NASDAQ:TSEM
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Tower’s (NASDAQ:TSEM) quarterly revenue again declined in Q2 2024 as expected, but earnings improved both sequentially and year over year. The company expects quarterly sequential improvement throughout 2024 as 300mm capacity comes on line and demand increases. On the Q2 call management said demand is picking up faster than expected this year. For Q3 the company guided to revenues of $370 million plus or minus 5%. That means investors should see revenue growth return by Q3 2024. TSEM now trades at an enterprise value of $3.6 billion, or 2.1 times EV to estimated sales for 2024, versus its peers who trade at 4.8 times.
Silicon Photonics is expected to be a big part of the company’s growth driven by data center infrastructure. Customer forecasts for this new market have increased dramatically and revenues are ramping up faster than previously expected. SiPho is expected to contribute at least 5% of revenues each quarter this year. As total revenues increase, SiPho revenues will also increase. The company expects $80 million in revenues from SiPho this year versus approximately $30 million last year. In 2025 revenues are now expected to double to $160 million. This product line contributes more than the typical 55% incremental margin helping to alleviate some of the drag caused by new fabs such as Agrate in 2025.
These revenues are in the RF infrastructure segment as almost 100% of the revenues are going into pluggable optical transceivers used in data centers and are mainly at 400G and 800G speeds although there is some 100G revenue. Tower believes it may be shipping some 1.6T by Q4 to more than one customer. In the quarter RF infrastructure grew 50% year over year contributing approximately $25 million in incremental revenue. The rapid growth in data centers is spurred by AI and going forward photonics is the only way to get the speeds needed.
The biggest revenue growth contribution in the quarter came from RF Mobile with a 60% increase in RFSOI. That would be approximately an incremental $41 million.
Fab utilization is still below 2019 and 2020 levels but improving. There is a gap in our table below as the company did not report numbers right before and during the acquisition attempt by Intel. Starting in Q1 2024 the company began to move some production from its 40-year-old Fab 1 to Fab 2 to consolidate production and reduce expenses. It is also shutting down some lines no longer needed and possibly selling off the equipment. Fab 1 itself is leased from the government and not owned. In addition, it started shipping small amounts of product from its new Agate fab which will continue to ramp for the next two years. It has not reported utilization. All its capacity there is already spoken for 2024 and 2025. Also, on January 1st there was an earthquake in Japan that disrupted production and caused damage to some products and equipment. All is back to normal now and the 12” fab is back to a fully loaded utilization of 85%.
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