Tower Semiconductor (TSEM.US) and Semtech (SMTC.US) announced they are expanding their 20-year partnership through a multi-year agreement to secure dedicated silicon germanium (SiGe) manufacturing capacity for AI data center connectivity products.

Under the agreement, Semtech will invest in dedicated capacity at Tower Semiconductor's fabrication facilities in the United States, Israel, and Japan to support its optical and copper interconnect component needs. The two companies will also collaborate on developing next-generation data center connectivity technologies, including 800G, 1.6T, and 3.2T.

In a joint statement, the two companies said that as AI clusters scale from racks and rows of racks to campus-level deployments, data transmission energy consumption is becoming a critical factor constraining AI expansion. The upgrade from 800G to 1.6T and 3.2T speeds places higher demands on bandwidth, transmission distance, and power consumption per bit, while also increasing the importance of high-speed analog front-ends.

Semtech CEO Hong Hou stated that connectivity has become a key factor in the scalability of AI systems, and customers are ramping up interconnect bandwidth at scale, necessitating long-term capacity planning.

In Tuesday's pre-market trading on U.S. markets, as of the time of writing, Tower Semiconductor shares rose 2%, while Semtech shares fell more than 3%.