SkyWater Technology, Inc. (NASDAQ:SKYT) is a U.S.-based, independent, pure-play technology foundry that is strategically positioned to capitalize on the growing demand for domestic semiconductor manufacturing. With a focus on advanced technology development and high-mix, low-volume production, SkyWater has carved out a unique niche in the industry, poised to play a pivotal role in strengthening the U.S. semiconductor supply chain.
Business Overview and History
SkyWater Technology's roots trace back to 1994 when it was established as a captive manufacturing facility owned and operated by Cypress Semiconductor Corporation. For 26 years, the Minnesota-based facility produced semiconductors exclusively for Cypress. In 2017, SkyWater was acquired by an affiliate of Oxbow Industries, LLC as part of Cypress's divestiture, marking the transition from a captive manufacturing operation to an independent pure-play technology foundry.
Following the acquisition, SkyWater leveraged Cypress's existing systems, manufacturing technology, and process development capabilities to advance its product offerings. The company benefited from a multi-year foundry services agreement with Cypress that ended in 2020, providing a runway to operate the foundry at high utilization while expanding and diversifying its customer base.
In its early years as an independent entity, SkyWater faced challenges related to macroeconomic and competitive conditions, including cyclicality and consolidation in the semiconductor industry. The company also had to navigate changes in government funding for semiconductor technology and manufacturing. Despite these obstacles, SkyWater successfully established itself as a trusted provider of advanced semiconductor development and manufacturing services.
A significant milestone in SkyWater's history was obtaining Defense Microelectronics Activity Category 1A Trusted Accreditation from the U.S. Department of Defense in 2019. This accreditation, combined with the company's status as a publicly-traded, U.S.-based, and U.S. headquartered pure-play technology foundry, positioned SkyWater to provide enhanced IP security and secure access to a domestic supply chain - key advantages for its customers.
SkyWater's core business model revolves around its "Technology-as-a-Service" (TaaS) approach, which enables the company to co-develop customized process technology intellectual property (IP) with its customers. This allows SkyWater to support the development and manufacturing of diverse microelectronics and related micro- and nanotechnology applications. In addition to this differentiated technology development service, the company also provides volume production of integrated circuits (ICs) for high-growth markets through its Wafer Services segment.
Financial Performance and Metrics
Financials
SkyWater has demonstrated a strong financial track record in recent years, despite the challenges faced by the broader semiconductor industry. In fiscal year 2024, the company reported record revenue of $342.3 million, representing a 19% increase from the prior year. This growth was primarily driven by a 13% increase in revenue from the company's Advanced Technology Services (ATS) segment, which more than offset a decline in Wafer Services revenue.
The company's gross margin for the full year 2024 was 21%, with the ATS and Wafer Services segments generating a combined gross margin of 25.8%. SkyWater's adjusted EBITDA for the year was $34.3 million, or 10% of total revenue. The company reported a net loss of $6.8 million for the fiscal year 2024.
In terms of cash flow, SkyWater generated $10.08 million in annual operating cash flow and -$0.41 million in annual free cash flow for fiscal year 2024.
For the most recent quarter (Q4 2024), SkyWater reported revenue of $75.5 million, representing a 5% increase year-over-year. The company's net loss for the quarter narrowed to $0.68 million. Notably, SkyWater's Q4 2024 performance exceeded expectations, with total revenue topping $75 million, which was towards the upper end of their guidance range. The reported Q4 2024 gross margin of nearly 27% exceeded the high end of their guidance range.
For the full year 2024, SkyWater reported positive earnings of $0.06 per share, meeting their expectation of positive earnings.
Liquidity
Despite the COVID-19 pandemic's impact on the semiconductor industry, SkyWater has maintained a relatively healthy balance sheet, ending fiscal 2024 with $19 million in cash and $67 million in total debt. The company's debt-to-equity ratio stands at 0.09, indicating a conservative capital structure.
SkyWater has a revolving credit agreement with a borrowing limit of up to $100 million. As of the most recent quarter, the outstanding balance was $21.33 million, leaving $75.58 million available for future borrowing.
The company's current ratio is 0.86, while its quick ratio is 0.76, suggesting that SkyWater may face some challenges in meeting its short-term obligations. However, the available credit facility provides additional liquidity if needed.
Transformative Acquisition of Infineon's Fab 25
In February 2025, SkyWater announced a transformative acquisition, agreeing to purchase Infineon's 200mm fab in Austin, Texas, known as Fab 25. This strategic move is expected to strengthen SkyWater's financial foundation and expand its domestic manufacturing capabilities for foundational semiconductor devices.
The $80 million acquisition, which includes a 4-year strategic supply agreement with Infineon, is anticipated to contribute approximately $300 million in annual Wafer Services revenue to SkyWater's top line. By transitioning Fab 25 from an internal IDM (Integrated Device Manufacturer) operation to a customer-driven foundry model, SkyWater expects to drive continued profitability improvements over time.
Importantly, this acquisition is expected to make SkyWater one of the largest domestic providers of 200mm wafer foundry capacity for foundational semiconductor devices, further solidifying the company's position as a leading U.S.-based pure-play technology foundry.
Diversified End-Market Exposure and Emerging Growth Opportunities
SkyWater's customer base spans a diverse range of end markets, including advanced compute, aerospace and defense, automotive, bio-health, and industrial applications. This diversification has helped the company navigate industry-wide challenges and maintain a relatively balanced revenue stream.
Within the advanced compute market, SkyWater has established a strong presence in the rapidly growing quantum computing segment, with over 90% of its advanced computing revenue in 2024 related to quantum technologies. The company's partnerships with leading quantum computing players, such as SiQuantum and D-Wave, underscore its ability to serve the evolving needs of this emerging market.
Furthermore, SkyWater's advanced packaging business in Florida is expected to become a significant growth vector, with a $120 million contract to develop a fan-out wafer-level packaging platform. As these capabilities are qualified and released to production, the company anticipates a ramp-up in ATS revenue from this segment in the latter half of 2025.
Geographic Market Performance
SkyWater primarily sells in the United States, with 96% of revenue coming from the US in fiscal 2024. The company also had small amounts of revenue from Canada, Hong Kong, and the United Kingdom. This strong domestic focus aligns well with the increasing demand for US-based semiconductor manufacturing capabilities.
Industry Outlook
The semiconductor industry is expected to see 11.2% year-over-year growth in 2025, reaching $697 billion in sales, according to Deloitte's 2025 global semiconductor industry outlook. This suggests the industry is on track to achieve $1 trillion in sales by 2030, providing a favorable backdrop for SkyWater's growth initiatives.
Guidance and Future Outlook
For 2025, SkyWater is guiding for modest year-over-year growth of approximately 5% (plus or minus 2%) in their combined ATS and Wafer Services revenue, compared to $266 million in 2024. The company expects tools revenue of around $30 million in 2025, mostly centered around their Florida facility and weighted to the second half of the year.
SkyWater is forecasting a significant expansion of their gross margin profile in 2025, with their combined ATS and Wafer Services business expected to have gross margins in the 30% range in the second half of the year. For the full year 2025, the company expects their reported non-GAAP gross margin to be in the mid-20% range (23% to 27%), with the tools revenue having around a 300 basis point negative impact.
The company expects to return to profitability in the second half of 2025 and report slightly positive non-GAAP EPS for the full year. For Q1 2025, SkyWater is guiding for total revenue in the range of $59 million to $63 million, with gross margin between 19% to 23%.
Risks and Challenges
While SkyWater's transformation into a leading U.S. semiconductor foundry is promising, the company faces several risks and challenges that warrant consideration:
1. Dependence on government funding and policy changes: SkyWater's growth is closely tied to the availability of government funding and support, such as the CHIPS Act. Changes in political landscape or policy shifts could impact the company's access to these critical resources.
2. Customer concentration: A significant portion of SkyWater's revenue is derived from a limited number of large customers. The loss or reduction in business from these key customers could have a material adverse effect on the company's financial performance.
3. Technological evolution and competition: The semiconductor industry is highly competitive and subject to rapid technological change. SkyWater's ability to maintain its technological edge and adapt to evolving industry trends will be crucial for its long-term success.
4. Supply chain challenges: Disruptions in the global supply chain, as experienced during the COVID-19 pandemic, could impact SkyWater's ability to obtain critical materials and equipment necessary for its operations.
Outlook and Conclusion
SkyWater Technology's strategic acquisition of Infineon's Fab 25, combined with its existing capabilities in Minnesota and Florida, positions the company as a formidable player in the U.S. semiconductor manufacturing landscape. The company's focus on advanced technology development, volume production of foundational semiconductor devices, and emerging growth opportunities in areas like quantum computing and advanced packaging, suggest a promising path forward.
Despite the risks and challenges the company faces, SkyWater's strong financial performance, diversified end-market exposure, and transformative acquisition make it a compelling investment opportunity for investors seeking exposure to the growing U.S. semiconductor industry. As the company continues to execute on its strategic initiatives, it could emerge as a leading pure-play technology foundry, serving the evolving needs of the domestic and global semiconductor market.
The company's guidance for 2025, including expected revenue growth, margin expansion, and a return to profitability, further underscores SkyWater's potential for long-term value creation. With the semiconductor industry projected to grow significantly in the coming years, SkyWater is well-positioned to capitalize on this trend and strengthen its role in the U.S. semiconductor ecosystem.