Tower Semiconductor to make Japan its largest hub for optical chips in $4B expansion

Israeli chipmaker Tower Semiconductor plans to make Japan its largest production hub for optical communications chips as part of a planned $4 billion investment, CEO Russell Ellwanger told Nikkei in an interview published on September 24. The expansion targets soaring demand for AI server technology, where fibre-optic links are replacing copper connections inside data centres.

A two-track expansion

Tower announced the programme in July as a dual-track plan covering 300mm silicon photonics, silicon germanium (SiGe) and advanced packaging. The first track repurposes the company's Arai facility, formerly Fab 6, for 300mm silicon photonics production, while maximising output from its existing 300mm Fab 7 in Uozu.

Full production readiness is targeted for the fourth quarter of 2027. The second track runs in parallel: Tower plans to build an additional 300mm manufacturing facility next to Fab 7, subject to the signing and closing of related agreements. The new plant is expected to provide a multi-fold increase in silicon photonics and silicon germanium capacity.

Costs, grants and targets

The programme is worth about $4 billion, including roughly $1 billion in grants from the Japanese government through METI, its economy, trade and industry ministry. Tower funds the remaining $3 billion itself. Reuters reported that after the July announcement, the company's US-listed shares rose more than 18% in premarket trading.

The first phase comes with an updated business model: the company now targets $3.6 billion in revenue and $1.2 billion in net profit in 2028, up from its earlier expectations of $2.8 billion in revenue and $750 million in net profit.

"We anticipate track two to provide the path for continued growth far beyond 2028," Ellwanger said when the plan was unveiled.

Why it matters

Silicon photonics moves data with light rather than electrical signals, and has become critical for AI clusters as the number of accelerators grows. Tower says its Japanese sites will serve next-generation optical connectivity requirements for AI and data centre applications.

The company already runs three manufacturing sites in Japan, held through its majority stake in TPSCo, which was built on Panasonic's former semiconductor business. It also operates plants in Israel and the United States.