SkyWater (SKYT) Q2 2025: FAB25 Acquisition Adds $75M Quarterly Revenue, Reshaping U.S. Foundry Scale
SkyWater’s transformative acquisition of FAB25 immediately doubles revenue scale and cements its position as the largest U.S.-based pure play foundry, but near-term gross margin compression and integration execution will test management’s operational discipline. Expansion into quantum computing and advanced packaging offers promising growth vectors, yet funding delays in defense and the need to ramp higher-margin product mix will define the next phase of value creation. Investors now face a fundamentally larger, more complex SkyWater, with new strategic levers and risks as the company seeks to shape the onshoring of foundational semiconductor supply.
Summary
- Scale Leap via FAB25: SkyWater’s acquisition of FAB25 instantly doubles revenue and expands U.S. foundry leadership.
- Margin Pressure Reality: Near-term gross margin compression will persist as integration and mix shifts play out.
- Growth Vectors Emerging: Quantum and advanced packaging momentum set the stage for diversified long-term expansion.
Performance Analysis
SkyWater delivered Q2 revenue at the upper end of expectations, supported by stronger-than-forecast ATS (Advanced Technology Services, engineering and specialty manufacturing) revenues, while maintaining tight cost control that led to upside on gross margin, adjusted EBITDA, and EPS. Operating expenses were flat sequentially, and full-year organic OpEx growth guidance was lowered to 5% from prior 10-15%, reflecting disciplined expense management ahead of the FAB25 integration.
The FAB25 acquisition marks a step-function increase in scale, with $75 to $80 million in quarterly wafer services revenue from Infineon now flowing into the P&L starting Q3. However, management was explicit that near-term gross margins will be compressed, as the acquired business brings lower initial profitability and significant non-cash depreciation, offset by a path to higher margin mix through new platform and customer wins. Free cash flow from FAB25 is expected to be robust, supporting a higher baseline for both revenue and adjusted EBITDA as SkyWater exits 2025.
- Cost Management Outperformance: OpEx held flat QoQ, with organic expense growth guidance cut in half for 2025.
- Step-Change in Revenue Base: FAB25 adds $75-80 million quarterly, more than doubling total company run-rate.
- Margin Compression Headwind: Initial FAB25 gross margins in the low single digits, with 600-700 bps of purchase accounting depreciation impact per quarter.
SkyWater’s core Minnesota and Florida businesses continue to show incremental growth in quantum and advanced packaging, but the company’s financial profile is now dominated by the scale, integration, and mix of the Texas FAB. The next several quarters will be defined by the pace of margin improvement and customer onboarding into the new capacity.
Executive Commentary
"FAB25 brings Skywater a number of significant benefits, both strategic and financial. Strategically, the acquisition of FAB25 firmly establishes Skywater as the largest exclusively US-based pure play foundry service provider, offering dual source support for a foundational node 200 millimeter foundry capacity."
Thomas Sonderman, Chief Executive Officer
"Our Q2 gross margin exceeded the top of expectations at 19.5%, and the impact of tools in the quarter was 10 basis points. Adjusted EBITDA of $2.3 million was also stronger than forecast as a result of favorable gross margin performance, as well as lower operating expenses."
Steve Manko, Chief Financial Officer
Strategic Positioning
1. FAB25 Integration and U.S. Foundry Leadership
The FAB25 acquisition is a structural transformation, positioning SkyWater as the largest U.S.-based pure play foundry focused on 200mm foundational node manufacturing. This move directly addresses national security and supply chain resilience needs, offering a domestic alternative as over $5 billion in U.S. defense semiconductors are still sourced from China and Taiwan. The Infineon supply agreement provides a stable revenue floor, while the licensed high-voltage IP opens new customer and product channels.
2. Margin Expansion Levers and Mix Shift
Near-term margin dilution is the price of scale, as FAB25’s initial product mix and heavy purchase accounting depreciation weigh on reported profitability. Management’s playbook for margin expansion includes onboarding higher-margin ATS engineering revenue, new platform design wins, and operating synergies across the Minnesota and Texas fabs. The ability to attract non-Infineon customers and shift to market-pricing for new products will be critical to restoring and expanding profitability.
3. Advanced Packaging and Quantum Computing Momentum
SkyWater’s advanced packaging facility in Florida and quantum technology center in Minnesota represent differentiated growth vectors, with both segments expected to drive incremental revenue and margin improvement into 2026. Quantum is projected to grow over 30% in 2025 and continue as a key area of ATS expansion, while advanced packaging is ramping with back-half loaded tool revenue and customer engagement, particularly in defense and eventually commercial verticals.
4. Defense and Industrial Demand Tailwinds
Secular trends in domestic sourcing and defense onshoring are accelerating, with SkyWater positioned to capture demand from hybrid semiconductor manufacturers, IDMs (Integrated Device Manufacturers, vertically integrated chipmakers), and fabless firms seeking U.S. production. Ongoing government funding delays are a near-term headwind, but management views these as transitory, with long-term alignment to national security priorities in microelectronics, quantum, and missile defense.
5. Capital Structure Reset and Cash Flow Visibility
The new $350 million revolving credit facility and robust free cash flow from FAB25 provide funding for integration and growth, but also introduce higher leverage and interest expense. Annual depreciation from the acquired assets will be $30-45 million for 6-8 years, requiring sustained operating improvement to drive bottom-line growth as the business scales.
Key Considerations
SkyWater’s quarter marks a pivotal transition into a scaled, multi-site U.S. foundry with diversified growth levers. However, the company must now execute on integration, margin improvement, and customer onboarding to realize the full value of the FAB25 acquisition.
Key Considerations:
- Integration Execution Risk: The complexity of merging operations, systems, and cultures between Minnesota, Florida, and Texas fabs will test management’s ability to deliver promised synergies and cost optimization.
- Margin Recovery Timeline: Investors should monitor the pace at which higher-margin product mix, ATS engineering revenue, and customer wins materialize to offset initial FAB25 margin dilution.
- Customer Diversification Urgency: The Infineon supply agreement provides stability, but long-term value depends on onboarding new customers, especially in auto, industrial, and defense verticals seeking U.S. sourcing.
- Defense Funding Volatility: Continued delays in U.S. government program funding could cap near-term ATS growth, though management expects these challenges to resolve over time.
- Capital Allocation Discipline: Higher leverage and recurring depreciation will require careful balance between growth investments, debt service, and margin restoration.
Risks
SkyWater’s expanded scale brings new operational, financial, and market risks. Near-term gross margin compression and elevated depreciation may persist longer if new customer ramp or product mix improvements are delayed. Integration missteps, execution lapses, or further government funding delays could undermine growth projections. Rising leverage and interest expense increase sensitivity to cash flow volatility, and the company’s strategic bet on U.S. onshoring depends on continued policy support and customer adoption.
Forward Outlook
For Q3 2025, SkyWater guided to:
- FAB25 wafer services revenue of $75-80 million with non-GAAP gross margin of 4-6%.
- ATS revenue of approximately $50 million and organic wafer services revenue of $5-6 million.
- Consolidated adjusted EBITDA of $10-12 million and net loss per share of $0.14 to $0.20.
For full-year 2025, management expects:
- Q4 run-rate revenue baseline of $140 million per quarter (excluding tools).
- Adjusted EBITDA margin of at least 10% in Q4.
- 2026 baseline outlook for $600 million revenue and at least $60 million adjusted EBITDA.
Management highlighted:
- Quantum computing and advanced packaging as key ATS growth engines into 2026.
- Continued focus on cost optimization and customer-funded capex to drive incremental value.
Takeaways
SkyWater’s Q2 marks a fundamental reset in scale and ambition, but the path to sustainable margin and value creation will depend on integration, mix shift, and execution across new and legacy platforms.
- Scale and Revenue Stability: The Infineon agreement anchors revenue, but long-term upside will be unlocked only through customer and product diversification into higher-margin segments.
- Margin and Cash Flow Watch: Investors must track the cadence of margin improvement, free cash flow delivery, and the company’s ability to offset heavy depreciation and interest expense from the acquisition.
- 2026 and Beyond: The company’s positioning for U.S. supply chain resilience and quantum/packaging growth is credible, but execution risk remains elevated as SkyWater transitions from a niche player to a scaled, multi-site foundry operator.
Conclusion
SkyWater’s Q2 and FAB25 acquisition mark a new era of scale, complexity, and opportunity, anchoring the company as a strategic player in U.S. semiconductor onshoring. Investors must now weigh the promise of diversified growth against the operational and financial challenges of integration and margin restoration.
Industry Read-Through
SkyWater’s aggressive move to acquire FAB25 and scale domestic 200mm capacity signals a broader inflection point for U.S. semiconductor onshoring, as both government and private sector demand for secure, regionalized supply chains accelerates. Legacy node foundry capacity is emerging as a critical bottleneck, not just for defense, but for automotive, industrial, and power management applications. Competitors and ecosystem partners should expect increased competition for domestic capacity, a renewed focus on IP licensing and platform enablement, and a policy environment that increasingly favors U.S.-based production for foundational technologies. Margin headwinds from integration and mix shift are likely to be a recurring theme for any player seeking to scale through acquisition in this space.