Tower Semiconductor is preparing a major expansion of its manufacturing capacity in Japan with a total investment of about $4 billion, of which roughly $3 billion will come from the company and $1 billion will arrive as aid from Japan’s Ministry of Economy, Trade and Industry (METI). The goal is to turn its Japanese facilities into a major production hub for silicon photonics (SiPho), silicon-germanium (SiGe), and advanced optical packaging, technologies increasingly used in the connections inside AI data centers.
Tower Semiconductor’s Japan optical fabs in 30 seconds
- Tower plans to mobilize about $4 billion in Japan, with $1 billion coming from public aid.
- The expansion combines converting the former Fab 6 in Arai with ramping up production at Fab 7 in Uozu.
- The second phase envisions a new 300mm fab next to Fab 7.
- Tower expects to reach capacity equivalent to 45,000 300mm wafers a month by 2029, roughly 40 times its 2025 level.
- The company plans to hire around 200 people and aim the new capacity at AI, data center, and optical connectivity demand.
The plan has two parallel tracks. The first makes use of facilities that already exist and processes already qualified for production, allowing capacity to grow before a brand-new fab could complete its full ramp-up process. The second involves building a new 300mm plant next to Fab 7, with an expected impact starting in 2029.
The strategy comes as Tower expands its silicon photonics business for AI infrastructure. The company has already reported strong growth in this activity, and in September announced with NewPhotonics high-volume shipments of photonic integrated circuits for optical engines aimed at AI interconnects.
Two paths to multiply production
The first phase combines two moves.
On one hand, Tower wants to bring back the Arai facility, in Niigata prefecture, formerly known as Fab 6, and convert it into a 300mm wafer fab for silicon photonics and advanced optical packaging.
On the other, it plans to push production at Fab 7 in Uozu, in Toyama prefecture, as far as possible. This facility already manufactures silicon-germanium and silicon-photonics components at volume.
Tower notes that Fab 7’s silicon-photonics production is already qualified and shipping at volume. The plant uses 65nm-class SiGe processes and 45nm-class silicon-photonics technology, among other specialized processes.
This changes the timeline compared with a fully new fab. Instead of waiting to build a plant from scratch, install all the equipment, develop processes, and complete customer qualifications, Tower can add capacity progressively to infrastructure that’s already operating.
The company expects the first phase to be fully production-ready during the fourth quarter of 2027.
The second track moves in parallel. Tower plans to build a new 300mm fab next to Fab 7, a facility meant to significantly expand SiPho and SiGe production capacity.
According to the company, this second plant will be the one delivering a meaningful financial contribution starting in 2029.
| Phase | Facility | Main technology | Timeline |
|---|---|---|---|
| Track One | Fab 6, Arai | 300mm SiPho and optical packaging | Full production expected 4Q 2027 |
| Track One | Fab 7, Uozu | 300mm SiGe and SiPho | Progressive expansion |
| Track Two | New fab next to Fab 7 | 300mm SiPho and SiGe | Impact expected from 2029 |
From a Panasonic plant to an AI photonics hub
The expansion is also tied to a reorganization of Tower’s Japanese operations.
The company currently controls the operations of TPSCo, a structure originally created with Panasonic. In March 2026, Tower announced an agreement to take full ownership and operational control of Fab 7, while Nuvoton Technology Corporation Japan will take over control of Fab 5, a 200mm plant in Tonami. That deal’s closing is expected on April 1, 2027, subject to customary conditions and the relevant approvals.
The reorganization lets Tower fold Fab 7 into a Japanese subsidiary fully controlled by the company. The deal includes the 300mm manufacturing equipment, operations, employees, and commercial activities of the plant.
Fab 7’s history helps explain why Tower is betting on expanding this facility. The plant comes from Panasonic’s Japanese semiconductor manufacturing operations and has progressively become one of Tower’s main facilities for specialized technologies.
In March, Tower had already signaled it intended to quadruple Uozu’s current 300mm capacity with the planned expansion next to the fab.
The plan now presented for the whole of Tower’s Japanese operations raises the scale much further: 45,000 equivalent 300mm wafers a month by 2029, compared with the 2025 level the company uses as a baseline to calculate a roughly 40-fold increase.
Optical links are becoming an AI bottleneck
Tower’s bet is tied to a shift in data center architecture.
Today’s AI systems cluster large numbers of accelerators and servers that need to exchange enormous volumes of information. As connection speeds increase, optical technologies gain more weight against traditional electrical connections on certain links.
Silicon photonics combines photonic and electronic components on manufacturing processes compatible with semiconductor technologies. Photonic integrated circuits can be part of optical engines and systems designed to carry information using light.
Tower manufactures both the photonic components and the silicon-germanium electronic circuits used in these systems. Advanced optical packaging adds another link in the chain, integrating electronic and photonic components into more compact solutions.
The company is also expanding its business relationships in this market. In June it announced with Marvell that they had shipped more than 5 million coherent photonic integrated circuits, while in September it reported new high-volume shipments with NewPhotonics for optical engines aimed at AI interconnects.
The market is growing around several interconnect architectures. One connects servers to networks, while another aims to bring optical components ever closer to processors and accelerators.
Tower has also said it intends to bring co-packaged optics (CPO) technologies to Uozu. This architecture integrates optical and electronic elements much closer together within the system and is being studied for future generations of data center interconnects.
Japan is putting in $1 billion in aid
The Japanese government will contribute approximately $1 billion in grants, while Tower plans to invest around $3 billion.
The Japanese government’s goal is to strengthen domestic manufacturing of semiconductor-related technologies and reduce supply-chain risk. In Tower’s case, the focus is on specialized photonics and silicon-germanium technologies with applications in communications, data centers, and artificial intelligence.
Tower expects to hire approximately 200 workers to support the expansion. The new facilities will also draw on the industrial infrastructure and experience already built up in Toyama and Niigata.
The company has also set financial targets tied to the first phase. For 2028, Tower updated its business model with a forecast of $3.6 billion in revenue and $1.2 billion in net profit. These are company targets, not guaranteed results.
The timeline matters because the new fab won’t be the first source of additional capacity. Tower expects production to increase progressively as new equipment arrives at existing and converted facilities. The second fab will play a bigger role in the expansion after 2028.
The expected outcome for 2029 is a much larger Japanese platform than today’s, with Fab 7 as its core, Arai converted for photonics and packaging, and a new 300mm facility next to Uozu.
For Tower, the goal is to serve the growth of optical engines and AI data center interconnects. For Japan, the project reinforces a specialized manufacturing capability the government considers strategic for its national semiconductor supply chain.
Frequently asked questions
How much will Tower Semiconductor invest in Japan?
The project will mobilize about $4 billion, of which roughly $3 billion will be Tower’s own investment and $1 billion will come from Japanese government aid.
What will Tower manufacture at the new facilities?
The plan focuses on silicon photonics (SiPho), silicon-germanium (SiGe), and advanced optical packaging, technologies used in connectivity solutions and AI data centers.
How much capacity will Tower have in Japan by 2029?
The company expects to reach capacity equivalent to 45,000 300mm wafers a month, roughly 40 times the level it uses as a 2025 baseline.
When will the first phase be ready?
Tower expects the first phase, which includes converting Arai and expanding Fab 7, to reach full production readiness during the fourth quarter of 2027. The new fab next to Fab 7 is expected to have an impact starting in 2029.
