Tower Semiconductor (NASDAQ:TSEM) reported a sharp year-over-year increase in first-quarter 2026 profit and issued guidance for what it said would be the highest quarterly revenue in the company’s history, driven by accelerating demand in silicon photonics and related technologies for AI data center infrastructure.
Chief Executive Officer Russell Ellwanger said the first quarter provided “a strong foundation for the high growth we expect this year,” citing revenue of $414 million, up 15% from a year earlier. Net profit rose 62% year over year to $65 million, and net margin increased to 16% from 11% in the first quarter of 2025.
For the second quarter of 2026, Tower guided for revenue of $455 million, plus or minus 5%, which Ellwanger said would represent a 22% increase from the second quarter of 2025 and 10% sequential growth at the midpoint. The company reiterated its expectation for quarter-over-quarter revenue and margin growth throughout 2026.
Silicon photonics drives growth and long-term commitments
Ellwanger said silicon photonics revenue grew threefold year over year in the first quarter. Other major technology areas also posted gains, including imagers up 9%, RF SOI up 12%, power management up 10% and silicon germanium up 24%.
The CEO highlighted long-term customer commitments tied to silicon photonics, saying Tower has contracts representing $1.3 billion of revenue in 2027 and “significantly larger valued contracts for 2028.” The company has already received about $290 million in prepayments from its largest silicon photonics customers for 2027 capacity reservations.
Ellwanger stressed that the $1.3 billion figure reflects contractual commitments for wafer shipments in 2027, not Tower’s full forecast for silicon photonics revenue that year. In response to an analyst question, he said the company is forecasting “substantially higher” silicon photonics revenue than that contracted amount.
Tower said it is ramping silicon photonics production across Fab 2 in Migdal Haemek, Fab 3 in Newport Beach, Fab 9 in San Antonio and Fab 7 in Uozu, Japan. Ellwanger said the company achieved first-flow silicon photonics revenue shipments from Fab 2 and Fab 7 during the quarter, with the first silicon photonics wafers from Fab 7 reaching a 95% yield.
The company remains on track to grow silicon photonics capacity fivefold by the end of 2026 from a base of fourth-quarter 2025 wafer revenue shipments, Ellwanger said.
Japan restructuring central to 300 mm strategy
Ellwanger described the company’s recently announced restructuring in Japan at TPSCo as a significant step in Tower’s long-term 300 mm strategy. The transaction is expected to give Tower full ownership of Fab 7 in Uozu, a 300 mm facility that he said is already profitable at current volumes and running multiple qualified high-volume application flows.
With access to adjacent land, Tower expects to build out and scale the facility up to four times current levels, subject to grant approvals. Ellwanger said the expansion is intended to be “strategic, operational, and capital efficient,” with incremental capacity translating into revenue and cash flow as new tools are installed.
He also said Tower is entering a long-term supply agreement with Nuvoton for Fab 5 in Tonami to ensure manufacturing continuity for 200 mm customers.
During the question-and-answer session, Ellwanger said Tower hopes to receive approval from Japan’s Ministry of Economy, Trade and Industry in the near term. He said the timeline from breaking ground to having a facility ready to accept tools is likely about a year and a half, placing new shell capacity in the first half of 2028 in a best-case scenario. In the interim, Tower plans to expand silicon photonics capacity within existing footprints, including Fab 7 and potentially an existing factory within the TPSCo complex.
Technology roadmap targets optical networking and AI infrastructure
Ellwanger devoted much of his prepared remarks to Tower’s optical networking roadmap. He said the company continued to ramp 200 Gbps products for multiple customers and announced several technology milestones during the quarter.
Those included an all-silicon 400 Gb per lane Mach-Zehnder modulator demonstrated with Coherent, a high-volume long-term customer, and a heterogeneously integrated 400 Gb per lane indium phosphide electro-absorption modulator with OpenLight on Tower’s PH18DA platform. Tower also announced partnerships with Lightwave Logic and NLM Photonics to bring organic polymers to high-volume production for next-generation compact modulators.
Ellwanger said market analysts expect pluggable optical transceivers to remain the dominant format through the end of the decade, while extra-dense pluggable optics, near-package optics and eventually co-packaged optics emerge alongside them. He said Tower is already seeing strong demand for near-package optics products in 2027 and expects its silicon photonics platform to continue leading in newer optical form factors.
The CEO said Tower is investing in several technologies tied to co-packaged optics, including 200 mm and 300 mm hybrid bonding with Through-Silicon Vias, laser sources for traditional and dense wavelength division multiplexing architectures, and smaller high-performance modulators.
In silicon germanium, Ellwanger said demand is rising for drivers and transimpedance amplifiers in optical transceivers, as well as active copper cables used in short-distance scale-up architectures. He said unit demand for silicon germanium and silicon photonics tends to move “hand in hand,” though silicon photonics carries higher margins.
Margins improve as product mix shifts
Chief Financial Officer Oren Shirazi said gross profit rose 52% year over year to $111 million, while operating profit nearly doubled to $65 million. Earnings per share were $0.58 basic and $0.57 diluted, up 61% and 63% year over year, respectively.
Shirazi said first-quarter gross margin performance was consistent with the financial model Tower presented in February 2026. That model assumes incremental revenue contributes 59% to gross profit above a baseline and targets a 39% gross margin at $2.8 billion in annual revenue. Tower reached a 27% gross margin in the first quarter, up from 20% a year earlier.
Asked whether the improvement reflected higher-margin products, Shirazi responded, “Yes.”
Tower reported an effective tax rate of 9% in the quarter, below its model, due to a non-recurring income tax benefit related to TPSCo. Shirazi said the company expects a regular tax rate of at least 15% because of Pillar Two rules, potentially rising to 18% due to higher-tax regions including the United States, Japan and Italy.
As of the end of March 2026, Tower had total assets of $3.7 billion, including $1.5 billion in net fixed assets and $2 billion in current assets. Shareholders’ equity reached a record $3 billion. Shirazi also noted that S&P Maalot reaffirmed Tower’s ilAA rating and raised its outlook to positive.
Capital spending and utilization plans
Tower is executing a $920 million investment plan to expand silicon germanium and silicon photonics capacity and capability across its 8-inch fabs in Israel, Newport Beach and Texas, as well as its 12-inch fab in Uozu. Shirazi said about 40% of the planned capital spending has already been paid, with the remaining 60% expected during 2026 and 2027.
The company’s February 2026 model targets $2.8 billion in annual revenue, $1.12 billion in annual gross profit, $900 million in annual operating profit and $750 million in annual net profit. Ellwanger suggested an updated financial model with higher numbers could come “within the next quarters,” particularly as the company gains visibility into 300 mm silicon photonics capacity expansion.
Ellwanger said first-quarter fab utilization was about 60% at Fab 2 as silicon photonics and silicon germanium qualifications continued, 80% at Fab 3, 75% at Fab 5, fully utilized at Fab 7 and 80% at Fab 9. He said Fab 3 utilization was slightly constrained by newer silicon photonics and silicon germanium processes, but output is expected to increase in the second quarter.
In RF SOI, Tower is shifting 200 mm technologies to 300 mm while repurposing 200 mm capacity for higher-margin silicon photonics and silicon germanium. Ellwanger said full-year RF SOI revenue is expected to be down from 2025, but he expects record growth in 2027 and 2028 from 300 mm RF SOI based on design wins for future phone models.
In power management, Ellwanger said Tower has seen year-over-year revenue growth in 200 mm and 300 mm BCD offerings. He also said 200 mm BCD pricing increased by 13% following a reassessment of platform value, rather than as a response to capacity constraints.
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.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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