SkyWater Technology Inc Well Positioned for Biden’s Chip Strategy

Small-Cap Semiconductor Maker With High Prospects

The semiconductor shortage woke up the U.S. to the need to expand the domestic computer chip industry and reduce the dependence on foreign chipmakers.

Taiwanese chip foundries (companies that manufacture computer chips) have been dominating the semiconductor space, but if you believe President Joe Biden, that will change, which would provide strong tailwinds for U.S. chip foundries.

An upstart in the semiconductor foundry space that could benefit from Biden’s chip strategy is SkyWater Technology Inc (NASDAQ:SKYT).

The company is accredited by the U.S. Department of Defense as a trusted supplier of chips. That gives SKYT stock an advantage, given the current focus on national security.

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After debuting at $15.50 during its initial public offering (IPO) in April, SkyWater Technology stock jumped to $34.43 before retrenching below $30.00, where I view the price weakness as an opportunity.

Chart courtesy of StockCharts.com

Semiconductor Focus Supports Bull Case for SKYT Stock

SkyWater Technology Inc’s three-year revenue picture points to muted growth, but with the current focus on chips, the outlook for SkyWater Technology stock is promising.

Fiscal YearRevenues (Millions)Growth
2018$132.2N/A
2019$136.73.5%
2020$140.42.7%

(Source: “SkyWater Technology Inc.” MarketWatch, last accessed September 1, 2021.)

SkyWater Technology is expected to lift its revenues by 25.5% to $176.2 million this year, followed by 25.1% to $220.5 million in 2022. (Source: “SkyWater Technology, Inc. (SKYT),” Yahoo! Finance, last accessed September 1, 2021.)

While its revenues have been stagnant, SkyWater Technology Inc managed to deliver earnings before interest, taxes, depreciation, and amortization (EBITDA) income in all three reported years. Look for the company to address its EBITDA decline in 2019 and 2020.

Fiscal YearEBITDA (Millions)Growth
2018$29.0N/A
2019$16.9-41.6%
2020$12.3-27.4%

(Source: MarketWatch, op. cit.)

The company’s profitability on both a generally accepted accounting principles (GAAP) and adjusted earnings-per-share (EPS) basis has been negative, but the loss has been narrowing, and there’s a pathway to adjusted profitability in 2022.

Fiscal YearGAAP Diluted EPSGrowth
2018$0.00N/A
2019-$0.42-24,629%
2020-$0.53-26.6%

(Source: MarketWatch, op. cit.)

Analysts estimate that SkyWater Technology Inc will report an adjusted loss of $0.49 per diluted share this year before turning a profit of $0.17 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

Moreover, the company has managed to generate positive free cash flow (FCF) in each of the last three years. Watch for the FCF to improve as SkyWater Technology’s revenues rise and profits surface.

Fiscal YearFCF (Millions)Growth
2018$7.1N/A
2019$2.5-65.3%
2020$10.4322.5%

(Source: MarketWatch, op. cit.)

Analyst Take

In my view, the most significant risk for SkyWater Technology Inc is the pending lockup expiry sometime in mid-October. This marks when the initial SKYT stock investors can sell their shares.

It’s unknown what the reaction will be, but considering that 78.9% of SkyWater Technology stock is held by insiders (who bought at a lower price), this is a risk as we approach the expiry date. (Source: Yahoo! Finance, op. cit.)

Overall, I like the semiconductor industry, given the U.S. government’s support. I feel that SKYT stock investors could benefit from the strategy.