SKYT Gross Margin Rises on Wafer Services Rebound: Is it Sustainable?

SkyWater Technology SKYT delivered a significant turnaround in profitability in the first quarter of 2025. The company’s non-GAAP gross profit rose to $14.8 million from $13.4 million, lifting the gross margin to 24.2%, a sharp 730-basis-point improvement year over year. This impressive margin expansion was primarily driven by the launch of ThermaView in January 2025, SKYT’s first proprietary platform for thermal imaging applications.

ThermaView’s rapid market adoption, particularly by two leading U.S. defense contractors, catalyzed a 70% sequential increase in Wafer Services revenues, reaching $7.5 million. This shift also reflects a broader transformation in SkyWater’s product mix, as new offerings like ThermaView began to replace legacy flows, setting the stage for sustained growth in the quarters ahead.

Looking ahead, the sustainability of this momentum appears promising. Management anticipates continued sequential growth in Wafer Services throughout 2025, driven by customer ramps and a growing innovation pipeline. The recently completed Fab 25 acquisition will significantly expand SkyWater’s manufacturing capacity and Advanced Technology Services, positioning the company to meet rising demand for foundational semiconductor technologies.

SkyWater expects both GAAP and non-GAAP gross margins to remain in the 23%-27% range for full-year 2025. With improved cost control, warranty reversals and a more disciplined tools mix, management sees further upside potential, particularly in the second half of 2025.

Competitive Landscape Stiffens for SKYT

GlobalFoundries GFS is a leading U.S.-based specialty foundry with $1.6 billion in the first quarter of 2025, significantly outpacing SkyWater. GFS competes directly in sectors like government, aerospace, automotive and industrial. GFS’ strength lies in its strategic partnerships and growing role in AI-related semiconductor manufacturing. Its large-scale global operations and strong capital base give it a clear competitive advantage.

ON Semiconductor ON focuses on intelligent power and sensing solutions for the automotive and industrial sectors. Its vertically integrated design and manufacturing model offers cost and supply chain advantages. ON Semiconductor’s strong position in the EV market, driven by growth in ADAS, wireless charging and sensor demand, continues to fuel revenues. This scale and focus on high-growth applications give ON Semiconductor a competitive edge over SkyWater.

SkyWater’s Share Price Performance, Valuation & Estimates

SkyWater shares have declined 23.3% year to date, while the broader Zacks Computer and Technology sector has returned 7% and the Electronics – Semiconductors industry has risen 13.4%.

SKYT's YTD Price Return Performance

In terms of valuation, SKYT is currently trading at a forward 12-month Price/Sales of 1.48X compared with the industry’s 8.6X. SKYT has a Value Score of B.

SKYT's Forward 12-Month Price/Sales Ratio