Tower Semiconductor shares jump as company announces Japan expansion to boost silicon photonics capacity

Tower Semiconductor (NASDAQ:TSEM) shares rose 13% on Tuesday after the company announced a strategic expansion of its silicon photonics, silicon germanium (SiGe), and advanced packaging capabilities in Japan with support from the Japanese government.

The semiconductor foundry said the dual-track expansion plan is designed to significantly increase manufacturing capacity and support growing customer demand, particularly from artificial intelligence and data center applications requiring next-generation optical connectivity.

The first phase of the expansion will add new 300mm silicon photonics capacity by repurposing Tower’s Arai facility, formerly known as Fab 6, while maximizing output at its Fab 7 facility in Uozu. Tower expects the facility to be ready for full production in the fourth quarter of 2027.

As part of the first phase, Tower said it is updating its business model and is targeting revenue of $3.6 billion and net profit of $1.2 billion in 2028.

The second phase will involve the construction of an additional 300mm manufacturing facility adjacent to Fab 7, subject to the signing and closing of related agreements. The new facility is expected to provide a multi-fold increase in silicon photonics and silicon germanium production capacity and is expected to support customer demand growth over the coming years.

Tower said the expansion is expected to represent an investment of approximately $3 billion, net of $1 billion in grants from the Government of Japan. The company said the investment will strengthen Japan’s semiconductor manufacturing capabilities and supply chain resilience while expanding Tower’s production footprint.

Tower CEO Russell Ellwanger said that the company’s partnership with the Japanese government would support the creation of an advanced research and manufacturing center focused on silicon photonics, silicon germanium, and optical packaging.

“We are honored and appreciative that the Government of Japan has selected Tower to lead the expansion of these strategically important technologies,” Ellwanger said. “Together, we are building a globally differentiated center of excellence founded on technology leadership, manufacturing excellence, and exceptional product quality.”

Tower said the expansion builds on its ownership of TPSCo, the former Panasonic Semiconductor manufacturing operations, which it said has developed expertise in high-volume manufacturing.

The company expects the second phase of the project to become highly accretive beginning in 2029, supported by expanded customer engagements and technology developments through strategic partnerships.

Ellwanger said that the phased approach would allow Tower to add capacity while reducing timing risks associated with building a new facility and transferring production between fabs.

“The first track results in substantial increases in our updated 2028 business model,” Ellwanger said. “By quickly and efficiently adding capacity to an existing profitable operation, track two eliminates the timing concerns and impacts of multi cycles of learning for a greenfield qualification or a fab-to-fab product transfer, ensuring on schedule customer ramps and cash flow.”

Tower said the expansion will also include increased collaboration with Japanese suppliers, universities, and research institutions, as well as additional investment in engineering and manufacturing talent.