Since SkyWater Technology (NASDAQ: SKYT)'s 2021 IPO, much has changed. After reorganizing with private investors, the company was soaring high amid the pandemic supply chain disruptions-caused semiconductor scarcity.
Since then, AI has captivated the world. This new AI craze has ended the chip scarcity for industrial markets, SkyWater's sector of the huge semiconductor industry. In the next years, more demand is projected, and the U.S. CHIPS Act aims to help SkyWater. Should I watch this little manufacturing stock now?
Investors like SkyWater's potential. It's a unique chip company that helps other tech startups. It cuts customer R&D deals and creates a co-development tech platform, or advanced technology services (ATS), where customers invest in SkyWater's semiconductor production tools and process.
After R&D, ATS clients buy SkyWater silicon wafers. ATS contributed 80% of revenue last year. The long-term profit will come when some of its start-up customers order silicon after R&D. The U.S. Department of Defense, which has worked with SkyWater's silicon fab on radiation-hardened production technologies for years, is its biggest customer. This cooperation is developing space applications and enhanced radar.
SkyWater received up to $190 million from the Defense Department for its second Florida facility to package chips into computer systems over several years. The company has sought for CHIPS Act funding for its Minnesota silicon wafer factory.
The corporation can reuse shared R&D with additional prospective customers. This tiny company is growing its skills to seize fresh growth from industrial areas like aviation, aerospace, automotive, healthcare, and others in the future years.
It has recovered from some of its larger chipmaking counterparts' problems. SkyWater earned $79 million in the 2023 fourth quarter, up 22%. Management forecasts modest growth in 2024, with first-quarter sales of $80 million (up 21% from the year before).
SkyWater stock: too late? This stock has recovered since I covered it last summer. I own a tiny position and won't change it soon. The company is still unprofitable. It is making headway toward breaking even with aid from customers who are investing in the tools needed to migrate from ATS to semiconductor fabrication.
SkyWater had a negative 5% operating margin last year. Expect this to continue in 2024, although management expects profitability within two years. Again, converting certain customers to wafer fabrication will be crucial. Given the present investment in production tools, SkyWater expects this.
My position on holding the business model is constant because it is unproven. My position is little, but I'll keep nibbling if the story keeps going well. SkyWater is an intriguing small-cap semiconductor stock, but it's too early to call.
Stay turned for development