatory approval movement with a customer. Can you just rediscuss that a bit?

[Russell Ellwanger, CEO at Tower Semiconductor]

During the diligence and working to get Chinese approval for the Intel acquisition, we were very careful about not opening up anything about customers that were not Chinese based. But we had very little choice but to be open about revenues and activities of Chinese customers with the Chinese government. We think potentially as a result of that, that at least one customer got a lot of pressure to start sourcing in China. And that happened, some of their market share is now going internally into China. Presently, it's not the most advanced platforms.

[Russell Ellwanger, CEO at Tower Semiconductor]

The capability doesn't sit there to do that. But volumes of older platforms are now being manufactured in China and not with us.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. But that does not change your expectations that the RF mobile business is still troughing in Q1 and should improve through the

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

year?

[Russell Ellwanger, CEO at Tower Semiconductor]

Correct.

[Cody Acree, Equity Research Analyst at The Benchmark Company LLC]

Okay. All right. Thank you, guys.

[Russell Ellwanger, CEO at Tower Semiconductor]

Thank you.

[Operator]

Thank you. Our next question is also a follow-up from Richard Shannon from Craig Hallum. Please go ahead.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

I'm going to follow on Cody's last question here on mobile. And specifically, I think it was response to my question here about improvements kind of longer term. I think you talked about a snapback in 2016 and 2017 in RFSOI and mobile. I guess, wanted to get some sense of the dynamics here, you're expecting a much better market or what I would guess is some share gains here, but maybe you can kind of clarify how and where you expect this to occur.

[Russell Ellwanger, CEO at Tower Semiconductor]

We have brought on multiple newer customers, some relatively new entries into the market that have grown remarkably fast. One specifically, I don't believe that we've press released with. We intend to. But it's a customer that was very strong in antennas that then went into making their own, antenna switches. And they've been very successful.

[Russell Ellwanger, CEO at Tower Semiconductor]

They've grown very strong. We have multiple other customers that as well are gaining share very quickly. So that's a lot of what we're talking about within the growth of the remaining quarters of 2025. These customers, because of their big share gains during a time that the market was being built at a reasonable rate, the 7% improvement and they got share gains in it, they certainly bought as many products as they could. As you're initially ramping and gaining share, the one thing that you cannot do is undersupply to customers demand.

[Russell Ellwanger, CEO at Tower Semiconductor]

So the handset integrators that were buying from them, they themselves built relatively big inventory so they wouldn't let them down. When the market then started to pull back with a forecasted no to very low single digit growth in 2025, they were stuck with inventory that's burning off now. So for the existing SKUs that we had shipped last year, they have inventory that's being burned off. But there's continual new designs for more advanced models. So that's what we're really counting on for the growth in this year.

[Russell Ellwanger, CEO at Tower Semiconductor]

As far as getting into 2026 and beyond, there's more established very large customers that we have reengaged with or newly engaged with that their ramps are planned to start in the fourth quarter of twenty twenty five and go throughout 2026, or to begin in the first quarter of twenty twenty six. So if you look at 2026, we see it as a very big growth year for our RF mobile business, mainly front end module serving handsets. Hopefully, that gives the color you're asking for.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

That was very helpful. Thanks. Thanks for that, Russell. My next question is related to the New Mexico fab with Intel here and I guess maybe I had a little bit of confusion that Cody asked on as well here. Maybe I'll ask in a slightly different way here is, when do we expect to qualify equipment here, start to see depreciation and then also go to production?

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

And this last part of the question, Russell, I asked because last call you talked about a large PO you got in power management, I think very early this year that we're not talking about ramping till next year. It seems like very early to award a PO for. So I just wanna make sure I understand that well.

[Russell Ellwanger, CEO at Tower Semiconductor]

As far as the first part of your question, we would start seeing production shipments within this year, which is what we've had stated in the third, fourth quarter of this year. Upon hitting a certain level of production shipments is when you begin depreciation of tools. So that's when we would start seeing depreciation. You'd have to refresh me, though, on the the second part of the question. I talked about a big PO for power management.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yeah. In the last earnings call. In fact, I can pull that up here and find it real quickly. I think it was in your prepared remarks, actually, if you give me a second, I can locate it here. Yeah.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

So last quarter, you said we we delivered successful prototypes to lead customers, and based on the success, we received our first production PO related to your 65 nanometer BCD.

[Russell Ellwanger, CEO at Tower Semiconductor]

Yeah. That was in fab 11 x. I didn't say that it was big volume, but we did receive our first production POs. Before we start recognizing revenue, we have certain milestones on the volume that we ship. And those volumes, we would believe, will hit q three, q '4.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. That's helpful. It gives some perspective there. Then my last quick question, Russell, is related to silicon photonics. I think you've you've mentioned, additional platforms that do laser attach with the with the silicon photonics you're delivering today.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Wondering when we might see that into production. And then also, how do we when do general time frame, when do we expect to intersect with the CPO market?

[Russell Ellwanger, CEO at Tower Semiconductor]

It's a very good question, the latter part. The bigger question is when will the CPO market actually be realized? And it's thought to be probably at least four years out. So I am not sure of the exact timing of when CPO will be there. What we're doing with CPO are very good active programs to ensure that our customers that are really, as I stated, the big players on the optical integrator side, that they know they can stay with us for multiple generations and that we're well prepared and they're well prepared at the time that it would be if it does get adopted, that we'll be their supplier.

[Russell Ellwanger, CEO at Tower Semiconductor]

So, and we have many forms of how we're pursuing that. If that answers the CPO question. And what was the other part of the question? I'm sorry.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

The laser attach, you know

[Russell Ellwanger, CEO at Tower Semiconductor]

Yeah. So that's exactly. That's where we do the integrated laser, and that's with the open light platform. When will that start seeing volume shipments? By forecast, we have multiple customers that are saying it's in 2026.

[Russell Ellwanger, CEO at Tower Semiconductor]

We'll we'll see if if that occurs, but that is what's being stated on it.

[Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Okay. That's helpful perspective. That's all for me. I will jump in the line.

[Russell Ellwanger, CEO at Tower Semiconductor]

Thanks, Russell. Thanks, Russell. Thank you.

[Operator]

Thank you. That does conclude our q and a session.

[Matthew Bryson, MD - Equity Research at Wedbush Securities]

I would now like to turn the call to mister Russell Elwanger. Please go ahead.

[Russell Ellwanger, CEO at Tower Semiconductor]

Thank you. This past month, doctor Priestler, the VP of RF Technologies, doctor Racanelli, Tower's president, and I attended the Optical Fiber Conference, OFC, in San Francisco. We have developed quite a strong reputation in the optical transceiver field, and candidly, it was almost embarrassing. We were greeted as rock stars. During the conference, we met with over 60 customers with discussions and real time activities in multiple areas.

[Russell Ellwanger, CEO at Tower Semiconductor]

For example, programs for further platform efficiencies, multiple form factors for next generation 400 gs modulators, and co package optics. As executive management, we continuously meet with our lead customers and new customers, both groupings either already creating or with the potential to create a large industry impact. In my most recent multi week customer visits, I was thrilled with the extreme capability, character and passion of our existing customers, as well as newer customers, spanning not just data center, but also our mobile front end module, power management and imaging offerings. It really is the most exciting time for Tower. There's an interesting quote from former US President Bill Clinton.

[Russell Ellwanger, CEO at Tower Semiconductor]

He stated, old age is when our memories outweigh our dreams. Myself, not being a spring chicken, I pondered these words. I specifically pondered what defines vibrant inspired youth. My thought is that it is not just a high weighting of dreams, and maybe better wording than dreams is high and noble aspiration, but as or even more importantly, that these aspirations are tied to consequent action. At Tower, we have many high and challenging aspirations, but most importantly are the real time consequential actions we are taking to achieve them.

[Russell Ellwanger, CEO at Tower Semiconductor]

Extremely capable people with boundless passion and an environment that promotes and inspires, both the capability and passion is unstoppable, especially when this environment is based upon customers with equal capability and passion that are dedicated to partner towards mutual success. We thank you for your interest in the company. We look forward to updating you over the next quarters as we continue our progress towards achieving our multiyear aspirations. In the short term, we'll be attending the following conferences and look forward to seeing you face to face if possible for your schedules. On May 18, we'll participate in the Opelteimer Annual Israeli Conference in Tel Aviv.

[Russell Ellwanger, CEO at Tower Semiconductor]

On May 28, we will participate at the Craig Hallum twenty second Annual Institutional Investor Conference in Minnesota. On May 29, we will participate at the T. D. Cowen fifty third Annual Technology Media and Telecom Conference in New York. Again, thank you for your interest.

[Russell Ellwanger, CEO at Tower Semiconductor]

Thank you for your support. And best wishes to you.

[Matthew Bryson, MD - Equity Research at Wedbush Securities]

Thank you. This concludes today's conference call.

[Operator]

Thank you for participating. You may now disconnect.

Participants

Executives

• Noit Levy, Senior Vice President of Investor Relations & Corporate Communications
• Russell Ellwanger, CEO
• Oren Shirazi, CFO & Senior VP of Finance

Analysts

• Cody Acree, Equity Research Analyst at The Benchmark Company LLC
• Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Matthew Bryson, MD - Equity Research at Wedbush Securities
• Lisa Thompson, Senior Analyst at Zacks Small Cap Research