Hey, we'll go ahead and get it started. Good afternoon, everybody. Welcome to the second day of Needham's 28th Annual Growth Conference. My name is Quinn Bolton. I'm the Semiconductor Analyst for Needham & Company. It's my pleasure to host this fireside chat with Skywater Technology. The company is the largest exclusively U.S.-based pure-play semiconductor foundry and services both commercial and U.S. defense customers. Skywater's technology as a service model empowers innovators to bring emerging technologies like quantum computing and next generation systems from concept to reality. With facilities in Minnesota, Florida, and Texas, Skywater specializes in foundational nodes and advanced packaging to support the nation's critical infrastructure, strengthen the supply chain resilience, and ensure long-term U.S. technology leadership. Joining me on stage from the company are CEO Tom Sanderman and CFO Steve Manko. And in the front row, we have Claire Adams in investor relations. So, Tom, Steve, Claire, thank you for joining us at the Naval Conference.

Pleasure, thank you.

Tom, maybe, since there may be some investors in the audience that are newer to Skywater, would you give us a brief overview of the company and sort of touch on the advanced technology services, wafer services and tool segments of the business that makes Skywater unique in the domestic foundry segment?

Good, and I'll do that quickly. I got lots of questions. Yes, yes, Skywater, you know was created back in 2017 is a spinoff Cypress semiconductor and when we were you know moving into the foundry business, we knew we had to differentiate so we created What we call the technology foundry model our you know business approach we call technology as a service And what we really focused Minnesota on was creating a monetized R&D capability We partnered very closely with the US government who was looking for Domestic sourcing at the time again. This is all pre-COVID and so that's really what we've been doing in Minnesota is building out Our development capabilities again starting with the aerospace and defense community But more recently moving heavily into the quantum foundry space as a lot of New investment is coming into that area and those technologies are moving out of the lab into the fab in Florida back in 21 we had the opportunity to Become the operator for an advanced packaging facility That was actually owned by Osceola County. So we don't own the facility. We lease it But over the last several years, we've been standing up another program that's funded from the US government an advanced packaging wafer fan-out solution That's 120 million dollar program that has been focused primarily on moving equipment in This is a very You know call it leading-edge ap platform doesn't exist in the u.s We expect to have prototypes available for that in the second half of this year We also have hybrid bonding and interposer technology in florida as well and then in texas, which we acquired last year Think of that as our volume manufacturing facility. So both Minnesota and Florida are you know good-sized fads, but not super super scalable and so we felt it was important to not only diversify further into industrial automotive We are becoming very concentrated in aerospace and defense, but also to have a volume manufacturing Manufacturing capability as this kind of resurgence of us-based semiconductor fabrication comes into play and so we had a long-standing partnership with Infineon from when they acquired Cypress and we were able to do a Transaction with them through a taker pay That'll last four years, but essentially gives us a runway as we Bring in you know other customers into that facility and so think of Minnesota is is our development center florida is our advanced packaging center in texas as our buying and manufacturing center and those three combined really give us i believe a unmatched capability uh compared to the comp you know competition especially the macro environment that we're in

excellent um looking at the domestic foundry market uh what what trends do you see playing out over the next five years and how are you positioning the business to you know kind of

benefit from these trends? Yeah, so, you know, clearly there is, you know, coming out of COVID, this demand to have certain, you know, products made in the U.S. One thing about Skywater is we're not focused on consumer. We're very focused on what we call critical infrastructure stuff that we know needs to be made in the U.S. long term. So we believe, you know, kind of irrespective of Tariffs and all the dynamics There's there's a lot of investment going into the u.s. We believe That will all require semiconductors We believe we're we're kind of finally exiting the down cycle that has really existed coming out of kovid So we believe we're positioned well to capture the the upcycle And then we believe the emerging technologies we have both in quantum as well as the highly differentiated advanced packaging capability will allow us to again not just bring in new designs but become kind of the the foundry of choice for people who who value domestic sourcing are committed to staying in the u.s but also want to leverage kind of our complete combination of development volume manufacturing and advanced

packaging all within a single customer or supplier how is i mean obviously there's a big push by the trump administration for unshoring you have tariff threats uh need for supply chain resilience you What are you seeing from customers in terms of that demand for domestic manufacturing and how has FAB25 and the volume capability of FAB25 perhaps changed those conversations or maybe accelerated conversations?

Yeah, great question. I'm somewhat smiling because first thing is people are very confused coming out of the current administration of what's real, what's not. But the one common signal is people know they need to have a domestic capability. And one of the things that prior to FAB25 we were constrained with was volume. So we had many customers that wanted to engage with us, but because we couldn't scale them to a certain level that made the investment worth it, they shied away. And so we kind of resolved that with FAB25. And then we're also able to offer customization because we have this innovation capability in Minnesota. And then we also can offer advanced packaging one of the things that I've been talking about this morning and some of our meetings is that You know we when we were out marketing to have 25 capacity We're getting a lot of input that that's important, but having advanced packaging in the u.s. Is even more important So we feel like now this trend is definitely underway There's trillions of dollars of investment of new facilities that silicon will need to be made in the u.s. And then when you couple that with You know increased defense investment. We have a rad-hard platform a thermal imaging platform an advanced packaging platform We think all that bodes well to Capture the trends but also not be dependent on one administration versus the next The the stuff that we want to make is the stuff that really Does need to be made in the u.s. Tied to critical infrastructure and you know That's automotive, industrial, med devices, aerospace and defense. And then you look at quantum computing, where, by definition, it has to be made in the U.S., and the U.S. government's kind of requiring that.

I was going to say, obviously, many of the end markets you target do have some sort of federal government funding aspect to them. And so what are your thoughts on the federal funding environment here as we roll into calendar 2026? I know it can be sort of lumpy.

Yeah, it's, yeah, I should let Steve answer this since he has to deal with. But, yeah, the, you know, it's interesting because it hasn't gotten any less lumpy. You know, even now we're looking at, you know, another potential government shutdown coming at the end of this year. And so what we're trying to do is insulate ourselves in a way where, And it kind of goes back to getting FAT25, where we have a strong A&D business. I think we've learned a lot about how we contract with the U.S. government. And then we have, you know, like a ThermaView platform is now getting designs, you know, taped out. That's kind of what you would want to have in a foundry model. Our RadHard platform is reaching a maturity level where now we can start moving into qualifications with that. And then our advanced packaging platform. So we feel like we have the capabilities that are going to kind of be there independent of some of the, we'll call it political dynamics. But the ability for us to become more and more relevant to the U.S. government is kind of the signal that we're looking for. A lot of what we've been doing in the early history of Skyward is creating capability. Once we get designed into certain platforms, like we are with ThermoView today, then we become increasingly relevant, and that becomes easier to navigate. We'll call it the dynamics coming out of the Defense Department, like we experienced last year.

Trump tweeted last week about trying to increase the defense budget pretty meaningfully by 2027. And if he's successful, I assume that just overall higher defense budgets probably bode well for the ATS portion of your business.

Yeah, and that's again where it's actually two interesting dynamics. So the U.S. government's always wanted a commercially viable supplier who is committed to sourcing for the U.S. government. And that's kind of what Skywater has become. there's also now this trend of doing more sourcing and partnering with the commercial sector to accelerate the time to deliver solutions so we think that plays very well and then you know like I said we've been investing in platforms now those platforms are going to be available so when people start looking at new designs and where they get their silicon source they can come to us and And so regardless of what the in-state number is, as I said, I think our relevance to the U.S. government will continue to increase. And then by having advanced packaging in Florida, even if we're not doing the front-end fabrication, we can do the final packaging assembly test, which almost universally everybody wants that done in the U.S. for critical infrastructure. And so we feel like, you know, the AP strategy long term, if I'm sitting out there, you know, AP is a critical part of Skywater's story. Quantum is all about AP. Everybody is looking at heterogeneous integration. Advanced packaging is kind of the next wave of innovation. And we can, you know, we certainly feel like we're at the center of that.

Wanted to spend a few minutes on FAP25. You sort of described it as your volume wafer services capability. But maybe just what are some of the manufacturing capabilities that FAB25 brings to sort of mixed signal digital CMOS 8-inch? You know, just maybe spend a couple sentences on the capabilities of that FAB.

Yeah, so one of the reasons that we got really excited about FAB25 is it's the most advanced 200-millimeter FAB in the country. It's running 65-nanometer in volume on a NOR flash product for Infineon today. is qualifying a 45 nanometer nor flash product and that puts it in rare air in terms of 45 nanometer 200 millimeter that really doesn't exist anywhere in the world and certainly not in the US so I think of it as half the fab is doing especially memory and then it also has a very sophisticated mixed signal capability that's kind of inherited from the Cypress acquisition the PSOC the programmable system on a chip one of the things that we were able to do is license high voltage technology and then they also have a copper back in on our 130 nanometer platform that we didn't have in Minnesota and that positions us very well into the PMIC market which is driving a lot of data center and so even though the fab today is primarily industrial automotive we see a lot of interest from customers and having this particular solution set available in the u.s. and that'll be important and then you know the other thing I like to remind everyone is when we bought the fab you know we had to take her pay we got a four hundred thousand additional wafers a year prior to that we had a hundred thousand so now we have about five hundred thousand wafers between the two sites but we also got 180 engineers which for Skywater turns into ATS revenue so in many cases we're constrained by engineers so one of the reasons we launched the quantum foundry concept last year and we had three legacy quantum customers we had a lot of interest coming from many others they have a lot of investment flowing into their business but the ability to bring in multiple customers at the same time typically would be gated by how many engineers you would have so you don't dilute your existing programs and we were able to resolve that by having access to now a whole new population of engineers very very talented engineers and um and that's one of the the other levers that we have for fab25 as we're executing the taker pay we're bringing in new business we also can run ats programs not only you know across the company but specifically in austin and um that that was uh you know let's just say you don't do a lot of investigation of engineering talent when you're buying a fab but it was a pleasant surprise that's really

going to prove to be advantageous for us that's great maybe for steve can you give us a sense you know kind of the revenue uh run rate out of fab 25 and i know most of that is in fact all of it i think today is from infinity and on a effectively a take or pay so so probably pretty consistent for the next uh few years at least yeah anything i talk about you know from revenue or

guidance today just as a reminder is coming from the slides that were prepared today and presented today and coming from our third quarter earnings call on november 5th but going back you know we We're really expecting around $80 million of revenue on a quarterly basis coming from Fab25. We expect that to continue over the course of 2026 and really essentially be the normalized run rate on volume coming out of that fab. Like you said, for right now, really the majority of that, just about all of that, is coming from really from Infineon. But really the long term would be to keep Infineon there, execute the long term supply agreement. But over the course of that time, start bringing in new products with Infineon as well as new customers to Fab25 as well.

And as you bring in either new products from Infineon or new customers, what's the margin delta? How much better is the new business versus the contracted business on the original contract?

Yeah, we would expect it to be better. That's what we're out there developing. That's what we're out there selling into the market. Again, really the way that the acquisition came together. We bought a significant amount of property and equipment a very large 200 millimeter fab for roughly 100 million dollars So when we had a cash outflow of about 100 million dollars for the acquisition, there was clearly some price Negotiation went into the overall acquisition agreement, which is why we're seeing kind of the suppressed margins in fab 25 right now in Austin Anything that we would do going forward would be outside of that long-term agreement that we have currently with Infineon So anything new that we would bring in with them or a new customer that we'd bring in, we would expect to be at market pricing, which the expectation would be that we would grow margins in FAB25 in the overall business.

Excellent. And, you know, it feels like it's been a nice acquisition. You know, does that whet your appetite for additional FAB purchases if you can find them?

Well, I look at FAB acquisition, CapEx investment and R&D spend all competing for the same dollar. So we kind of goof around a little bit around Skywater, but in all seriousness, we take a dollar of capital. We treat that dollar as very important. So no matter what we do for that dollar, we look at every dollar as a potential investment. We want to maximize that investment dollars, whether it's investing in another R&D program that will develop revenue for years to come or buying a tool or potentially looking at an acquisition of a fab or technology. We're really here just to maximize our return for shareholders.

Perfect. I wanted to spend a few minutes on the quantum computing business. You mentioned quantum computing was a key growth driver in 2025, and I think on the third quarter call, you said it was growing at a sort of 30% growth rate. Can you just talk about the types of products you're manufacturing for some of your quantum computing customers? Is it all superconducting? Are you qubit modality agnostic in your opportunity?

Yeah, so it's the latter. So we service all qubits. the you know there's kind of three big buckets you have silicon qubits you have superconducting qubits and you have ion trap generated qubits and we we certainly are you know engaged with companies across all those modalities i think a couple things make skywater unique one is our ability to do cryoelectronics i mentioned thermaview and even our rad hard platform all those electronics have to operate in super cooled areas think of things in space right and so through you know our government partnership we've stood up a lot of capabilities we have a cryo lab in Minnesota and that's all foundational for superconducting and other types of quantum solutions so the ability to have you know kind of a history going back to our partnership with D-Wave and we've We've talked about two other commercial customers that we've had for several years. We've created a lot of unique capability that became, I think as last year unfolded, very advantageous to companies that wanted to move out of the lab into the fab. The fact that we also have advanced packaging, a lot of quantum solutions are looking into the future and saying instead of trying to do like we did with traditional computation and pack more transistors into a single piece of silicon they're looking at advanced packaging from the onset and how I can use or how they can use superconducting you know interconnects and interposers to achieve the same outcome where you don't have to try to fit all the qubits into a single QPU so I think that is playing well and then the other thing is IP protection One of the things that we have as a trusted supplier who does classified work for the U.S. government is we compartmentalize everything that we do, and we've applied that to all of our commercial customers as well. So when a quantum company wants to come in and innovate, they can leverage our ATS model. When they want to protect IP, they can leverage our security infrastructure. And then the other thing is they they know and again None of us know what quantum volumes will look at if we don't see it as a big volume play because no one knows but That said Having you know a facility that has volume capabilities just gives them a comfort level so having kind of three fabs That each kind of have a distinct purpose, but when integrated can provide a complete solution I think puts us in a very unique position but the last thing I'll say about quantum is it's it's very innovative it requires a lot of customization and Skywater's innovation mindset is very different than the other foundries that you know are more traditional maybe not as open to innovating inside a manufacturing environment and that's a real differentiator for us but it also sounds like

Like it may not be high wafer volume runs, but it's an ATS service. And so those are pretty high-priced wafers as you're doing that development.

Absolutely. Yeah, I would look at it. You know, we've talked in the past about, you know, in Minnesota, every, you know, once you absorb the fixed cost, every subsequent dollar, there's like 55% flow through. And we kind of see that being maintained by really ramping up the Quantum Foundry capability. And Quantum Foundry isn't like we're building something new. It's somewhat marketing. But also the fact that we have a test floor that needs to be utilized by Infineon that gives us additional clean room capacity that allows us to scale and bring in not only more engineering capability, as I alluded to, but also additional tooling that would, again, in our model, be customer funded, which could, you know, wrap up additional capabilities in Minnesota, but definitely not a lot of wafers at this point, all ETS.

Can you maybe, how many Quantum customers do you have today, and where was that maybe a year ago, where do you think it might be headed?

Yeah, so we were, for many years, we were at three. We have D-Wave and PsyQuantum. We've talked about Publiki and one other. Last year, we added four, and we expect, and again, that was across all modalities. And then, you know, there are others that we're working on and and again our ability to go get new customers Is not constrained by engineering? resources and We know we also have some very whereas aluminum isn't very attractive for traditional CMOS everyone wants to move to copper which is primarily what Texas is Aluminum is critical for quantum technologies, and we have some really sophisticated Capabilities there that are selling well with the quantum community

Great and you know sort of looking into 2026 do you think you can sustain that sort of 30% rate of growth on on the quantum business?

Well, the the numbers get larger every year, so it's harder to do 30% when the numbers grow The expectation would be is that I think that we saw a long runway with a lot of growth taking place We don't know exactly how it's going to play out in 26 and beyond but what I can say is just like we talked about Well, will our business grow by 50% just because the defense budget grows by 50% Probably not in 26, but maybe over the long run It does the same thing we're seeing with these quantum programs and these quantum customers where they've raised so much capital over the course of 2025 that we're really anxious on hearing from them on seeing what their technology roadmap looks like I think it's taken a long time for those customers to really spend and grow to the spend levels that they're at today but everything that we're hearing from those companies is there's a desire to go fast a desire to be the first mover a desire to prove out that their technology is working with all the capital that they've raised putting it all together I would say that we would expect not only new customers coming in to start their programs, not that they're well-capitalized, but the well-capitalized customers to really use that as their advantage to move fast and develop a lot of product over the course of 26 and 27.

Great. Just coming back to sort of the overall business, can you discuss your outlook for the ATS and the wafer services businesses heading into 2026?

I'll go back to what we referenced on the November 5th call. we have an expectation for the overall business to be around 600 million dollars in revenue over the course of 2026 that would include some customer funded tooling that comes into that as well and what we talked about really was our Austin fab doing about 80 million dollars of revenue a year and so that's what we commented on and sorry a quarter thank you for that clarification so that's what we comment on on the November fifth call and that's that's our expectation for 2026.

Okay, and what are some of the greatest risks and maybe upside drivers to the forecast? Is it just sort of some of the defense or the government spending? Is it upside, hopefully not downside at infinity because it's a take or pay, but just what are some of the swing factors that could move the forecast either up or down?

Yeah, I think the beautiful thing is there's any number of factors that can come in that really benefit Skywater it would just have to be one two or three of them all coming in but it could be any number of different opportunities I think there's tremendous amount of upside I think what we saw in 2025 that were you know so a little bit hesitant of we saw that the spend just wasn't there we expected the the government to pass budgets we knew that the technology roadmap for the government programs we were working on had increased work to be done over the course of 2025 that was supposed to be funded given the funding delays in 2025 we just didn't see the technology development they were expected for those programs we'll still see what happens over the course of 26 but what I said is we're prepared and we were prepared for those technology ramps in 2025 so I think the biggest thing that we can do and hope for is that that funding gets released maybe it doesn't go immediately up to what we expected in 25 but is that additional funding starts to flow through which I think we're hearing good news and positioning for that could be a tremendous growth opportunity that we can scale very quickly. It's not hiring engineers who are looking for more capacity. It's just having those funds flow through from our customers to go to work, and we can scale very quickly on

that. One of the questions we get from investors is, how long does a customer typically stay on the ATS side of the business before transferring to Wafer Services? And can you share any thoughts on the number of ATS to Wafer Services conversions you may see this year? Yeah. So again, it kind

of depends on the technology so we've seen them two years in ATS moving away for services that's kind of on the med device side medical diagnostic side I should say and then on something like the rad hard platform that's you know five years plus to develop the technology and get it to the point where you're ready to start putting it in systems for you know product level system level qualification so I would say that's kind of the window two to six you know five six years obviously we like closer to two then but a lot of it depends like the you know quantum discussion we just had that's still very much development and very much ATS so it kind of depends on the platform and then every year now we're at the point where we have customers that are moving out of ATS and the wafer services we've gotten out of saying it's going to be this many this year but just know that the funnel is full one of the things in 24 we announced several med device med diagnostics companies that had moved into manufacturing they're now going through qualification cycles and so we're seeing you know good progress on that front the thermo view platform we announced this time last year we're getting tape outs so that's you know kind of going through a traditional foundries you know you do tape outs and run test chips and then ultimately move to production we're also on ThermaVue just to mention ThermaVue we we have that platform designed into existing systems that are out in the field today and so that's creating reoccurring orders which is also what we'd expect to see and that's what the two lead customers we develop the platform with and then you know another thing that I think you know kind of going to the discussion earlier about potential upsides is Florida you know we we have been moving tools in we're going to be qualifying that technology and we expect to have prototypes in the second half of the year and we're seeing a lot of customer interest in that platform That's gated by proving that it works like proving that we can execute prototypes So if by second half of the year, we're delivering prototypes getting customers excited I think that bodes well and that kind of gets into the question of potential, you know other M&A M&A doesn't just have to be to buy, you know We'll call it a 200 millimeter fab and try to fill it long term with 200 millimeter part of skywater strategy would be taking 200 millimeter fabs and converting them into advanced packaging fabs because they do not require a lot of the infrastructure that you need for front end and it's a very economical way to you know with the right tool investment i remind everyone it's 60 million of investment to stand up a fan out technology so front end tool costs are very different than back end tool costs and so for a relatively small CapEx investment, you can stand up advanced packaging relatively quickly here in the U.S., and that certainly is part of our strategy as it relates to not only Fab25 long-term, but also to other potential opportunities that would come about.

On the advanced packaging side and the facility in Florida, I think you previously said you expected the vast majority of tool installations to be complete by the end of this quarter. Or is that still on track? And when does ATS revenue start to be generated from that facility? Is that sort of coincident with the prototype activity you just mentioned?

Yeah, I think what you'll see is ATS right now in Florida is tied to tool install and tool qualification. And eventually so. It was a $120 million program, half tools, half ATS. But that's about over three years. So, you know, think of that money starting to be earned in the second half. But that's just through the government program. We start getting other customers involved. There's other revenue streams that can come into Florida. We're also promoting Florida for our quantum capabilities. So there's that opportunity. And we have an interposer technology that we license from IMEC that's also starting to get a lot more interest. So we feel like there's a lot of good business development underway in Florida, and it's kind of the center of it is tied to the FANOP program, but there's other levers that are there as well.

Great. You know, as I think about maybe the opportunity around FAB25, can you discuss the opportunity to partner perhaps an Asian-based foundry provider to serve as a domestic source for their customer base? And, you know, what would that profit sharing, you know, how might that look in such a partnership?

Yeah, so I'll say a couple things one is the US government very much wants the US foundries to partner with Taiwanese foundries So it's not in or it's an and and I think there are a lot of discussions going on Not only for again front-end manufacturing, but for advanced packaging The economics obviously we're not at a point to discuss any of that, but let's just say from our perspective getting Taiwanese foundry to come to the u.s. It it's like a one-to-many so you get one engagement that brings in many customers But it also gives us the ability to access certain technologies that are proven And that you know that would be part of any You know the calculus of the economics would be the IP licensing what the customers are what the customers are are willing to Are willing to invest the you know, there's this thing called no China no Taiwan and and there's certain customers that are requiring that and so that that's a forcing function for for some of these discussions that are going on but let's just say that's a very important part of the strategy here with fab 25 I would say partnering with with other foundries is the easiest path and then new designs is the second path and then AP as far as filling that fab a long term okay last

question for me and then we'll take questions from the audience it's just It's sort of easy to think about 2026. What are the company's highest goals or priorities?

Want to say that to me? There's three, right? Yeah, yeah. I mean, if you look at each fab, it's really executing our A&D platforms and standing up Quantum Foundry in Minnesota. It's standing up our packaging platform in, I should say, Minnesota, then packaging, standing that up in Florida. And then in Texas, it's really converting the fab from the IDM to foundry model and backfilling the fab with new customers. And I would say all those, you know, 14 days into the year are going very well.

Excellent. Do we have any questions from the audience?

Oh, I'm becoming profitable, by the way. Oh, we like that. On the path to profitability.

Any questions? No? All right. Well, we'll leave it here. Tom, Steve, thank you very much for joining us at the Needham Growth Conference. We really appreciate your participation.

All right. My pleasure. Thank you. Thank you. Really great questions.