Tower Semiconductor(TSEM) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q4 2025 revenue of $440 million, reflecting an 11% quarter-over-quarter growth and a 14% year-over-year growth, meeting the target for sequential growth [6][36] - Full year revenue for 2025 was $1.566 billion, a $130 million or 9% increase compared to 2024 [7][39] - Q4 net profit was $80 million, representing an 18% net margin, up from 11% in Q1 2025, 13% in Q2 2025, and 14% in Q3 2025 [6][37] - Full year net profit for 2025 was $220 million, or $1.97 basic and $1.94 diluted earnings per share, compared to $208 million in 2024 [39] Business Line Data and Key Metrics Changes - RF infrastructure revenue increased by 75% year-over-year, driven by the adoption of silicon photonics in 800G and 1.6T pluggable transceivers [9] - Silicon germanium and silicon photonics revenues accounted for 27% of corporate revenues, totaling $421 million, up from $241 million in 2024 [10] - Power Management grew by 20% year-over-year, representing 16% of corporate revenues in 2025 [22] - Sensors and displays grew by 10% year-over-year, also representing 16% of corporate revenue [24] Market Data and Key Metrics Changes - RF mobile represented 23% of corporate revenue in 2025, with a 15% year-over-year decline due to a strategic shift towards higher value offerings [19] - The company noted strong demand for silicon photonics, with over 70% of total capacity reserved or in the process of being reserved through 2028 [27] Company Strategy and Development Direction - The company is focusing on expanding its silicon photonics and silicon germanium capacity, with a total CapEx plan of $920 million, including an additional $270 million announced for 2026 [45][27] - The updated financial model targets $2.84 billion in annual revenue by 2028, reflecting a significant increase from 2025 levels [50] - The company aims to achieve a gross margin of approximately 40% and a net profit of $750 million by 2028 [52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting future demand, citing strong customer partnerships and a robust operational execution plan [78][85] - The company acknowledged potential concerns regarding memory shortages in the mobile market but emphasized proactive planning to mitigate risks [90][92] - Management highlighted the importance of maintaining strong relationships with both customers and suppliers to ensure operational success [86] Other Important Information - The company has successfully ramped silicon photonics production in multiple fabs and is on track for significant capacity increases [12][27] - Utilization rates for various fabs were reported, with Fab 3 at 85% and Fab 7 fully utilized, indicating strong operational efficiency [28] Q&A Session Summary Question: Clarification on NVIDIA collaboration - Management clarified that the partnership with NVIDIA involves output parameters for photonics and drivers, not direct shipping to NVIDIA [56] Question: Impact of increased silicon photonics capacity - Management confirmed that the 5x capacity increase is in response to total demand, including from NVIDIA [57] Question: Concerns about high voltage capabilities for AI servers - Management stated that while they do not currently have an 800-volt platform on an IC, they have higher voltage IC capabilities [61] Question: Clarification on shipping to NVIDIA - Management confirmed that they do not ship directly to NVIDIA but through module makers [64] Question: Timeline for CapEx rollout - Management indicated that the majority of the $920 million CapEx should be online by the third quarter of 2026, with qualification processes ongoing [70] Question: Expectations for silicon photonics contribution - Management expressed confidence in meeting demand and operational execution for silicon photonics in 2026 and 2027 [78][85] Question: Concerns about memory shortages - Management acknowledged concerns regarding memory shortages but emphasized proactive planning to mitigate potential impacts [90][92]