Tower Semiconductor (NASDAQ:TSEM) reported fourth-quarter 2025 revenue of $440 million, up 11% sequentially and 14% year over year, as the company closed the year with what CEO Russell Ellwanger described as “value-based growth” driven by a richer technology mix. Full-year 2025 revenue was $1.566 billion, a 9% increase from 2024.
Quarterly profitability improved as photonics mix increased
Ellwanger said fourth-quarter net profit was $80 million, representing an 18% net margin, and noted margin expansion through 2025 from 11% in Q1 to 13% in Q2, 14% in Q3, and 18% in Q4. He attributed the improvement to higher-value incremental photonics revenue, adding that of the $82 million revenue increase from Q1 to Q4, about $40 million flowed through to net profit (48.78%).
Shirazi also pointed to a non-recurring tax benefit recorded in Q4 that contributed to an all-in effective tax rate of 2%. He estimated the benefit at roughly $10 million, based on a comparison to what taxes would have been at a 15% to 17% rate. Looking ahead, he said Pillar Two regulations are expected to push effective tax rates to “at least 15%” across manufacturing sites in 2026 and beyond.
Silicon photonics and SiGe drove 2025 growth, especially in RF infrastructure
Management highlighted growth across key platforms, including Power Management, Image Sensors, and 300mm RF SOI, while emphasizing that optical transceiver-related offerings were a major driver of performance and outlook.
- RF infrastructure revenue rose 75% in 2025 versus 2024, which the company called its fastest-growing application, driven by hyperscaler adoption of silicon photonics in 800G and 1.6T pluggable transceivers.
- Silicon germanium (SiGe) and silicon photonics together represented 27% of 2025 revenue ($421 million), up from 17% ($241 million) in 2024.
- Silicon photonics (SiPho) revenue was $228 million in 2025, up from $106 million in 2024. In Q4, SiPho revenue was $95 million, which management described as a $380 million annual run rate, including some non-recurring engineering revenue tied to future development work.
Ellwanger said Tower has ramped silicon photonics production not only in Fab 3 (Newport Beach) but also in Fab 9 (San Antonio) and Fab 7 (Uozu, Japan), and is “on track” to ship first production for a “very large SiPho ramp in 2026” from Fab 2 (Migdal HaEmek). He also discussed next-generation work, including progress on heterogeneously integrated indium phosphide on silicon for 400G-per-lane applications and opportunities tied to co-packaged optics. Tower also described expanding 300mm wafer bonding technology to enable wafer-to-wafer integration of silicon photonics ICs and silicon germanium electrical ICs.
Beyond data center optics, Ellwanger said the silicon photonics platform is also being adopted for frequency modulated continuous wave (FMCW) LiDAR, citing public collaboration announcements by Aeva and LightIC.
CapEx increased as Tower targets more than 5x SiPho capacity by late 2026
Tower announced an additional $270 million in 2026 capital expenditures on top of a previously announced $650 million plan, bringing total planned CapEx investments to $920 million. Ellwanger said the expanded plan targets silicon photonics capacity growth of greater than 5x compared with actual fourth-quarter monthly SiPho wafer shipments, up from a prior 3x target. He added that more than 70% of total SiPho capacity is “presently reserved or in the process of being reserved through 2028,” supported by customer prepayments.
Shirazi said about 28% of the $920 million has been paid to date, with the remaining 72% expected to be paid in 2026 and 2027. He said the investments will expand capacity in Tower’s 8-inch fabs in Israel, Newport Beach, and Texas, as well as the 12-inch Uozu fab in Japan, and will include capability CapEx for advanced development and high-end RF projects.
On timing, Ellwanger told analysts qualification will occur throughout 2026, with the “biggest portion” of the $920 million expected to be fully qualified by or before the third quarter. He reiterated the company’s target that all tools and customer qualifications will be completed within 2026, enabling wafer starts in December, while acknowledging some variability tied to tool delivery and qualification.
2026 outlook and a new 2028 financial model
For first-quarter 2026, Tower guided to mid-range revenue of $412 million, plus or minus 5%, and said it is targeting quarter-over-quarter revenue and profitability growth throughout 2026.
The company also introduced a revised target financial model for 2028 that excludes Intel’s Fab 11X. Ellwanger said the model assumes Tower’s own capacity at 85% utilization and requires no additional CapEx beyond the disclosed $920 million plan.
- Revenue: $2.84 billion
- Gross margin: 39.4% (about 40%)
- Operating margin: 31.7% (about 32%)
- Net profit: $750 million (26.4% net margin)
In Q&A, Ellwanger said the model is targeted to be achieved “within” calendar 2028, and that investors could expect it to be reached at least on a run-rate basis, with the company aiming for a full-year result as well.
Other operational updates: mobile mix shift and Fab 11X mediation
Tower said RF mobile represented 23% of 2025 revenue (24% in Q4). While 300mm RF SOI revenue increased 5.5%, RF mobile as a whole declined 15% year over year. Ellwanger said this primarily reflected a deliberate move to reduce exposure to lower-margin controller offerings and a front-end module market shift from 200mm toward higher digital content better served by more advanced 300mm nodes. He also said Tower achieved wins with three of the top four Tier 1 RF front-end module providers, with one already in production and others planning a ramp in 2027 toward “appreciable revenue volumes in 2028.”
In power, management reported 20% year-over-year growth, with a 300mm ramp of a previously announced tier-one handset envelope tracker expected to gain share over time. Sensors and displays grew 10% year over year, with strength in machine vision and the first production ramp of an AR display silicon backplane for OLED-on-silicon starting during the quarter. Mixed signal CMOS and discrete declined 18% and 14% year over year, respectively, as Tower reallocated capacity toward higher-margin platforms.
On Fab 11X, Ellwanger said Intel expressed its intention not to perform under the September 2023 Fab 11X agreement and that Tower is in mediation. He added that flows being transferred to Fab 11X were originally qualified in Tower’s Fab 7 in Japan and that customers are being redirected to be supported by that Japanese fab.
About Tower Semiconductor (NASDAQ:TSEM)
Tower Semiconductor, traded on NASDAQ under the symbol TSEM, is a specialty foundry company that provides analog and mixed-signal semiconductor manufacturing services to a broad array of customers worldwide. The company focuses on delivering tailored process technologies for high-growth markets, including radio frequency (RF), power management, imaging, automotive electronics, and Internet of Things (IoT) applications. By combining deep process know-how with flexible manufacturing capabilities, Tower Semiconductor supports the development and volume production of advanced semiconductor devices for fabless and integrated device manufacturer customers.
The company’s technology portfolio spans standard and specialty processes such as CMOS, BiCMOS, high-voltage, radio frequency, silicon photonics, micro-electromechanical systems (MEMS) and image sensor production.
