By Lisa Thompson

NASDAQ:TSEM

READ THE FULL TSEM RESEARCH REPORT

Tower (NASDAQ:TSEM) returned to revenue growth in Q3 2024, as expected after almost two years of declines. Earnings also improved both sequentially and year-over-year and grew faster than revenues as margins expanded. The company expects continued quarterly sequential improvement in Q4 as 300mm capacity comes online and demand increases. On the Q3 call, management said demand is picking up faster than expected this year for RF Infrastructure (consisting of SiPho for optical transceivers and SiGe for electrical amplifiers,) which almost doubled in the quarter. While management had originally forecasted that revenues from SiPho could reach $80 million in 2024, it now expects that number to be $100 million. It expects to leave the year at a $150 million run rate, which could allow it to surpass its original forecast of $160 million in revenues for 2025.

SiPho provides the highest gross margins for Tower, which offsets lower margins from the Agrate fab, which is expected to begin producing revenue in Q4. We have taken down our earnings expectation for Q4 as the Agrate start will add approximately $10 million to the cost of goods in the quarter. SiPho is being used for data center servers and active copper cable, replacing legacy technology. Tower believes it is the market leader for 800G and will be the first to go into production of 1.6T (using eight lanes of 200G.) For Q4, the company guided to revenues of $387 million plus or minus 5%, which would result in accelerating growth. As of last night’s closing price, the company trades at an enterprise value of $3.8 billion, or 2.7 times EV to estimated sales for 2024, versus its peers, who trade at 5.3 times.

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