Tower Semiconductor and Semtech have expanded their partnership to secure manufacturing capacity for AI chips, the two companies announced — a deal that pairs a specialty foundry with a fabless supplier scrambling to lock in wafers while AI demand eats fab slots.

The expanded agreement, reported by MarketScreener, deepens a relationship that already spans Semtech's analog and mixed-signal product lines. Tower, which runs fabs in Israel, the U.S. and operates capacity through partnerships in Japan and with Intel in New Mexico, has spent the past two years positioning itself as the merchant foundry of choice for customers who can't get slots at the leading-edge big three.

That pitch lands hardest now. AI accelerator shipments have soaked up advanced packaging and mature-node capacity alike, and fabless companies that once shopped purely on price now shop on availability. Semtech — whose portfolio includes high-speed analog ICs, LoRa connectivity chips and signal-integrity products sold into data center infrastructure — needs exactly the kind of specialty process capacity Tower sells.

Why does capacity matter more than price right now?

Because the queue is the product. Specialty foundries such as Tower don't chase Moore's Law; they refine older nodes — 200mm and 300mm fabs running mature geometries optimized for power management, RF, SiPho and mixed-signal designs. Those processes sit inside nearly every AI system's power delivery and connectivity chain, from board-level regulators to optical interconnects.

Semtech's data center business sells into that chain directly. Its signal-integrity and analog parts ride alongside the GPUs and networking silicon that distributors can barely keep on shelves. When AI rack demand doubles, demand for the unglamorous analog parts around it doubles too — and someone has to fab them.

An expanded capacity agreement signals Semtech expects that demand to persist across multiple years, not one procurement cycle. Multi-year foundry commitments have become the industry's standard hedge since 2021's shortage: customers pay for certainty, foundries get load visibility that justifies capacity investment.

What does Tower get out of it?

Load, essentially — and a customer anchored in the one end market that's still expanding aggressively. Tower reported record 2024 revenue driven partly by RF infrastructure and SiPho demand for AI data centers, and management has repeatedly flagged AI-adjacent analog and photonics as its growth engine. A deeper Semtech relationship extends that runway.

It also strengthens Tower's hand against UMC, GlobalFoundries and Vanguard, all of which court the same specialty customers. Long-term agreements with named anchor accounts are how mid-size foundries defend utilization when the cycle turns.

Neither company disclosed the deal's financial terms, wafer volumes or duration in the announcement as reported. Whether the expansion covers additional process platforms or simply extends existing volumes remains unspecified.

What comes next?

Watch Tower's quarterly commentary for signs the Semtech volumes translate into named capacity bookings, and watch Semtech's data center segment revenue — the clearest read on whether the AI analog pull-through justifies the commitment. If AI infrastructure spending holds, expect more fabless suppliers to sign similar multi-year foundry locks before capacity loosens.