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Making Markets EP50: CEO Thomas Sonderman on SkyWater Technology’s Approach to Innovation and Development, and a Look at the Company’s Path Forward

On this episode of Making Markets, SkyWater Technology CEO Thomas Sonderman joins Daniel Newman for a conversation on SkyWater Technology’s unique approach to innovation and development in the semiconductor industry, including a deep dive into the company’s strategic direction and future plans.

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Transcript:

Daniel Newman: Tom Sonderman, CEO, SkyWater Technology. Welcome to Making Markets.

Thomas Sonderman: Thank you, Dan. It’s a pleasure to join you today.

Daniel Newman: Yeah, it’s great to have you here. I have to say, when I started following the US CHIPS Act and a few of the people that actually you appointed in some of your most senior roles, SkyWater really suddenly jumped onto my radar. Now, you guys have been an exciting company. You’ve been growing. You recently received some exciting grants. We’re going to talk about all that here today on the show, but let’s start with just a little bit of the background. Give us the quick introduction. Tom, tell us a little about yourself, your background, how you landed at SkyWater. And then let’s say SkyWater may not yet be a household name across semiconductors, but let’s start making it today.

Thomas Sonderman: Yeah, excellent. So I’ve been in the semiconductor industry my entire career. Started out at AMD, so joined AMD in the ’90s in the we’ll call them the megahertz wars with Intel. Learned a lot about innovation, creativity, what it takes to differentiate. Obviously, AMD versus Intel has been a longstanding drama in the semiconductor industry. So really excited to be part of that and watch that unfold really as I was growing my career. And then in 09, I was part of the team that spun off GlobalFoundries. So AMD made a decision that they wanted to become fabless, and as a result, we created a new company GlobalFoundries, that today is I think the number three foundry in the world. So really created something with longevity. And having went through that journey of taking an IDM, an integrated device manufacturer, and turning it into a foundry is a journey that many people should have to go through.

So I liked it so much that I did it again back in 2017 when Cypress Semiconductor decided that they also wanted to divest themselves of their fab here in Bloomington, Minnesota. And so I was given the opportunity to come in as the president and CEO and really become the leader in that transformation. And that journey has been underway ever since and been very exciting. I will say we entered the journey when people were not talking about building fabs and building foundry businesses in the United States. So we kind of honed a lot of our capabilities leading into the COVID pandemic that then I think reawakened the need to have things like semiconductor manufacturing onshore, and we were able to ride that wave, including our IPO. And I think we sit in a very unique position, but a very important position as America’s foundry as we now enter 2024.

Daniel Newman: Well, listen, first of all, I talk about this all the time, Tom, but chips are cool again. I mean, semiconductors are cool again. There was this period maybe five, seven years ago before the global issue. I don’t say the word on the show because it can cause all these algorithmic problems. But before 2020 when everything changed for a period of time, that means it kind of grown to be just the thing that was required. Software was eating the world, and no one really seemed to remember that you needed silicon to run any of these applications on top of. Actually funny, I said in 2020, silicon will eat the world or semis will eat the world, and it ended up becoming true. But it’s kind of cool again, whether you’re a foundry, whether you’re an IDM, whether you’re fabless.

Of course, AI has proliferated this trend at some exponential pace. But overall chips are cool. I mean, the CHIPS Act grew a ton of attention. When you couldn’t get your pickup truck, you couldn’t buy a stereo, you couldn’t get a refrigerator, an oven, you realized all the things that we’ve become so used to just having, do not work if we do not have chips at our disposal. Give me the background about SkyWater though, a little bit more about SkyWater, where it sits in the market, the company, its position. You are doing really interesting things. I want more people to hear about it.

Thomas Sonderman: Yeah. And it’s a great backdrop that you put. Arguably semiconductors are the fuel of the 21st century. And sometimes you don’t realize how important something is till you don’t have it anymore. And obviously, that was one of the impacts that we had through the pandemic. I think SkyWater was created in many ways to solve what I think was one of the big issues happening, as you just described, where chips were becoming commonplace, is that innovation was kind of evaporating. As we entered, we’ll call it the smartphone era, we really also entered the fablesss foundry realm, and that drove a period of what I call mass standardization. The foundries, very logic-centric, were built in many ways to make smartphones economical as we added more and more functionality into it. Going back to my time at AMD and competing against Intel, we were driving again gigahertz as PCs were churning every other year.

That was driving Moore’s Law. Well, when the smartphone hit, that kind of picked up the pace that now it became Samsung and Apple with TSMC being Apple supplier driving that pace. And so as that was evolving, a lot of the innovation was centered around, we’ll call it the core capabilities for the smartphone, but there was a lot of innovation that was lacking everywhere else and the industry was starved for that capability. And so when SkyWater was created, that was the premise, not just to have a foundry. And in many ways we’re a subscale foundry, we’re not super high volume. But what we did offer was innovation as a service or what we call technology as a service and the ability to bring in a product idea and work in a fab where you can do co-optimization of the product and the process as you’re preparing it to ramp the volume production, and then we have the ability to do all that in the same facility.

And what we envisioned in 2017 as a potential market opportunity turned into, frankly, an explosion of excitement in terms of the fact that there were many companies out there that wanted to take advantage of that. And that allowed us to grow from the early days of 2017 and what we call our advanced technology services business, which is this monetized R&D capability. It’s grown 10x from when we started the business in 2017 to where it is today. And think of that as our engine of future growth. So we took over a captive fab that was making legacy technology on 200 millimeter at 90, but then we brought in a whole host of new customers, well over 50 active engagements today that are working on new innovative products that really haven’t even hit the market yet.

And so over time, what you’ll see is we replace the legacy capabilities with these new capabilities. We’ve made a lot of money along the way. We get paid to do that R&D, but then we’re also the sole source provider when those products actually launch. And so that capability has turned out to be not only in demand but highly valuable if you want to make the advanced or extreme node chips and all the other pieces of the ecosystem work. And that’s why we’re super excited about SkyWater’s role. We carved out a niche that is unique. We built a motor around it, but we believe that the capabilities we bring are not only highly differentiated but high in demand, especially as people repatriate their semiconductor manufacturing back to the US.

Daniel Newman: Yeah, that’s really interesting. I want to dig into how you position yourself. So you have a handful of technologies, CMOS, MEMS that you kind of focus on and you talk about some very specialized like superconducting and carbon nanotube. I’m reading through this and I’m like, “Wow, okay.” And then you really marketed yourself up. I kind of did the pre-homework on you guys very vertically focused. So you mentioned some consumer, but even as you read through some of the press, some of the grants, heavily in aerospace and defense, healthcare, automotive. Talk a little bit about that go-to-market motion. So SkyWater, you partner with the federal government, obviously you’re partnering with aerospace companies, you’re partnering with large healthcare. Is that sort of how you generally go to market?

Thomas Sonderman: Yeah. I mean in many ways, in 2017 when we were created, it was out of design, but also intent with the US government to have a secure supply that could really take advantage of an incident that had happened at GlobalFoundries. GlobalFoundries acquired IBM Microelectronics back in 2014, 2015. At the time, IBM Microelectronics had been the sole source provider for a lot of DOD solutions. So when SkyWater was created, we very quickly got trusted accreditation and that began a partnership with the US government and again, the DOD and the primes that work with the DOD to stand up certain capabilities. The carbon nanotube capability that you mentioned for 3D integrated circuits using homogeneous integration unlike heterogeneous integration, which was talked a lot about. We also in 2019 won a significant award from the DOD to stand up a radiation-hardened strategic rad-hard platform for space-based extreme environment electronics.

And bringing in these capabilities in partnership with the DOD, not only gave us early access to technology but allowed us to grow and scale. We expanded our facility. And as we were building this kind of core capability with the DOD, we were also beginning to propagate what we call CMOS plus. So taking our core CMOS capabilities coupling with MEMS capabilities like microfluidics for DNA sequencing and other biomedical applications, biosensing applications. So we look at SkyWater, we’re very focused on the commercialization of space, things in space, extreme environment, high-reliability solutions. We’re also focused on advanced computation, next-generation computation, as you mentioned, superconducting. Biomedical is an area of strength and then industrial automotive. We by design have stayed away from consumer, consumer very tied to the smartphone, and tried to go into places where not only we could capture new products that were coming to market, but leverage this innovation as a service because we maintain all the manufacturing IP that’s used to create these new technologies.

That allows us to get, we’ll call it the one-to-many effects so we can engage to create a new capability that we can turn to a platform and then we begin to look like a more normal foundry where you create PDKs, design enablement, all the peripheral capabilities that allow you to bring in multiple designs on a platform. And that’s really where the stage we’re at right now is a lot of these technologies have evolved to where they’re going to turn into platforms and that’s allowing us to again, move products out of development into volume manufacturing and that will eventually allow us to offset some of those legacy technologies with new technologies. Even though we’re not extreme node like 2 nanometers from TSMC, but I like to say, if you look at 200 millimeter, we’re certainly in the US, the most advanced 200 millimeter fab foundry. In terms of dimensions, we have capabilities down to 45 nanometer now, and in terms of just the types of solutions that we can offer to a customer. And I think that bodes well, not only for today but our future growth as well.

Daniel Newman: As I sometimes speak to some of the folks at your former GlobalFoundries, we like to call it the essential nodes.

Thomas Sonderman: Yeah, they essentially are feature-rich nodes, right?

Daniel Newman: Yeah. Analyst in me sometimes says things like lagging and I never make friends by saying that. But listen, anyone that couldn’t get that truck or whatever because of a single bus or whatever it was, a PCIe or whatever that could not be built, all realizes that it takes many nodes.

Thomas Sonderman: And it’s literally why heterogeneous integration and advanced packaging and an award that we got from the DOD earlier this year to stand up a fan-out wafer-level packaging capability here in the US is exactly that. The extreme node chip doesn’t work if it doesn’t have all the stuff around the peripheral, right? So you have to have all those pieces and that’s why we’re excited to be part of that ecosystem. Plus, it’s much less expensive to be on that extreme node because you have to invest a significant amount of money to keep up, and that it’s a model, but we believe we have a different model that can be equally effective.

Daniel Newman: It takes a village is what they would say.

Thomas Sonderman: Takes a village. Yeah.

Daniel Newman: I appreciate you giving me all that background. Where I’d like to kind of wrap up, Tom, talking to you just a little bit about the whole essential nature of chips, some of the federal grants, the US CHIPS Act, the importance of the US maintaining leadership, not just at the leading and bleeding, but really across the board. And, of course, the investments in supply chain resiliency and expanding capacity and just get your overall perspective. I know you received a substantial grant recently from the DOD. You also, I believe have applied to participate in the CHIPS Act funding. In your mind, Tom, in SkyWater’s case, how important is US investment and partnerships with government in order to make sure that we stay current and basically win on all fronts of being able to lead technology from leading to essential on a global basis?

Thomas Sonderman: Yeah, it’s another great question. And I think if we all put our patriotic hat on, it’s absolutely essential that we do this. And the reason is that there clearly are critical infrastructures and critical capabilities that we need to make sure always work here in the United States. And I believe the DOD early on recognized that importance. And SkyWater has several public-private partnerships. Literally since our existence, we’ve been in public-private partnership. So we’re glad to see everyone else coming along on this. But I believe it is essential given the criticality of this technology that the government be a partner. And I don’t think it needs to be to the extreme of China, we’ll say, where they come in, we’ll just call with a different philosophy in terms of how they want to enable an industry. But this industry is so critical to everything that we do that there needs to be a way to encourage investment, encourage not only building the fabs, which is important, but most importantly developing the workforce.

I love what you said. Chips are cool again. That’s music to my ears because we need… When I was graduating and went in this industry working at AMD, competing against Intel, that was cool, and being in manufacturing. Semiconductor manufacturing was booming in the ’90s and really the first part of the 2000s. And as a result, you ended up attracting a lot of really good talent. I think that is our opportunity and our challenge, frankly. We’re going to invest money, we’re going to build fabs, expand fabs. We, like others, have put in applications for CHIPS funding. In many ways our other government investments, we’ve been getting equivalent like CHIPS funding, like I said earlier, since our existence began back in 2017. But that said, I believe that that partnership model, having a national strategy for semiconductors through the NSTC what’s called now Natcast, I think it’s going to be critical. And that’s going to drive the ability to not just ideate or create innovative ideas, but have a path to ensure they’re manufactured here.

And that’s one thing that’s unique about SkyWater. We’re not only invested in wafer fabrication, but we’re also investing in advanced packaging, heterogeneous integration, final assembly tests so that… And you mentioned it earlier, vertically integrated. We’re like a virtual IDM, in that other than doing the chip design itself, we can be very much part of that complete value chain doing the development with our customers, doing the wafer fabrication, the simulation, final packaging, and tests to where a customer that requires and wants a domestic source for a secure supply chain on the technologies we offer, can come to a single foundry partner. In the foundry world, you have wafer foundries like TSMC, and you have OSATs like ASE, and it’s a different kind of relationship. And we believe that differentiation, that unique model is going to attract a unique, and we’ll call it a high-value customer base that’s willing to pay for that unique service that we’re providing.

Daniel Newman: Well, I tell you what, that trusted US-based is going to become more important both because I think companies will recognize the need, but I also do believe as part of this proliferation of interest in this US funding, I think there will be requirements. I also think there will be a CHIPS Act 2. I do think this is between us and everyone that watches. The front in which the world’s economic battles front is going to be fought forever. It’s going to be, can we win AI? Can we win in silicon and innovation? Of course, we’re seeing it from IP. We’re seeing some of the moves being made by companies like Synopsys and Ansys. We’re seeing the importance of ARM and the role it’s playing. And of course, now you’re seeing companies like SkyWater here in the US playing a very important role for a certain set of essential nodes as well as an extended part of the value chain. Tom, last question, quickie, but very important one. What is the one thing you would want an investor or the market or someone that isn’t familiar with SkyWater to know? What do you feel is the least understood about the company?

Thomas Sonderman: Well, we do have a unique business model in that we are monetizing R&D. So we’re unlike a typical foundry where you’re just producing volume wafers and hopefully producing a lot of those at attractive pricing so you get a good margin. We’ve created what we call technology as a service. We have a business model that we refer to as a technology foundry. So we’re highly differentiated. We’re creating unique solutions as we enter the AI era, as you just described. And we are America’s foundry. We are very committed to creating not only an ecosystem that we can enable, but a broader ecosystem within the US that I think we’ll all be very proud of as this decade ends, and be glad that we all help create it. Because as you said, this is going to be the front lines for the AI era which we’re now entering.

And that’s what’s unique is that the country has decided to invest in semiconductors at the time that the AI era is exploding. And so we’re doing this at the right time. I like to say, the best way to think of SkyWater is we’re like an ETF for exciting emerging technologies. And if you want to invest in AI or quantum computing or biosensing, or many of the evolutions that are happening with the electrification and autonomous vehicles, you can come to SkyWater and know that our tentacles are involved with many of those as a core manufacturer. In the end, you got to manufacture things. So great country’s manufacturer. SkyWater is very happy to be part of that new ecosystem that is going to be created that I believe will serve us for many decades to come, and certainly excited to be part of it. Having watched it kind of ebb and flow through my career, it’s great to see it at this state in 2024.

Daniel Newman: Tom Sonderman, CEO, SkyWater. Thank you so much for joining Making Markets.

Thomas Sonderman: Yeah, thank you, Dan. Look forward to talking to you again.

Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

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