Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 4, 2026 · Beat 7 of last 7 quarters
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Tower's record results and raised 2028 model underscore the accelerating demand for silicon photonics in AI data center optical interconnects, with capacity expansions in Japan and customer prepayments signaling strong visibility. The shift toward NPO and CPO architectures positions Tower as a key enabler of next-generation AI infrastructure scaling, with potential ripple effects across the optical supply chain.
Tower delivered record Q2 2026 results with revenue of $460 million, gross margin of 30%, operating margin of 20%, and net margin of 20%, all company records. Silicon photonics revenue grew over 60% QoQ and over 270% YoY, reaching an annualized run rate of over $680 million, with customer contracts representing approximately $1.3 billion of SiPho revenue for 2027. The company received $290 million in customer prepayments in Q1 2026 for 2027 capacity reservations. RF infrastructure represented 49% of revenue, growing over 140% YoY, while RFSOI revenues declined 14% YoY due to the 200mm to 300mm transition. Management highlighted strong demand in power management and image sensors, particularly for machine vision and EV battery inspection.
Management guided Q3 2026 revenue to a midrange of $520 million, representing an annualized run rate above $2 billion. They updated the 2028 model to $3.6 billion revenue, 45% gross margin, and 33% net margin, with gross margin up from 39% in the prior model. The company announced a dual-track 300mm expansion in Japan, with Track 1 (repurposing Arai/Fab 6 and maximizing Fab 7) expected to be production-ready in Q4 2027, and Track 2 (new adjacent facility) expected to quadruple Japanese 300mm capacity. Management emphasized continued margin expansion driven by rich product mix and operating leverage, with R&D investment increasing over 40% while SG&A efficiency improves. They reiterated strong customer demand and long-term contracts, with SiPho capacity already spoken for through 2028.
“The second quarter was quite significant, setting substantial company records across all key metrics. These results continue to validate the growing value of our technology portfolio and the powerful operating leverage embedded in our business model. Our revenue is on a fervent growth trajectory with an accelerated flow through into earnings.”
on Q2 record results
“We announced customer contracts representing approximately $1.3 billion of silicon photonics revenue for 2027 with even higher growth for 2028.”
on SiPho customer commitments
“The full ramp of wafer starts in these investments is anticipated to occur within the fourth quarter of 2026, creating a wafer start capacity over 3x higher than the second quarter silicon photonics revenue shipments with full financial effect anticipated to be in the second quarter of 2027.”
on SiPho capacity ramp
Did you update the SiPho bookings number for '27, the $1.3 billion? Would you give a new version of that?
No, we did not update the bookings number. The $1.3 billion is based on customer committed contracts. The capacity growth is spoken for, though not all booked.
As NPO becomes material, does that give you ability to increase your content per given transceiver?
Not directly for NPO, but for next-generation architectures, heterogeneous integration of III-V materials on silicon photonics will increase content. Advanced packaging like die-to-wafer and wafer-to-wafer bonding will be key.
How much of your silicon photonics revenues are going to be packaging related?
We are not focused on packaging as a separate revenue stream. Packaging is an enabler to grow our core silicon photonics business, bringing capabilities like integrated lasers in-house for better control and speed.