Tower Semiconductor Ltd. Q2 FY2025 earnings call

• CEO Russell Ellwanger stated that the company delivered strong results in the second quarter with revenues of $372 million and net profit of $46.6 million. - Guided third quarter revenues to be $395 million, plus/minus 5%, and target a $40 million-plus revenue increase for the fourth quarter over the third quarter. - Announced repurposing of multiple factories predominantly towards higher capacity for RF infrastructure, namely Silicon Germanium and Silicon Photonics, with Q3 and Q4 expected growth being the first fruits of this strategy. - RF infrastructure business grew, with RF infrastructure representing 25% of corporate revenues, up from 14% in 2024, and SiGe began volume production shipments and wafer starts, while SiPho had good ramps on higher speeds and prototyped new technology for the receive function. - RF mobile business showed recovery, with RFSOI having a Q2 to Q1 revenue increase of over 20% and gaining momentum with a new North America Tier 1 customer. - Won IMS Best Paper Award with pSemi for PCM phase change material switch technology and received a Best Supplier Award from Wisol. - Power management business sees increased demand due to AI processor power requirements. - Sensors and displays business expects revenue increase in the second half of 2025 due to machine vision market growth.

In the second quarter of 2025, Tower Semiconductor had revenues of $372 million. The RF infrastructure business represented 25% of corporate revenues, over $90 million in revenues, up from 14% in the same period of 2024. The RF mobile business, specifically RFSOI, showed a Q2 to Q1 revenue increase of over 20% and is expected to show further increases close to 30% Q3 over Q2. The sensors and displays business is expected to have a revenue increase of about 20% in the second half of 2025 against the previous quarters and previous year's run rate, primarily due to increases in the machine vision market.

• Third quarter revenues are guided to be $395 million, plus/minus 5%. - Target a $40 million-plus revenue increase for the fourth quarter over the third quarter. - 2025 has onset target of sequential quarter-over-quarter growth throughout the year with acceleration in the second half. - Plan to continue investing in capacity and R&D advanced capability CapEx throughout 2025, with further capacity and capability growth planned for 2026 aligned to customers' forecasted demand.

• Geopolitical risks such as tariffs and impacts of tariffs, which could affect business as the company has a worldwide manufacturing footprint and may need to move customer demands between factories.

Q: Could you give a little more detail on what segments you expect to contribute and maybe rank order them in terms of sequential growth through the second half of the year?

A: First and foremost is infrastructure with Silicon Germanium and Silicon Photonics. Power management is expected to have strong contributions. Imaging has an over 20% increase in run rate and is expected to continue. RFSOI for mobile had a nice increase from Q1 to Q2 and is guiding even stronger increase in Q3.

Q: 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 estimate?

A: We had mentioned a 60% utilization in Fab 2 and in San Antonio Fab 9. We certainly have room there for immediate upsides. We have the ability to move customer demands from one factory to another due to our strong worldwide manufacturing footprint.

Q: Could you give a little more detail on the receive function prototyping for Silicon Photonics and what you're expecting in terms of content, both the maximum amount as well as expected growth in content over the next couple of years in Silicon Photonics?

A: For the specific receive function, it's for a specific application and we think it would add about 20% to the served market plus/minus for this specific application and receive. The fourth quarter is expected to have very high amounts of Silicon Photonic shipments and we're probably seeing a doubling of demand by the end of 2026.

Q: To what degree are we seeing the improvement in the RF mobile space both in the second quarter and potentially second half year here about this improvement here as cyclical like inventory replenishment and/or share gains?

A: It's hard to speak about cyclicality. It's related to inventories having been consumed from the strong 2024. We have multiple customers that themselves are growing their market share. There are POs that have come in just recently from an existing customer that has increased their forecast.

Q: I want a better understanding of the big picture especially when it comes to data center infrastructure, how do you see your customers evolving and how that impacts your capacity planning?

A: Pluggables have been the mainstay. The movement from EML solution to SiPho solution is a big drive. We're working with lead customers on producing capabilities for 3.2T which requires different materials. We have our own strategy for CPO and see demand for SiGe and SiPho continuing.

Q: How do you think you're tracking so far to the margin profile here both at the gross and EBIT line here and the time frame for hitting the $2.7 billion revenue goal?

A: On a margin perspective, we're probably outperforming. On the time line to the $2.7 billion, we're still targeting somewhere at '28, '29 to be there.

Q: Any way you'd quantify depreciation grow here as we're adding CapEx here and thinking about free cash flow?

A: Depreciation amounts are about $65 million to $70 million a quarter and expected to remain pretty much the same with slight increase. Free cash flow: cash from operations is positive and expected to improve as revenue goes up while CapEx is expected to remain in current levels.

Q: Should I assume that OpEx in '25 would trend flat to up on a year-over-year basis?

A: Yes, we consider the fixed cost and OpEx should remain flat at the current run rate of about $40 million a quarter.

Q: 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?

A: The purpose of our cash is for CapEx growth as we approved the $1.15 billion CapEx spend for various projects and believe it's the best returns for shareholders.