IN Brief:
- Quarterly revenue increased 24% year on year to a record $460 million.
- Silicon-photonics revenue reached a $680 million annualised run rate, compared with $180 million a year earlier.
- Tower expects the silicon-photonics run rate to exceed $1 billion during the fourth quarter.
Tower Semiconductor’s silicon-photonics revenue run rate reached $680 million during the second quarter, up from $180 million a year earlier as AI interconnect programmes moved further into production.
The foundry reported record quarterly revenue of $460 million, an increase of 24% year on year. Gross profit rose 72% to $138 million, while operating profit reached $90 million excluding non-recurring items. Tower expects third-quarter revenue of $520 million, plus or minus 5%.
Silicon photonics supplied the most striking growth figure. Tower expects the annualised run rate to exceed $1 billion during the fourth quarter. The measure describes the current quarterly pace rather than booked full-year revenue, but it shows how quickly optical-connectivity work is becoming material to the company’s results.
The production outlook is supported by contracts covering $1.3 billion of silicon-photonics revenue in 2027. Tower has received $290 million in customer prepayments for capacity reservations and said commitments for 2028 are larger. More than 50 active customers are using or developing applications around the platform.
Capacity reservations carry more weight than a conventional design-win announcement because customers do not normally prepay for wafer access without a product schedule behind them. They are not equivalent to final shipments, however, and revenue will still depend on device qualification, yields, package availability, system demand, and each customer’s ability to convert forecasts into finished optical modules.
Tower’s platform supports pluggable transceivers, near-packaged optics, and co-packaged optics. It includes silicon modulators and detectors, silicon-germanium processes, and work with non-silicon materials where higher optical performance is required. The company has also outlined 3D integration, advanced packaging, optical circuit switching, and hybrid-bonding capabilities.
Coherent optical devices place demanding requirements on process control because they manipulate the phase and polarisation of light as well as amplitude. Device matching, low-loss routing, thermal stability, and analogue control all become critical. Tower and Marvell said in June that more than five million coherent photonic integrated circuits had been shipped through their collaboration.
The manufacturing problem extends beyond producing an optical die. Fibre attachment, laser integration, electrical interfaces, thermal management, wafer-level test, and final module assembly all affect cost and yield. As optics move closer to accelerators and switch silicon, the tolerance for an unreliable package becomes smaller because replacing a failed optical element inside a complex system is neither quick nor inexpensive.
Optical test must also become faster and more automated as wafer volumes rise. Alignment, coupling efficiency, wavelength response, insertion loss, and modulation performance cannot be checked economically using laboratory procedures designed for small numbers of devices.
Material supply is becoming more strategic as foundries combine silicon with compound-semiconductor functions. Recent UK photonics wafer orders have shown how indium-phosphide supply and foundry capacity are being tied more closely to AI and data-centre programmes rather than purchased solely through shorter-term component channels.
Tower invested $187 million in property and equipment during the quarter, compared with $177 million generated from operating activities. The mismatch is not necessarily alarming during a deliberate capacity ramp, but it illustrates the cash intensity of moving from attractive run-rate figures to installed production capability.
Tools, cleanroom capacity, process transfer, and customer qualification have to arrive before the revenue they are intended to support. The company must also expand without damaging the yields and delivery performance that persuaded customers to reserve capacity in the first place.
Tower has raised its 2028 target model to $3.6 billion of revenue and $1.2 billion of net profit, describing the target as fully covered by customer commitments. Long-range targets remain exposed to programme timing and the familiar semiconductor habit of moving demand between quarters, particularly when customers are also balancing optics, memory, packaging, and accelerator availability.
The second-quarter figures provide stronger evidence than another photonics roadmap. Revenue is rising, customers have reserved capacity, and coherent devices are shipping in volume. The next measure is execution: bringing expanded capacity online without weakening yield while keeping the optical process aligned with packaging technologies changing almost as quickly as the devices themselves.
