Tower Semiconductor Q2 2025 Earnings Report

Tower Semiconductor EPS Results

• Actual EPS: $0.41
• Consensus EPS: $0.47
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: $0.53

Tower Semiconductor Revenue Results

• Actual Revenue: $372.06 million
• Expected Revenue: $371.63 million
• Beat/Miss: Beat by +$431.00 thousand
• YoY Revenue Growth: +6.00%

Tower Semiconductor Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: Before Market Opens
• Conference Call Date: Monday, August 4, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 revenues reached $372 million with net profit of $46.6 million, and the company guided Q3 revenues to $395 million ±5% plus a further $40 million sequential increase in Q4.
• Positive Sentiment: The RF Infrastructure segment (silicon germanium and silicon photonics) grew to 25% of revenues in Q2, up from 14% year-over-year, with new volume production ramps in multiple fabs.
• Positive Sentiment: Silicon photonics momentum accelerated with five times more products moved from pre-production to production year-to-date vs. 2024, plus prototyping of a new 300 mm receive technology expected to start production in Q4.
• Positive Sentiment: RF mobile business (RF SOI) rebounded strongly with a >20% Q2-to-Q1 revenue increase and guidance for ~30% Q3 growth, supported by a new North America Tier 1 customer engagement.
• Neutral Sentiment: The balance sheet remains robust with $3.2 billion in assets and $2.8 billion in equity, and $1.15 billion of committed CapEx across global fabs to support projected long-term growth.

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Tower Semiconductor Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. Then will be a presentation followed by the question and answer session. I must advise you that this conference is being recorded today.

[Operator]

I would now like to hand the conference over to our speaker today, Ms. Noyes Levy, Senior Vice President of Investor Relations and Human Resources. Please go ahead, madam.

[Noit Levy, SVP - IR & Corporate Communications at Tower Semiconductor]

Thank you, and welcome to Towers' Second Quarter twenty twenty five Financial Results Conference Call. Before we begin, please note that certain statements made today may be forward looking and subject to risks and uncertainties that could cause actual results to differ materially. These risks are detailed in our SEC filings, Forms 20 F and six ks, as well as filings with the Israeli Securities Authority, all available on our website. Tower assumes no obligation to update forward looking statements. Our second quarter twenty twenty five results are prepared in accordance with U.

[Noit Levy, SVP - IR & Corporate Communications at Tower Semiconductor]

S. GAAP. Some data presented may include non GAAP financial measures as defined under SEC Regulation G. Reconciliations to GAAP figures and full explanations are provided in today's press release and financial tables. Please note that we have a supporting slide deck that is available on our website and integrated into this webcast.

[Noit Levy, SVP - IR & Corporate Communications at Tower Semiconductor]

With that, I'd like to turn the call over to our CEO, Mr. Russell Ehrwanger. Russell?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Thank you, Naweed. Thank you all for joining us today for our second quarter twenty twenty five earnings call. We delivered strong results in the second quarter with revenues of $372,000,000 and a result in net profit of $46,600,000 We guide our third quarter revenues to be $395,000,000 plusminus 5% and additionally target a $40,000,000 plus revenue increase for the fourth quarter over the third. Q3 guidance and Q4 expectations validate our onset 2025 target of sequential quarter over quarter growth throughout the year with acceleration in the second half. We announced at years begin a repurposing of multiple factories, predominantly towards higher capacity for RF infrastructure, namely silicon germanium and silicon photonics.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

This is well underway with Q3 and Q4 expected growth being the first fruits of the execution of this strategy. Demand not only remains very strong, but is consistently growing as is our increase in both silicon germanium and SiPho capacity and associated customer qualifications. We continue to invest in capacity and also R and D advanced capability CapEx throughout 2025 with further capacity and capability growth planned for 2026 aligned to our customers' forecasted demand, confident in maintaining our number one market share position in this growing and significant optical transceiver market. Let's review our second quarter twenty twenty five revenue breakdown along with some context that highlights key trends and momentum shaping our performance for the full year. Kindly refer to Slide number four for a detailed breakdown of our quarterly revenue figures.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Most notable is growth in our RF Infrastructure business attributed to data center and AI expansions served by our silicon photonics and silicon germanium technologies, predominantly for optical fiber communications. In the second quarter, RF Infrastructure represented 25% of corporate revenues, over $90,000,000 in revenues, up from 14% in the same period of 2024 and expected to significantly increase over the next period. Specific to silicon germanium, we began volume production shipments from San Antonio Fab nine for a Tier one customer and as well volume wafer starts in Israel Fab two for another Tier one customer, providing substantial capacity increase in this growing market on top of the high capacity in our Newport Beach facility, which itself is realizing capacity increases this year. We have also made silicon germanium design kits available in our 300 millimeter Japan factory Fab seven, for which an additional Tier one customer is presently in the design phase. For silicon photonics, in addition to our existing volume on four hundred and eight hundred gigabit per second, current wafer starts now include a good ramp on 1.6 terabit per second as the industry continues to move aggressively to higher speeds, which is expected to further help market penetration of silicon photonics over legacy EML solutions, expanding our opportunity due to the cost and strong performance benefits of silicon photonics.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

In the 2025, we've moved five times more SiPho products from preproduction to production phase than in the same period in 2024, already exceeding last year's total. This growth demonstrates our platform maturity, strong customer adoption and efficient operational scalability. Today, most silicon photonics products we manufacture serve the transmit function in an optical transceiver module. This quarter, we successfully prototyped a new 300 millimeter silicon photonics technology that enables cost and performance advantage to the receive function in an optical transceiver module. This new technology is expected to see initial production in the fourth quarter of this year, expanding the market served by our silicon photonics technology beyond that which we serve today.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

By leveraging the majority of features in our mature SiFo platform and adding evolutionary customer partnered improvements to this base process, we've been able to quickly ramp up and achieve high yields for 200 gigabit per second lanes, 1.6 terabit per second optical transceiver products. The transition of 400 gigabit per second lanes, 3.2 terabit per second, requires additional and fundamental device, process improvements and new materials, which Tower is aggressively pursuing together with Tier one customers. The first of these platforms is anticipated to ramp as early as mid-twenty twenty six. Slide five shows cumulative wafer bill to date for 400 gs, 800 and 1.6T speed. Presently, we are manufacturing similar amounts of each offering.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Looking at prototypes, there's further acceleration of 1.6T with 40% higher year to date protos at 1.6T above 400 gs and 800T combined, and this serving multiple large customers. We're seeing recovery in our RF mobile business, specifically in RF SOI, which showed a Q2 to Q1 revenue increase of over 20% and is expected to show further increases close to 30% Q3 over Q2 and targeting further increase in Q4. We've gained momentum with a new North America Tier one customer, now prototyping several products on RF SOI in our 300 millimeter facilities in both Japan and Italy. Beyond RF SOI, we're innovating with other RF switch technologies. This quarter, we won the IMS Best Paper Award with Psemi, a Murata fully owned company, for our PCM phase change material switch technology, achieving a fifteen femtosecond RONCOF figure of merit, being a 4x improvement versus state of the art RF SOI.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

These switches are being prototyped for both low and high frequency millimeter wave applications. And importantly, this quarter received a Best Supplier award from Wysol, a major Korean RF front end module provider. Looking at power management, the computational complexity of AI processors is increasing, leading to a corresponding rise in power requirements. To meet this need, as shown on Slide six, we provide a variety of power management solutions with switch devices that have ultra low resistance, advanced digital logic integration and manufacturing options in our 300 millimeter lines in The US and Japan. Lead customers are now designing to our high efficiency power delivery solutions for this rapidly growing market.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

We deliver best in class power transistor performance and continue to advance this offering, having released device optimization for higher switching frequencies this past quarter. For Sensors and Displays, we expect a revenue increase of about 20% in the 2025 against the previous quarter's and previous year's run rate, primarily due to increases in the machine vision market. We have also begun substantial new activities with several customers, including a leading automotive imager provider and an OLED on silicon supplier, the latter of which has prototypes already in test. These new activities are expected to fuel additional future growth. Looking at utilization.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

In the second quarter, Fab two in Israel and Fab nine in Texas both operated at about 60% utilization, while repurposing tools to now load high levels of silicon germanium and to begin the manufacture of silicon photonics. Fab three is fully utilized at our 85% utilization model. Fab five was at 75% with rising demand for high voltage power management. And Fab seven, three hundred millimeter, was fully utilized, well exceeding the 85% model. In summary, our business continues to advance with significant progress across key platforms.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

We are well positioned for continued growth and success in our target markets. We are successfully executing to a clear strategy that is translating into tangible financial results with expanding customer engagements and measurable operational progress. We are committed to delivering sustainable and long term value to our stakeholders. With that, I'd like to turn the call to our CFO, Oren Shirazi. Oren, please.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

Hello, everyone. Earlier today, we released our financial results for the 2025. For the 2025, we reported revenue of $372,000,000 representing $21,000,000 or 6% year over year revenue increase compared to the same quarter in 2024 and a $14,000,000 or 4% quarter over quarter revenue increase compared to the prior quarter. Gross profit and operating profit for the 2025 were $80,000,000 and $40,000,000 respectively, each higher than the prior quarter by $7,000,000 Net profit for the 2025 was $47,000,000 also $7,000,000 higher quarter over quarter representing $0.42 basic and $0.41 diluted earnings per share. Financing and other income net in Q2 twenty twenty five was $14,400,000 compared to $10,600,000 in the prior quarter.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

This $3,800,000 increase was mainly attributable to gain recorded as a result of zero cost cylinder transaction we executed to hedge future foreign currency risk. In this respect, I would now like to describe our currency hedging activity. In relation to the Japanese Yen, since majority of TPS cost revenue is denominated in Yen and the vast majority of TPS cost are in Yen, we have a natural hedge over most of our Japanese business and operations. To mitigate part of the remaining Yen exposure, we are executing zero cost cylinder transactions to hedge the currency fluctuations. Hence, while the Yen rate against the U.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

S. Dollar may fluctuate, the impact on our margins is limited. In relation to the Israeli Shekel and Euro currencies, while we have no revenues in such currencies, since a portion of our cost in Israel is denominated in the Israeli currency and a portion of our cost in Aggrat EFE in Italy is denominated in Euro, we also hedge a large portion of such currencies risk by engaging zero cost cylinder transactions to mitigate exposure resulting from our NIS and Euro denominated costs. Under GAAP, the fair value of such transactions is recorded in the P and L, which drove the previously stated financing and other income net increase. Moving to our balance sheet and future CapEx and cash plan.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

Our balance sheet remains very strong as evidenced by the following indicators and financial ratios. As of the June 2025, our assets totaled $3,200,000,000 primarily comprised of $1,400,000,000 in fixed assets net, predominantly comprised of fab machinery and $1,800,000,000 of current assets. Current assets ratio is very strong at about 7x, while shareholders' equity reached a record of $2,800,000,000 at the June 2025. Our strong financial position allows us to invest in strategic opportunities that support our corporate vision as follows. We have committed to pay up to 300,000,000 to acquire equipment and CapEx in the 12 inches New Mexico fab, 20% of which has been already paid, while the remaining 80% are forecasted to be paid as we ramp up capacity and technology qualifications over the next two point five years.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

As part of our STMicro partnership, 500,000,000 in cash is allocated for the Italy 12 inches fab equipment. We've already invested 85% of it, while the balance is expected to be paid by mid-twenty twenty six. In addition, for our high margin Cypher and IG business, we announced plans to 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. This CapEx includes a large portion of capability CapEx for advanced development and high end RF technology related projects. 40% of this amount has been paid to date, while the remaining 60% are expected to be paid by the 2026.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

All of these investments, including the five gs and five point CapEx are fully reflected in our previously presented strategic and financial model. Under this model, we target $2,700,000,000 in annual revenue at full loading of our existing fabs, including Agraqa and New Mexico, dollars $560,000,000 per annum of operating profits and $500,000,000 per annum of net profit. That concludes my prepared remarks. Now I'd like to turn the call back to the operator, so we can take your questions. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you wish to cancel your request, press 11 again. And now we're going to take the first question. And the question comes from the line of Cody Acree from Benchmark Company. Your line is open. Please ask your question.

[Noit Levy, SVP - IR & Corporate Communications at Tower Semiconductor]

Hi, Cody.

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

Yes. Thanks, guys. Hey, guys. Hey, Russell.

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

Hey, congrats on a great quarter and a great year. Looks like shaping up so far. Maybe if I could just start with, could you give a little more detail on what segments you expect to contribute and maybe rank order them in for your sequential growth through the second half of the year?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

So first and foremost is infrastructure as far as quarter over quarter deltas and absolute numbers. So the silicon germanium and the silicon photonics. We had stated at the years onset that on SIFO, we had had what circa $105,000,000 revenue in 2024, and we expected a doubling of that in 2025. That's definitely within the second half targets that were given, maybe higher than a doubling. So that's a very important segment for us.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

And maybe, I don't know, in some summary comments, might give some more color on what the capacity increases that we're doing there, what that could result in increases against what we're targeting in the fourth quarter of this year. But that's the biggest. Our power management, we're expecting still strong contributions. I mentioned that in the imaging, there was an over 20% increase in the run rate of 2024 in the 2025 in the second half, at least from what we target right now from our customer forecast, and that mainly due to increase in machine vision. So those are the areas of growth, but very important on a rebound is the weakness that we had cited previously in RF SOI for front end module for mobile.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

That has seen a nice increase from Q1 to Q2. And we're guiding an even stronger increase in the third quarter. So biggest again being infrastructure and RF SOI for mobile, power management continuing strong, and CIS adding to it as well.

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

Well, it sounds like a good strength across the board then, Russell. Congrats. Would you then say, would you consider yourself now fully booked through the end of the year? And if so, do you have any available capacity to support any near term turns business that could provide any yet upside to your estimates?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

We had mentioned 60% utilization in Fab two and in San Antonio Fab nine. We certainly have room there for immediate upsides. But the biggest portion of both of those fabs is focused on utilizing the additional SiGe and SiPo capacity that we've built there, which is to an extent in our hands, to an extent rests on completion of customer qualifications. But that's within the numbers of the expectations that we have. So we see those utilizations increasing.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

But as we're doing that, there is room to handle immediate upsides. One of the really, I think unique features of tower is that we have very strong worldwide manufacturing footprint. We're in Japan, we're in, multiple sites in The US, we're in Israel and we're in Italy. And by definition, we cross qualify all of our flows. So as there's continues to be questioned geopolitically and people get concerned a little bit here or there about tariffs and impacts of tariffs, we have the ability to move customer demands from one factory to another.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

One of the strong reasons of moving silicon photonics and SiPho, both and especially SiPho being very, very high margin value add products, is firstly to have added capacity, but secondly, to be able to serve customers depending on their needs of where to ship products from. So I think we've seen some immediate term business, especially in the Tanami fab five in Japan in power. And we're open to get more. But fundamentally, where we're focused at this point is meeting a very strong consistently growing demand for the infrastructure, the SIFO and the SIJE. Hopefully that answered your question, Cody.

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

It does, Russell. Thank you very much and congratulations on progress.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Thank you.

[Operator]

Thank you. Now we'll go and take our next question. And the question comes from the line of Richard Shannon from Craig Hallum Capital Group. Your line is open. Please ask your question.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Hey, Richard.

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

Hi, Russell. How are you? Congratulations on some nice numbers again.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

I'm doing good, but it depends on your question.

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

Well, let's see here. I think I'm gonna ask one on silicon photonics. You made an interesting comment about, in the past, supporting transmit functions and now supporting prototyping, I think you said, for some stuff on the receive side. So I'd love to little bit love to understand a little bit more about that, but also maybe just kinda look at the bigger picture here about what you're expecting in terms of content, both the maximum amount as well as kind of expected growth in content over the next couple of years in in silicon photonics, please.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

So for the specific receive function that we're doing now, we think, and it's for a specific application. I don't want to get into the details here because some of it really, it's not just what we're doing with the customer, but sometimes speaking too much can give other people hints as to what you're doing and why. But it's a specific application of receive function that we've been able to very, very innovatively address with SIFO, in an extremely high performance cost effective way, we think that it would add about, 20% to our served market, plusminus for this specific application in receive. As far as the demand that we're seeing, in talking about our growth, which we have many times, the fourth quarter we would expect very high amounts of silicon photonic shipments. We're probably seeing from our Q4 expected shipment level in SIFO by customer demand at the '26, a doubling of demand, a doubling of what we would have to be supplying in capacity.

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

Okay, fair enough. That's one way to look at it. I appreciate those comments. My follow on question, Russell, is in the RF mobile space here. I guess the way I'd like to think about this is to what degree are we seeing this improvement both in the second quarter, and I think you're talking about the third quarter at least or potentially second half here about this improvement here.

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

To what degree is this cyclical like inventory replenishment and or share gains here? And to what degree does that play into your comment from last quarter about seeing some strong growth in ArcMobil in both '26 and '27? Thank you.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

I don't see the 20% growth that we had Q2 over Q1 and the 30% that we're targeting in Q3 over Q2. It's hard to speak about cyclicality, but, certainly it's related to inventories having been consumed that had been a function of the very strong 2024. We also have multiple customers that themselves are growing their market share. So, that's one way that one can, always outdo a market trend is by serving customers that they themselves are growing their market share against others that you might not be serving. So the Q3, Q4 numbers that we're looking at, I think that they're just very basic share gains that we have and our customers have.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Some of what we would be expecting in the latter half of Q3 and Q4, deals with an existing customer that we've had for a long time that has just recently increased their forecasts, and their POs. What has driven that? I honestly don't know at the moment. They're POs that have come in just recently.

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

Okay. Thank you, Russell.

[Operator]

Thank you. Now we're going to take our next question. And the question comes from the line of Mahdi Hosseini from Susquehanna Financial Group. Your line is open. Please ask your question.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Thanks for taking my question. I have two. First one for Russell. I want a better understanding of the big picture, especially when it comes to data center infrastructure. We are migrating from copper to pluggable, and at some point, migrating to co package optic.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

And what what I wanna better understand, Russell, is how do you see your customers evolving? And in that context, how are you actually planning for capacity in a sense that to avoid a double in a sense to avoid too much capacity come on online because there's also a convergence among the customers. So the transitioning technology from copper to pluggable and eventually to co package and how the mix of customers evolving and how that impacts your capacity planning? And I have a follow-up.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

The first part of your question, I don't really fully understand. I think that pluggables have been the mainstay for multiple years. I don't see it being in any competition with copper. So pluggables have been the mainstay. They're maintaining the mainstay.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

The major thing for SiPho is the movement from an EML solution that's been the mainstay solution to a SIFO solution. So that's the difference there. I don't really follow the copper statement. But certainly a lead customer that we have at 1.6T has decided to do everything with SIFO versus EML because of two functions of the SIFO. One being cost, the ability to not have to do separate indium phosphide modulator laser, it's a very, very complicated process and very expensive to have the modulator being made in the SIFO chip as well as integration of all the passes.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

So it has a strong cost benefit, but they also noted a very strong performance benefit at 1.6T. And that's because of integrating everything onto the PIC. I would, and I had said that in the script, we see this 1.6 T where there's both a cost and apparently a performance benefit as being a big drive that will converge more into SIFO from EML. Presently, what is the percentage of SIFO versus EML? I couldn't tell you exactly what that is.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

I know that our demand for Sypho is strong and continues to grow, and to grow very strongly. And at the 1.6T, it seems to be even stronger. Well, doesn't just seem it is. As we move to 3.2 t, stated we are working with lead customers on producing the capabilities there, which requires, to do a 400 gigabit per second modulator. It requires different materials and we're very advanced on that pursuing two different material types.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

So I see the pluggables staying very strong for a good period of time. There are those in the industry that question if CPO will ever really come into the market. I'm not saying it won't. We have our own strategy for CPO and I think we're pursuing it fairly well. But, CPO, if it comes in, should it come in, probably is not until 02/1930.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

And, everything we do with SCIFO will still be in demand. So I don't see it being something that would discount that.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Great. And thank you for clarifying my question. Actually, as a follow-up to it, I wanna understand how integrating the modulator into your process technology is perhaps helping you with incremental revenue per wafer. Is that how we should think about it?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

For SIFO, the modulator is always part of the pick. So we're going from using our capabilities for the photo detector and the modulator where we have strong capabilities in germanium and silicon obviously, to being able to provide that as part of the PIC. And that is one of the benefits of silicon photonics itself. That's one of the big drives of it. Otherwise, you're doing things in indium phosphide outside.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

And as I stated previously, the process to make the indium phosphide modulator in addition to the laser, it's a very complicated process because it's different layerings for both that are done together. So it's many photo steps, masking steps, and growth. If that answers your question, I'm not sure.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Yes. Absolutely. Actually, I wanna highlight I wanna make sure I understand. The indium phosphide alternative that one or two of your competitors are highlighting has a cost disadvantage and your solution is more cost effective. Right?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Yes, I believe so. But most of our customers still use an EML solution. Right? It's a question of that they also turning to SIFO for certain speeds. And it appears that the SIFO adoption is only growing at 1.6 T and I believe will be stronger beyond.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Okay, great. I'll go back into the queue.

[Operator]

Thank you. Now we're going to take our last question for today. And it comes from the line of Lisa Thompson from Zacks Investment Research. Your line is open. Please ask your question.

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

Hi. Thank you for taking this. I'm I'm looking at the numbers, and it really seems like RF mobile has come roaring back. Do you think between RF mobile and RF infrastructure, they're both gonna come in pretty much the same for the year, or can mobile even beat that?

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

Let me take a look.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

No. Infrastructure will be substantially bigger, but the mobile is a good size. Understand for infrastructure, it's two different products that we're serving that both serve it. Right? It's the the SiG for drivers and TIAs.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

In some cases, sold for CDRs and it's the SiFo for the pick. So we're it's two different products that are both needed. And for the RF SOI, we're also doing some just plain RF CMOS for controllers, but the bulk of it is RF SOI. So, no, the infrastructure is bigger. But the mobile numbers, if we look at q three, q four, they're very high run rates, similar to past years.

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

Well, that's great. Now if you had to describe why it's come back so much, is it just specific customers or is it the market?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

I think a combination of both. As as stated, we have customers that they themselves are growing market share against, their competitors that in some cases we do not serve. So that's always a big thing when you're increasing your share of market. And I stated it at the beginning of the year, We had seen, I think not just us, but many people saw a pullback in mobile for the fact that '24 had been a very big growth year in mobile. Nobody wants to short ship their end customer for the fear of losing SKUs.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

So they build up more inventory than is needed, not knowing when there would be a glut, so to speak. And that's how you have inventory corrections. So the beginning of the year certainly saw an inventory correction from everything we're seeing now, it appears that most of that inventory has been eaten up.

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

Thank you. Oren, one question for you. On other income, you keep saying that the number is going to fluctuate, but yet it's steadily increased for the last year and a half. Should we expect it to continue to increase?

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

No, I think we had a good gain here, like I mentioned in my prepared remarks, that caused the majority of the $3,800,000 increase, which is good in financing another income net from the 10.6 we presented last quarter to 14.4 this quarter, I think the number we should expect in the future is same like the baseline of the 10.6 this was a gain from movement in this quarter but one cannot predict the future so I would use the same baseline which includes all the numbers without any exceptional items or one time, 10.6.

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

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

[Operator]

Thank you. Now we're going to take our next question. And the question comes from the line of Richard Shannon from Craig Hallum Capital Group. Your line is open. Please ask your question.

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

Great. Thanks for letting me ask you a couple of follow on questions here. Russell, one for you here. Back in the third quarter call of 'twenty three, you set out this framework from a revenue and margin or profitability perspective. I guess I have two questions to this.

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

How do you think you're tracking so far, almost two years into this in terms of the margin profiles here, at the gross and EBIT line here? Then maybe I'll try to stretch you here to see if you'll respond in any way here, but how do you think about a timeframe for hitting this revenue goal? Any thoughts you would give us?

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

You're referring to the model of the 2,700,000,000.0?

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

That's correct.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

On a margin perspective, I think we're probably outperforming from everything that we're doing. On a timeline to the $2,700,000,000 candidly, were always looking at somewhere '28, '29 to be there. And I think that's still what our targets are.

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

Okay, great. That's helpful. My follow on question is probably for Oren here. Oren, I'd love to get a sense of any way you'd quantify this as well if possible that you're thinking about how actually should depreciation grow here as we're adding CapEx here, and then as kind of the correlator of the question here, thinking about free cash flow. Obviously, you're going to be negative here with a strong CapEx investment here.

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

How do we think about next year? Is this going to be positive, nicely positive? Just any way you can characterize that would be great. That's all for me.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

Okay. So depreciation, actually, you can see that in one of the tables that we attached to the press release, there is a line which is attached to the cash flow called depreciation and amortization, which includes RSU amortization, but the amounts are listed there as about $65,000,000 $70,000,000 a quarter. We expect those levels to remain pretty much the same, maybe slight increase, because like you mentioned, the incremental CapEx are on the one hand increasing depreciation, the other hand, there is depreciation that goes out of the books because of investments that were in the past. Your point is valid that CapEx currently is higher than in the past, so depreciation should go up slightly, but it's most of that is fixed costs and I don't believe it should go more than the 70,000,075 million dollars third quarter that we present. As far as free cash flow, yes, in the last few quarters, we see the same pictures that the cash from operations, is very good, is similar number to the CapEx.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

And this is because of the total of $1,150,000,000 in CapEx that we announced, the 500,000,000 Aglatte, the $300,000,000 11X and the $350,000,000 SiPhoSiG CapEx. So this 115 supposed to be referred to that in my prepared remarks, to be still paid in the coming two, two point five years, about more than $500,000,000 of that was not paid yet, so this will be part of the CapEx in the rest of 'twenty five and surely 'twenty six and some of that in 'twenty seven, so I would expect the CapEx total level per quarter to remain like now, maybe slightly go up, so to be between $100 to $120 a quarter, which is like now. However, the cash from operations supposed to continue its positive trend and improve as we go up on the revenue, which Russell mentioned the mid range guidance, which is $395,000,000 and the target for Q4 or even higher, so obviously cash from operations will be higher when CapEx supposed to remain in those levels that already reflect the new plans of $1,150,000,000

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

Okay, great. Thanks for all that detail, Arun. That's all for me.

[Operator]

Thank Now we're going to take our last question for today, and this comes from the line of Matthew Hosseini from Susquehanna Financial Group. Your line is open. Please ask your question.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Yes. I have two follow ups. One on OpEx. Should I assume that OpEx in 2025 would trend flat to up on a year over year basis? Is that a fair assumption? And I have a follow-up.

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

Yes, yes. That's we consider that fixed cost and OpEx should remain flat at the current run rate of about $40,000,000 a quarter.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Okay. And then going back to the previous question regarding cash flow, you actually done a good job of funding the CapEx and actually maintaining a stable net cash per share. Is there any plans for the cash? Or should I just assume that you would rather be conservative and just accumulate cash beyond funding the CapEx? Any additional thoughts you can share with us?

[Oren Shirazi, SVP - Finance & CFO at Tower Semiconductor]

Yes, like you mentioned, we the destination that we believe for our cash is for CapEx growth, which is why we approved in the last few years the $1,150,000,000 CapEx spend for Interfab, for the Aggratafab and for the SiPo and SiG, it's a total of 115 and we believe that's the best returns for the shareholders that we invest in CapEx and see the revenue growing like Russell described, it's amazing growth this year quarter over quarter, and that's the purpose that we plan for our cash.

[Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group]

Thank you.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Thank you.

[Operator]

You. Dear speakers, are no further questions for today. I would now like to hand the conference over to Russell Alwanger for any closing remarks.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Thank you. Really, to everyone on the call, thank you for your interest in the company. Thank you for the good questions that were asked. We did deliver a good second quarter. We guide a strong third quarter with a target of an even stronger best ever revenue fourth quarter.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Spoke to some length and there were some questions about increases in our silicon germanium and silicon photonics capacity. The third and fourth quarter are expected to begin to see the benefits of these activities. But I wanted to kind of frame what can be expected as all of this capacity that's coming online is qualified and shipped. The end state capacity, which should be realized in the 2026, will be a capacity that is 33% higher in silicon germanium and 2.2 times larger in silicon photonics than the fourth quarter twenty five targeted shipments, which total revenue is targeted to exceed $435,000,000 Very importantly, these increases in capacity track well with our customers' forecasted demand. So it's, I think for us, a very strong story.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

We believe that the markets that we chose to work in were, are and continue to be the right markets. Our models I think are strong and the incremental revenue to margin net profit ratios are good and will continue to grow. So I thank everybody for their interest in the company. It's been extremely exciting. There's multiple activities that we're involved in, in the next quarters.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

I wanted to just mention some of them. And in the short term, we would hope to see you at some of these conferences. We're excited to host our twenty twenty five technical roles and symposium in China this September and in The US in November. TGS, this global symposium is our flagship technology event, bringing together customers and ecosystem partners, serving as a critical platform for showcasing our specialty analog platforms from SiPho, SiGe, RFCMOS to power management and imaging, while aligning on future roadmaps and enabling stronger co development partnerships. We'll be participating in the following conferences and truly look forward to meeting and engaging with all of you at these events.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

On August 20, we'll attend the sixth Annual Needham Virtual SemiconductorSemicap one on one Conference. August 26, we'll participate in the Jefferies Semi IT Hardware Comms Technology Conference in Chicago. On August 27, we'll attend the twenty twenty five Evercore ISI Semiconductor IT Hardware and Networking Conference in Chicago. On September 3, we'll participate at the Benchmark twenty twenty five Tech Media Telecom Conference in New York. And on September 10, we will attend the Jefferies TechTrack twenty twenty five Conference in Israel.

[Russell Ellwanger, CEO & Director at Tower Semiconductor]

Again, very much appreciate your interest in our company. Look forward to providing you with updates on our progress towards achieving our long term goals in the coming quarters and in the very short term updating our achievements in Q3 and Q4. Thank you very, very much.

[Operator]

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Participants

Executives

• Noit Levy, SVP - IR & Corporate Communications
• Russell Ellwanger, CEO & Director
• Oren Shirazi, SVP - Finance & CFO

Analysts

• Cody Acree, Equity Research Analyst at The Benchmark Company LLC
• Richard Shannon, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Mehdi Hosseini, Senior Equity Research Analyst at Susquehanna International Group
• Lisa Thompson, Senior Analyst at Zacks Small Cap Research