Skywater Technology SKYT is a semiconductor fab that was the result of a spinoff from Cypress semiconductor back in 2017. They make chips and micro-electronics for aerospace, defense, automotive, medical, industrial and consumer.
What has me interested is they have recently begun getting revenue from quantum computing companies and operate a “Technology as-a-service” model which enables very different quantum computing architectures. The company signed four new quantum computing customers since their last report.
This company is a bit more complex than we would usually look for so I’d be interested to hear what board members think. They have a recent acquisition of Infineon, which they paid about 350M for. For this reason it is challenging to get apples to apples comparisons on financials. Additionally, they have a segment of the business which is dependent on government contracts and seems hard to forecast for. Additionally, recently they announced a filing delay for some revenue recognition from previous years. Despite these issues, I found quite a lot I liked in their latest transcript to take a small starter position.
Financials are as follows with the heavy caveat of the acquisition in the latest quarter,
Revenue: 94M → 76 → 61 → 59 → 151
Revenue growth rate: +31% → -5% → -23% → -37% → +61%
EBITDA: 8.5 → 7.6 → 2.0 → -0.1 → 24.1
Cash 31M, Debt 184M, Market Cap 800M, Gross Margin 24%, HQ Minnesota
Net income 1.5 → -0.7 → -7.3 → -10 → 144
Revenue in this latest quarter beat guidance by 15M, and they had guided adj EBITDA from 10-12M but landed at 25.8M. From what I can tell it seems the acquisition is going better than they expected. They guide next quarter is from a revenue range of 155 - 165M although I believe this is somewhat conservative based on what they said in the last transcript.
Some details from the last report,
- Exceeded our expectations across all metrics
- 4M of pull through from A&D business
- Strongest ever quarter for quantum computing related revenue
- Signed 4 new quantum customers since Q2
- Stronger than expected profitability at both the gross and operating levels
- “Significant outperformance in Q3’s adjusted EBITDA and net earnings relative to our earlier expectations”
- ATS business driven by multiyear development programs with government
- Government has invested hundreds of millions in Skywater’s capabilities (not sure what this means)
- Government supports securing trusted domestic foundry supply for critical new semiconductor platforms
- Quantum computing continues to be one of the most exciting and fastest growing part of the business
- Quantum transitioning from research to scalable manufacturing
- Significant increase in both activity and investment across Quantum ecosystem
- Several well known players have announced large funding rounds, investments in multi-billion dollar range
- Reinforcing role as essential trusted US based semiconductor
- Able to name two of the quantum customers: Silicon Quantum Computing SQC and QuamCore
- SQC platform highly compatible with existing CMOS processes, makes Skywater’s manufacturing capability a natural fit
- SQC launched in Q3 and expected to contribute strong quantum related revenue over the next year
- QuamCore different approach; superconducting quantum processor
- “Technology as-a-Service model enables very different quantum architectures to develop and iterate quickly”
- Total number of quantum customers is 7 (impressive they added 4 this quarter)
- Multiple modalities for quantum supported: spin-based, superconducting, photonic
- Quantum is model component of overall revenue but fastest growing category and key contributor to longer term financial targets
- SkyWater is increasing recognized as the Quantum foundry
- 1st full quarter of newly acquired Fab 25 operations in Texas
- Roughly doubles scale of overall business and strong FCF from outset
- Texas operations contributed 87M of wafer services, well ahead of expectations
- “Expect wafer services volumes in Texas will normalize as we move into 2026” (maybe not the greatest sign)
- “Expected ongoing financial contribution from Fab 25 is more favorable than we originally forecast”
- SkyWater is now the largest exclusively US based pure play foundry service provider in the nation
- Tool installs ramping in Q4, expect Florida operations to contribute a greater level of ATS revenues over the next couple of quarters as we prepare for initial customer prototypes
- Advanced packaging gives us an opportunity to not just rebuild but to leap ahead to define the next chapter of leadership
- Homegrown company free of foreign control, manufacture securely in US
- Expect decline in A&D ATS revenue decline to be offset by increases in Quantum and packaging, guiding 155 - 165M revenue
- “We also expect to deliver upside to our prior profitability expectations for the 4th quarter”
- Initial baseline of 600M revenue with 60M adj EBITDA in 2026, “will prove to be conservative”
- Nearly all of revenue upside for Q3 will flow to directly to gross profit without offsetting costs
- Total debt 184M, up from 118M previous quarter because of acquisition
- Adj EBITDA Q4 projected from 16-22M
- Did have more work in the Fab than anticipated, allowing us to “run hot as we enter 2026”
- Operating with different modalities allows us to attract all types of quantum computing customers
- “Allow the US to run at a faster pace than anyone else in the world”
- “SkyWater intends to be at the center of that with our Quantum foundry model”
- “Strong take-or-pay agreement that basically insulates us for the next several years” (Looked into this a bit and seems like the end result is steadier revenue independent of demand)
- Strong progress on ThermaView and RadHard platforms, DoD community will leverage, also have “special ASIC business” with that community
- Customers coming to SkyWater know their IP will be protected, same process for DoD vs other customers
Overall I’m finding the market cap of 800M to be attractive for a company getting 150M+ of quarterly revenue with this narrative about the growing quantum computing space. They were projecting initially 600M revenue for 2026 but say that is too conservative so maybe 800M next year is closer to the actual, which would make the P/S ratio 1.
However there are several concerns I have regarding the low organic growth, debt, and recent filing delay. I do like the potential upside this company has though as the price is very reasonable if they can actually deliver on being “The Quantum Foundry” based in the US.