Q1 2021 Skywater Technology Inc Earnings Call
Financials.
And the first quarter net sales grew 30% to $48 1 million driven by an acceleration and our advanced technology services, our Ats business ATF sales were $38 1 million and increase of 61% over Q1 of 2020.
We believe this record revenue is a testament that our strategy is working.
Gross margin improved 170 basis points to 19, 1%.
Our net loss attributable to shareholders was $2 8 million and adjusted EBITDA was $5 6 million.
Our vision at Sky water is to improve the world by Revolutionizing technology realization, because we're impatient waiting for the promise of tomorrow. So we're focused on making it happen faster today.
Our industry transforming technology as a service our task business model allows us to co create next generation technologies with our customers accelerating their time to market with the confidence of automotive quality manufacturing and extensive IP protection.
Since our inception skyward has been committed to accelerating the development of next wave technologies and partnership with our customers.
I am proud to announce 1 of those today <unk> photonics.
After a multi year technology and product development collaboration we are now aggressively moving their photonics first platform to volume production.
This is an exciting milestone for both companies and we are proud to have reached it together during the quarter. We also continued to fill our ats pipeline with new customer wins across several technology platforms and verticals.
Our active customer engagements and leverage both our emerging technology and feature rich platforms.
Our strong customer acquisition capability and supported by a world class sales and business development team.
We expect to continue to add the best talent and the industry as we grow our core customer base, while expanding programs with our existing customers.
And collaboration with our strategic partners, we have built a strong foundation of differentiated technology platforms that we believe are well positioned to drive significant revenue growth for our company over the next several years as they transition through our technology as a service offering.
I would like to discuss 4 of these and more detail.
The first is extreme environment and microelectronics.
The United States Department of Defense awarded Sky water $170 million as part of a public private partnership and October of 2019.
Since completing the expansion of our Minnesota Fab last October we've made good progress towards qualifying our 90 nanometer fully depleted silicon on insulator technology in partnership with MIT Lincoln Labs.
The first copper wafers from our dual damaging interconnect process. We're also successfully fabricated during the quarter.
The rapid enablement of this radiation harden platform per space based electronics has been achieved through direct engagement with multiple USG primes and design houses through our early access program.
The second area of growth is advanced packaging, we continue to execute the startup of our new advanced packaging Fab and Osceola County, Florida.
This includes hiring 20, new sky water employees, who are actively working on both clean room and process tool qualifications and the existing department of defense programs at the fab have been reactivated and we.
Also have several exciting new customer engagements that continue to make good progress towards design wins. These include both existing customers, who are consolidated and their value chain at sky water as well as brand new engagements, we expect sky waters domestically sourced and highly differentiated and advanced packaging capabilities to bring significant value.
<unk> to both current and future customers.
The third area and bio health.
Leveraging our expertise and Mems technology, we continue to accelerate the technology realization of several new point of care diagnostic solutions.
Many of these applications are onetime use providing the potential for robust volumes as these new microfluidics based technologies move into the market over the next couple of years.
<unk> also proud to continue to support the work of COVID-19, epidemiologists with our DNA sequencing technology.
And finally, a few comments on our high performance power management and connectivity platforms.
Building on our long legacy of producing feature rich and mixed signal devices, our Minnesota Fab remains focused on ramping our S $1 30 platform for existing automotive and Iot customers. This.
And this includes executing our capacity expansion plans.
We also continue to attract new customers with our highly differentiated S 130 platform, including for example, a telecommunications company that is working with us to rapidly bring 1 of their new products to market. And addition to have our power management customers have moved and a product qualification and keeping pace with our planned ramp of these differentiated.
Discrete power MOSFET and the second half of this year.
Our nation's focus on the importance of domestically sourced semiconductors is very encouraging sky.
Sky water is a strong believer and the importance of public private partnerships as is evidenced by our Dod funded carbon nanotubes, <unk> Soc and Rad hard programs, and Minnesota, and our new advanced packaging partnership with Osceola County, and Florida currently only 12% of worldwide semiconductor manufacturing.
Occurs and the United States. This must change I was honored to represent sky water and president and <unk> recent chip summit to reinforce the importance of domestically sourced semiconductors and across the entire value chain. We believe semiconductors of the fuel on the 20 <unk> century.
It is critical for our nation to commit to increasing the research development and manufacturing of semiconductors from wafer fabrication to advanced packaging to final Assembly and test we believe sky water remains uniquely positioned to take advantage of this renaissance and domestic semiconductor R&D and manufacturing which is.
<unk> coinciding with the increased adoption of many of the exciting mega trends affecting our industry at a time and the appetite for co creating possible has never been greater we're excited to be able to accelerate the adoption of our customer driven technology as a service business model across the entire semiconductor value chain.
I will now turn the call over to Steve for further information on our financial performance and the quarter.
Thank you Tom I am excited to share the financial results on our first earnings call as a public company.
<unk> has built a team to execute on the growth opportunities for disruptive technologies that customers need.
Net sales for the first quarter were $48 1 million.
And increase of 30% versus the first quarter of 2028.
<unk> sales grew 61% to $38 1 million.
And wafer services revenue decreased 25% to $10 million.
<unk> growth was driven by $15 million and tool related revenue, we recognized from customer funded tool purchases as.
As part of our task model, we offer our Ats customers services to procure facilities and qualify the tools needed for their technology development and capacity requirements. We recognize these services related to customer funded tools and sales Q1 tool related revenue is higher than usual.
The decline and wafer services sales is primarily attributable to lapping our original foundry supply agreement and Q1 2020.
Cost of sales was $38 $9 million and increase of 18% and gross profit was $9 2 million.
Increasing 43% from Q1 last year the.
And the resulting gross margin of 19, 1% improved 170 basis points margin improvement was led by the increase and ETS sales, which is our high margin business cost of sales included $3 $5 million and the first quarter weighted to purchase accounting depreciation for existing and building and equipment already.
Fully depreciated under prior ownership.
R&D and the first quarter was $1 9 million and increase of $1 3 million as we added leadership engineers and expanded design enablement capabilities to accelerate and support the development of our platforms.
SG&A was $8 6 million compared to $5 6 million and the first quarter last year.
The increase was driven primarily by strategic and tactical investments to our organization were.
We're making investments and our business, including additional sales and marketing employees.
It and security upgrades and further developing our government relations function and as such we anticipate this level of SG&A throughout the year adjust.
Adjusted EBITDA of $5 6 million improved slightly from $5 3 million last year the.
And the improvement in gross profit was mostly offset by the increases and operating expenses as we ramp up our business.
Cash used in operations and Q1 was $8 4 million.
We spent $5 4 million in capex and the quarter, including customer funded capex of $4 4 million.
We ended the quarter with $3 8 million of cash and cash equivalents.
Total cash numbers are before our initial public offering in April 2021.
And net proceeds from our IPO were approximately $100 million.
We anticipate using the IPO proceeds for working capital and other general corporate purposes, including financing inorganic growth and offering new technologies and services to our customers.
Total debt outstanding was $85 $5 million.
On April 4 2021, we had $19 $7 million available on our revolver.
Total inventory at the end of Q1 was $33 4 million.
Compared to $29 2 million and the first quarter of 2020.
We are building a world class development and manufacturing team to co create with our customers. The next generation of semiconductors and advanced packaging services that are changing the way, we do business and live we anticipate strong year over year revenue growth and 2021 and beyond with.
With a backdrop of expected semiconductor industry growth this year and the teams we expect our growth to outperform the industry and 2021.
Excluding the impact of customer tool revenue, which has a high degree of variance quarter to quarter, we expect EPS sales to achieve healthy full year growth driven by both existing customer programs and new customer acquisition.
We anticipate our wafer services sales to grow significantly as our utilization is improving over 2020. We also anticipate wafer services to grow as we expand our key partnership and transition ETS customers into high volume wafer services.
We have and incremental revenue opportunity with our Sky Order, Florida advanced packaging operation now being online, which also adds to our capacity and our full year growth outperforming the industry.
We anticipate long term topline growth to be driven by technology platforms and markets, Tom already detailed which are extreme environment and microelectronics advanced packaging bio health and high performance power management and connectivity platforms.
In addition to revenue growth, we believe there are opportunities to scale and improve our gross margin over the next several years.
And the equipment and our Minnesota facility acquired at the time of the creation of Sky water will become fully depreciated and the first quarter of fiscal 2024, reducing our depreciation expense by $13 million annually. These.
And these assets were already fully depreciated under prior ownership.
We have implemented actions, we believe will improve utilization and our Minnesota fab through expanding our clean room space and kicking off operational excellence and automation initiatives.
By successfully transitioning our ETS customers to wafer services, we are planning for improved wafer services margin as our wafer services production mix transitions to a higher margin mix.
We are investing and sky water, Florida to grow our new advanced packaging platform for the long term. However, we anticipate this will be dilutive to gross margins in 2021.
And we expect our Rad hard program to support gross margin expansion in 2022 and beyond we are investing and the expansion of our fab and qualification of the tools and processes related to this technology.
And so Rad hard goes into production and generates revenue. We anticipate these investments will also be dilutive to gross margin in summary, our goal is to create long term shareholder value through topline growth there is.
A lot to be excited about at Sky water and I look forward to updating you on our progress on future earnings calls.
With that I'll turn the call back to Heather and welcome your questions on Sky water.
Thank you Steve.
Water will be preventing and at the Needham technology and media conference on Thursday may 20th at.
130 PM Eastern time webcast information for the conference is available on our website at IR day.
Sky and water technology Dot com.
Operator, please open the lines for question.
At this primarily from Germany.
Thank you and ask a question. Please go ahead and star.
And from the number 1 on this call from.
Okay.
And then star 1 to ask a question.
Our first question today comes from the line of Mike net.
Jefferies. Please proceed with your question.
Hi.
Thanks for taking my questions and we started running that hard 90 process for copper interconnects.
And that was on I think on just a little bit earlier than we were expecting and you recognize revenues from this march quarter and.
And then going forward do you plan on break and help desk packaging revenues separate from <unk>.
And we're for services.
Yep, Thanks for joining the call and marketed hear your voice.
Voids as.
As far as the Rad hard technology development is proceeding as planned we are still doing what we call technology qualification that's been.
<unk> done on the front and into the process, which is a fully depleted soi with MIP Lincoln Labs, and then in parallel we're starting up our copper interconnect back and so right now it's all technology qualification no revenue generation really until we get into 2022.
As far as the question on the <unk>.
We will not be breaking it out and think of AEP is again another capability that we're offering it will have both ats type engagements that ultimately evolve and to wafer services and alignment with our technology and the service model.
Got you and.
I had a couple of follow ups and then on the and the Florida facility can you help us understand what level of revenues that facility could support.
Today based on the equipment that you had there and.
And.
And and.
And what's the arrangement with the.
With Osceola County regarding capital equipment and <unk>.
And I think you also mentioned and you took on 'twenty and your employees and this was that just as part of the.
Kind of acquisition of gross operations or is this 20 new employees added.
And an additional 2.
Taking all of that operations, Yeah again, good questions Mark as far as.
Let's start with the last question and work backwards. The employees that we hired were essentially new employees for sky water. Some of them carried over from the University of Central Florida, which had been the partner with Osceola County before at Sky water took over so we did offer a few of those employ.
Please.
To transfer over to Sky water, they're all actively engaged we're starting up the facility.
As far as the.
Revenue projections I would say, it's really too early to start projecting revenues out of the facility and it is currently and qualification.
Restarting the existing Dod programs. There was 3 programs that had already been awarded to the facility. When we took it over does have been restarted and then we're qualifying the equipment to be able to actively start generating revenues from those programs, while working with our existing customer.
<unk>.
To bring in additional capabilities of our <unk>.
<unk> packaging and so this is essentially an expansion on the supply chain as well as talking with multiple new customers as well the other thing I'd like to mention is that we do have.
And have position that facility.
And as it relates to the chipset.
The U S government and once a domestic source for advanced packaging and we believe we are the fastest path to do that and the industry and we fully expect to take advantage of that as that chip funding becomes a reality.
Gotcha and last question if I may.
Can you give us some color on the day announcement around with Google sponsored open source.
<unk> nanometer, although project wafer and shuttle.
What is what is that program and what what are the implications for you guys and that's all I had thank.
Thank you.
Okay. Thanks, Martin so.
Yes, Google has partnered with Sky water to create a disruptive approach using an open source platform on our 130 nanometer.
Offering to really develop application specific markets for the Iot and advanced computing.
<unk>.
The immediate results of this for Sky water was 40, new customer engagements.
And as shuttle has again 40 unique customer designs on it was oversubscribed and it is running through the fab as we speak and it has a variety of different.
IC designs open processor cores Eugene risks by.
Which is another open source platform, it's got multiple system on a chip.
Crypto currency miner and several other unique capabilities and the other thing I'll mention is it not.
Not only is leveraging existing IC circuit designers, but also software developers and so it's a disruptive program. We're excited about the potential.
Ill say the data is still out in terms of what the benefit will be if this particular open source approach works, but we're really excited about the opportunity. It can provide not only the sky water, but the industry as all.
Okay. Thank you very much.
Your next question comes from the line of Chris on Cotton with Cowen and company. Please proceed with your debt.
Yes, hi, Thanks for taking my question and Tom and Steve Congrats on the first earnings call out the gate.
Had a few questions first 1 and the gross margins came in stronger than we expected can you give some color on what the gross margin split between EPS and wafer solutions and in the quarter.
Yes, good morning, and thanks for joining US yeah, we didn't break out the margin between wafer services and Etfs, but you know, it's our plan to grow and expand our gross margins in 2021 and beyond our Ats business as we communicated as our higher margin business, we can expect to expand gross margin as well.
Muscle and growing our top line revenue from and Etfs perspective.
And then just.
And then just to follow ups. 1 is can you just seeing what is the because we shouldn't need a premium and the protocol I think tomorrow.
And what is the capacity and in terms of wafer starts with it today.
Yeah. Thanks, Chris I'm glad you actually brought this up and it's important to recognize that and sky water is not a typical foundry.
And we focus on is margin per activity, which we optimize based on the mix and again. This is ats and is mix as well as <unk>.
And our wafer services mix our goal is to optimize that to obviously maximize the margin per activity. This is done by focusing on what we need to do to meet customer development milestones as well as production delivery commitments and.
So what I'll say is that we are running above our target and utilization and as Steve said in his opening remarks, we were underutilized last quarter last year, because we are specifically focused on accelerating etfs.
But in general our real focus is on margin per activity and we're very confident and excited about the direction that that's moving in.
Got it got it done what's going on.
And then.
1 last question from and you kind of mentioned about how you're going to jewelry and gross margins from from you and onward and.
And then EPS, increasing EPS, increasing customer is a big driver for that and just kind of curious can you just like kind of on a.
And then give us the list of big logos that you Didnt.
And boosted gross margins from the mid 2019, both from day to party quotes and down the road.
Yes, sure happy to do so really wanted to make sure you understand what our plans are and they are really simple levers what we're focusing on to do that as already mentioned, we expect to grow gross margins as we drive higher Acs revenues.
Another lever that we can pull as obviously covering our fixed costs within our manufacturing facility. So having a high number of activities and Tom alluded to coming through the manufacturing facility keeping that running efficiently will be another lever and it.
As Tom mentioned, we're excited about moving some of our customers from Etfs and the high volume wafer services as we continue to be successful and doing that we believe we can expand margins there as we have a healthier richer margin mix from our high volume wafer services production.
And just 1 last housekeeping.
Steve Let me field, the tool revenue and the quarter.
The 2 revenue and the quarter was $15 million and Thats clearly higher than the typical run rate from tool revenue on a quarterly basis.
Got it thanks, Tom Thanks team.
Thanks.
Sure.
Your next question comes from the line of harsh Kumar with Congress and Brian. Please proceed with Hain.
Yes, Hey, Steve and Tom Congratulations on <unk> first our first call as a.
And as a public company and then secondly solid results flow.
As investors really appreciate the second 1 for sure.
Couple of questions on 1.
Several times on the call. Tom You noted you have a lot of confidence and growth for Ats business, maybe you could talk about qualitatively where that confidence is coming from any numbers you can help us with backlog of activity anything like that and.
And how you see the growth and the Ats business processing for the progression for the rest of the day yet.
And again good question, Yes, Etfs, obviously very exciting parts because it allows us to innovate with our customers.
I think there is a growing appetite.
Our innovation as it relates to many of the emerging platforms.
And what I referred to tie into some of the Mega trends that are going on.
Whether it's been devices, which of course, we're getting a lot of traction we have some very unique capabilities and that space. Obviously, we're excited about the traction we're getting and with our Rad hard early adopter program the ability to get.
Some of our S 130 capabilities beyond our partnership with Infineon is also progressing well some of those actually do start out as Etfs, because we do offer a degree of customization prior to go into production and then the other I would just say as far as your question about book to Bill.
We have a very healthy backlog and we're confident that a lot of the customers that we're working with are going to expand their engagements with us. So that's really important and we don't have to just get new customers to grow the business. We can expand our relationships with existing customers that said I think as we.
And you get more traction on our business model of technologies and services really resonating and the industry and so we're I would say very selective about the customers that we bring on but when we do we're committed to bringing them not just through our ats capability, but ultimately ramping them to volume production and we feel really good about.
All of that has come together.
And thanks, Tom and then another 1 for you on that topic.
And then Steve mentioned that 1 of the drivers for gross margin is conversion on for Ats to wafer services could you help us with maybe what you saw on the quarter. This quarter, how many of your Ats customers expanded engagement and to pay for services is there any kind of metrics you can give us an on net.
Yes, again, great question, and it's really what has us. So excited about this year, it's really the first year, where we have multiple customers moving out of Etfs and the wafer services 3 of those customers transition last quarter.
And then as I mentioned in my opening remarks, <unk> Photonics is another long term partner of ours. They are also moving into.
Wafer services this year I mean this quarter sorry.
And we have mulch.
Multiple other customers.
And then in total for the year that will be transitioning.
Year unfolds.
And.
Okay, Great and then my last 1.
You came off as a set of our spending from Cypress and then Cypress got taken out by Infineon and so you had a sort of an abnormal customer concentration there, but curious and you've done a great job of bringing that number down each year each quarter.
Curious if you could just give us some update on where you are top on any.
10% plus customers you've had this quarter and maybe the scale of your largest customer.
Yes, sure I'll take that question and Youll see Thats broken out when we file our form 10-Q from a customer concentration standpoint for looking at our Q1 2021 revenue. We had 3 customers that were above 10% of our overall revenues 1 customer with significantly higher given the concentration of the 2.
Revenue that we talked about earlier and the call. So thats not indicative of the concentration going forward, but we had 3 customers that were 10% per Boe or more of our Q1, 2020 1 revenues.
And I appreciate it thank you.
Thanks harsh.
And again, ladies and gentlemen wanted to ask a question. Please press.
Star then 1 on net income.
Your next question comes from the line of Mark Jeffrey.
Jeffrey.
Good question.
Hi, yes, thanks for working on the back into the queue.
So I saw a lot and lot of times, what we're hearing is about capacity and supply constraints and the industry can you can you talk about are you experiencing any raw material supply constraints on maybe on the on the second order impact.
Are you or your customer stand and any anywhere else that's impacting on how they're thinking about layering.
And.
And with our services business.
Yeah. Thanks, Mark good question.
At this current time, we're not experiencing any challenges in terms of.
Supply constraints, whether it's raw silicon wafers are chemicals gases.
And really we believe that we have good supply chain transparency, we're actively watching it but as of now we're not seeing any issues that concern us.
Gotcha and then.
You called out on.
The ramp in automotive and Iot related production activities.
Can you guys can you provide us a sense of how your revenues are breaking down by vertical market.
Okay.
Yes. Thanks for the question Mark given the sensitivity of what we're doing with our customers. We don't give a lot of breakdown from vertical market on how we are generating our revenues, but we can give you. The information like we talked about with what we're doing primarily with the wafer services, which would go into automotive and Iot right now and then also with some of the announcements we've been.
And the path clearly with the funding and partnerships, we have with the Doj, we're generating revenue and the aerospace and defense market as well.
Gotcha, and then on mute.
And the chips at all.
And <unk>.
Sure.
How do you expect to.
Benefit from that how does that manifest to sky what area to what extent is this and you expect this to be.
Tax credits.
And just direct funding.
Can you give us a sense of how you think this plays out for scale up.
Yes, again, another great question very timely.
There is a lot of dialogue going on and obviously president Biden and had the chip summit a few weeks back. So there is actually a follow on meeting Tomorrow with Secretary reminder, from the department of Commerce, and their gathering information about where investment needs to occur, but I'll say and certainly the message I've been amplifying is.
We can't just focus on advanced node.
Our leading edge technologies, which is the TSMC, Samsung Intel and Theres, a whole lot of other semiconductors that are required across the entire value chain and I believe that a lot of the innovation that we're driving is going to displace.
Italy.
And so a lot of the Moores law related activities, which we all know is going to come due and in just based on physics. So we're excited that that message is resonating it's analogous to when our nation created fracking technology as a way to reestablish independence within.
And then the.
Petrochemicals industry and I believe a lot of the things we're doing is going to basically resolve and the same type of.
The transformation and certainly.
I believe that will allow us to reestablish leadership.
And not only in R&D, but.
But in manufacturing as well and that's really got to be the focus and that's why we're in patient waiting for some of these more traditional approaches and are really focused on differentiating through our disruptive technologies.
Got you and then.
Couple of.
A question for Steve I think.
First on that.
And Noncontrolling interest line item of about $760000.
Some statements what is what is that attributed to how how should we think about modeling that going forward.
Yes sure. Good question, so you'll see more information on that and the footnotes to the financial statements and form 10-Q, and those are issued but we are and what that relates to is the variable interest entity that we have related to the sale and leaseback transaction of our primary facility and Bloomington, Minnesota with that we triggered the accounting.
Accounting guidance and that's the amount that youre seeing flow through that's a good approximation of what youll see likely for the remainder of 2021.
We are not swapped with the VA accounting forever. There is a point in time when that could go away, but thats not likely to take place and the near term.
Got you and is that is there a historic.
From an accounting standpoint, and so.
Our cash flow implication of that on non.
On controlling interest line item.
Theres not a significant cash flow on related to that now.
Okay got you and then B.
And.
Depreciation and amortization was $6 5 million and the quarter.
And how how do we think about that for the rest of this year and then and then as we go into.
2022.
And we expect that to drop down a bit.
Sure, Yes, so youll see increased depreciation and amortization, primarily it's going to be depreciation and thats really related to putting our facilities online and the investments, we're making and our Minnesota facility for the Rad hard technology.
And we will see that.
And basically coming through depreciation and that will be another because we communicated a drag on our gross margins are coming through cost of goods sold what we're really targeting is a range of approximately 29% to 31 million and depreciation from for the year of 2021.
Got you and then last question do you have an estimate for that the share count and then.
June quarter.
Yes, the share count for the June quarter will just go back to what was communicated and that's 1 that was filed of around 39 million shares outstanding.
Gotcha Alright.
Alright, Thats all I had thank you.
Our next question comes from the line of Ross.
And Sarah with Wuhan and.
Please proceed with your question.
Yes, Thank you and congratulations on the IPO and great results as well.
And Thomas I was wondering if you could talk about your strategy and power management.
In the past you've talked about your.
Focus on developing on power management capability, MOSFET and IGT teens. This seems to be a strong area of demand and growth, particularly with the need for U S.
Sourcing.
So wanted to get your thoughts on on that as part and kind of your long term growth strategy.
Yes, great question, Thanks for joining the call Raj.
<unk>.
Real strategy for us and MOSFET is differentiation. So we have been working on several different platforms.
<unk>.
And our expertise and.
Cmos, ironically, and and translating that into kind of a grounds up design for our MOSFET technology.
We're not going to be bringing a typical MOSFET design, we are leveraging things like thin based technologies.
To again drive differentiation, obviously domestic sourcing and is also important.
And the real long term objective actually to move.
Not just into Silicon based solutions, but also Dan based solutions. So I think our strategy is really to innovate create unique solutions with our customers and then eventually evolve into Gan based technologies, which we believe there is strong demand for domestic and our capabilities in that space. So.
Definitely.
A new area of focus for us and we're excited to be bringing.
2 of those programs to volume production in the second half of this year as I mentioned in my opening remarks.
Yes, very good in terms of adding additional capacity.
And the price you mentioned, adding additional capacity both on a 130 nanometer and 90 nanometer.
And 90 nanometer and kind of Rad hard and lower volume, but more profitable. So I wanted to get a sense in terms of how you're balancing the mix of capacity that you intend to add as it relates to our.
And our margin per activity as well as just overall profit flows.
Yes, so again.
And we kind of think about fab has been 3 fabs and 1 we have 90 and below technologies today, that's very focused on Rad hard also readout Ics and our carbon nanotubes program.
The $1 30 operating as our mixed signal platform.
And we're always looking at how we get more out of the existing install base that we have so we're very focused on using automation and other operational Excellence Act.
Activities to drive more without having to actually add equipment.
That said, we do have and existing test floor.
And cypress used to run and the facility and we we plan on converting that to more traditional and clean room capabilities and that will drive further expansion and capacity and that will again be targeted.
And not around not just around 130, and 90, but specifically our copper interconnect platform that we'll be expanding beyond just what we have for Rad hard.
Very good and maybe a point of clarification, Steve and correct me.
And if I'm wrong on this but.
The wafer and services margins are lower than your Ats.
Revenue.
Mentioned that you expect wafer service and sales to grow significantly as kind of utilization of pruning on them.
Kind of transitioning some customers over.
Does that.
In terms of the overall strategy to expand gross margins is the way from services is lower margin.
Alright, so the words that would fit into lever would be as we would expect to get gross margin expansion as we bring newer technologies into production that will sell for on average higher sales price and also drive enhanced margins and away from services.
Okay. So it is expanding the inherent and gross margins and wafer services right as we bring new debt.
And the production.
Got it.
And.
Okay, Great and just last question just broadly.
And then this innovative business model.
You're kind of providing.
In conjunction with the push to have the domestics and semiconductor manufacturing.
Operating and U S and to be kind of.
And good timing.
Im wondering kind of what the feedback has been from from customers.
On your new business model controlling basically the whole process for that and wafer fabs and advanced packaging and nano Assembly and test.
On.
What's been the and the.
Advantages that these customers are getting in and I would expect that as more customers and learned about the value proposition and things.
Moving to this more and more innovative business model. Thank you.
Yes, again, great question, and thanks for asking and I think it's an important message.
The way I like to think of it it's a virtual IDM, we engage with our customers and during the product creation process that obviously gives them the opportunity to optimize their product. While we are working on the process that gets optimized together that creates and more robust design and then we because were new.
And it all on the same facility have the ability to accelerate their time to volume and we get to do all of that again on the same equipment, but at the same engineering team. The same production team and so there is a time to market advantage they get the assurance of automotive level quality because.
That is a core business of ours and has been for literally decades.
Going back to and Cypress on the facility and the other is trusted IP, we protect IP as it relates to our U S government relationship and all of our commercial customers get to enjoy that same benefit. So it's all about time to market the ability to optimize their product along with the process simultaneously and.
The ability to have the assurance of domestic sourcing and.
And our IP protection, along the way I think theres, a real reluctance to do things, especially on innovative new products, where IP protection and question and Thats. The beauty of this Renaissance and domestic manufacturing going on.
Despite a lot of the R&D, that's happening here and Scott Ward.
Yes. Thank you very much I appreciate it.
Thanks.
Your next question comes from the line of harsh Kumar on pulp.
And Brian.
Okay.
Hey, guys. Thank you for the opportunity to ask a follow up Tom there and 2 powerful forces going on and on a macro level. There is the geopolitical problems.
And then there is a push by the U S. 2 to maintaining share in the U S and Europe kind of at the center for both of those I'm curious at this point.
You have seen.
Customer activity and customer conversations or kind of any color around that.
Pointing to that and wanting to work with you and a higher level.
Yes, and again, great question and again very timely.
Definitely and appetite for.
And for our sourcing out of the United States and a lot of this has to do again with the repositioning of supply chains out of China that started back when the tariff wars are going on and then when COVID-19 hit and so I think we're certainly and a unique position to take advantage of that our relationship with Infineon.
And is a great example, where they're they're getting as concentrated.
Around some technologies, we've made for many years.
And sourcing out of the U S as well as <unk>.
Some of our other customers who are expanding their value chain with us.
We have customers that are doing AP overseas that now when you do that here at our Florida facility and so we believe.
The momentum is already underway I think this is.
You're going to be decades, and I'm, making this recalibration of the supply chain and sky water and certainly right at the center of that and that's what really gets us excited about the future.
Thanks, guys.
Your next question comes from the line and of course, Shanghai with Cowen and company.
Proceed with your question.
Yes, thanks for taking the follow up I just had 2.
Quick 1 for you and Tom 1.
And you mentioned above and 90 nanometer copper.
And the team that is kind of taking up in Q1.
Do you think that at some point on Iot auto customers migrating to copper 90, or do you think you are going to stay at 130 per 1 and then I'll follow up.
Yes, we certainly.
And expect that some point to be evolving our $1 30, and 90 nanometer platforms to include cop.
Copper Interconnects and obviously, it's all aluminum today, but.
It's not.
Unexpected that we would evolve to those capabilities copper offers a lot of advantages over aluminum. So we expect to have both offerings for both platforms.
Time evolves of course, our focus right now is standing up for our Rad hard platform, but once that capability can play and as I alluded to we expect to be adding capacity and for our copper interconnects to complement our aluminum backend.
Got it got it and then my final question Tom.
But florida effects will be for advanced packaging are you doing any.
Traditional wire bonding on bumping debt.
All truly $100 and advanced packaging.
Yes, I would say today.
All of the traditional advanced packaging and so youre talking and are Posers et cetera that said, we do have partners here and the U S debt, we are leveraging to provide more traditional capabilities and as part of our vision is to provide a comprehensive supply chain not just wafer fabrication, but AEP.
And final assembly and test to within the United States and weather.
Whether it's done directly with sky water or through our partnerships that certainly our strategy and we believe theres, a very strong appetite for that from the.
The customer base.
Thanks, Tom Clancy.
Thank you.
And there are no further questions and employ this time matching and the call back to the presenters for closing remarks.
Just wanted to thank everyone for joining us on our inaugural call today.
We're very excited about the future at Sky water.
Obviously, we're in a unique time and our.
Our country's recognition of the importance of semiconductor manufacturing and we believe that sky water has proven and public private partnerships work and we expect to.
And we continue to exploit our technology and service model.
And joining us.
And this recognition of the importance of domestic sourcing and we.
We expect to continue to be a leader and the transformation and the industry.
Thank you again for joining us.
This concludes today's conference call. Thank you for your participation you may now disconnect.
And.
Okay.
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