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SkyWater Technology (SKYT) has been making waves in recent weeks, including a big jump last week. Since it's not well known and it's a slow news day, we wanted to dive in a bit with SkyWater today. It is a technology foundry offering both advanced semiconductor process technology development as well as wafer manufacturing services. SkyWater is a pure-play semiconductor contract manufacturer, otherwise known as a foundry.

• What's unusual is that SkyWater is based in the US whereas most foundries operate in Asia. Given all the supply chain issues during the pandemic, there has been a big push to reshore chip production back in the US. The goal is to be less reliant on Asian foundries, not just on concerns of another pandemic, but also given the threat of tariffs, it makes sense to bring manufacturing back to the US.
• A big development in this area was the 2022 passage of the The CHIPS and Science Act, a federal law that authorizes roughly $280 bln to boost US production. It also includes 25% investment tax credits for manufacturing equipment. What makes SkyWater interesting is that it was created back in 2017 when it was spun out of Cypress Semi. This was before the CHIPS Act, and before it was cool to make chips in the US.
• SKYT has built a very strong Advanced Technology Services business. Think of this as a monetized R&D capability that allows SKYT to work with customers very early in the product development stage with the assurance that once their products move into production, SKYT can also make them in volume. SKYT does both embedded R&D as well as high-volume manufacturing in the same manufacturing facility. SkyWater serves the growing markets of aerospace & defense (A&D), automotive, biomedical, industrial and quantum computing.
• The stock has been making a strong move since it announced in early December that it signed a preliminary memorandum of terms (PMT) valued at up to $16 mln with the CHIPS for America program. This proposed funding would provide federal incentives to enhance production capabilities at SkyWater's Minnesota facility. These incentives will complement SkyWater's existing plans for customer-funded CapEx co-investments totaling $320 mln through 2026.

Looking ahead to 2025, SKYT is encouraged by a robust pipeline of secure aerospace & defense (A&D) demand, growing momentum across multiple commercial programs and the initial ramp of its advanced packaging business. Growth in its ATS segment is expected to be driven by strong continued momentum across various A&D programs and new well-funded commercial initiatives. SKYT expects these advancements to be bolstered by substantial new tooling capabilities funded by customers. Also, SKYT plans to accelerate its advanced packaging ATS development as it ramps its new fan-out platform.