Japan backs $3bn Tower Semiconductor photonics expansion
Israel’s Tower Semiconductor will spend $3 billion expanding optical chip production in Japan with $1 billion in state aid, a move that mirrors Europe’s industrial policy by prioritising control of AI data centre infrastructure over leading-edge logic.
Tower Semiconductor will invest roughly $3 billion to expand its 300mm manufacturing operations in Japan, funded in part by about $1 billion in grants from Tokyo’s Ministry of Economy, Trade and Industry. The investment targets silicon photonics, silicon germanium, and advanced optical packaging.
As AI training clusters grow too large for copper wiring to connect efficiently, light has become the only viable medium to transfer data between server racks. Tower is a specialist analog foundry that builds this plumbing rather than competing on leading-edge logic nodes.
The build-out follows two tracks. The first repurposes an existing facility in Arai for 300mm production and pushes output at its Fab 7 plant in Uozu to the maximum, with full readiness expected by late 2027. On this basis alone, Tower raised its 2028 revenue forecast to $3.6 billion and projected net profit of $1.2 billion.
The second track involves building an entirely new 300mm plant next to the Uozu facility. However, this larger bet remains uncertain, as the necessary agreements have not yet been signed. The company warns of risks including construction delays, equipment shortages, and the potential loss of grant money if state covenants are missed.
Subsidising presence
The state funding mirrors the industrial policy playbook Europe adopted with the EU Chips Act. When Infineon opened its €5 billion Dresden fab, the bloc was not simply subsidising chips; it was subsidising strategic presence. Tokyo is making the exact same trade, paying an Israeli foundry roughly $1 billion to establish a photonics centre of excellence on Japanese soil.
“We are honored and appreciative that the Government of Japan has selected Tower to lead the expansion of these strategically important technologies,” chief executive Russell Ellwanger said. The investment is made easier by a restructuring that gives Tower full ownership of the Uozu 300mm site from its Panasonic joint venture.
The underlying demand justifies the effort. Nvidia has committed at least $6.5 billion to photonics since March, and Tower has already shipped more than five million coherent photonic integrated circuits alongside partner Marvell.
Yet expanding factory capacity solves only half the supply chain equation. Beijing has been tightening export checks on indium phosphide, a compound essential for the optical chips inside AI data centres. For Europe and its allies, the race for AI infrastructure is increasingly about controlling basic materials as much as building fabs.
