Tower Semiconductor Ltd. Q1 FY2025 earnings call

• Opened 2025 with a quarterly revenue of $358 million and net profit of $40 million. Guided the second quarter of 2025 to a midpoint of $372 million plus or minus 5% and affirmed year-over-year growth with sequential revenue increases throughout 2025 and strong acceleration in the second half. - Tower offers an advantage through its global footprint and proactive cross qualification of process flows. - In RF Infrastructure, silicon photonics and silicon germanium are growing, with silicon photonics displacing traditional solutions and silicon germanium seeing adoption in various applications. - In Power Management, there's a rebound in high voltage 200 millimeter platforms and growth in 300 millimeter BCD platforms. - The machine vision sensor business is rebounding. - Attended the Optical Fiber Conference (OFC) in San Francisco, met with over 60 customers, and had discussions on multiple areas including platform efficiencies and next-generation modulators.

In the first quarter of 2025, Tower Semiconductor had a quarterly revenue of $358 million and a net profit of $40 million. Regarding segment performance: The RF Infrastructure business saw significant year-over-year shifts. RF Infrastructure grew from 14% of total revenue in Q1 '25 to 22%, and Tower's share grew from 10% to 18% of corporate revenue. The silicon photonics technology within RF Infrastructure continued to have record revenue levels in Q1 2025, with further strong sequential increases expected in the second quarter and beyond, and it's displacing traditional EML Solutions. Silicon germanium is growing strongly for TIAs and drivers in optical modules. In Power Management, there's a strong rebound in high voltage 200 millimeter platforms and continued growth in 300 millimeter BCD platforms. The machine vision sensor business in both 200 millimeter and 300 millimeter is rebounding as customers are placing orders for new SKUs.

• Guided the second quarter of 2025 to a midpoint of $372 million plus or minus 5%. - Affirmed target for year-over-year growth with sequential revenue increases throughout 2025 and strong acceleration in the second half. - Target $2.7 billion in annual revenue at full loading of existing fabs including Agrate and New Mexico, $560 million in annual operating profits, and $500 million in annual net profit.

• Uncertainty due to tariffs and related policy shifts. - Potential impact on the end market of China products sold into the US for some Power Management products. - In the RF Mobile business, one customer got pressure to start sourcing in China, leading to some market share going internally into China for older platforms.

Q: Can you size the Envelope Tracking business revenue-wise today and expectations for the year and next few quarters?

A: It's very specific to a certain customer, reached very high volumes with thousands of wafers per month, but specific details on exact revenue sizing were not further disclosed.

Q: What's the competitive dynamics in silicon photonics?

A: Tower estimates its market share at about 80%, and it's a big growing market with a 49% CAGR forecast. Tower serves four of the top five optical integrators.

Q: Regarding utilization of silicon germanium and silicon photonics, when does capacity open up?

A: Continued growth is seen, with record revenue presently and growth expected in Q2, Q3, and Q4. Cross qualifications and additional capacity capability being added in real time.

Q: How does tariffs affect business?

A: There's discussion about tariffs, but no pullback in orders yet. Our ability to support customers in manufacturing and shipping from various global locations helps.

Q: About the Indian project?

A: Tower withdrew from the project some five, six months ago, the article about it was baseless.

Q: About sales and tariffs, is the 42% of revenues for US customers where the product goes?

A: 42% of revenues are for US customers, but the product shipping is not usually to the US, a very small part physically enters the US.

Q: Expectations for operating expenses?

A: Expected to remain about flat at the current level of $40 million a quarter.

Q: Volume from Agrate and ramp?

A: Started in earnest in Q4, Q2 will be a reasonable number, Q3 and Q4 expected to be higher.

Q: Envelope Tracking Power Management business and New Mexico?

A: The specific project is being worked in New Mexico but not yet ramped there, coming out of the Uozu factory in Japan.

Q: China in RF Mobile business?

A: During Intel acquisition diligence, pressure on a customer led to some market share going internally into China for older platforms.

Q: Long-term growth drivers?

A: RF Infrastructure is a big contributor, Power Management also a growth driver, Display with activities but not yet realized at large scale.

Q: New Mexico fab qualification and production?

A: Start seeing production shipments within this year, depreciation starts when hitting certain production levels.

Q: Silicon photonics laser attach and CPO?

A: Laser attach volume shipments forecast in 2026. CPO market thought to be at least four years out, but Tower is actively working on programs to be ready when it's adopted.