Tower Semiconductor Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2024

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Tower Semiconductor Second Quarter 2024 Financial Results Conference Call. All participants are currently in a listen only mode. Following management's prepared statements, instructions will be given for the question and answer session. As a reminder, this conference is being recorded July 24, 2024.

Operator

Joining us today are Mr. Russell Elwanger, Tower's CEO and Mr. Oren Shirazi, CFO. I would now like to turn the conference over to Ms. Noit Levi, Senior Vice President of Investor Relations and Corporate Communications.

Operator

Ms. Levy, please go ahead.

Speaker 1

Thank you, and welcome to Tower Financial Results Conference Call for the Q2 of 2020 4. Before we begin, I would like to remind you that some statements made during this call may be forward looking and are subject to uncertainties and risk factors that could cause actual results

Speaker 2

to be

Speaker 1

different from those currently expected. These uncertainties and risk factors are fully disclosed in our Form 20F and ks filed with the Securities and Exchange Commission as well as filing with the Israeli Securities Authority. They are also available on our website. Tara assumes no obligation to update any such forward looking statements. Please note that the Q2 of 2024 financial results have been prepared in accordance with U.

Speaker 1

S. GAAP. The financial tables and data in today's earnings release and in the earnings call also include certain adjusted financial information that may be considered non GAAP financial measures under Regulation G and related reporting requirements established with the Securities and Exchange Commission. The financial tables include a full explanation of these measures and the reconciliation of these non GAAP measures to the GAAP financial measures. We have a supporting slide deck that complements today's conference call.

Speaker 1

This presentation is accessible on our company's website and is also integrated into today's webcast for your convenience. Now I'd like to turn the call to our CEO, Mr. Russell Enlonger. Russell, please go ahead. Thank you, Noe.

Speaker 1

Welcome

Speaker 2

everyone. Thank you for joining our Q2 2024 earnings conference call. It was a quarter in which we delivered strong financial performance and in which we received substantial increases in customer forecasts short to mid term, affirming the value of our strategic focus. Revenue for the Q2 reached $351,000,000 with a net profit of approximately 53,000,000 dollars resulting in a net margin of about 15%. At the beginning of 2024, we publicly stated a target of sequential quarterly revenue growth throughout the year for which we remain committed.

Speaker 2

This was achieved in the Q2 of 2024 with a $24,000,000 increase in revenue compared to the Q1 and we are on track for this target in the 3rd with a revenue guidance of $370,000,000 plus or minus 5%. Moving into the second half of the year, we remain focused on driving innovation, further enhancing our market leadership and delivering sustainable growth. I will now present a brief overview of our primary growth drivers. For the 2nd quarter, RF infrastructure revenue increased 50% year over year and represented 14% of the total quarterly revenue. We anticipate Silicon Photonics is experiencing an even stronger ramp than prior expectations and we are seeing extremely robust and climbing demand for our SiGe based technologies.

Speaker 2

SiGe demand and growth is predominantly from TIA and drivers for optical transceivers, where I believe we hold the number one market position. The expected expansion of AI applications is strongly linked to the robust growth of silicon germanium technology. As AI applications in various sectors demand higher performance and efficiency, SiGe Technology stands out due to its ability to operate at higher frequencies and lower power making it ideal for AI hardware. In addition to the TiA and drivers, new products are wrapping aggressively. For example, active copper cables, please see Slide 5, are experiencing an increased adoption for shorter reach data center to connect driven by the need for lower signal loss at the high speeds required by AI.

Speaker 2

We also expect continued high increase in silicon photonics And from that point, most recent customer forecasts would result in more than doubling this revenue in 2025. This is driven by the very high demand for 400 gs800 gs transceivers due to exponential increase in data traffic from AI, cloud computing, streaming services and IoT alongside the expansion of data centers 5 gs deployment, driving greater need for high performance computing. These SIFO based transceivers offer higher efficiency, lower cost and leverage advancements making them essential for network infrastructure upgrades and the growing computational demands of AI applications. Looking forward, prototyping of 1.6 terabit products continues with several customers having demonstrated 200 gigabit per second per lane transceivers. We are already very active in 3.2 terabit R and D programs in tight collaboration with specific market leading customers targeting 400 gs per lane solution.

Speaker 2

During the Q2, we delivered initial samples to customer showing breakthrough performance with an advanced architecture and incorporating new materials. Beyond AI and datacom, we continue to make good progress on SIFO engagements with automotive leaders in frequency modulated continuous wave based lidar. Please see Slide 6. And with existing and emerging leaders in quantum computing, optical switching and other sensing applications. There is a growing ecosystem of silicon SIFO customers, we are additionally qualifying our SIFO platform at our San Antonio 200 millimeter facility.

Speaker 2

And we have made significant strides in bringing to the market a 300 millimeter version of our SIFO Flow with process lead customers, including some very novel and breakthrough solutions for certain advanced applications. The 300 millimeter added SIFO capacity in addition to providing capabilities for these novel applications combined with the San Antonio cycle capacity, should ensure that we can meet short and long term customer demand for this market, in which we are very bullish. For Q2, RF mobile revenue predominantly RFSOI increased approximately 60% year over year and represented 31% of the total revenue during the quarter. We are currently fully utilizing our 300 millimeter RFSOI capacity in Wozu, Japan and continue 300 millimeter RFSOI customers to our Grate Italy per plan to support this increased demand. During the Q2, we shipped prototypes in Agrate for our most advanced RFSOI technology, TPS65 RSC, which not only exhibits industry leading RON C offer high efficiency and power handling, but also enables strong scaling for optimum four factors.

Speaker 2

For Q2, our Power IC business revenue increased 60% from Q1, representing 14% of total revenue during the quarter. We anticipate continued growth through the remainder of the year. Within this market, we are seeing strong demand for a 300 millimeter technology. To meet this demand, we continue to qualify new capacity in the New Mexico fab and are happy to report good progress at initial customer prototypes already taped out with expected qualification and subsequent ramp in 2020 5. Our fab utilization rates for the Q2 1.

Speaker 2

Fab 1, as previously announced, will be operation consolidated into Fab 2 was about 75%. Fab 2 8 inches was about 67%. Fab 3 8 inches at about 55% and expected to show substantial higher utilization in Q3 due to the great demand we are supplying from that factory for silicon germanium and silicon photonics. Fab 5 8 inches was at about 45% continuing to ramp with the recovery within power. Fab 7 12 inches was at about 85% fully loaded.

Speaker 2

Fab 9 8 inches was about 60 percent. Today, we released our updated Corporate Sustainability, Environmental, Social and Governance ESG report. This report highlights our commitment to environmental stewardship, ethical practices and social responsibility, doing our part towards a sustainable society and world. We report our achievements with a focus on short, mid and long term measurable milestones and targets to magnify our role as world citizens. We invite you to explore this report and we welcome any comments as you join us on our journey towards a more sustainable and equitable future.

Speaker 2

With that, I'll our time to our CFO, Mr. Oren Shirazi. Oren, please.

Speaker 3

Hello, everyone. Earlier today, we released our Q2 2024 financial results, which I will review, first by analyzing the P and L highlights, followed by our cash and balance sheet report. For the Q2 of 2024, we reported revenue of $351,000,000 up $24,000,000 over the prior quarter, which resulted in $14,000,000 higher gross profit and $21,000,000 higher operating profit over the same period. Gross profit for Q2 was $87,000,000 $14,000,000 higher as compared to the gross profit of the prior quarter, which totaled $73,000,000 Operating profit was $55,000,000 and included $6,000,000 restructuring income due to grant received in relation to the operation reorganization in Japan previously announced and completed last The operating profit is $21,000,000 higher than prior quarter's operating profit. Net profit was $53,000,000 reflecting $0.48 basic and diluted earnings per share and included $2,500,000 of net impact from Japan reorganization noted before.

Speaker 3

Net profit in the prior quarter was $45,000,000 or $0.40 basic and diluted earnings per share. Moving to balance sheet and future CapEx and cash plan. As of the end of Q2, twenty twenty four, our balance sheet assets totaled $2,960,000,000 compared to $2,500,000,000 for the same period last year, primarily comprised of $1,200,000,000 of fixed assets, mostly machinery and equipment and $1,700,000,000 of current assets. Current assets ratio reflecting the multiple by which current assets are larger than short term liabilities is very strong at 5.9x as compared to 4.8x for the same period last year. Shareholders' equity reached a total of $2,500,000,000 at the end of Q2 2020 4 compared to $2,000,000,000 at the end of same period last year and compared to $2,400,000,000 as of December 2023.

Speaker 3

Our strong financial position enable us to plan the following investments for strategic opportunities that are aligned to our vision. 1, approximately $500,000,000 of total aggregate cash was allocated to make investments in equipment and other CapEx items required for the 12 inches factory in Agrate, Italy following the previously announced STMicro partnership. As of today, we have already placed purchase orders to all the equipment and other CapEx items required for us towards the CapEx dated plan of which we have paid $380,000,000 to date and the remaining $120,000,000 are expected to be paid in the coming 6 quarters, namely until the end of 2025. 2, in addition, as previously announced, we have committed to invest up to $300,000,000 to acquire equipment and other CapEx items that we will own in Intel's fab in New Mexico, enabling us to ramp up fab capacity and capabilities for our customers, which amounts are to be paid during 2024, 2025 and until 2026. Furthermore, we expect our maintenance CapEx baseline level to remain at about $200,000,000 to $240,000,000 per annum.

Speaker 3

And lastly, we are investing in more capability and capacity tools and other assets to expand our technology offering especially to increase our 5 gs and SIFO capacity in our 8 inches 12 inches wafer fabs and to enhance our global technological offering to enable flexibility, better support our customers from our various sites and change our product mix to a richer mix from a margins perspective. I wish to note that all the above investments are aligned to our business strategy and contained within our financial model as previously presented by the company in November. In the model, we outlined our revenue target of $2,660,000,000 per annum that could be achieved by loading our existing facilities and our capacity at the Agrate and New Mexico facilities which could result in $560,000,000 annual operating profit and $500,000,000 of annual net profit. Now I'd like to turn the call back to the operator.

Speaker 2

Operator?

Operator

Thank The first question is from Cody Acree of Benchmark. Please go ahead.

Speaker 4

Hey guys, thanks for taking my questions and congrats on the progress. Russell, maybe if you could take a step back to your AI exposure. Thanks for all the details with SIFO. Could you maybe give an aggregate number of silken germanium, SIFO and then maybe a shot at active copper cables as far as a total AI exposure?

Speaker 2

A little bit difficult for me to do that in all honesty. I don't have that type of granularity. We assume that probably somewhat about 50% of what we're shipping right now is really being driven by AI demand, but it's hard to say. I mean, the customers that we ship to, the integrators that we ship to, basically supply everything within data center. So for me to specifically say how much is AI driven and not AI driven, Really, it's not something I can give in a granular basis.

Speaker 2

Certainly, we know that AI is driving big demand for increased speed and that the acceleration of having gone to 800 gs this year to such a big extent is an AI drive and a lot of what we're serving is 800 gs. So I assume at least 50% of what we're shipping, but excuse the expression, but that's somewhat proptological.

Speaker 4

Sure. Well, thank you for the help there. Maybe if you can talk about optical versus active copper cable activity. NVIDIA obviously has a big push with their SpectrumX platform in Ethernet. Are you seeing any impact of NVIDIA's push to copper on your optical activity?

Speaker 2

It's not necessarily for me to say how much we're shipping to who. Certainly, NVIDIA is a very big buyer. And as stated, the fact that we have the number one position within optical transceivers, one would certainly assume that NVIDIA would be a big end customer for us. But to say how much is for NVIDIA, I'm not saying certainly NVIDIA is using active copper cable. That's I think fairly well known.

Speaker 2

So what would maybe assume that we're shipping into that?

Speaker 4

And Russell, I guess, your Fab 3 utilization, I think you said that was 65%, is that right?

Speaker 3

Come on. Let me look.

Speaker 4

That's 55%.

Speaker 2

Substantial higher or will show substantial higher utilization in Q3. So in Q3, we'd expect it fully utilized.

Speaker 4

Okay.

Speaker 2

For everything that we can be shifting there on that's not constrained on SIFO and SIDJ. I mean there might be more photo layers that could be shipped outside of bottlenecks for those two flows, but those two flows are full.

Speaker 4

And I guess the transition to 300 millimeter, how is that progressing?

Speaker 2

I stated that we released a PDK and shipped samples that are very high performing as well as a very, very unique application that we're doing there, with a different material than would Uozu factory in Japan. And as stated, we're qualifying and have had very good progress there as well, additional capacity in San Antonio.

Speaker 4

Great. Thank you, guys.

Speaker 2

Thank you, Cody. Good questions.

Operator

The next question is from Richard Shannon of Craig Hallum. Please go ahead.

Speaker 5

Hi, Russell and Oren. Thanks for taking my questions. I think I'll the baseline TA and driver business. Maybe I just want to get a sense of the degree to which this is market growth versus potentially Tower Semi share gains. Can you do you have a good sense of the drivers there?

Speaker 2

In the area of silicon photonics, it's all share gain because it didn't exist in the past. So and that's not being facetious. It's just the case, right? It's a new serve market of which we're gaining quite a bit of share and shipping a lot of 1,000,000,000 of dollars of revenue and continually increasing that to multiple customers. So there it's if you will, I mean it's a new market and hence share gain something that didn't exist before, which is always a very nice thing to have, right?

Speaker 2

The best way to have very strong market share growth is by entering markets that didn't exist. The area of silicon germanium,

Speaker 3

is

Speaker 2

it share gain or not? I am not sure. As stated, we believe for a good number of years to have the number one position in optical transceivers. So when you're number 1, it's a little bit hard to have a lot of share gain. The major thing is to be with strong customers that when the market is strong and has big demand, you're growing with them and you maintain your customers.

Speaker 2

So I think what's happening there isn't necessarily share gain, it's demand increase. And again, that are needed now that weren't really driven before. I mean active copper cable, active optical cable has been talked about for a long time and many people have sampled for a long time. But given the increase, again, AI driven, in data center speeds, the 800 gs, the 1.6t, the need for redrivers and in many cases as well retimers in the cable, it's very real. And I would have to consider that to be share gain because it was a market that we weren't really serving before.

Speaker 2

As far as the TIAs and the drivers, sitting within the pluggable itself, I honestly don't know if we're getting any share gain there or just that the market is getting much stronger. Continually, we have new customers and those customers nominally will always drive some share gains providing that they're gaining from someone that we're not serving. But for the most part on the core products that we do for optical, we already serve the biggest customers within it. So a little bit difficult to increase in share in that for the TIA and the drivers that are within the pluggable itself. But the fact of the demand for pluggables having increased, that's a good thing.

Speaker 2

If you're sitting at 60%, 65% market share and that market grows, as long as you sustain that market share, you have very good growth. But hopefully, Richard, that answers your question.

Speaker 5

It does. I appreciate all the perspective there. Thanks Russell. My second question is on silicon photonics. Great to see the opportunities from some really nice growth here.

Speaker 5

I guess maybe the question I'd like to frame here is thinking about the big picture long term here. What does this TAM look like in a few years? And to what degree are applications outside the datacom transceivers adding into that? You specifically talked about automotive today and in the past with FMCW, but curious how much of that TAM for Sailing Photonics exist outside of Datacom?

Speaker 2

If you're looking at long term TAM, I think it's quite substantial. If you'd be looking at 25%, 26%, 27%, I don't think it's very substantial. For automotive, the activities that we're doing for the LiDAR, very, very advanced activity, But I don't think we would see going into the automotive market a very big ramp at least not starting before 2027 and continuing then in 20 28 and beyond. There's other applications that are not conventionally what we would be considering, a SIFO chip sitting within the pluggable, for example, some of those are an active SIFO capability that is looking at an optical switch. So that is sitting within the data center, but it's part of a SAM, a served market that we don't have right now.

Speaker 2

I mean, we don't do deep sub micron switches on the digital side. But there is a lot of activity right now and we'll see ultimately how successful it is on optical switches. And that's again, that's an increase in our SAM within data center, but it's an increase in SAM. We've talked as well about other applications such as silicon photonics for triometers versus big optical cable triometers. Specific lead customer there is Anello.

Speaker 2

And as stated, that's a new served all of that is part of a big TAM. How much is the TAM outside of data center within data center? I would say that probably the data center will remain the biggest portion of it, but the data center is growing incredibly, reduced latency needed by AI. So the SiGe that we're doing, the SIFO that we're doing, that TAM is certainly growing. And the growth of that, I think, will always be much bigger than the outside of data center on proportion.

Speaker 2

But it's not that the outside of data center is insignificant.

Speaker 5

Okay, great. Thanks for that detail here. Maybe a quick question for Oren. Your gross margin fall through is pretty strong here in the Q2. Can you give us a good sense of why is there some sort of mix shift or other dynamics and to what degree is that sustainable?

Speaker 3

Yes. It relates also to what Russell said about the SIFO and the SIFO margins are very good and way above the average incremental model of 50% incremental gross profit. So this is why you see that you're correct that it's 60% this quarter came up to be 60% incremental gross profit over the revenue because we had some very nice SIFO and generally speaking richer mix than previously, not anything special. I mean very special, but not anything one time.

Speaker 5

Okay. Fair enough. One last question. Sorry, Russell.

Speaker 2

Yes. That's sustainably special.

Speaker 5

Sustainably special. Okay, great. One last question, I will jump out of the line for you, Russell. Just looking at your Power IC business here, you had a nice pickup here in the Q2 from what I would assume is a naturally low level in the Q1. And obviously, if you look back a couple of years, you had some very nice revenue levels, obviously driven by some inventory build that pretty much everyone in the power IC space had seen in the 70s, 80s and even in the 90,000,000 plus range per quarter.

Speaker 5

Are we through the inventory burn here currently? Are we still affected by that? And then as we look out maybe 1 to 2 years with your crystal ball, do you see the ability to get back up to those levels anytime in the now I'll call it near future? I'll let you define what you see as that timeframe, but love to hear your thoughts there. Thank you.

Speaker 2

For the total power revenue, yes, I think that we will get beyond previous year's numbers. For the 200 millimeter presently, we still see that there's inventory being built off or burned off, although we are starting to get much more orders there. As we had stated last quarter, we had expected that Q1 would have been low. And certainly with the numbers this quarter, I think we said it's a 60% increase in the power revenue. But the big growth that we see within power is coming into our more advanced platforms of 300 millimeter, although the 200 millimeter we continue to do advancements on as well.

Speaker 2

And we see that coming back strongly, but I don't know that the 200 millimeter within 2025 will hit the same levels that we had had in previous years, but the 300 millimeter will more than make up for it.

Speaker 5

Okay, perfect. That is all for me guys. Thank you.

Operator

Thank you. The next question is from Mehdi Hosseini of SIG. Please go ahead.

Speaker 6

Yes, sir. Thanks for taking my question. A couple of follow ups from me. I want to better understand the RF ROI dynamics. Can you help me with how the share gains are tracking and where are the inventory correction And when do you think overall market would pick up?

Speaker 6

And I'm expecting the market recovery would start with some sort of inventory refresh. So just to summarize the question, how should I think about your incremental share gain against the end market dynamics, inventory correction? And when do you expect your customers to start with inventory refresh? And I have a follow-up.

Speaker 2

I had stated last quarter that maybe above and beyond what the market was seeing, we were seeing very strong demand for RFSOI. We continue to see that in particular for the advanced platforms of 300 millimeter. So I don't think we're being impacted nor have we been impacted for the past few quarters on inventory correction. Overall, 2024 is supposed to be a growth year for mobile. So I think from overall analysts, they would believe that for the market itself, the inventory is in pretty good shape.

Speaker 2

But as stated and some of that is really market share gains with newer customers, we have seen very strong and robust demand for RFSOI. In particular, as stated, the advanced platforms of 300 millimeter, which was the big drive for bringing up and qualifying that at the Egrate factory. And we'll by plan be shipping a reasonable amount of product in the Q4 on RFS OI from the Agrate factory in addition to what we have at a base of 300 millimeter in Japan. So I see the RFSOI being a very strong business for us. If I look at 2024 versus 23, overall year should be a pretty reasonable growth on the RFS see see growth as well.

Speaker 2

So I don't see that we're being hit by inventory correction.

Speaker 6

Understood. Understood. And also quickly, your exposure to smartphones on both operating system, both platforms.

Speaker 2

I apologize, your voice is very muffled for me. I'm having a little bit difficult time hearing.

Speaker 6

Sure. Sorry. Should I assume that your RFSOI is to both Android and OS?

Speaker 2

I think that would be a good

Speaker 3

assumption. Yes.

Speaker 6

Okay. And then as a great. And as a follow-up for you and Oren, two follow ups here. Increased mix of silicon photonics, which I assume has a higher than copper average gross margin, can you offset the upfront cost and margin dilution from aggrade, especially as it ramps into 2025? And then, Oren, was the gross margin that you reported for Q2, that was on a GAAP basis.

Speaker 6

Is that correct to assume that on a pro form a base Q2 gross margin was closer to 25%?

Speaker 3

Yes, it is 25% under GAAP. What do you mean pro form a?

Speaker 6

Okay. Because I was just trying to understand there was a $2,000,000 $3,000,000 of adjusted. Just want to make sure I get that right.

Speaker 3

This is amortization of Aesop, amortization of employee stock option plan you mean?

Speaker 6

Yes, yes.

Speaker 3

Yes, yes. So you're correct, yes.

Speaker 6

Okay. Now could increased mix of RFSOI help offset the dilution that comes from the ramp up to 300 millimeter fab in upgrades?

Speaker 3

Is your question referring to Q2?

Speaker 6

Looking into 2025, as you start production from the new fab, aggrade, could higher margin contribution from infrastructure, specifically silicon photonics, help offset some of the dilution from the ramp of the new fab there?

Speaker 3

Yes, definitely the increased margin from the SIFO should be and in the scope that Russell described the SIFO growth next year in his prepared remarks should be higher impact than this you call it dilution from the agrata factory headwinds and it will start and it should be much higher than the impact.

Speaker 6

Got it. Thank you. Sorry for the mic.

Speaker 2

Thank you. Good questions.

Operator

The next question is from Lisa Thompson of Zacks Investment Research. Please go ahead.

Speaker 1

Hey, Lisa.

Speaker 7

Hi there.

Speaker 3

Hi there.

Speaker 7

So let me just ask you, I thought last quarter you said that silicon photonics contributed about 5% of revenues.

Speaker 3

Yes.

Speaker 7

Is that right?

Speaker 6

Yes.

Speaker 7

And so what would it have been this quarter?

Speaker 2

What I stated last quarter, I believe, is that we would see it remaining somewhere about 5% throughout the year, but against increased revenue quarter over quarter, so that the SIFO revenue would be increasing quarter over quarter. We haven't put out a specific number for Q4. So I really expect over $80,000,000 of SIFO revenue in 2024. That's over $80,000,000 How much is over 80 dollars that one can try to figure out for themselves. But I would expect that it will certainly not be below 5% and could be a little bit above.

Speaker 7

Okay. And at current, mostly I believe it's mostly going into like pluggable optical transceivers, right?

Speaker 2

I believe almost all of it right now is pluggable optical transceivers.

Speaker 7

Okay. And do you have a feel for what speeds the breakdown is, 400, 800?

Speaker 2

I think some is even going into 100, but the bulk of it is 408 100. The specific breakdown between 48, I could probably find out, but I don't know off the top of my head.

Speaker 7

Okay. And you did say something interesting about having a 1.2 terabyte. Is that one customer? I said, you're saying

Speaker 2

several, several. No, just joking, please. Go ahead.

Speaker 7

Right. So is that just one customer working on that?

Speaker 2

No.

Speaker 7

Okay. And then how far off do you think we get to 1.6?

Speaker 2

As far as the calendar?

Speaker 7

A year from now? Yes.

Speaker 2

Maybe I'm a bit aggressive here, but I think that will be shipping in the Q4 of 25. Really? Yes.

Speaker 7

And that will be one customer or more than 1?

Speaker 2

At least 1.

Speaker 7

Okay. Great. All right. We're not seeing that

Speaker 2

we'll be shipping a very high volume in the Q4, but I do think we're shipping in the Q4.

Speaker 7

Right. Samples maybe?

Speaker 2

Certainly samples, but I think some that will actually go into data center, I believe. I could be wrong, but I think it's possible.

Speaker 7

All right. And then given the like just the way that market is, as it shifts to higher speeds, is it possible that your growth accelerates as the prices go higher and in the higher speed products?

Speaker 2

The growth in absolute dollars absolutely and percentages no, right? I mean, when you're at 80 and you're going, we said more than double next year, which we're pretty confident in To continue at those type rates from 30 to 80 to more than doubling, those are that's a very, very high rate. But as far as absolute dollars, I absolutely think that it will continue to accelerate.

Speaker 4

And do

Speaker 7

you think they'll be beating you down on margins as time progresses? Keep it like where it is?

Speaker 2

I don't think the customer partners we have would ever beat us down on margin. You certainly partner with somebody that the higher the volume is, the more that you both benefit from economies of scale and prices come down. But people pay for value and it costs to produce value. So will some pricing come down over time with lead customers? It must and it should.

Speaker 2

But will margins remain very strong? Yes.

Speaker 7

Okay, great. Thank you. That's all my questions.

Speaker 2

Good questions, Lisa. Thank you.

Operator

The next question is a follow-up question from Richard Shannon of Craig Hallum. Please go ahead.

Speaker 5

Hi, thanks for letting me ask a couple more here. My first one, Russell, is looking at your capacity, specifically a 300 millimeter capacity and wondering if there's any tightness and when those get relieved. Any comments you can make on by the product area? I think in this call, if you've talked about power and RFSOI and even silicon photonics on 300 millimeter. Any comments you could help us understand where there's tightness and when it gets relieved would be great to hear.

Speaker 5

Thanks.

Speaker 2

So presently there's tightness at 300 millimeter RFSOI. And I stated that we're fully utilized in that. It's being relieved real time and stated that, we target to have production revenue in the 4th quarter from the Agrate factory. And that's not single digits. So it's we're looking at a fair amount of relief there.

Speaker 2

So that would start to be relieved in the Q4 and first, second of next year. What we had said previously, and it was a good question that was asked about the margin headwinds by taking on once you start shipping revenue, taking the depreciation of a new incremental toolset, but that we expected a reasonable ramp from the 4th to this first to the second quarter of next year to be able to absorb that. So within that type of a statement without giving specific numbers, we expect shipping quite a bit of RFSOI on a monthly basis by the Q2 of next year out of the Italy factory. As far as the 300 millimeter for power, that is the relief of capacity there is in the Albuquerque activity where we have the capacity corridor from Intel. And I stated that we're in very advanced stages with customer prototypes going now.

Speaker 2

We have very advanced activities there and we believe that we'll start shipping their qualified parts within probably the first half of 2025. And that's quite a substantial amount of capacity that we can be growing at that factory. So that's the relief on power management. But it's more than just a relief on the power management. It's really growing an entire new market for us because we did not have 65 nanometer platform for any reasonable capacity in the past and now we do.

Speaker 2

That was one of the big bonuses that we got out of the entire experience with Intel definitive agreement was what we started early on an arm's length agreement to develop capacity within one of their factories to meet very large customer demands and end customer the power management and potentially other flows as well that we have some pretty interesting activities on, but have not yet publicly announced. We have initial activities without end customer commitments on it, but it will be most likely more there than just power management within that factory. Did that answer your question, I hope?

Speaker 5

Yes, it did Russell. Thank you very much. That's all the question for me.

Speaker 2

Thank you.

Operator

Thank you. There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?

Speaker 2

With pleasure. Thank you. So thank you for listening. Thank you for really very good questions from everybody. To summarize, we are tracking well and remain committed to our stated target of sequential revenue growth throughout 2024, as evidenced by our 2nd quarter performance and Q3 guidance.

Speaker 2

In addition to the recovery of mobile and growth in our advanced power Our strong Our strong position in optical transceivers coupled with multiple years of 1st year customer partnership in developing both passive and active silicon photonics platforms have uniquely prepared us to be the leading foundry of choice transfer within the exploding AI market. We remain focused on innovation and hence enhancing our market leadership in order to continue to deliver sustainable growth. On August 27, 28, we will be participating in the Jefferies Semiconductor IT Hardware Communications Technology Summit in Chicago. On September 4, we will participate in the Benchmark's 11th Annual Tech Media Telecom 1 on 1 Conference in New York. And in addition, on September 11, we will participate in the Jefferies Israel Tech Trek in Tel Aviv.

Speaker 2

Thank you very, very much. We look forward to see you at any or all of these events or otherwise. Thank you again.

Operator

Thank you. This concludes Tower Semiconductor conference call. Thank you for your participation. You may go ahead and disconnect.

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Earnings Conference Call
Tower Semiconductor Q2 2024
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