SkyWater Technology (SKYT, Financial) has been gaining attention recently, highlighted by a significant stock surge last week. As a technology foundry, SkyWater specializes in advanced semiconductor process technology development and wafer manufacturing services. It operates as a pure-play semiconductor contract manufacturer, commonly referred to as a foundry.
SkyWater stands out because it is based in the US, while most foundries are located in Asia. Amidst pandemic-related supply chain disruptions, there has been a strong push to bring chip production back to the US. This move aims to reduce reliance on Asian foundries due to pandemic concerns and potential tariff threats.
The CHIPS and Science Act, passed in 2022, is a significant development in this context. This federal law allocates approximately $280 billion to boost US chip production and includes 25% investment tax credits for manufacturing equipment. Notably, SkyWater was established in 2017 after spinning off from Cypress Semi, well before the CHIPS Act and the trend of US-based chip manufacturing gained momentum.
SkyWater has developed a robust Advanced Technology Services (ATS) business, which acts as a monetized R&D capability. This allows the company to collaborate with customers early in the product development phase, ensuring they can handle high-volume production once products are ready. SkyWater operates embedded R&D and high-volume manufacturing within the same facility, catering to markets like aerospace & defense, automotive, biomedical, industrial, and quantum computing.
The stock has surged since early December, following the announcement of a preliminary memorandum of terms valued at up to $16 million with the CHIPS for America program. This proposed funding aims to enhance production capabilities at SkyWater's Minnesota facility, complementing customer-funded CapEx co-investments of $320 million planned through 2026.
Looking towards 2025, SkyWater is optimistic about a strong pipeline of secure aerospace & defense demand, growing momentum in commercial programs, and the initial ramp-up of its advanced packaging business. Growth in the ATS segment is expected to be driven by continued momentum in various A&D programs and new commercial initiatives. SkyWater plans to accelerate its advanced packaging ATS development by ramping up its new fan-out platform, supported by substantial new tooling capabilities funded by customers.
