This is an article that we originally published on May 16, though it is being aggressively pushed again by Christian DeHaemer, using the continuing “insider trading” saga connected with Nancy Pelosi as its hook. The story there is that Pelosi’s husband has been buying up semiconductors stocks like NVIDIA… at the same time that Pelosi is pushing forward with bills that will subsidize capital investment into the semiconductor space in the US. There’s plenty of controversy about those bills, the CHIPS Act and the FABS Act, and it might be that the CHIPS Act could move to a Senate vote this week, possibly even today, but it certainly looks untoward that the Speaker of the House is buying chip stocks just as that industry is on the precipice of a $50+ billion strategic stimulus bill.

Actually, the biggest controversy in the industry is that the bill that’s moving now, the CHIPS Act, favors chip manufacturers and their construction of factories in the US and “re-shoring” of chip production… but it doesn’t do anything for the “fabless” chip companies, like NVIDIA, that don’t own their own factories, so the connection to Paul Pelosi’s buying is not so direct… but it still certainly smells bad. The FABS Act would give NVIDIA and Qualcomm and the other fabless companies a tax credit, too, for the design work they do in the US, but is far less popular than the CHIPS Act that will actually try to pull parts of the supply chain back from Taiwan and China. Much of the debate is being fueled by the fact that Intel and is the huge winner of the CHIPS Act, along with folks like Texas Instruments, but NVIDIA and Qualcomm are left out, so the chip industry lobbyists are split.

When it comes to the stock being teased by DeHaemer, though, the story is much the same as it was two months ago — they haven’t reported their second quarter yet, so there are no new real numbers to play with, so I’ll just re-share with you old teaser solution below… what follows has not been updated since mid-May, but the stock price has recovered a bit, it was around $6 when this ad started running and is around $9 now, still way off its highs but recovering, at least for the moment, from the worst of the collapse.

Today we’re pointing the Thinkolator at Christian Dehaemer’s latest pitch for his Bull and Bust Report ($99/yr)… and it’s got some nice undertones of patriotism to go with the daydreaming about a dive into Scrooge McDuck’s Money Bin.

“The government has now decided to bring chip production BACK to America!

“This means investors could be about to strike it rich once again as all that money flows back.

“And because there’s only one 100% U.S.-owned and -based company capable of making custom chips for America’s top companies and our military…

“The profits could be MUCH larger than we’ve ever seen before — I’m talking close to 100x returns….

“… those who get in on the ground floor TODAY could capture a 9,737% gain — turning every $2,500 into $245,925.”

The ad launches with a photo of a couple workers in clean-room gear, in a room that for some reason is bathed in yellow light…

“The ‘Linchpin’ Technology Being Developed in This Weird Yellow Room Could Make You $245,925 Richer….

“More than 80,000 square feet.

“And it’s located just 15 minutes away from one of America’s most prestigious universities.

“On any given day, you could see some of the highest-ranking government officials and Fortune 500 CEOs walking its floors.

“Because this yellow room is THE most important location in America right now — both economically and politically.

“Yet few people have ever heard of it.”

I guess we can argue that calling something “the most important location in America” is inherently subjective… but I’m going to go out on a limb and say, um, no, it isn’t.

So… what else do we learn about this secret company? More from DeHaemer’s ad:

“… at this very moment, a whopping $170 million in Pentagon money is flowing through this room’s walls…

“And thanks to the passing of Senate bill 1260, up to $52 BILLION more could soon follow — this time from Congress.

“But it’s not just the government pouring money into this weird yellow room.

“Many of America’s most well-known companies are as well.

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“From top consumer electronics firms like Microsoft…

“To aerospace innovators like L3Harris.”

Then he shows a photo of a tiny microchip on someone’s finger, and runs through a series of quotes about the US dependence on outsourced semiconductor manufacturing, particularly dependence on Taiwan, and the crisis caused by the semiconductor shortages over the past couple years.

More from the ad:

“America has decided to domesticate the manufacturing of this technology…

“And at the center of this new initiative is our yellow room.

“More specifically…

“The virtually unknown company that this yellow room belongs to.

“It just went public in mid-2021.

“And it’s still under the radar of most mainstream investors.”

And further details…

“… the Department of Defense recently classified this company as a “trusted supplier.”

“Because get this:

“This company is the ONLY American company in existence that can manufacture this ‘linchpin technology’ for our government, for our companies, and for the American people.

“In short, this tiny company is the KEY to America taking back its technological independence.

“And investors who get in on the ground floor stand to profit to the tune of HUNDREDS OF THOUSANDS of dollars.”

That sounds like a can’t-lose, right? Why isn’t this a headline-generating company if it’s the “only” American company that can make semiconductors?

Well, partly because that’s a fairly significant exaggeration… but more on that in a minute.

We do get a huge dose of hype, as well:

“… as America brings the manufacturing of this technology back home…

“I’m expecting the tiny company at the center of it all to return more than TSMC, Samsung, and UMC COMBINED.”

That promise comes after a series of charts showing the huge gains of Taiwan Semiconductor (TSM) and Samsung over the past 20 years, up 4,900% and 3,900%, respectively, so that’s obviously attention-grabbing. His “combined” number somehow adds all the returns of the winners together, so his promise is that he thinks this company will provide returns of more than 100X your money.

We also get some hints about the big investors who are involved:

“The world’s RICHEST investors are pushing their chips in too.

“I’m talking about huge investment firms like BlackRock — the world’s largest asset manager.

“It’s plowed a massive $40 million into this company.

“Vanguard has bought over 300,000 shares — another eight-figure investment.

“And Macquarie Investment Management has kicked in just over $30 million.”

I know the promoters like to use that kind of language, as if you’re just tailgating behind the “big money” and riding in their slipstream, but, of course, Blackrock and Vanguard are primarily managers of index funds. They buy (almost literally) everything, and $40 million is not worthy of their attention. It probably just means this stock is in one of the indexes… most likely the Russell 2000, since we’re told it’s pretty small and newly public.

What else are we told about this company? DeHaemer runs through their unique US ties…

“It’s the only TRULY 100% U.S.-owned and -based chipmaker in existence.

“Many people believe the same thing about companies like Intel, AMD, and NVIDIA…

“But that couldn’t be further from the truth.

“These companies are either integrated device manufacturers like Intel…

“Which means it only designs and manufactures its OWN chips, and isn’t capable of making them for outside customers…

“Or — like AMD and NVIDIA — they’re what’s known as ‘fabless’ chipmakers.

“This means they don’t manufacture chips at all.

“They only DESIGN chips… and then outsource their production.

“On the other hand, our tiny company is the ONLY one that has the capability — and facilities — to produce chips for outside customers.”

OK, so we could keep going through the clues that get dropped in the spiel, but enough already — this is quite clearly Skywater Technology (SKYT), which went public a little over a year ago and does indeed represent the only publicly-traded pure-play US-based semiconductor foundry business.

There are dozens of semiconductor fabs in the US that are much larger than Skywater’s Bloomington, MN facility, and Skywater’s production capacity is a drop in the ocean compared to the global foundry business, but it does have some strategic importance — in the past, that was mostly because of the requirement that chips for military equipment must be manufactured solely within the US, protecting some basic level of US production even as many companies moved their production overseas, but there’s some hope that they will be able to somehow ride the rising tide of government interest in re-shoring chip production to grow their business in other areas as well.

So far it’s been more story than financial success — despite the continuing demand for more production of semiconductors in the United States, things have not been entirely rosy for SkyWater in the public markets. They went public at what seemed like a pretty ideal time, about a year ago (April 23, 2021, with the IPO priced at $14/share), and there was a fair amount of interest through 2021, driving the stock briefly into the $30s, but shares are now down by about 75% since being pitched last Summer as the “Pentagon’s Chipmaker” by a different newsletter.

Here’s what I wrote in the Quick Take for the Irregulars when I posted that article:

SkyWater Technology is pitched as the “Pentagon’s Chipmaker,” poised to benefit from an increasing focus on building up semiconductor manufacturing capacity in the US — it is one of the only “pure play” foundry companies in the US (producing chips for others, as opposed to making chips under their own brand or for their own products), though it’s very small (market cap just hitting $1 billion now, and their primary facility in Minnesota was sold to private equity by Cypress Semiconductor back in 2017 to create SkyWater, for just $30 million, though they’ve invested quite a bit in it since… their secondary one is a little Florida facility they were essentially given by the county government to create some tech jobs). They do get a lot of defense dept. work, and are growing revenues, but the expenses of expanding facilities and increasing production have pushed out the likelihood of becoming profitable a little bit into the future, and that news hurt the stock in July. It’s an interesting company with a nice story behind it, at least when it comes to the big picture theme and worries about Taiwan and a strategic capacity for US chip production, but I don’t understand the potential enough yet to buy — I’ll watch and see how the lockup expiration goes, particularly since the private equity firm that created the company still owns 75% of the shares and could begin selling in October if they want to take profits.

So far, there’s been a little insider selling, but nothing big — CMI Oxbow Partners has only sold a few hundred thousand of their ~28 million shares, and from a quick skim of SEC filings it look like other insiders have not been selling to a noticeable degree.

So… this is no longer a $1 billion company like it was last Summer, it’s now a $220 million company, with the weakness continuing in recent weeks as the few analysts who cover the stock bumped their price targets down following the early May earnings report. In the first quarter they reported a roughly flat top line, but reiterated their long-term goal of achieving sustained 25% revenue growth with improving margins as they bring new customers on board and expand their capabilities into radiation-hardened chips for military and space applications. The current expectation is that SkyWater will grow revenues by 15-20% this year, to about $200 million, and that they will still post a per-share loss of about 95 cents per share, with top-line growth of roughly 20% getting them closer to break-even, with positive cash flow, in 2023.

The basic strategy is to be a develop-then-build partner for companies who want to create new chips, offering some R&D and engineering support through their Advanced Technology Services division, which is partly selling tooling but also providing what they call “Technology as a Service” support, and then also help those customers ramp up commercial production of semiconductors in their Minnesota fab, which they call their Wafer Services business. Revenue is roughly split between the two right now, and not particularly growing at the moment (tech services shrunk year over year and wafer services grew, but both were one time and don’t represent any real change on an operating level — this quarter’s results reflected the absence of a large tooling order they had a year ago, and an accounting restatement for an existing customer contract this year), but they do expect both lines to grow this year.

My take? It’s an interesting company, it will probably have a long-term steadiness to its order flow because of Pentagon work, and they do have some initial hope for more work on expanding programs with other companies, though it’s awfully early for most of the deals they’ve mentioned. And It’s also very, very small, in an industry that does have challenges with undersupply in some specific products but also changes slowly — the massive US facilities being built by Taiwan Semiconductor and Intel in the US will have a much larger impact on US semiconductor independence in the future than anything little Skywater can do (Intel is not an operator of outsourced foundry chipmaking work like Taiwan Semiconductor or SkyWater or GlobalFoundries, but, just as a point of context, Intel’s existing Chandler, Arizona facility is about 3X the size of SkyWater’s Minnesota fab… and they’re in the process of building out new facilities, at the cost of about $20 billion, that will quadruple its capacity at that complex).

The way I think of it, the Bloomington facility is somewhat like the smallish 1980s-era US foundries owned by GlobalFoundries in the Northeast: a bit of a dinosaur, focused on chips that are not the latest generation but still in some demand, that was owned by a larger company but offloaded (by IBM in the case of GlobalFoundries, and by Cypress Semiconductor in the case of SkyWater). Five years ago this relatively small and outdated facility was not particularly desirable, with competition from cheaper foundries in China and Taiwan, and the worry in the local community was probably that it was likely to keep falling behind, stop seeing any capital investment, and might eventually close down, which is why private investors were able to step in and buy it for $30 million (IBM had to pay GlobalFoundries to take its larger NY and VT foundries off its hands).

Now, the story has changed a bit… older fabs that can make the kinds of chips that are not cutting-edge innovative but are still in high demand for autos and electronics are running flat-out as some of their Chinese competitors have yet to dig out from COVID backlogs, and the US is strategically interested in boosting US demand again, even beyond the demands of the military — that may not have had a particular financial impact on the company at this point, it tends to take quite a while to build out new foundry production lines for new products and the industry is somewhat slow to change, but you can pretty clearly see, from this ad we’re talking about today and from other investor pitches for SkyWater and GlobalFoundries, that the strategic issues and the current semiconductor shortages have altered the narrative for these companies, and at times have caused investors to start seeing dollar signs.

That enthusiastic narrative has surely faded a bit for SKYT, at least for now, so the share price is starting to look more reasonable… but this is really a turnaround and reorganization story still, of a relatively small-scale business that was a castoff five years ago, so we should be prepared for a range of possible outcomes.

What will the story be next year, or in a few years? I have no idea. SkyWater should be able to build a business based on their Pentagon contracts and the capital investment those contracts enabled, and may become profitable if they can also establish some higher-end work with new developers who are working on chips for satellites or quantum computing projects or whatever else, but they cannot come close to establishing the kind of massive growth, massive production chipmaking facilities that would be needed to replace the supply from Taiwan, not without a decade or two of time and a few hundred billion dollars of capital investment. They are growing, and have some ambition, but they seem likely to remain very small.

Interestingly, the photo of the yellow room that they use in the ad seems to actually be “borrowed” from Micron (MU), according to Ars Technica, though Micron (MU), which is arguably the cheapest large chip company in the world right now (and has always been focused on memory chips, not processors), is certainly not the focus of this particular tease.

Here’s a photo of Skywater’s expanded clean room facilities in Minnesota, just for context — you obviously can’t tell a lot from one shot of a clean room, but this is a roughly 80,000 sq. ft. facility, including about 12,000 sq. ft. of expansion being financed by that $170 million commitment by the Department of Defense.

And yes, if you’re following up on those clues dropped in the ad, Skywater’s facility in Bloomington is roughly 15 minutes away from the University of Minnesota, I assume that’s the “prestigious university” DeHaemer hints at.

For what it’s worth, Skywater’s much smaller new facility in Kissimmee, Florida, which the local officials hope will be a job magnet and help inspire more technology investment in the area, is also about 15-20 minutes from the University of Central Florida, which I suppose is lower on the “prestigious” list than UM, but used to own the facility as something like a research incubator space.

That facility’s clean room is comparatively tiny, though there are also some “yellow” photos around of its lithography room, and the plan seems to be to use that facility, which is trying to scale up to something meaningful over the next several years, for advanced packaging work at the moment and for expanded R&D services capacity… but it’s new, so it’s got a pretty clean slate.

So… ready for this little foundry to revolutionize US chipmaking? Expect something a bit more muted from SkyWater? Have other favorite players in the chip space? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I own shares of and/or call options on NVIDIA and Advanced Micro Devices. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.