Tower and IQE team up for silicon photonics ramp

IQE, the London-listed epiwafer manufacturer, has signed a multi-year agreement with Israeli chip foundry Tower Semiconductor in support of silicon photonics production.

The deal centers on supply of indium phosphide (InP) epiwafers, which can then be processed into key components needed for optical connectivity products needed for the AI data center build-out currently under way.

“IQE’s InP epiwafers will be used in several of Tower’s advanced silicon photonics platforms for next-generation optical technologies, providing a high-quality supply base for Tower’s product roadmap,” announced the two firms.

“IQE and Tower’s collaboration includes technology for the production of 200 Gb/s per lane for pluggable transceivers and the prototyping of next-generation 400 Gb/s per lane modulators, as well as other critical applications including optical-circuit-switches for deployment in data centers.”

The agreement provides for a minimum purchase commitment by Tower in the first year, a reciprocal supply commitment from IQE, and minimum volume commitments thereafter.

In a separate agreement, IQE and Tower also deccided to settle a patent dispute centering on porous silicon technology, by way of a broad, worldwide and royalty-free license to IQE.

IQE refinancing

Jutta Meier, who is both IQE’s CEO and CFO currently, commented: “I am pleased to move forward together with Tower, already the leader in silicon photonics. This agreement reinforces IQE’s position within Tier 1 global hyperscale cloud and AI infrastructure markets.

“With decades of InP epitaxy expertise and established high-volume manufacturing capability, IQE is primed to support next-generation optical connectivity applications as they scale from innovation to commercial deployment.”

Marco Racanelli, the president of Tower Semiconductor, added: “We are pleased to partner with IQE as a key supplier for our next-generation photonic technologies that add InP high-performance components to our high-volume, mature, silicon photonics platform.

“The combination will enable products that can deliver both the performance and high volumes required to scale future AI infrastructure capacity.”

News of the Tower supply agreement comes shortly after IQE revealed that it had raised £81 million in a refinancing deal aimed at bolstering the UK company’s balance sheet following a sharp decline in sales revenues for radiofrequency applications last year.

Key customer MACOM provided £45 million towards that total in a combination of equity and convertible loan notes.

Tower’s silicon photonics ramp

Although IQE’s fiscal 2025 trading saw overall sales fall nearly 18 per cent to £97.3 million, photonics-related revenues were strong, rising 15 per cent year-on-year to £57.1 million thanks to a combination of AI data center and US military demand.

But with growth now looking solid across all segments and InP demand particularly strong thanks to multiple Tier 1 InP photonics design wins for high-speed optical links, IQE is expecting to post a 20 per cent increase in sales this year.

Tower said last month that it had now signed silicon photonics contracts expected to bring in $1.3 billion in sales in 2027, with $290 million of that total already received as customer pre-payments to reserve capacity.

CEO Russell Ellwanger observed at the time: “These multi-year customer commitments underscore both the depth of our strategic partnerships and our customers’ strong confidence in Tower’s ability to execute on a differentiated, multi-generational silicon photonics technology roadmap addressing the accelerating performance demands driven by AI infrastructure growth.”

Tower’s agreements, with more than 50 active customers, span conventional high-volume pluggable optical transceivers to next-generation near-packaged optics (NPO), co-packaged optics (CPO), thin-film lithium niobate technologies and more, with related sales revenues predicted to hit $2.8 billion in 2028.