SkyWater Technology has announced on May 8 its financial results for Q1 2023. The US-based company, listed as a "trusted foundry" by the US Department of Defense, saw its revenue increased 37% year-over-year to a record US$66.1 million. Gross margin increased to 24.9% on a GAAP basis, compared to 25.4% in the previous quarter and -2% in Q1 2022.
"We are pleased to report a strong start to 2023, as we set another record for quarterly revenues," commented Thomas Sonderman, SkyWater president and CEO, during the latest earnings call. Exceeding the company's expectations, Q1 revenues grew 2% from the previous record set in Q4, thanks to the increased demand and urgency on multiple exiting aerospace & defense (A&D) programs.
"In the previously completed quarter, we were awarded extensions and expansions of several existing contract awards," said Sonderman, "as a result we have entered 2023 with an increased program scope on multiple defense initiatives." According to the SkyWater president, this accelerated demand provides the company with greater clarity for the year, and boosts SkyWater's confidence to reach its long-term annual revenue growth objective of 25% in 2023, despite the weakening macroeconomic environment.
ATS business decoupled from macro headwinds
Together, Advanced Technology Services (ATS) and Wafer Services businesses make up SkyWater's distinct Technology as a Service business model. A revenue breakdown indicates that ATS, focusing on joint R&D between SkyWater process integration teams and customers, continues to dominate sales, and grew 82% from Q1 2022 to Q1 2023, reaching US$48.3 million. In 2022, 80% of total ATS revenues came from SkyWater's ten largest customers. In contrast, its Wafer Services revenues declined 17% in the same period, falling from US$21.5 million in Q1 2022 to only US$17.8 million in Q1 2023.
Previously, SkyWater recorded US$213 million in revenue in 2022, marking a 31% year-on-year growth that allowed the foundry to expect a new baseline for quarterly revenues of about US$60 million. The foundry partly attributed its strong 2022 revenue growth to the US government's investments in radiation-hardened (RadHard) semiconductor manufacturing process.
As the challenging macro environment persists, SkyWater continues to see its strong aerospace and defense component as part of a bulwark against headwinds, though customer R&D investments in the commercial sector will also persist. The foundry especially sees its ATS business relatively decoupled from the chip industry's headwinds, while Wafer Services business is expected to see modest growth as additional ATS customers transition to production later this year, alongside ongoing pricing improvements as SkyWater leverages its unique offerings in the market.
More balanced growth expected in 2024
"The increased momentum achieved last year on this and other strategic government initiatives set the stage for 2023's revenue growth and helped drive another record revenue quarter in Q1," remarked the SkyWater president. He also noted that SkyWater continues to make progress on its 90nm RadHard platform to prepare for production ramp in 2025.
Though strategic government programs will retain a large role in SkyWater's revenue growth in 2023, the company believes 2024 will be a year when growth will be more balanced between A&D and commercial sectors. Sonderman especially cited SkyWater's recent cooperation with the quantum computing startup PsiQuantum as an example of continuous R&D investment from the commercial space amidst industry tightening. By 2025, SkyWater believes that all the components of its business model will fully come together, bringing it closer to the target gross margin objective of 40%.
In terms of SkyWater's industrial and automotive market customers, SkyWater continues to see robust demand. "Any weakness that we've seen on the consumer side has been more than made up on the automotive industrial," commented Sonderman at the earnings call, "it makes up about 20% of our overall revenue."
