Key points
- What Semtech is securing at Tower's fabs
- What the companies didn't disclose
- How it differs from May's capacity prepayments
Semtech (SMTC) will invest in securing dedicated silicon germanium (SiGe) chipmaking capacity at Tower Semiconductor (TSEM) under an expanded multi-year agreement, giving Semtech additional supply assurance for the chips it sells into AI data centers. "Connectivity is now a primary factor in how far AI systems can scale," Semtech CEO Hong Hou said.
The capacity spans Tower's fabs in the United States, Israel, and Japan, according to the joint release Tower filed with the SEC before the market opened on Tuesday. The companies disclosed no dollar amount, contract length, or wafer volumes. As of 8:54 a.m. ET in premarket trading, Tower shares were up 0.7% at $218.12, while Semtech was down 3.1% at $163.00.
Semtech's data center chips are built on Tower's SiGe process
SiGe is a chipmaking process that mixes germanium into silicon to make faster transistors for high-speed analog circuits. Semtech's signal integrity chips, including transimpedance amplifiers, modulator and laser drivers, and linear equalizers, are built on Tower's SiGe process, according to the release. Semtech says the products position it to address copper links within a rack and optical links across a data center.
"Our customers are scaling interconnect bandwidth quickly and at massive scale," Hou said. Meeting that demand "requires long-term capacity planning and commitment with our manufacturing partners," he added. He said the capacity will help Semtech grow in copper and optical interconnects from 800 gigabits per second and 1.6 terabits per second today to 3.2 terabits per second and beyond.
Optical component maker Lumentum (LITE) said on October 9 that its capacity for AI data center optical parts is sold out through early 2029.
The two companies say they have worked together for 20 years. Tower CEO Russell Ellwanger said qualifying the companies' technology ahead of market need is ensuring "a continual expansion of our already leading market share in optical transceiver connectivity."
Tower collected $290 million in prepayments in May
In May, Tower said it had signed $1.3 billion of silicon photonics contracts for 2027 revenue with its largest customers and received $290 million in customer prepayments to reserve capacity. Tower said a larger wafer commitment for 2028 was also in place, with more prepayments due by January 2027.
Silicon photonics is a separate Tower platform from SiGe. Tuesday's release doesn't say whether Semtech's investment takes the form of a prepayment.
Tower will report third-quarter results on November 2, with a conference call at 10 a.m. ET.
