SkyWater Technology, Inc. (NASDAQ:SKYT) Q3 2023 Earnings Call Transcript

Steve Manko : But again like as we would rather have that revenue coming through, keep in mind we’re talking only about 20% of our business and a slight decline owing to certain segment of 20% of our business revenue.

Thomas Sonderman : Yeah, that’s an important point. Right now, we’re looking to wafer services modeling about 20% of 2023 revenues. So it’s a relatively small effect when you look at the overall business that we’re running.

Nick Doyle: Okay. That makes sense. Yeah, we’re seeing that across the landscape of the auto and industrial inventory burning. Could you talk more about the tool revenue? What are you seeing from customers that’s driving this change? And how your defining tool revenue? It seems like you’re expecting a pretty big ramp next quarter and into ’24. I guess what’s – if you could just talk about the drivers that where customers are kind of changing their decision to buy more tool revenue?

Thomas Sonderman : Yeah. So, it’s a great question and I’m glad you’re asking it, because it’s important to understand the CapEx light model and it’s really a paradigm shift in the foundry business. Traditionally, the semiconductor manufacturer always had to go buy the equipment and then they would recoup that investments when volumes materialize. But they were taking all the risk. The SkyWater model is to get our customers to basically take that risk to not only secure that the fact that they’re buying these tools, obviously secures their supply chain, but it also moves the risk away from the manufacturer to the companies developing the products. And that’s really an important part of the SkyWater model. Our customers are investing in these tools that’s showing that they’re committed to the tools and the products that will be developed on those tools.

And as a result of that, we’re able to bring in new capital equipment without having to fund it and also not having to depreciate it as Steve talked, about once it actually goes into production. So it’s a different model. It’s one where we push the, no, the burden of investments of equipment as well as the R&D engineering that goes on to prepare a given technology to go to market. We push that on the product development companies, because they’re the ones that are essentially trying to get something new and differentiated to the market. We work with them to provide that that environment, but they have to absorb that risk of funding that capability. And that really is the difference between say us and a traditional foundry.

Nick Doyle: Can I just follow up on that? I see the benefit from the SkyWater perspective. I guess I’m more curious on what customers are seeing where they’re stepping up their investments. I guess, it goes back to the value of working with new guys and understanding the different steps and getting some IP and how to develop their own chip. Is that the answer?

Thomas Sonderman : Yeah. And it allows them to not only customize their product for our processes as opposed to having a standard process. But the other thing to keep in mind is we are in a very weak macro environment. So, tool sales that may be we’re committed as we entered 2023 have now been released and we have certain customers that want to move faster. And that’s allowing us to go secure equipment to put in our fabs, at a faster pace than maybe we thought we – as we enter the year. And this is all because customers want to secure capacity. And the difference is instead of a customer coming to me and saying, hey, I want you to go by a tool because I need to be prepared to ramp, we say no, you’re going to buy that tool and we’re going to work with you to develop a customized process and then you will have to secure supply on the other side.

So that’s really what we be mean by CapEx light. We don’t invest our dollars in the tool. We expect our customers to do it and as Steve alluded to, it’s looking about 80% of the investment for the next tranche of tools will be coming from our customers as investments.

Nick Doyle: Thank you.

Operator: And we’ll move next to Richard Shannon at Craig Callum Capital.

Richard Shannon: Well, Hi, Thomas. Thanks for taking my questions. I missed part of the call bouncing into in a few calls here going on. So if I’m repeating stuff from the call, my apologies here. But I did get a sense of some sizeable tool sales coming up here in the next number of quarters. Maybe if you could just help us to understand the scope of the amount here as I look back in your history here like in 2021, you did like $19 million worth of tool sales at one big quarter in there. How would you scale the next year or 2024? However else you want to look at it relative to that year? And then and then kind of follow-on to that question is, how do we look at ATS sales excluding tool sales going forward in the next few quarters. Is that something you can see flat to sequential growth? Or could we see some lumpiness in that pattern?

Steve Manko : Hey, good evening Richard. This is Steve. I’ll take the first part on the tool question. Then I’ll hand it over to Tom for the ATS. Like we talked about in the call today, we saw some tool revenue come through in this quarter which we told was very possible. We see additional tool revenue coming through in Q4, which we said could be up to the $10 million. Now we still have a forecast where we would expect a certain level of tool revenue in Q1 of 2024. I don’t expect it to be as high as the $10 million that we expect in Q4. But we still do see some sizable tool revenue coming in the first quarter. From there, that’s about the best we have on the visibility. Now what I’ll say is we do have potential for 2024 to have more tool revenue in 2024 than we ever had before.