Skywater (SKYT) Q3 2025: Quantum Customer Base Grows to 7, Powering 30%+ Segment Expansion
Skywater’s Q3 delivered upside on all fronts, with quantum computing momentum and Fab 25 integration driving outperformance. The company’s “technology-as-a-service” model is proving sticky with both quantum and aerospace and defense customers, while its Texas fab acquisition is now expected to yield stronger ongoing profitability than originally forecast. Management’s tone signals rising confidence in baseline 2026 targets, as diversified modalities and onshore manufacturing position Skywater for secular growth in quantum, packaging, and trusted government supply.
Summary
- Quantum Customer Expansion: Four new quantum engagements in Q3, now supporting seven commercial customers.
- Fab 25 Integration Upside: Texas operations outperform initial expectations, boosting margin visibility and cash flow.
- 2026 Confidence Signal: Management asserts baseline growth targets are increasingly conservative as segment tailwinds build.
Performance Analysis
Skywater posted record Q3 revenue, propelled by both Fab 25’s outperformance and an accelerated quantum computing ramp. The Texas fab (Fab 25) contributed nearly $87 million in wafer services, outpacing expectations due to elevated work-in-process (WIP) inventory and favorable purchase accounting, though normalization is expected in 2026. Aerospace and defense (A&D) revenues saw a timing benefit, with $4 million of revenue pulled in from Q4, but the segment remains subject to government funding volatility.
Gross margin reached 24.6%, lifted by one-time profit recognition and cost reversals, including lower warranty accruals and tariff exposure. CFO Steve Manco clarified that about $8 million of the Q3 gross profit benefit will persist into Q4, with recurring Texas margin uplift of ~$5 million per quarter going forward. Operating expenses rose to $23.5 million, reflecting scale-driven overhead from the Fab 25 acquisition. Cash flow from operations was negative due to working capital swings, but underlying free cash flow is expected to stabilize.
- Quantum Segment Outpaces: Quantum-related revenue is on track for 30%+ growth in 2025, with similar momentum projected for 2026.
- ATS Model Drives Stickiness: The “technology-as-a-service,” or ATS, model enables rapid customer onboarding and process iteration, especially in quantum and A&D verticals.
- Margin Leverage from Texas: Fab 25’s contribution is now structurally more profitable, with recurring gross margin uplift and improved cost allocation.
Overall, Skywater’s Q3 performance reflects a step-function increase in scale and margin, with diversified growth vectors in quantum, advanced packaging, and government programs. The company’s ability to convert revenue upside directly to profit, especially in Texas, is a notable signal for forward earnings power.
Executive Commentary
"With quantum momentum continuing to build since last quarter, today we are very pleased to announce that we have signed four new quantum customer engagements since Q2... positioning Skywater to exceed 30% revenue growth with our quantum customers in fiscal 2025."
Thomas Sonderman, Chief Executive Officer
"Nearly all of the revenue upside recorded for Q3 flowed directly to gross profit without offsetting costs, evident in our reported Q3 gross margin of 24.6%... The net ongoing gross profit upside from Texas [Fab 25] is approximately $5 million per quarter compared to our earlier estimates."
Steve Manco, Chief Financial Officer
Strategic Positioning
1. Quantum Foundry Leadership
Skywater is solidifying its role as the leading U.S.-based “quantum foundry,” supporting seven commercial quantum customers across multiple modalities—spin-based, superconducting, photonic, and ion trap architectures. The company’s CMOS process compatibility and advanced packaging capabilities are attracting a diverse customer base, positioning Skywater to benefit regardless of which quantum technologies achieve commercial dominance.
2. Fab 25 Synergy and Scale
The Fab 25 acquisition in Texas has doubled Skywater’s scale and diversified its customer mix, providing volume manufacturing capacity and recurring free cash flow. The integration is running ahead of plan, with immediate operational and margin synergies realized through unified fab operations with Minnesota. The take-or-pay agreement with Infineon insulates baseline volumes, while additional non-Infineon business offers future upside.
3. Advanced Packaging Expansion
Florida’s advanced packaging platform is ramping, with $120 million in program awards and tooling installs set to complete by Q1 2026. This capability is crucial for defense and industrial customers seeking system integration and miniaturization, and it complements Skywater’s front-end wafer fabrication. The global advanced packaging market is projected to reach $80 billion by 2030, and Skywater’s onshore solution is well positioned for this secular trend.
4. Trusted Domestic Supply Chain
Skywater’s fully U.S.-based operations are increasingly valued amid evolving tariff and national security policies, especially as half of foundational defense node devices are currently produced in China or Taiwan. The company is a core partner in restoring U.S. semiconductor sovereignty, with government and commercial customers seeking secure, trusted manufacturing.
Key Considerations
This quarter marks a pivotal phase for Skywater, as it leverages its expanded footprint, diversified customer base, and government-aligned strategy to drive durable growth. Investors should monitor the following:
- Quantum Commercialization Pace: Sustained 30%+ revenue growth in quantum hinges on customer program success and industry funding cycles.
- Fab 25 Volume Normalization: Elevated Texas revenue and margin contributions will normalize in 2026, but structural profitability is improved.
- Government Funding Volatility: A&D segment remains exposed to U.S. budget cycles and program delays, with Q4 expected to see a sequential dip.
- Advanced Packaging Ramp: Florida’s tooling and customer prototype milestones will be key to unlocking new ATS revenue streams.
Risks
Skywater’s forward trajectory depends on continued quantum customer onboarding, successful Fab 25 integration, and stable government funding for defense programs. Delays in government appropriations, inflationary pressures on tooling, or slower-than-expected quantum commercialization could impact revenue and margin expansion. The business also faces execution risk as it scales new platforms and absorbs higher operating expense levels.
Forward Outlook
For Q4 2025, Skywater guided to:
- Total revenue between $155 million and $165 million
- Non-GAAP gross margin of 17% to 20%, with tools revenue diluting margin by 200 basis points
- Adjusted EBITDA in the range of $16 million to $22 million
For full-year 2026, management stated baseline expectations of at least $600 million in revenue and $60 million in adjusted EBITDA are now “conservative.”
- Structural gross margin uplift from Texas operations
- Quantum and advanced packaging growth to offset A&D volatility
Takeaways
Skywater’s Q3 signals a step-change in scale and strategic relevance, with quantum, advanced packaging, and trusted government supply as core growth pillars.
- Quantum Momentum: The company’s ability to attract and retain a broad spectrum of quantum customers cements its leadership in this nascent but fast-scaling market.
- Operational Leverage: Fab 25’s integration is yielding higher-than-expected recurring margin, strengthening Skywater’s earnings power and cash flow profile.
- Outlook Watch: Investors should track the normalization of Texas volumes, the pace of advanced packaging ramp, and signs of quantum commercialization as key catalysts into 2026.
Conclusion
Skywater’s Q3 results underscore the company’s transition from niche foundry to strategic U.S. innovation partner. Quantum and advanced packaging offer durable, high-growth vectors, while Fab 25’s performance and government alignment provide a strong foundation for future earnings expansion.
Industry Read-Through
Skywater’s execution highlights several industry themes: U.S.-based semiconductor manufacturing is gaining strategic importance as global supply chains fragment, and customers in quantum, defense, and advanced packaging increasingly demand onshore, trusted partners. The technology-as-a-service model, with rapid process iteration and packaging integration, is emerging as a key competitive differentiator. For peers, the ability to support diverse quantum modalities and offer integrated packaging will be crucial as quantum hardware moves from research to commercialization. The sector should expect continued investment in domestic capacity and a premium on flexibility and security in customer engagements.