What happened

Shares of specialty semiconductor foundry Tower Semiconductor (TSEM -0.80%) surged on Monday after the company reported its first-quarter results. Tower beat analyst estimates for earnings, posted double-digit revenue growth, and produced record free cash flow, prompting investors to push the stock up 12.5% as of 11:38 a.m. EDT.

So what

Tower reported first-quarter revenue of $330 million, up 19% year over year and in line with the average analyst estimate. CEO Russell Ellwanger commented on the drivers of this growth:

The first quarter demonstrated a strong year over year growth. We are executing well within each of our targeted analog application markets. During the quarter, we received higher than expected demand for high margin businesses such as RF SiGe optical infrastructure and CMOS Image Sensor business, specifically industrial applications. These orders, which will be shipped throughout the next quarters, further strengthen our belief for revenue and margin growth in the year, with our second quarter guidance reflecting the Company's highest revenue ever.

A clean room at a Tower Semiconductor facility.

Image source: Tower Semiconductor.

Non-GAAP EPS came in at $0.49, up from $0.31 in the prior-year period and $0.06 better than analysts were expecting. Gross margin surged to 26%, up from 22% in the first quarter of 2016. Operating margin jumped to 15%, compared to 11% one year ago. Free cash flow for the quarter totaled $42 million, a record for the company.

Now what

Tower expects growth to slow a bit during the second quarter. The company's guidance calls for second-quarter revenue of $345 million, a 13% year-over-year increase. Earnings guidance wasn't provided in the company's earnings press release.

Tower put up a solid quarter, with growth in high-margin businesses pushing up margins and profits. Whether those high margins are sustainable is an open question.