Tower bets $3 billion on Japan photonics capacity for AI chips

A subsidized push for optical chipmaking

Tower Semiconductor said Tuesday it will make an approximately $3 billion net investment in Japan, supported by $1 billion in grants from the Japanese government, to expand 300mm silicon photonics, silicon germanium and advanced packaging capacity.[0] Reuters reported that the chipmaker’s U.S.-listed shares rose more than 18% in premarket trading after the announcement, reflecting investor enthusiasm for capacity tied to AI and data-center demand.chartmill

The first phase repurposes Tower’s Arai facility, formerly Fab 6, for 300mm silicon photonics and advanced packaging, while increasing output from Fab 7 in Uozu; the company expects full production readiness in the fourth quarter of 2027.stocktitan A second phase, planned to start in parallel after related agreements are signed and closed, would add another 300mm manufacturing facility next to Fab 7.[0]

AI demand turns photonics into infrastructure

The investment targets technologies that sit close to the bottleneck in AI infrastructure. Silicon photonics uses light to move data faster between AI chips, while silicon-germanium technology enables faster and more energy-efficient semiconductor devices, Reuters reported.chartmill Tower said the new facility is intended to deliver a multi-fold increase in silicon photonics and silicon germanium capacity for emerging AI and data-center applications.[0]

The company also framed the project as a demand-backed expansion rather than a speculative buildout. Crypto Briefing reported that more than 70% of the new capacity planned under the expansion is already reserved through 2028, with $1.3 billion in silicon photonics revenue contracts for 2027 and $290 million in upfront customer prepayments.yahoo

A March plan becomes a government-backed buildout

Tuesday’s announcement follows Tower’s March plan to restructure its Japan operations under TPSCo, taking full ownership of the 300mm Fab 7 while Nuvoton Technology Corporation Japan takes full ownership of the 200mm Fab 5.manilatimes That earlier plan targeted an April 1, 2027 closing, subject to approvals, and said Tower’s photonics technologies were already qualified and shipping in volume from Fab 7.manilatimes

The new support from Japan’s Ministry of Economy, Trade and Industry gives that strategy a larger industrial-policy frame. Tower raised its 2028 business model to $3.6 billion in revenue and $1.2 billion in net profit, up from prior expectations of $2.8 billion in revenue and $750 million in net profit, Reuters reported.chartmill For Japan, the grants extend a campaign to anchor more advanced semiconductor production at home; for Tower, they help fund a sharper bet on optical connectivity as AI data centers keep pressing against power and bandwidth limits.chartmill