Silicon Photonics Transforms Tower’s Business Model

Tower Semiconductor reported record revenue of $526 million in the third quarter of 2026, representing 33% growth compared with the same quarter in 2025. Gross profit nearly doubled, reaching a record $179 million, up 92% from $93 million in Q3-2025. Operating profit reached a record $127 million (excluding non-recurring items) – 2.5 times the $51 million reported in the corresponding quarter last year. The company provided revenue guidance of $600 million for the fourth quarter of 2026, representing 36% year-over-year growth.

Tower’s CEO Russell Ellwanger said the company is entering the strongest growth phase in its history. “We expect to close 2026 with approximately $2 billion in annual revenue.” According to Ellwanger, the company is reaching an annualized revenue run rate of $2.4 billion, assuming quarterly sales in 2027 remain at least at the level projected for Q4-2026. “We aim to enter 2027 without the typical first-quarter seasonality decline, experienced by the industry. We already have clear visibility into continued sequential revenue growth.”

 

Tower’s New Growth Engine

Ellwanger explained that strong demand for silicon photonics (SiPho) and silicon germanium (SiGe) technologies is driving “exceptional growth” in the company’s high-speed connectivity business. “We are targeting an annualized revenue run rate of $1.1 billion from SiPho alone in the fourth quarter, five times our annual SiPho revenue in 2025.” In effect, this implies quarterly silicon photonics revenue of approximately $275 million in the final quarter of 2026, accounting for about 45.8% of Tower’s total revenue.

Tower is already close to achieving this target. During Monday’s earnings conference call with analysts, Ellwanger revealed that silicon photonics revenue had already reached approximately $240 million in the third quarter, representing 45.6% of total sales. This suggests that Tower is gradually evolving from a specialized analog semiconductor foundry into a strategic manufacturing partner for the optical communications industry in the AI era, without abandoning its traditional businesses.

The transformation could also have implications for the company’s valuation. If investors become convinced that SiPho demand represents a long-term structural trend rather than a temporary investment cycle, they may increasingly view Tower less as a traditional cyclical semiconductor manufacturer and more as a technology supplier positioned for sustained growth.

On the other hand, this shift could weaken one of Tower’s traditional strengths: its diversification across multiple end markets. As silicon photonics becomes a larger part of its business, the company is becoming increasingly exposed to AI infrastructure investment cycles and the optical communications market.

The transition is taking place gradually. Ellwanger explained: “Our ongoing investments in manufacturing capacity expansion, including the previously announced Track-1 project to expand 300mm wafer manufacturing capacity in Japan, are progressing ahead of schedule. These investments are supported by customer contracts extending through 2029, giving us strong confidence in our ability to achieve our 2028 revenue and margin targets.”

Ellwanger was apparently referring to the company’s announcement in May 2026, when Tower reported that it had secured approximately $1.3 billion in contracts from major customers for SiPho product deliveries in 2027. The company also received approximately $290 million in customer prepayments to reserve manufacturing capacity.

Teramount Raises $50 Million to Accelerate Silicon Photonics Manufacturing

Israeli startup Teramount, headquartered in Jerusalem, announced the completion of a $50 million funding round to support its global expansion and transition to large-scale industrial production. The round was led by Koch Disruptive Technologies (KDT), the investment arm of the Koch conglomerate, and joined by several of the world’s leading technology players: AMD, Samsung Catalyst, Hitachi, Wistron, and existing investors such as Grove Ventures, founded by tech entrepreneur Dov Moran.

This is one of the most notable hardware rounds in Israel this year—not only in size, but especially in the caliber of the strategic partners involved, which represent the full value chain of the semiconductor and data center industries: chip manufacturers, hardware integrators, industrial firms, and tech giants.

The Vision: Seamlessly Connecting Fibers to Chips—Automatically and at Scale

Teramount was founded by Dr. Hisham Taha and Dr. Avi Israel with a mission to solve one of the most complex challenges of the data era: creating fast, reliable, and automated connections between optical fibers and silicon chips. The company is developing the TeraVerse platform, which enables precise, automated alignment between fibers and chips while maintaining full compatibility with existing semiconductor manufacturing processes.

In other words, Teramount does not manufacture photonic chips themselves. Instead, it offers a connectivity solution—a comprehensive platform that bridges the gap between fibers and chips using two key components: the PhotonicPlug and PhotonicBump. These are miniature optical connectors that allow fibers to be aligned and connected with high precision to photonic chips, all while being compatible with standard semiconductor fabs. The process is fully automated, eliminating the need for manual, microscope-guided alignment—a major bottleneck in the photonics industry today.

Put simply, Teramount has developed the “socket and plug” that finally makes it possible to integrate optical fibers into chips at industrial scale and low per-unit cost. Currently, fiber-to-chip alignment in silicon photonics is manual, expensive, slow, and fragile—severely limiting adoption.

According to the company, its solution can significantly reduce energy consumption in high-performance systems, increase bandwidth, cut latency, and simplify photonic integration—all while enabling full compatibility with traditional chip manufacturing workflows.

The New Backbone of AI Infrastructure

Teramount’s innovation is part of the rapidly growing field of silicon photonics—a technology that integrates optical communication elements with standard silicon chips. Instead of transmitting data via electrical current over copper wires, silicon photonics uses light carried through optical fibers, enabling much higher bandwidth, reduced energy use, and less heat.

This technology is becoming essential in the AI era: artificial intelligence systems consume massive amounts of data in real-time, and traditional electrical connections are increasingly a performance bottleneck.

The future—well understood by AMD, Samsung, and Hitachi—belongs to optical communication inside computing systems. Analysts project that the silicon photonics market will grow at a double-digit CAGR, reaching tens of billions of dollars within five years, with rapid adoption in data centers, high-performance computing (HPC), autonomous vehicles, 6G communication, and more.

According to Dr. Taha, “This funding round brings together top-tier players from across the entire ecosystem and represents an extraordinary vote of confidence in the platform we’ve built. The capital will support team growth, manufacturing scale-up, and global expansion.”

DustPhotonics new focus: InP Laser for Silicon Photonics

Above: Ronnen Lovinger, CEO of DustPhotonics.

Israel-based DustPhotonics exits its current optical transceiver’s business and is moving to the promising new field of active technologies for silicon photonics. The company announced a new investment, totalling $33 million, led by Greenfield Partners and joined by Intel Capital, Avigdor Willenz (co-founder of Habana Labs), and others. The company also announced it has completed an organizational realignment to support its new business direction: Phasing out its current Transceivers product line to focus its resources on silicon photonics solutions.

As part of this move, Ronnen Lovinger, president of DustPhotonics, has assumed the role of CEO. Ben Rubovitch, the company’s previous CEO, has stepped down and will lead the Business side of the company. “This latest investment and the organizational changes will enable us to take advantage of new business opportunities,” said Ronnen Lovinger. “We are thrilled at the continued confidence of our investors in our strategic direction.”

DustPhotonics high-speed pluggable transceiver
DustPhotonics high-speed pluggable transceiver

DustPhotonics was founded in 2017 with offices in Modi’in, Israel and Cupertino, California. Currently, it provides high-speed optical pluggable transceiver for datacenters, based on its proprietary AuraDP technology. It seems that it takes its optical alignment technology which is at the heart of AuraDP – into a more lucrative market – InP (Indium Phosphide) Laser to Silicon Photonics integration. “This technology will provide significant value differentiation enabling superior performance to support 800 Gb/s, 1.6Tb/s, CPO (Co-packaged Optics) and future products.”