Tower Semiconductor - Q2 2024
July 24, 2024
Transcript
Operator (participant)
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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded July 24th, 2024. Joining us today are Mr. Russell Ellwanger, Tower CEO, and Mr. Oren Shirazi, CFO. I would now like to turn the conference over to Ms. Noit Levy, Senior Vice President of Investor Relations and Corporate Communications. Ms. Levy, please go ahead.
Noit Levy (Senior VP of Investor Relations and Corporate Communications)
Thank you, and welcome to Tower Financial Results conference call for the second quarter of 2024. 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 to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our Form 20-F and 6-K filed with the U.S. Securities and Exchange Commission, as well as filing with the Israeli Securities Authority. They are also available on our website. Tower assumes no obligation to update any such forward-looking statements. Please note that the second quarter of 2024 financial results have been prepared in accordance with U.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 as 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. 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 Ellwanger. Russell, please go ahead.
Russell Ellwanger (CEO)
Thank you, Noit. Welcome, everyone. Thank you for joining our second quarter 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 second quarter reached $351 million, with a net profit of approximately $53 million, 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.
This was achieved in the second quarter of 2024, with a $24 million increase in revenue compared to the first quarter, and we are on track for this target in the third quarter, with a revenue guidance of $370 million, ±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 second quarter, RF infrastructure revenue increased 50% year-over-year and represented 14% of the total quarterly revenue. We anticipate continued infrastructure revenue growth in the foreseeable future as customer forecasts for the next 18 months have increased dramatically.
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. 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 ramping aggressively. For example, active copper cables, please see slide 5, are experiencing an increased adoption for shorter-reach data center connects, driven by the need for lower signal loss at the high speeds required by AI.
We also expect continued high increase in silicon photonics revenue. This business is targeted to grow from $30 million revenue in 2023 to above $80 million in the present year. 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 400G and 800G transceivers due to exponential increase in data traffic from AI, cloud computing, streaming services, and IoT, alongside the expansion of data centers, 5G deployment, driving greater need for high-performance computing. These SiPho-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&D programs, in tight collaboration with specific market-leading customers, targeting 400G per lane solutions. During the second quarter, we delivered initial samples to a market-leading customer, showing breakthrough performance with an advanced architecture and incorporating new materials. Beyond AI and datacom, we continue to make good progress on SiPho 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 photonics-based differentiated products, where I believe we occupy the number one foundry market position. Based on the strong demand we are seeing from our SiPho customers, we are additionally qualifying our SiPho platforms at our San Antonio 200 mm facility.
We have made significant strides in bringing to the market a 300 mm version of our SiPho flows, with process design kits available, and are happy to report that high-performance, successful silicon was delivered to lead customers, including some very novel and breakthrough solutions for certain advanced applications. The 300 mm added SiPho capacity, in addition to providing capability for these novel applications, combined with the San Antonio SiPho 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 RF SOI, increased approximately 60% year-over-year and represented 31% of the total revenue during the quarter.
We are currently fully utilizing our 300 mm RF SOI capacity in Uozu, Japan, and continue to transition 300 mm RF SOI customers to Agrate, Italy, per plan, to support this increased demand. During the second quarter, we shipped prototypes in Agrate for our most advanced RF SOI technology, TPS65RS, which not only exhibits industry-leading Ron/Coff for high efficiency and power handling, but also enables strong scaling for optimum form factors. 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 our 300 mm technology.
To meet this demand, we continue to qualify new capacity in the New Mexico fab and are happy to report good progress and initial customer prototypes already taped out, with expected qualification and subsequent ramp in 2025. Our fab utilization rates for the second quarter 2024, Fab-1, as previously announced, will be operation consolidated into Fab-2, was about 75%. Fab-2 8 in was about 67%. Fab-3 8 in 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 in was at about 45%, continuing to ramp with the recovery within power. Fab-7 12 in was at about 85%, fully loaded. Fab-9 8 in was about 60%. 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. With that, I'll turn our time to our CFO, Mr. Oren Shirazi. Oren, please.
Oren Shirazi (CFO)
Hello, everyone. Earlier today, we released our second quarter 2024 financial results, which I will review, first by analyzing the P&L highlights, followed by our cash and balance sheet report. For the second quarter of 2024, we reported revenue of $351 million, up $24 million over the prior quarter, which resulted in $14 million higher gross profit and $21 million higher operating profit over the same period. Gross profit for Q2 was $87 million, $14 million higher as compared to the gross profit of the prior quarter, which totaled $73 million. Operating profit was $55 million and included $6 million restructuring income due to grant received in relation to the operation reorganization in Japan, previously announced and completed last year. The operating profit is $21 million higher than prior quarter's operating profit.
Net profit was $53 million, reflecting $0.48 basic and diluted earnings per share, and included $2.5 million of net impact from Japan reorganization, noted before. Net profit in the prior quarter was $45 million, 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 2024, our balance sheet assets totaled $2.96 billion, compared to $2.5 billion for the same period last year, primarily comprised of $1.2 billion of fixed assets, mostly machinery and equipment, and $1.7 billion 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 $2.5 billion at the end of Q2 2024, compared to $2 billion at the end of same period last year, and compared to $2.4 billion as of December 2023. Our strong financial position enable us to plan the following investments for strategic opportunities that are aligned to our vision. One, approximately $500 million of total aggregate cash was allocated to make investments in equipment and other CapEx items required for the 12 in 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 million to date, and the remaining $120 million are expected to be paid in the coming six quarters, namely until the end of 2025. Two, in addition, as previously announced, we have committed to invest up to $300 million 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 million-$240 million per annum.
Lastly, we are investing in more capability and capacity tools and other assets to expand our technology offering, especially to increase our SiGe and SiPho capacity in our 8 in and 12 in 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 $2.66 billion 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 million annual operating profit and $500 million of annual net profit.
Now, I'd like to turn the call back to the operator. Operator?
Operator (participant)
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Cody Acree of Benchmark. Please go ahead.
Cody Acree (Equity Research Analyst)
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 SiPho. Could you maybe give an aggregate number of silicon germanium SiPho, and then maybe a shot at Active Copper Cables as far as a total AI exposure?
Russell Ellwanger (CEO)
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, it's, it's not something I can give on a granular basis. Certainly, we know that AI is driving big demand for increased speed, and that the acceleration of having gone to 800G this year to such a big extent is an AI drive, and a lot of what we're serving is 800G.
So I assume at least 50% of what we're shipping, but excuse the expression, but that's somewhat proctological.
Cody Acree (Equity Research Analyst)
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 Spectrum-X platform in Ethernet. Are you seeing any impact of NVIDIA's push to copper on your optical activity?
Russell Ellwanger (CEO)
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 it, 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. So one would maybe assume that we're shipping into that.
Cody Acree (Equity Research Analyst)
Russell, I guess your Fab-3 utilization. I think you said that was 65%. Is that right?
Russell Ellwanger (CEO)
Let me look. Sorry.
Oren Shirazi (CFO)
Utilization. 55%.
Russell Ellwanger (CEO)
53%, said 55%?
Cody Acree (Equity Research Analyst)
Oh, 55%.
Russell Ellwanger (CEO)
Substantially higher or will show substantially higher utilization in Q3. So in Q3, we'd expect it's fully utilized.
Cody Acree (Equity Research Analyst)
Okay. All right.
Russell Ellwanger (CEO)
For anything that we can be shipping there, that's not constrained on SiPho and SiGe. 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.
Cody Acree (Equity Research Analyst)
I guess the transition to 300 mm, how is that progressing?
Russell Ellwanger (CEO)
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 typically be being done with SiPho, that I don't want to get into at this point. But yeah, so it's going very well at 300 mm. The activities there are at the Uozu factory in Japan. And as stated, we're qualifying and have had very good progress there as well, additional capacity in San Antonio.
Cody Acree (Equity Research Analyst)
Great. Thank you, guys.
Russell Ellwanger (CEO)
Thank you, Cody. Good questions.
Operator (participant)
The next question is from Richard Shannon of Craig-Hallum. Please go ahead.
Richard Shannon (Senior Research Analyst)
Well, hi, Russell and Oren. Thanks for taking my questions. I think I'll start off with one in the RF infrastructure business here. You're talking about some very strong results and forward forecasts here and kind of 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 a Tower Semi share gains. Can you do you have a good sense of the drivers there?
Russell Ellwanger (CEO)
In the area of silicon photonics, it's all share gain because it didn't exist in the past. And that's not being facetious, it's just the case, right? You're. It's a new sort of market of which we're gaining quite a bit of share and shipping a lot of billions 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? The best way to have very strong market share growth is by entering markets that didn't exist. In the area of silicon germanium, if there's. Is 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, you're number one, 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. So I, I think what's happening there isn't necessarily share gain, it's demand increase, and again, additional products 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, you know, many people have sampled for a long time.
But given the increase, again, AI driven, in data center speeds, the 800G, 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. 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's 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.
It's 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, you know, that's a good thing. 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.
Richard Shannon (Senior Research Analyst)
It does. I appreciate all the perspective there. Thanks, Russell. My second question is on silicon photonics. Great to see the opportunities for some really nice growth here. 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 data comm transceivers adding into that? You specifically talked about automotive today and in the past and with FMCW, but curious how much of that TAM for silicon photonics exists outside of data comm?
Russell Ellwanger (CEO)
If you're looking at long-term TAM, I think it's quite substantial. If you'd be looking at 2025, 2026, 2027, I don't think it's very substantial. If, you know, for automotive, the activities that we're doing for the, the LiDAR, very, very advanced activities, 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 2028 and beyond. Where there's other applications that are not conventionally what we would be considering, you know, a SiPho chip sitting within the pluggable, for example, some of those are, you know, an active SiPho capability that is looking at an optical switch. So that is sitting within the data center, but it's part of a SAM, you know, a served market that we don't have right now.
I mean, we don't do deep submicron switches on the digital side. But there's 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 gyrometers versus, you know, big optical cable gyrometers. Specific lead customer there is Anello. And as stated, that's, you know, that's a new served market totally, did not exist before at all, that we expect will get very large. But so all of that is, you know, 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, especially, as I don't want to overstate it, the, the drive for AI and the speeds needed by AI, the reduced latency needed by AI. So the, the SiGe that we're doing, the SiPho that we're doing, that TAM is certainly growing. And the, the growth of that, I think, will always be much bigger than the outside of data center on proportion. But it's not that the outside of data center is insignificant.
Richard Shannon (Senior Research Analyst)
Okay, great. Thanks for that detail here. Maybe a quick question for Oren. Your gross margin flow-through is pretty strong here in the second quarter. Can you give us a good sense of why? Is this some sort of mix shift or other dynamics, and to what degree is that sustainable?
Oren Shirazi (CFO)
Yeah, it relates also to what Russell said about the SiPho, and, the SiPho 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 a 60%-- this quarter came out to be 60% incremental, gross profit over the revenue, because we had some very nice, SiPho, and generally speaking, richer mix than previously. Not anything special. I mean, very special-
Richard Shannon (Senior Research Analyst)
Okay.
Oren Shirazi (CFO)
but not anything one time.
Richard Shannon (Senior Research Analyst)
Okay. Fair enough. One last question I will- Oh, sorry, Russell.
Oren Shirazi (CFO)
Yeah.
Russell Ellwanger (CEO)
It's sustainably special.
Oren Shirazi (CFO)
Yeah.
Richard Shannon (Senior Research Analyst)
Sustainably special. Okay, great. One last question, I will jump out of line for you, Russell. Just looking at your Power IC business here, you had a nice pickup here in the second quarter from what I would assume is a naturally low level in the first quarter. 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, you know, in the $70 million, $80 million, and even in the $90+ million range per quarter. Are we, are we through the inventory burn here currently? Are we still affected by that?
And then as we look out, you know, maybe one to two years with your crystal ball, do you see the ability to get back up to those levels anytime in the near future? I'll let you define what you see as that timeframe, but love to hear your thoughts there. Thank you.
Russell Ellwanger (CEO)
For the total power revenue, yes, I think that we will get beyond previous years' numbers. For the 200 mm presently, we still see that there's inventory being built off or burned off, although, you know, we are starting to get much more orders there. As we had stated last quarter, we had expected that Q1 would've been low. And, you know, certainly with the numbers this quarter, I think we said it's, you know, 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 mm, although the 200 mm, we continue to do advancements on as well, and we see that, you know, coming back strongly.
But I don't know that the 200 mm within 25 will hit the same levels that we had had in previous years, but the 300 mm will more than make up for it.
Richard Shannon (Senior Research Analyst)
Okay, perfect. That is all from me, guys. Thank you.
Operator (participant)
Thank you. The next question is from Mehdi, Mehdi Hosseini of SIG. Please go ahead.
Mehdi Hosseini (Senior Equity Research Analyst)
Yes, sir. Thanks for taking my question. A couple of follow-ups from me. Russell, I want to understand the RF SOI dynamics. So can you help me with how the share gain are tracking, and where are we inventory correction, and when do you think overall market would pick up? And I'm expecting the market recovery would start with some sort of inventory refresh. So just to summarize the question, and 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.
Russell Ellwanger (CEO)
I had stated last quarter that maybe above and beyond what the market was seeing, we were seeing very strong demand for RF SOI. We continue to see that, in particular for the advanced platforms of 300 mm. 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. But as stated, and some of that is really market share gains with newer customers, we have seen very strong and robust demand for RF SOI.
In particular, as stated, the advanced platforms of 300 mm, which was the big drive for bringing up and qualifying that at the Agrate factory. We'll, by plan, be shipping a reasonable amount of product in the fourth quarter on RF SOI from the Agrate factory, in addition to what we have had a base of 300 mm in Japan. So I see the RF SOI being a very strong business for us. If I look at 2024 versus 2023, you know, overall year should be a pretty reasonable growth on the RF SOI. If I look at 2025, I would see growth as well. So I don't see that we're being hit by inventory correction.
Mehdi Hosseini (Senior Equity Research Analyst)
Understood. Understood. And also quickly, your exposure to, smartphones on both, operating system, both platforms-
Russell Ellwanger (CEO)
I apologize. Your voice is very muffled for me. I'm having a little bit difficult time hearing you.
Mehdi Hosseini (Senior Equity Research Analyst)
Sure. Sorry. Should I assume that your, your RF SOI too, is to both Android and OS?
Russell Ellwanger (CEO)
I think that would be a good assumption. Yes.
Mehdi Hosseini (Senior Equity Research Analyst)
Okay. And then as a follow-up for you and Oren, two follow-ups here. Could increase mix of silicon photonics, which I assume has a higher than corporate average gross margin, help offset the upfront cost and margin dilution from Agrate, especially as it ramps into 2025? And then, Oren, was the gross margin that you reported for Q2, that was on a GAAP basis. Would I correctly assume that on a pro forma basis, Q2 gross margin was closer to 25%?
Oren Shirazi (CFO)
Yeah, it is 25% under GAAP. What do you mean, pro forma?
Mehdi Hosseini (Senior Equity Research Analyst)
Okay. Because I was just trying to understand, there was a $2 million-$3 million adjustment. I just want to make sure I get that right.
Oren Shirazi (CFO)
This is amortization of ESOP, or amortization of employee stock option plan, you mean?
Mehdi Hosseini (Senior Equity Research Analyst)
Yes. Yes.
Oren Shirazi (CFO)
Yeah. Yeah. So you're correct, yeah.
Mehdi Hosseini (Senior Equity Research Analyst)
Okay. Now, could increased mix of RF SOI help offset the dilution that comes from the ramp of the 300 mm fab in, in Agrate?
Oren Shirazi (CFO)
Is your question referring to Q2?
Mehdi Hosseini (Senior Equity Research Analyst)
Looking into 2025, as you start production from the new fab, Agrate, could higher margin contribution from infrastructure, specifically silicon photonics, help offset some of the dilution from the ramp of the new fab there?
Oren Shirazi (CFO)
Yeah, definitely the increased margin from the SiPho should be, and in the scope that Russell described, the SiPho growth next year in his prepared remarks should be higher impact than this you call it dilution from the Agrate factory headwinds, and it will start, and it should be much higher than the impact. Yes.
Mehdi Hosseini (Senior Equity Research Analyst)
Got it. Thank you. Sorry for the mic.
Russell Ellwanger (CEO)
Thank you. Good question.
Operator (participant)
The next question is from Lisa Thompson of Zacks Investment Research. Please go ahead.
Russell Ellwanger (CEO)
Hey, Lisa.
Lisa Thompson (Senior Analyst)
Hi there.
Oren Shirazi (CFO)
Hi there.
Lisa Thompson (Senior Analyst)
Let me just ask you. I thought last quarter you said that Silicon Photonics contributed about 5% of revenues.
Russell Ellwanger (CEO)
Yes.
Oren Shirazi (CFO)
Yes.
Lisa Thompson (Senior Analyst)
Is that right?
Russell Ellwanger (CEO)
Yes.
Lisa Thompson (Senior Analyst)
What would it have been this quarter?
Russell Ellwanger (CEO)
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 SiPho revenue would be increasing quarter over quarter. We haven't put out a specific number for Q4, so I really don't want to say right now what the percentage would be for the year. I said that it would be, you know, that we expect over $80 million of SiPho revenue in 2024. That's over $80 million. What? You know, how much is over 80? You know, that one can try to figure out for themselves. But, I would expect that it'll certainly not be below 5% and could be a little bit above.
Lisa Thompson (Senior Analyst)
Okay. And at current, as it mostly—I believe it's mostly going into, like, pluggable optical transceivers, right?
Russell Ellwanger (CEO)
I believe almost all of it right now is pluggable optical transceivers.
Lisa Thompson (Senior Analyst)
Okay. And do you have a feel for what speeds the breakdown is? 400, 800?
Russell Ellwanger (CEO)
I think some is even going into 100, but the bulk of it is 400 and 800. The specific breakdown between four and eight, I could probably find out, but I don't know off the top of my head.
Lisa Thompson (Senior Analyst)
Okay. You did say something interesting about having a 1.2 terabyte.
Russell Ellwanger (CEO)
I said-
Lisa Thompson (Senior Analyst)
Is that one customer?
Russell Ellwanger (CEO)
Several, several. No, just joking, please. Go ahead.
Lisa Thompson (Senior Analyst)
Right. So is that just one customer working on that?
Russell Ellwanger (CEO)
No.
Lisa Thompson (Senior Analyst)
Okay. Then, how far off do you think we get to 1.6?
Russell Ellwanger (CEO)
As far as the calendar?
Lisa Thompson (Senior Analyst)
A year from now? Yeah.
Russell Ellwanger (CEO)
Maybe I'm a bit aggressive here, but I think that we'll be shipping in the fourth quarter of 2025.
Lisa Thompson (Senior Analyst)
Really?
Russell Ellwanger (CEO)
Yeah.
Lisa Thompson (Senior Analyst)
That will be one customer or more than one?
Russell Ellwanger (CEO)
At least one.
Lisa Thompson (Senior Analyst)
Okay, great. All right. And so-
Russell Ellwanger (CEO)
That will not mean that we'll be shipping a very high volume in the fourth quarter, but I do think-
Lisa Thompson (Senior Analyst)
Right, right.
Russell Ellwanger (CEO)
Shipping in the fourth quarter.
Lisa Thompson (Senior Analyst)
Samples, samples maybe?
Russell Ellwanger (CEO)
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.
Lisa Thompson (Senior Analyst)
All right. And then given the, like, just the way the 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?
Russell Ellwanger (CEO)
The growth in absolute dollars-
Lisa Thompson (Senior Analyst)
Absolutely.
Russell Ellwanger (CEO)
Absolutely, in percentages, no, right? I mean,
Lisa Thompson (Senior Analyst)
Yeah.
Russell Ellwanger (CEO)
When you're at 80 and you're going, we said more than double next year, which we're pretty confident in, you know-
Lisa Thompson (Senior Analyst)
Right
Russell Ellwanger (CEO)
... to continue at those type rates from 30 to 80 to more than doubling, those are, you know, that's a very, very high rate. But as far as absolute dollars, I, I absolutely think that it will continue to accelerate.
Lisa Thompson (Senior Analyst)
Do you think they'll be beating you down on margin as time progresses?
Russell Ellwanger (CEO)
Um-
Lisa Thompson (Senior Analyst)
To keep it like where it is?
Russell Ellwanger (CEO)
I don't think the customer partners we have would ever beat us down on margin. You certainly, you know, 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. But will margins remain very strong? Yes.
Lisa Thompson (Senior Analyst)
Okay, great. Thank you. That's all my questions.
Russell Ellwanger (CEO)
Good questions, Lisa. Thank you.
Operator (participant)
The next question is a follow-up question from Richard Shannon of Craig-Hallum. Please go ahead.
Richard Shannon (Senior Research Analyst)
Hi, thanks for letting me ask a couple more here. My first one, Russell, is looking at your capacity, specifically at 300 mm capacity, and wondering if there's any tightness and when those get relieved. And any comments you can make on, by the product area. I think in this call, you've talked about power and RF SOI and even Silicon Photonics on 300 mm. Any comments you can help us understand on where there's tightness and when it gets relieved, would be great to hear. Thanks.
Russell Ellwanger (CEO)
So presently, there's tightness at 300 mm RF SOI. And, you know, 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 fourth quarter from the Agrate factory. And, you know, that's not single digits, so it's, you know, we're looking at, a fair amount of relief there. So that would start to be relieved in the fourth quarter and, you know, first, second of next year.
What we had said previously, and it was a good question, I was asked about the margin headwinds by taking on once you start shipping revenue, you know, taking the depreciation of a new incremental tool set, but that we expected a reasonable ramp from the fourth to the first to the second quarter of next year to be able to absorb that. So, you know, within that type of a statement, without giving specific numbers, we expect shipping quite a bit of RF SOI on a monthly basis by the second quarter of next year out of the Italy factory. As far as the 300 mm for power, that is the relief of capacity there is in the Albuquerque activity, where we have the capacity corridor from Intel.
I stated that we're in very advanced stages with customer prototypes going now. We have very advanced activities there, and we, 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, 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, we did not have a 65 nm platform for any reasonable capacity in the past, and now we do.
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, on an arm's length agreement to develop capacity within one of their factories to meet very large customer demands and end customer demands. So the Albuquerque capacity corridor is really our roadmap for increased capacity with 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, you know, initial activities without end customer commitments on it, but it'll be most likely more there than just power management within that factory. Does that answer your question? I hope.
Richard Shannon (Senior Research Analyst)
Yes. Yes, it did, Russell. Thank you very much. That's all the question for me.
Russell Ellwanger (CEO)
Thank you.
Operator (participant)
Thank you. There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?
Russell Ellwanger (CEO)
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 second quarter performance and third quarter guidance. In addition to the recovery in mobile and growth in our advanced power platforms, we are experiencing a robust, rapidly expanding demand from both existing and new customers within the optical space. Our strong position in optical transceivers, coupled with multiple years of first-tier customer partnership in developing both passive and active silicon photonics platforms, have uniquely prepared us to be the leading foundry of choice for data 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 27th and 28th, we will be participating in the Jefferies Semiconductor IT Hardware and Communications Technology Summit in Chicago. On September 4th, we will participate in the Benchmark's 11th Annual Tech Media Telecom one-on-one conference in New York. And in addition, on September 11th, we will participate in the Jefferies Israel Tech Trek in Tel Aviv. Thank you very, very much. We look forward to see you at any or all of these events or otherwise. Thank you again.
Operator (participant)
Thank you. This concludes Tower Semiconductor conference call. Thank you for your participation. You may go ahead and disconnect.