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spk02: Good day and welcome to the Air Test Systems second quarter fiscal 2022 financial results call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead, sir.
spk01: Thank you, operator. Good afternoon and welcome to Air Test Systems second quarter fiscal 2022 financial results conference call. With me on today's call are Air Test Systems President and Chief Executive Officer, Gane Erickson. and Chief Financial Officer Ken Spang. Before I turn the call over to Gain and Ken, I'd like to cover a few quick items this afternoon. Right after market close, Airtest issued a press release announcing its second quarter fiscal 2022 results. That release is available on the company's website at air.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the company's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Airtest Systems undertakes no obligation to update the forward-looking statements. And now, with that said, I'd like to turn the call over to Gane Erickson, President and CEO.
spk10: Thanks, Jim. Good afternoon, everyone, and thank you for joining us for our second quarter fiscal 2022 earnings conference call. We hope that everyone's off to a great new year and are healthy and managing through these historic times with COVID-19. Also, I do want to apologize in advance that I have a lingering dry cough after recovering from COVID myself over the holidays. While I was fully vaccinated, I'm one of those that had the breakthrough case, and I'm happy to say that I'm feeling fine and fully recovered from what little symptoms I had. Let's start with a quick summary of the highlights of the quarter and momentum we're experiencing in the semiconductor wafer-level test and burn-in market, and then Ken will go over the financials in detail. Then we'll open up the lines to take your questions. For second quarter, we're happy to announce our second consecutive quarter of record bookings and solid results for revenue, our bottom line, our balance sheet. And we finished the quarter with new record for bookings in a single quarter of $29.1 million. This follows the previous quarter where we set a record of $20.7 million. Revenue for Q2 was $9.6 million, a sequential increase of 70% over the first quarter. and up over 470% year-over-year. Our backlog at quarter end was $36.1 million, which is our highest backlog on record for the company. With our strong backlog and the incredible performance of our manufacturing and supply team, as well as the great job our suppliers are doing in ramping to meet the significant uptick in revenues, we're confident and are reiterating our previously provided guidance for full year total revenue of at least $50 million for the fiscal year ending May 31st, 2022. This equates to fiscal 22 revenue, which is three times that of last year's full year revenue. Our projected revenue of $35 million or more for the second half of this fiscal year is over 2.3 times our revenue for the first half of the fiscal year. Today, I'm going to go into detail on the silicon carbide and silicon photonics market segments of our business. Let me start with a discussion on the silicon carbide test and burn-in market, which is being driven substantially by anticipated growth in electric vehicles. We continue to see very strong interest and an increase in inbound requests for information on our solutions for wafer level test and burn-in of silicon carbide devices, particularly for use directly in and in support of the electric vehicle market. Now, for those who have not followed error, let me describe the market opportunities for silicon carbide test in Vernon. Silicon carbide devices are used in solid state power conversion of electric vehicles. Some would say it's an enabling technology to electric vehicles. Silicon carbide MOSFETs are used in converting alternating current, or AC, to direct current, DC, needed to charge batteries that store the power in the electric vehicles. then these same devices, although higher current and power, are used to convert the DC power in the battery pack back to AC to power the engine. The AC to DC conversion is the on-board or off-board battery charger, and the DC back to AC is referred to as the traction inverter. There's one traction inverter per engine, so for a car like most Tesla Model Ss, Xs, and 3s, as well as the Ford F-150 Lightning, there are likely two engines and therefore two traction inverters. A typical traction inverter today uses 48 silicon carbide MOSFETs to address the current and number of phases needed. A typical six inch silicon carbide semiconductor wafer today has about 500 of these high current MOSFETs and so yield about 10 engines per wafer with perfect yield and they do not get perfect yield. Every silicon carbide supplier agrees that these MOSFETs must go through an extended stress test called burn-in to remove the extrinsic or infant mortality failures to get to the quality required to meet automotive standards. In addition, companies use burn-in to stabilize the threshold voltages of the devices, particularly for use in modules where the devices are gained in parallel. This burn-in step can be done in the final package form in discrete packages But looking ahead, the industry is moving mostly to multi-die modules. The modules are more efficient, require less cooling, and are easier to integrate into the inverter. The downside is that these modules contain many individual die that are all assembled in the modules. When customers burn in these modules, the failure of a single die will cause the entire module to fail, reducing the production yield. Not only is the cost of the module packaging more expensive, but the other die, which could include up to 10 or more die per module, are discarded. The combination of the industry moving to modules and this constant implication of burning in at package part versus wafer or die level is great for us at AIR, where we have a clearly differentiated solution for full wafer level test and burning of these devices. Our Fox XP wafer-level burn-in system can test up to 18 wafers at a time, with 100% of the devices being tested and burned in in parallel at the same time. This is an extremely cost-effective and scalable solution for high-volume manufacturing of a critical reliability step in the manufacturing process. We have qualified this to eliminate the extrinsic failures seen on the silicon carbide devices, and it has been validated by multiple electric vehicle manufacturers so far. During this last quarter, we received a follow-on $19.4 million order for a Fox XP wafer-level test and burn-in systems from our lead silicon carbide customer. This order was then followed by a $7.6 million order for wafer packs that are the consumable, if you will, that makes contact between our Fox XP system and the device-specific wafers. This wafer pack order is actually not enough to fully populate the systems they ordered. so we are expecting additional follow-on wafer pack orders for these production Fox XP systems. These systems and wafer packs are being used to test and burn in MOSFET devices and traction inverters in electric vehicle motor controllers, as well as both onboard and offboard electric vehicle chargers. This customer, a major automotive semiconductor supplier with a significant customer base in the automotive semiconductor market, continues to forecast significant additional system and wafer pack purchases over the next several years to meet the silicon carbide market growth. In addition to a very strong backlog and forecast from our lead silicon carbide customer, we're currently engaged in discussions and or evaluations with several other silicon carbide suppliers regarding their wafer-level test and burn-in needs. This includes all of the current large silicon carbide suppliers and a number of companies, both large and small, that intend to enter the silicon carbide market. The new entrants are actually quite interesting to us, as several are starting from a green field without any installed base of test or burn-in equipment and are looking to AIR for advice on the best solutions for them to meet the critical quality and reliability needs of the electric vehicle, as well as other silicon carbide markets. Multiple industry forecasters and analysts expect the market for silicon carbide devices to grow at a compound annual growth rate, or CAGR, of more than 30% over the next decade, driven by demand from the electric vehicle market and other applications. It is more and more clear that silicon carbide is becoming the industry standard for electric vehicle powertrain conversion and the traction inverters, as well as for the onboard and offboard battery charges for EVs. Tesla was the first to move to silicon carbide over the historical IGBT high-voltage silicon-based devices as the silicon carbide devices promised to be more efficient, which translated into longer range and faster charging times, two of, if not the most important buying criteria for electric vehicles. Since their introduction in the Model 3, Tesla has since adopted silicon carbide in all of their vehicles, and most of the new electric vehicles across the industry will start with silicon carbide as a solution of choice for their power conversion electronics. While no one can completely predict the exact growth rate of the electric vehicle automobile market, there is no doubt that every car company in the world and many new companies are committed, if not dedicated, to new EVs and volume production. An example of how fast forecasts are changing is that just recently Ford announced that it will nearly double its production capacity of its upcoming electric F-150 Lightning pickup truck to 150,000 vehicles a year by only mid-2023 in response to enormous customer demand. The industry forecasters and analysts also appear to be converging on the idea that the typical electric vehicle will have more than one electric engine and traction inverter, as electric vehicles with two or more engines are being marketed with longer ranges and faster charging times, two of the most critical features in the electric vehicle market. What this means to AIR is that there will be more silicon carbide devices forecasted per average vehicle than we saw only a few months ago. Forecasts from Canaccord Genuity estimate that the silicon carbide market for just devices in electric vehicles, such as the traction inverters and onboard chargers, will require 4 million 6-inch equivalent wafers to meet demand in 2030, and another 4 million wafers for electrification infrastructure industrial and photovoltaic power devices. This is incredible when you realize that this year the entire market is expected to ship fewer than 150,000 wafers to meet the automotive electric vehicle market. This represents a growth of over 25 times the current wafer capacity just for the in-vehicle devices and then double that for the entire silicon carbide market. Why I'm going into so much detail here is that folks like Canaccord Genuity are making the point that the industry has only yet even announced capacity plans to meet this demand, much less put it in place. So let me make sure that they do not have enough capacity even announced to meet this in place. They're forecasting that the announced capacity is somewhere near 2 million wafers. And yet the total capacity, or maybe 2.4, I think, versus the total capacity is over 8 million wafers of demand. We're seeing multiple companies come forth and approach AIR with a message that they're entering the market because there simply is not enough capacity out there to meet demand, and there's plenty of room for newcomers. Now think back on my comment about new companies not having an installed base or bad habits of using packaged part burn-in systems to test their IGBT or silicon carbide devices that we may have to talk them out of. Stay tuned on our progress with a broader array of customers than just the current top companies. Again, remember last year, The current companies that address the silicon carbide market only shift about 2% of the wafers needed against the total demand needed by the end of the decade. Again, all of the companies today, including, quote, the big ones, are only 2% of the total demand. So stay tuned to find out about the new companies entering the market. Now, having highlighted that new players are not to be ignored, we have announced that we do have at least one currently large silicon carbide supplier that has moved to on wafer evaluation and benchmarking of AIR's Fox XP multi-wafer system for testing and burning in their silicon carbide wafers. We feel these benchmarks have demonstrated the value AIR can provide and also validate our solution for screening out extrinsic or early life failures as we had predicted by looking at the actual failures of their devices on their wafers. We're now being asked to do more tests and experiments and run more wafers, which we're happy to work with them on. Without getting into too much detail, I do want to say that companies all have their own internal processes and timelines for evaluating and qualifying a new tool, and not all companies move at the same pace. One thing is for sure, every company we talk to is a combination of excited and scared at the size of the ramp expected to meet the electric vehicle market. particularly in the second half of this decade. Some companies are driving to meet this demand sooner than others. I do want to be clear that independent of different companies' timelines, we expect that we will add several new silicon carbide customers that will ramp into production with our solution by next fiscal year as they look to capitalize on the rapidly expanding silicon carbide market. We are ramping our FOX multi-wafer test and burn-in systems in full wafer pack capacity full wafer-wafer pack capacity to meet this upcoming silicon carbide market opportunity, which we believe will grow significantly over the next decade or more. We really are only at the very beginning of this ramp as electric vehicles accounted for a small percentage share of the overall market last year and are expected to be over 30% of total vehicles sold by 2030. We provide a very cost-effective solution for testing and burning in these silicon carbide devices and we're confident in our ability to capitalize on the expected growth in the silicon carbide market over the next several years and for many years beyond that. So let me turn to the silicon photonics stabilization and burn-in market. So in addition to our success in the silicon carbide applications, we continue to see signs of strengthening in the silicon photonics test and burn-in market as our FOX multi-waiver systems and wafer packs provide a very cost-effective and scalable solution for burning in the optical lasers, and stabilizing their output power while also removing any extrinsic or early-life failures. Silicon Photonics describes photonic systems that use silicon as an optical medium and can be made using existing semiconductor fabrication techniques. A critical manufacturing step is a stabilization step where energy is used by applying high temperatures and electric power to, quote, burn in the optical lasers and stabilize their output power. AIR is able to do this critical step while the devices are still in wafer form before they're singulated and put into a modular system using our Fox multi-wafer systems and wafer packs. This provides a very cost-effective and scalable solution for this critical step while also removing any extrinsic or early life failures. Today, silicon photonics devices address the 5G and data center infrastructure industry as well as several other key markets. and YOL research predicts that the silicon photon extrinsic market alone will reach $4.6 billion in 2026, with a CAGR of 25% between 2021 and 2026. Several companies, including Intel and Cisco, have proven it is possible to create hybrid devices in which the optical and electronic components are integrated onto a single microchip And the first products in volume production are being used for fiber optic transceivers used in the datacom and telecom infrastructure, such as data centers and 5G communications. But in addition, there have been many technical presentations and public announcements about silicon photonics and co-packaged optics being integrated with MPUs and GPUs from companies such as Intel and NVIDIA as a means for keeping on track with Moore's Law. by using optical interconnects to provide faster data transfer both between and within microchips. We believe that the market for silicon photonics will expand beyond being used for only fiber optic transceiver photonic integrated circuits and will start to be used in high-end processor applications and intra-chip as well as inter-chip communications within the next few years. During the last few months, we received orders from the current silicon photonics customer for six additional FOX-NP wafer-level testing burn-in systems to support the characterization and product qualification of new types of photonics-based devices in wafer form. This customer is expected to purchase new sets of wafer-packed full wafer contactors to be used with these systems. As the applications and market for silicon photonics-based devices continue to grow, we expect this customer to continue to increase their capacity in the future. Several other customers addressing the silicon photonics market have also forecast additional Fox systems as well as wafer pack or die pack contactor capacity needs over the next 12 months. These include needs to address incremental production capacity, as well as capacity to address new customer and new product qualification in engineering. Again, as the only supplier of a commercially available and cost-effective solution for testing and burning in these silicon photonic devices in wafer form, we're also very confident in our ability to capitalize on the expected growth in the silicon photonics market over the next several years. Before turning over to Ken, let me summarize where we're at. We remain very focused on serving the very large markets opportunities we see ahead, which include the significant opportunity for chest and burn and silicon carbide devices for electric vehicles and electrification infrastructure, silicon photonics devices for data center and 5G infrastructure, and 2D and 3D sensors for mobile and wearable devices. With our record bookings and the strength of our semiconductor chest and burn and solutions, we're confident in our ability to deliver significant revenue growth and are reiterating our guidance of at least $50 million in revenue for the fiscal year ending May 31st. This represents revenue in the second half, which is 2.3 times that of the first half. As we have discussed in the past and are proving now, AIR has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels. We have been ordering long-lead components for systems and wafer packs, particularly for the enormous opportunity we see for silicon carbide that is gaining momentum, and we have been able to maintain reasonable lead times to meet customer requests. Our supply chain is holding up to the increase in demand, and we're ramping all of our subsuppliers to meet the customer bookings and forecasts we are seeing. AIR has a very robust supply chain with world-class subcontract manufacturers on subsystems of our test systems, contactors, wafer pack aligners, and die pack handlers. These are very mature subcontractors that have successfully supplied these subsystems to air for years. In all cases, these suppliers have capacity well in excess of air historical shipments and the ability to ramp significantly higher as well. We are very confident in our ability to meet the customer forecasted demand plus considerable upside. As we discussed and anticipated at the beginning of the COVID-19 pandemic, Airtest has emerged a stronger company with more production customers, more markets and applications, and higher value products than we had before the start of the pandemic. With our record bookings and the strength of our semiconductor test and burning solutions, as well as the positive response we are getting from multiple new potential customers in the silicon carbide space, we're confident in our growth forecasts and ability to meet them. The hard work we put in over the past several years is paying off for our customers, our financials, and our shareholders, and we're excited about the large market opportunities ahead and for the future of air test systems. With that, let me turn it over to Ken to review our financial results and guidance in more detail before we open up the line for questions.
spk04: Thank you, Gane, and good afternoon, everyone. As Gane noted, we had another solid quarter for Q2, with our second consecutive quarter of record bookings, strong sequential growth in revenue, and our highest backlog on record at quarter end. Looking at our financial results, net sales in the second quarter were 9.6 million, up 70% sequentially from $5.6 million in the preceding first quarter, and up 471% from $1.7 million in the second quarter of the previous year. The sequential increase in net sales from the preceding first quarter includes an increase in wafer pack-die pack revenues of $4.1 million. This was partially offset by a decrease in system revenues of $125,000. The increase from Q2 last year includes an increase in wafer pack-die pack revenues of $4.3 million, and an increase in system revenues of $3.6 million. Customer service revenues were flat for both periods. Wafer pack and die pack revenue comprised over half, 53%, or $5.1 million of our total revenue in the second quarter. We also had a record number of wafer packs and die packs shipped during the quarter, reflecting growth in the consumables piece of our business, as well as our ability to scale and meet customer demand, Non-GAAP net income for the second quarter was $1.4 million, or $0.05 per diluted share. This compares to a non-GAAP net loss of $414,000, or $0.02 per diluted share, in the preceding first quarter, which included the impact of forgiveness of $1.7 million in loans from the Paycheck Protection Program that we received in fiscal year 2020. A non-GAAP net loss of $1.7 million or $0.07 per diluted share in the second quarter of fiscal 2021. The non-GAAP results also exclude the impact of stock-based compensation in all periods reported. Stock-based compensation costs of $718,000 in Q2 2022 reflect a significant increase from $588,000 in the preceding quarter and $257,000 in the prior year second quarter. This increase is primarily due to $246,000 and stock awards accrued in Q2-22 related to exceeding stretch goals for fiscal year 2022 key business objectives, and over $200,000 in expenses related to the employee stock purchase plan due to increased employee contributions and new enrollments. While these non-cash expenses exceeded our plan, it is good to have such problems where stretch goals are being exceeded. and we recognize and appreciate the hard work of all of our employees who help achieve these goals. On a GAAP basis, net income for the second quarter was $717,000, or 3 cents per diluted share, compared to GAAP net income of $696,000, or 3 cents per diluted share, in the preceding first quarter, which includes the impact of the PPP loan forgiveness and a GAAP net loss of $2 million, or 8 cents per diluted share, in the second quarter of the previous year. Gross profit in the second quarter was 4.5 million, or 47% of sales, up from gross profit of 2.3 million, or 40% of sales, in the preceding first quarter, and up from gross profit of 377,000, or 22% of sales, in the second quarter of the previous year. The increase in gross margin from both the preceding first quarter and Q2 of the last year is primarily due to a decrease in unabsorbed overhead costs to cost of goods sold due to higher revenue levels in Q2-22. As noted in prior calls, we scale very well as manufacturing overhead remains relatively fixed as revenues increase. The benefit in labor and overhead was partially offset by unanticipated costs impacting cost of goods related to tariffs and broker-related premiums paid to resolve short-term semiconductor shortages. In addition, we incurred increased freight charges on many items, particularly for items shipping historically by ocean, where due to the shortage in ocean freight capacity with shipments into the U.S., we were required to ship by air. In one example, we are seeing an increase in freight costs for our chambers by over $40,000 per chamber to ship them by air from one of our suppliers in Asia to the U.S., While this appears temporary, we do not see this reducing materially anytime soon. The good news is our suppliers are able to meet the demand, but we are certainly feeling it in higher shipping costs. Operating expenses in the second quarter were $3.8 million, an increase of $528,000 or 16% from $3.3 million in the preceding first quarter and up $1.5 million or 64% from $2.3 million in the second quarter of the previous year. SG&A in the second quarter was $2.5 million, an increase of $536,000 from $2 million in the preceding first quarter and up $988,000 from $1.5 million in the prior year second quarter. The increase in the prior quarter includes an increase in employment costs of $348,000. The increase from the prior year second quarter included an increase in employment costs of $745,000. The increase in employment costs included salary increases related to raises provided to employees during fiscal 2022, higher commissions and incentive payments related to increased bookings and key bonus objectives, and stock-based compensation costs related to our employee stock purchase plan due to new participants to the plan and employee contribution increases. In addition to the increase in employment costs, the company recognizes increased travel costs and consulting costs during the quarter. R&D in the second quarter was 1.3 million, unchanged from the preceding first quarter, and up 493,000 from 820,000 in the second quarter of the prior year. The increase in R&D from the prior year included an increase in employment costs of 427,000. The increase in employment costs included salary increases related to raises provided to employees during fiscal 2022, higher incentive payments related to key business objectives, and stock-based compensation costs related to our employee stock purchase plan due to new participants to the plan and employee contributions increases. In addition to the increase in employment costs, the company recognized an increase in contractor costs and R&D materials related to new R&D program initiatives during fiscal 2022. We continue to invest in R&D to enhance our existing market-leading products and introduce new products to maintain our competitive advantages and expand our applications in addressable markets. Turning to the balance sheet for the second quarter. Our cash and cash equivalents were $35 million at November 30, 2021, up $28.5 million from $6.5 million at the end of the preceding quarter. During the quarter, we completed a successful capital raise that netted $24 million in cash to the company. A total of 1.7 million shares were issued through the offering, at an average price of $14.73 per share. These proceeds provide additional working capital to serve the very large market opportunities we see ahead. In addition, we generated year-to-date cash flow from operations of $5.2 million in fiscal 2022. Accounts receivable at quarter end was $7.4 million, up from $4.3 million at the preceding quarter end due to the impact due to the impact of higher revenue levels. Inventories at November 30th were $13 million, an increase of $2 million from the preceding quarter end, and $4.2 million from Q4-21. The increase in inventory is to support our existing backlog and to prepare to fulfill expected future orders. A significant portion of the inventory increase is due to semiconductor components, which we have been ordering and stocking up on to meet the anticipated demand we see from the markets we address. This is critical as we ordered these long in advance and have been able to continue to provide reasonable, if not best-in-class, lead time to customers in an environment where most semiconductor test companies are quoting up to 52-week lead times on their equipment. Property and equipment was $661,000 compared to $676,000 at the preceding quarter end. Customer deposits and deferred revenue, short-term and long-term, were $10.3 million an increase of $6.8 million from the preceding quarter and $10 million from Q4-21 related to the increase in backlog from prior quarters. The company has no debt. This compares to our May 31, 2021 fiscal year end where we had $1.4 million outstanding on our line of credit and $1.7 million outstanding on our Paycheck Protection Program or PPP loan. Bookings in the second quarter were $29.1 million. our highest quarterly bookings on record. This is our second consecutive quarter of record bookings and is up from 20.7 million in the preceding quarter. Including the announced order since the beginning of the fiscal third quarter, our total bookings for the fiscal year to date is over 52 million. Backlog as of November 30th was 36.1 million, our highest backlog on record. This is up from 16.6 million at the end of the preceding first quarter and up from $1.1 million at the end of the second quarter last year. Now turning to our outlook for fiscal 2022 year, which ends on May 31, 2022, with our record bookings and the strength of our semiconductor test and burn-in solutions, we are confident in our ability to deliver significant revenue growth for the year and our growth opportunities over the next several years. For fiscal 2022 ending May 31, 2022, we are reiterating our previously provided guidance for full-year total revenue of at least $50 million, which would represent revenue of three times that of last fiscal year. While the increase in gross revenues on a relatively fixed manufacturing overhead will increase gross margins, this benefit is partially being offset and temporarily, with the noted increase in freight and tariff costs, as well as the additional non-cash stock-based compensation expense from our equity incentive plans related to exceeding stretch goals. Still, we expect our full-year gap net profit, which included the $1.7 million benefit from the PPP loan forgiveness, would be above $10.5 million, or 20% of revenues. Lastly, looking at the investor relations calendar, Next week, we will be presenting and meeting with investors virtually at the 24th Annual Needham Virtual Growth Conference on Wednesday, January 12th. We hope to see some of you virtually at the conference. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.
spk02: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad, and if you're on speakerphone, Please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we will go first to Christian Schwab of Craig Hallam Capital Group.
spk07: Congratulations on a great quarter and continuation of strong bookings.
spk04: Thanks, Richard.
spk07: Gain, I'm just wondering if you could give us just a little bit of or help me with a little bit of clarity on the silicon carbide. We talked about a large, you know, silicon carbide supplier, you know, who's an evaluation. And then we talked about several new silicon carbide customers. that'll ramp into production. So is that, you know, a minimum of three customers, you know, that could be close at hand? Or are you referring to the large silicon carbon supplier when you talk about several customers? It wasn't clear to me.
spk10: All right, let me try. And folks, one of the challenges that we're dealing with right now is, and we've made statements like talking to all of the suppliers and then some. The subtlety here is when you are talking to all of the players, there's always this balance of trying to maintain competitive information and where they're at and not giving too much information about one player versus the other. And so sometimes my, I guess, indirection and all is just related to that because obviously, you know, my key customer is listening on this thing as well. And we have pretty clear non-disclosures and things in place. So we always have to try and muddy it as best we can. But when you're talking some of these deals and the, you know, the large deals and the discreteness of it, I know that gets difficult. So let me try and add a little bit of color as well. So just, you know, for clarity, You know, the industry market forecasters that talk out there generally refer to the largest suppliers in the space traditionally have been, you know, ST had the number one position, and then Infineon and Cree, now Wolfspeed, are others. And then On Semiconductor, that kind of came out of nowhere, and people know that On Semiconductor is one of our top 10% customers, are generally thought of by consumers most people as the current larger players in the space. In addition to that, you have Mitsubishi and Rome that historically were kind of filled out the top six. We have some level, if not a deep level engagement with all of the above. And we certainly are in conversations with all top four of them, including one of them being our biggest lead customer. What we have done is we've been involved in I generally refer to it at least one benchmark. There's different levels of engagements and discussions, but we're clearly doing on wafer measurements and all for one of those as a new potential customer of ours. And the data is quite compelling and is giving us results consistent with what we told them we would show them and expect. And they've actually asked for additional testing and clarification, some more wafers, et cetera, and we're happy to oblige. It's our expectation and our offer to all of the suppliers out there, pretty much all the big guys, that we'll be happy to demonstrate on wafer for them. And what I have tried to allude to, and I said it in a lot of different ways, it's quite interesting to see the difference in pace between all the different companies. And it isn't necessarily how big you are. It just may be how aggressive management is about commitment to new capacity and or to changes, et cetera. You know, one thing that historically is true in general in the test business, and I've been doing this all my life, is that, you know, being the installed base has its advantages. It's usually pretty hard to just displace someone. That's not to say that we can't displace them, nor we can't displace all of them. But if there were companies that were shipping a lot of silicon carbide before we got there, by definition, they're using another tool. And they have, in fact, convinced their customers that the quality associated with that is good enough. So as we go to shift the customer, not only do we have the dynamic of shifting them away from their current installed base, but they have to convince their customers that the reason they're switching is because the new tool is better. And that is our intention to do that. Companies that are brand new to the space, who are entering or have very little market share, have effectively nothing to prove. And they don't have to necessarily talk their customers out of one thing and into something else. Also, companies that are entering the market space right now, in many cases, like On is very public about this, is entering based upon quality and reliability and their modules. A very differentiated solution. And imagine if they were our customer, it's a little easier to work with them. Because I've also stated every single company that we have talked to has stated they are getting into wafer level burden. They're moving from package to wafer level. Now, the companies that we're talking to that are not in silicon carbide are saying they're starting with wafer level burden. There's no reason to switch. So one of the challenges that I have, and I'm kind of frustrated as well at times, is the pace at which companies will go through their evaluations to identify what the best move is for them. And just one thing I tried to make pretty clear in this is that, yes, large customers are really important and they're very important and we're going to cover them. It's our intention to win as many, if not all of them, if at all possible. But having said that, the combined capacity of all six of those last year is still only 2% of the forecasted need in 2030. So The largest of them is only 2% of the market share at the end of the decade. So if you're the market leader or not, if you're not anticipating growing your business by 10x, you're not going to have 20% market share. And so the real key is which companies are growing their silicon carbide business the most and making sure that we align with them. So I mentioned six companies. There's also, I think four, maybe five more. I apologize. Uh, Vernon, I've been going through this right now so far. So about let's say another half a dozen companies that have come forward and are talking about new Silicon carbide capacity and fabs that are going in. So there's a lot of activity that's going on. You know, part of the challenge is, you know, how do you bet on which horses do you bet on? Our current strategy is we're betting on all of them. Um, We have the capacity in sales. I'll tell you one thing that is frustrating, and I tried and promised not to complain and whine about COVID, but it is very real. The travel restrictions are still real. We have companies in Japan, in China, in Korea, in Taiwan, in Southeast Asia that we have not been able to even go to, either because of pure restrictions or very extreme restrictions that would preclude us from going in and making sales calls. So we're having to do all this stuff over Zoom and things like that. It's not as easy. And, you know, we kind of thought, Vern and I were pretty happy we got to travel around Europe and in the U.S. earlier this fall, and then that came to a stop too. So it is something that is slowing us down. But, you know, I think we're making the bets and we, you know, we're a little bit, I know people overuse this, but we're like trying to sell shovels to everyone. It's really hard to pick who the market leaders are. But I do believe that, you know, we're going to have an opportunity to win more than our fair share and win, you know, a number of companies. And by the way, there are going to be companies that are irrelevant even next year, 2023, let's say, that will be significant in 24 and 25. And so, uh, part of this is trying to not necessarily play the long game, but make sure that we don't keep lose track of the fact that, you know, some of the smaller players or the new entrance may end up being significant market leaders, you know, two, three, four years out. I hope that helps.
spk07: That does help gain. And then just a follow up on the, on the piece of, you know, evaluation of the, of the customers. In the press release, you talked about adding several new silicon carbide customers that will ramp into production by next fiscal year. So I assume that means that by the end of May of 2022, there'll be a couple other customers ramping. Am I reading that sentence correctly?
spk10: I would know. I apologize if that's how I wrote it. And no, the intent was, and not to push it all the way out, but You know, I wouldn't say we expect several companies to be ramping into production by this May. I intended to imply by next or through next fiscal year. So by next May. Now, that's not to suggest that, you know, we couldn't get a customer or even make shipments by May. That's not the intent. But I probably wouldn't describe that as ramping into production anyhow. But I think, you know, We were, we kind of were referring to before, you know, over the next 18 months, we've said that before. I'm just trying to tighten that up a little as to what we're thinking, but we do believe by our next fiscal year, which we call fiscal 23, which ends in May at the end of May of 23, that we would expect to be adding several new customers.
spk07: Right. And then production is different from like potential initial orders. Would you, would you anticipate seeing orders from other customers? you know, here in the first half of this calendar year that would lead into more, quote, unquote, kind of like real product.
spk10: It is fair. I guess it would surprise me. It's most likely that any new customer will start by ordering one before they will order multiple, and there might be, you know, a three- to six-month break in between, perhaps, I mean, it was longer than that to begin with. I feel like it will move faster. So in that sense, there is sort of a timing. It's certainly possible that we could be getting our first customer orders before the end of this fiscal year. I also want to, I guess, hedge my bets a little bit in terms of if we didn't, does that mean we have lost the production of these key customers? I would say that is definitely not the case. You know, one thing that has kind of surprised me a little bit is, and now I don't want to get too carried away with specific customers, but, you know, there are some companies that were out there that were talking about this expansion, new fabs that were going in, you know, in 2022. And, you know, six months ago, I was like, oh, my gosh, we got to hurry, hurry, hurry. We're going to miss the ramp. You know, they haven't bought from us yet. They're going to be ramping in, you know, January of 2022. We're going to miss out. That's just not the case. I mean, those same companies are now saying, well, we're going to be sampling in 2022. So they barely even need a production tool by the end of 2022. So, you know, part of this is just trying to understand what's really going on out there and make sure that we're not missing anything. That specific customer, for example, we don't feel we're missing. We're still talking to them, et cetera. And they're not on a timeline. They were not looking for a solution to be installed. you know, this quarter, for example. So I, you know, I think there's a little bit of this challenge of trying to guess exactly when people are going to be ordering. And the timing of that is obviously pretty important because if you, you know, you're in the stock before that, that's good. And if you're out when those orders are announced, obviously that's bad. You know, I try my best to try and get an estimate of what's going on. Again, I'll give you at least the window that I expect not only will people have bought their first orders, but we'll start to see orders that would be going to be into production by the end of next May.
spk07: Great. And then I guess my last question, just as it relates to silicon photonics and the packaging technology changes, et cetera, and intercept technologies. Have you guys had a chance, I know you guys kind of, You know, previously talked about how large you thought the potential TAM could be over time if everybody, you know, was a silicon car buy customer. And there was, you know, 30-some million cars sold by 2030. Have you guys been able to do any work behind the scenes in silicon photonics to say, you know, a range of potential revenue outcomes to the company could be kind of X to Y in two to three years?
spk10: Yeah, you know... Candidly, I don't think we have really good numbers on that yet, and we'll be working with that and doing the best we can. There's not actually anyone forecasting that yet publicly, so obviously anything we would know about that through non-disclosures with customers and stuff, you have to wait for somebody to talk about it publicly. To us right now, we see it as a rising tide in an area we have a great, very fast boat, if you want to call it that. Also, just in general, the physics are such that it makes sense to have to be thinking about stabilization. It makes sense to be doing this at wafer level. So many of the bets that we've made for those folks that have followed us for a number of years, we make these bets to basically anticipate major waves. You know, it's tough to make calls and look for market opportunities that don't exist, but this would be one of them. This would be an example where, you know, you can see why people are going towards this. You know, I didn't mention it in my prepared remarks, but one of the things that I was, I guess, just surprised at, or I don't know, shocked is the right word, but the folks that really get into the technical details related to why silicon photonics makes sense long-term for these intra-chip communications or these chip-to-chip communications in these multi-die modules or in the packaging technology that Intel has talked about publicly, is that CERTIs, or serial-to-de-serialized high-speed gigabit channels, are nearing the end of their physics. So basically today, you know, you can go get a CERTIs channel that's, you know, 100, you know, 20 gigabit or something like that. Or I think 104 or 108 or something like that is sort of the standard that's out there right now. And you can buy that from Xilinx. Our FPGAs on our tools actually run SerDes channels, okay? High-speed digital serial channels that are running down copper interconnects chip to chip. Now, they don't run very far. They might only run a meter or something like that. But they're nearing, apparently, the physical limitations of that an electrical signal and an electron can travel in a copper medium. And what that means is that someone has said that as soon as 200 gigabit, or like two generations from now, you will not be able to make an electrical signal go any faster, period. It's at the end of its rope. The whole concept of photonics, which a photon, remember, like a light beam? If you remember, for those of us that were in physics, the whole debate about electromagnetic radiation or light, Is it a particle or is it a wave? In a particle, a particle has mass and as such can only go so fast. Whereas a wave does not have mass. And part of the whole argument is one of the reasons that an electromagnetic radiation or light or photons can't really have mass is that it can travel faster than the mass can travel. So what that shows up at is all of a sudden, We're testing silicon photonics devices today that we're burning them in that are 200, 400, 800 gigabit devices. So you're able to get transmission speeds that just get started at 800 gigabit or at 100 gigabit. So what me, just as an electrical engineer and kind of in this space, what's exciting is that You know, as we look out 10, 20 years from now, or five years, or even three years, people like NVIDIA and Intel are talking about having chips with integrated silicon photonics on their processors and their GPUs, even a couple years out. So it's pretty exciting to see what that looks like. And I do know that other companies are making big investments in the testing of it. We've been making investments in the burning of it. And, you know, we hope that it will play out. And as we get a little bit more clarity, we'll be sharing that with you folks. But still, we're just trying to get our arms around it. Hope that helps.
spk07: That helps, Gane. Thanks. No other questions. Thank you.
spk03: Thank you.
spk02: And we'll go next to John Gruber, Loganitas Investors.
spk06: Good afternoon. Two quick financial questions. One, I'm confused why your property print equipment, which has gone down in 12 months, given the amount of throughput you're putting through. So you're spending nothing on the factories? Why is that? Why has property print gone from $700,000 plus to $600,000, which is puny by any stretch of the imagination?
spk04: Yeah, so let me... Gain, let me address that. Yeah, we closed the quarter out on November 30th at $661,000 compared to $676,000 like we talked about, even if you compare to the last year of $677,000. So it's remained relatively flat. Keep in mind, we depreciate $100,000, we'll call it, in depreciation per quarter. So we're actually adding equipment. We just happen to offset the ads with the amount of depreciation that's getting recognized. Also, a key that we like to say that allows us to scale is we use contract manufacturers. So doing final assembly and test and having the capacity that we have here in our 51,000 square foot facility, it allows us to really grow without having to add capital. So that's a great benefit that we have and a great opportunity we have.
spk06: Now, you've gone from 5.6 in Q1 to 9.6 in Q2. You're going to have to go to 15, 5, and 21 to exceed your 50. Even with that, you will not need to add any property plant equipment to your facility? Very little. Very little. Okay.
spk10: Now, my next question, again, do you want to say something? Oh, I was going to say, I have a couple of engineers that are asking me to buy some really fancy test equipment right now that are listening, but it still won't dent that number.
spk06: Now, gross margin went from a rough 41 to 47, Q1 to Q2. Now your revenue is going to explode in Q3 and then even further in Q4. What kind of gross margin goal do we have here as we get up to these big numbers like over $20 million? I realize your shipping costs have gone up some, but we're talking such huge numbers relative to what we've been. we increased six points in Q2. What's going to happen in Q3 and Q4 in the gross margin side?
spk04: Go ahead. Gross margins, just to reiterate what I mentioned in our last call, we expect as we grow to our $50 million year-end number to get gross margins up to 50%. So we're at 47% now. We've talked about there being you know, an impact for some unanticipated costs. And we still see those costs, even though we called it temporary, still impacting us for at least the next quarter, potentially all the way through our fiscal year end. However, I still believe that we expect to show gross margins in each of those quarters approaching 50%. I wouldn't say it's going to be 50% next quarter, but probably Q4.
spk06: Okay, thank you. I got my questions answered. Thank you.
spk10: Thanks, John. Thanks, John.
spk06: Sorry.
spk02: And we'll go next to Dylan Patel of Semi Analysis.
spk11: Hey, Dylan. Hey, thank you. I have two questions. The first one is that Semi Analysis has tracked seven firms in China investing over $100 million in two, inclusive of the seven, over $1 billion in silicon carbide materials and device manufacturing, and it Basically all greenfields, you know, you talked a lot about the syntactic winds and traction you have in the US, Japan, and Europe, but what is air doing to penetrate the China silicon carbide burn-in test market, given it's, you know, potentially going to be just as large as the US or Europe?
spk10: Okay. Well, I'll take that one fairly at a high level. And I actually specifically prepared comments, mentioned customers with the plural S in China. Um, yeah, there is actually a number of companies in China that are talking about Greenfield, uh, silicon carbide fabs, uh, uh, of which, uh, I guess I think it's notable reached out to us. Okay. So our, you know, kind of marketing and messaging and, and our reputation is getting out there. So I know at least one, if not two of them called us and we'd not even heard of them before. If you, for what that, maybe that's scary too, but, uh, They're contacting us and talking to us about their capacity, and it's pretty significant. Now, we do have systems. We have burn-in systems in China. We actually last quarter announced our first wafer-level burn-in, or first box system that was going to be installed into China in addition to, you know, we have a fairly large customer base of packaged part burn-in systems. And we do have infrastructure and people there, thank heavens, because it's particularly difficult to travel in and out of China right now. So we have the ability from a sales perspective, we have ability from a applications and a support perspective to support folks in China. And the companies that have been talking to us are actually near where our people are, which actually helps as well. So we're working on it still.
spk11: That's awesome to hear. My other question is regarding on-device LiDARs and dot illuminators, which will grow incredibly pervasive if you're a big believer in the metaverse, artificial reality, virtual reality. These devices can use VIXL lasers, and you've told us about burn-in tests for those in the past, and you've updated us on the burn-in test market for these lasers for 200G, 400G co-packaged optics. But can you update us on the burn-in test market for sensor applications and potential given how pervasive the metaverse could be?
spk10: Okay, so actually LIDAR, when I think of LIDAR, I think of the automotive side of things. The dot illuminators, I think of what's on, you know, certainly on iPhones and things like that or kind of consumer-type electronics or heads-up displays or AVVR kind of things, right? So we're actually talking with both of those. We've got some activities going on with LIDAR. It's out in time, but I'll say we've got our – toes in that right now uh with one lead customer and related dot illuminators i mean actually one of the our lead customer our very first customer on the fox um p system that we've now uh parlayed into a number of others i think people understand that you know they were a 10 customer early on which was apple um but we do uh we are using uh that tool in 2d 3d sensing in mobile applications a number of them It's always been an interesting thing for us and we've kind of, you know, I'm a pretty optimistic guy. This is an area you'll see a little bit of a cloud over. And that is most of the time the dot illuminators and the Vixel arrays, people are able to deal with what I'll call sampling. They are not doing 100% burn-in and they're not necessarily aging them. Whereas in the communication application of the Vixel, they do 100% burn-in. So 100% burn and to age it might take 24 or 48 hours. But if you're actually only sampling and you're not trying to age it, you might do that for several hours and certainly not 24 hours. But if you're only sampling a few percent, then all of a sudden the market size is not as big. So today, so far, most of that has played out that way because the amount of time that the illuminator is actually on And particularly with facial recognition and security access type points, it's a very, very small amount of time. I mean, if it's only on for milliseconds, even if you look at your phone 100 times a day, it's only on for hundreds of milliseconds. So in the entire life, it might only be on for 300 seconds or something. So in reality, that isn't even enough to notice that the thing is actually decaying. But in a Vixel array for communications, that's a big problem. So the one thing that people have talked about is when you go into gaming and other applications or certainly automotive LIDAR, the decay of that would be a problem because it's in continuous use. And so we continue to keep our fingers in that. Some of those deals are fantastic. They've got great margin. They just haven't had the volume to them yet, but we're still involved in those and believe that if Some of the applications prove to need capacity that will be a great vendor already qualified and certainly have the manufacturing capacity to meet their needs. I hope that helps.
spk03: Thank you so much. Operator, do we have others?
spk02: And we will move next to Willard Brown of Otter Creek Investments.
spk09: Hi, and a great quarter. You did exactly what you said you would do. I have a question. Out of the $9.6 million in revenues in the quarter, how many customers did you have?
spk10: We typically aren't giving that, but I think it would be fair to say it was quite dominated by one lead customer in Silicon Carbide just by the announcements that we made. Although it probably was made up of, um, you know, total, I mean, you had to get down to the services and things like that, but you know, certainly a dozen or more customers, but, um, it's absolutely fair to say that our lead customer in silicon carbide is, is, you know, dominating our revenue right now.
spk09: So as we go forward, uh, into the third and fourth quarter and then into fiscal 23, What kind of ideas do you have? I understand this market could explode, but what kind of ideas do you have as the number of customers that you will serve in a given quarter? And, you know, one of the problems here is concentration. I don't think that's a big problem here because of your technology, but it's something I think about. So if you go forward several quarters, are we looking at more of a dispersed customer base?
spk10: Yeah, let me answer that. I mean, I think it is absolutely fair to point out that no matter how unconcentrated we get, we're still concentrated by most methods. My previous company, which was Verigy, it was bought by Advantest for about a billion dollars in 2011. You know, we were doing six, seven, eight hundred million dollars a year. But I'll tell you, every single year, two or three customers accounted for 30, 40 percent of the revenue. In the semiconductor world, it's very typical to have a fairly high concentration. If you've got you know, if, if you need 20 customers to get to 90%, um, you're doing pretty good. Um, the reality is there's more concentration of semiconductor companies than there were certainly when I started in my career. So, you know, we have to build a business model around the fact that, you know, we would aspire to be able to have 20 customers make up 90% of our revenue, but most industries, that's the high concentration. But, um, I will not be surprised if we continuously have a 20%, 30% customer even over the next decade because even if we have 10 customers, it's very typical that one might be ramping more than the others. Now, having said that, from a manufacturing planning perspective, we're actually betting a little bit different than that, and that is seldom do you see or have I seen where a market is so uniform and so clear on what the discontinuity and what the ramp is as this. We saw it in flash memory is one of my experiences where every company was growing. Every single company could not supply enough. And so you have to be able to supply to everybody. That doesn't mean we'll win everybody, but What I mean by that is it's not like you're going to see one customer ramp one year and then the next customer the next. Most customers over the next decade are going to have to ramp every single year to keep up with the demand.
spk09: Yeah, I've come to that conclusion also.
spk10: I'm sorry. So we have – As we've done deep dives with our customers, we have in almost every case at least two suppliers for every critical subsystem. And for the ones that we have single suppliers, we've done some pretty spectacular things to ensure that we have buffers in there. But we are not only activating our second suppliers, but we're ramping both primary and second suppliers like mad right now because they have to have the bandwidth to be able to react to it. And it's not just total capacity. but also within reasonable short lead times because the reality is we think that companies are going to get to a point where it's like, you know, at some point someone I'm sure will have something that will compete with us, right? And if they do, we want to be able to lead based upon being the industry experts, the industry standard. You know, we can list all the companies that are already counting on us and also be the people that can supply in short lead times. But... We're still going to have concentration. Don't bet against that.
spk09: So here's my second question and my last question, but it's a really tough one. And it's really tough because of what appears to be a mind-boggling expansion of the products that you supply. And that is the total addressable market. I've tried to do this. I've gone through the number of wafers that are going to be of you know, are going to be needed. And then, okay, how many air systems do we throw in there? I don't know how to do the math. That's basically what the problem is. And so how do I look at that?
spk10: Well, we've walked through the math several different ways. And, you know, let me do it a little bit briefly without filling in the numbers. Let me just tell you how to calculate. And then I'll give you a rule of thumb that's been working for us. Okay. Okay. So figure out how many cars are going to be built and how many engines there's going to be. And I guarantee you there'll be at least one engine in them. Okay. Right. A year and a half ago, people were assuming that every car had one engine. And most people were saying there'll be at least 30 million cars a year built by the end of the decade. Exactly.
spk09: Okay.
spk10: Every car engine needs about 50 devices. It's actually 48 plus some onboard stuff. And a wafer today for those type of devices can test about, have us about 500 devices on it or 10 engines. So you just go through the math and say, okay, if you need 30 million cars, okay, and a wafer can give you 10 of those cars per wafer if there's one engine on it. And then you start looking at burn-in times and test times. And there have been people that have talked, it ranges from six hours or 12 hours or 24 hours or 48 hours. And we've talked about people would hope to get to 24 hours right now. And then you can give some estimates. What we ended up doing is there was a couple of people that had done this, and I think it's still a very conservative rule of thumb, and that is for every million cars, that are shipped, you're going to need at least eight of our systems in the world, either from us or somebody else. And keep in mind, these are 18 wafer systems. Okay? And with something on the order of a system with all the wafer packs and everything else being maybe $4 million a piece, okay, you need about $32 million worth. And, you know, that's a way of looking at it. And it still holds up. and under pressure and it's easy to say that's conservative, but it's still a big number.
spk09: I appreciate it. Very good job, gentlemen. Okay, thank you.
spk10: One or two more may be quicker. Is there other folks?
spk02: And we have a question from Mark Gomez of Pipeline.
spk08: Okay. Hey, again, thanks for taking the call. You talked about the sampling going on at the potential new customer. Is that the typical process that we should be looking for as you go down the path? You've been great about giving us visibility into how your pipeline looks publicly and things of that nature. I wonder if you could just briefly walk us through what the process is to getting to the point. They sample you. Um, do they have to do, you know, internal wrangling, qualification, negotiation with you? What's the process that leads to the finish line? Thanks. Okay.
spk10: Generally speaking, and that should be typically of our test equipment, burn-in systems in our history, you know, a process from the time you first talk to somebody until they might place a first order is probably minimum, you know, nine months, um, I mean, we used one example where our lead silicon carbide customer, we talked to them in February. We were on wafer doing benchmarks with them in the summer. They were shipping wafers that we were building for them to sample with their customers, and we actually installed the system in November, or shipped it to them in November. Now, to be careful, fair and not to advertise that we do this with very often or at all anymore. I think they gave us the order a couple days before we shipped it to that's pretty rare. But nevertheless, that's how it played out. You know, and that I think would be fair to say that was moving pretty quick. We've had a discussion going on with another silicon carbide customer for over a year, and they're still taking data. So you know, it kind of can depend. This is not typically, you know, this isn't a 30-day process. And historically, what people will do to whenever they start, they'll bring in a system, and then they'll start doing qualifications of it with both internally and with their customers, and then they will ramp. So I think it's also reasonable to imagine that, you know, the time between the first system and the next system oftentimes is a minimum of a quarter or two as well. So there is a length to this, and I know that that can be frustrating to me sometimes, but you also don't want to drop the ball, nor do you want to guess wrong. It's interesting. I said it in my prepared remarks, and I mean it. I mean, I've had conversations with executive management for silicon carbide customers And they're literally, like, aghast with the forecast that their customers are telling them in 2026. You know, just they're so much bigger than what they built. And, you know, they spent 10 years or five years building what they've done. And these customers are saying these ridiculous, in their mind, numbers, you know, three years from now. And they're like, how in the heck are we going to do this? Right? So they're both excited but also just frightened about it. And so a lot of my conversations with companies are less about when they can get the first tool and how many they could get when they get around to it. It's a very interesting conversation. It's like, listen, you're jumping the gun. You need to buy the first one first. So listen, I have no intention of buying a system from you if you would not be able to meet the capacity needs. It's pretty fun. It's a fun place to be. Right, of course.
spk08: Now, looking at those incumbents, obviously they have processes in place by which they test systems. Our research indicates that yours would be superior to what most, if not all of them, are using at present. But obviously to replace those existing systems would be prohibited because they sunk money into that. So I would assume, is it safe to assume that anything that you would do with an existing vendor would be for, you know, future capacity?
spk10: That's usually easiest. I mean, it's sort of, it's kind of hard to compete with free. There are things for technical reasons. Like if you're going to put these devices into a module, there's no package to put them in. So your package for Vernon doesn't do you any good. so incremental might not only be capacity but it might be type of device but a company that might be increasing capacity of their package part devices discrete devices um as well as modules may choose to move you know need more capacity for their modules and then shift the other capacity towards the excess package part or something like that so but generally speaking It's pretty bold to think you're just going to displace what they have, but I've seen it done.
spk08: Okay. And do you feel that there's any potential roadblocks or pushback to the idea of running multiple processes in parallel, right? They have an existing set of machines and processes.
spk10: No, I've heard very specifically people would actually intend to do that. I mean, by the way, a discrete component that is in a package, you can go find them on DigiKey. I usually have one with me. I'll point it out, you know, and hold it in my hand. There's still a market for those. And if it's in a discrete package and you can put it on a package part burning like one of my systems, it's not crazy. Actually, we think it's cheaper at wafer level. We've shown that and customers have agreed to it. But it's, again, not cheaper than free. So, you know, people would just continue to do package part burden. Why not? That's fine. But there's, you know, scalability perspective. If this market stayed at package part, they're going to need literally thousands of package part burden systems. So, you know, those guys that are supplying 2% of the 2030 market, they need to grow 50 times. So if they have package part burden systems and they didn't go to wafer level, they're going to need to buy 50 times as many package part burden systems too. So it's another way of thinking about it. And so in that commercial disconnect, we call it where it's like, wow, you're going to have to go write a check to somebody for $20 million with a package part burden systems. It's like, well, you know, if you buy my machine, it's 12 million bucks and it's wafer level and it's more scalable. And by the way, you get this advantage because you can also do, put them into modules and you get the yield advantage, et cetera. So there's a value proposition and a sales pitch there simply to displace. Our lead customer has shifted away from Package Park. They're moving everything to Wafer. It's just cheaper.
spk08: Hey, I appreciate the insight. You've been fantastic in guiding us through all this. You're an easy guy to get behind. Thanks a lot. Thanks, Mark.
spk02: And we'll take our last question from Larry Sabina of Sabina Capital.
spk05: Larry. I'm glad you're safe and sound from COVID. Me too. Thank you. I have three quick questions, if I could. The NP sales that you've been announcing recently for Silicon Photonics, the lead customer, the large customer in that area, are they buying – the NPs versus XPs because they have multitudes of applications? Or is the NP with its flexibility cost-effective enough where it actually makes more sense if you stack them up and use them instead of an XP? What's going on there?
spk10: I'm going to be a little vague here, but I'll just at least say, no, they're buying them for engineering characterization and early qualifications. Now, companies could use an NP. Remember, an NP can test two wafers at a time. So I guess in certain applications, a wafer is a lot of devices. But no, these are being used in qualification engineering characterization because they're easy. You could do quick changeovers. You can run them at different, you know, each of the NPs can be at different temperatures. Each of the positions can be at different configurations. It's the flexibility for it. And, you know, they're just sort of bite-sized. They're, you know, cheaper than the production system. But they work pretty well.
spk05: So easier to scale up. So am I to think that that's for the same application or are they different applications?
spk10: All I've said is that they are different applications. Okay. And I really don't want to put in. Okay. Okay. And, by the way, we don't know yet exactly what that will look like and, you know, intentions of I'm not forecasting what production may or may not be or anything else, but I'm very excited about this, what they're doing right now.
spk05: Right. You haven't updated anything on the CP business for data centers. Yeah, that's it.
spk10: Does that still in the works? You know what, Larry, we don't. So folks that are joining in on that aren't familiar with it, We announced a CP as a single way for system that we announced to a customer. We referred to it in an extremely high volume application and they bought one system. So it can't be that high volume. That customer has continued to communicate to us on a fairly long period basis, every three to six months, that the ramp of that product line continues to be delayed. And what I heard was it was, listen, given COVID and other things, They've sold everything they can build. I think one of the updates I heard was even last May, and I think I would have said this in one of those calls. They've sold everything out for a year or more. So it's our understanding that they are still fully committed to whatever those new products are going to be, which we really know what they are, but we're very vague about it. It's just out in time. And I think Vernon and the team are supposed to be getting an update again during this first quarter or something. Um, but, uh, they're still using the tool every single day, 24 hours a day. Um, in doing all this characterization and pre-production and early runs and things like that. And it's believed to be the tool of record. They just clearly have not ramped yet.
spk05: Okay. Do you have a target date when you plan on introducing your automated XP, what I'm calling the XPH?
spk10: Um, So I have had some conversations mostly off of this because of competitive reasons. But just as a reminder, I've told people that if you're investing in air, you are investing in some level of automation. And as Larry calls it, he's got his own name for it. But we will try to think what I want to say here. It'll be something that we'll be introducing and shipping certainly this calendar year. Let me just leave it at that.
spk05: Did you say it'll be shipping this calendar year?
spk10: Yes.
spk05: Is that what you said? Yes. And is that automation, are you going to make it so it's adaptable to existing XPs if somebody wanted to upgrade their system? So it'll be adaptable. And then lastly, once that is launched, do you anticipate providing that tool on an evaluation basis to a memory... potential memory customer immediately? Is that the idea or the thought?
spk10: Yeah, you emphasized immediately and you had me there for a little bit. I'd love to introduce it to a memory customer. I'm not making any predictions on that yet, okay? But one of the things that we do think that that is a critical aspect for it is that that tool would, it's important to the memory guys, but we also think it's important to other areas. By the way, I think it would be important to the non-fiber optic transceiver silicon photonics business. I think it would be important to some of the high volume silicon carbide guys that are talking about light shot operations. I think it'll become more important when the 200 millimeter silicon carbide kicks in because there's more levels of automation for how the wafers are moved around and things like that. So there's a number of applications that that would fit towards and sort of stay tuned. And I know you always hit me up on that, and I'm always sort of vague, but I don't want to get too carried away with talking about that yet, okay?
spk05: All right. Hey, that's all I had. Good job.
spk10: Hey, operator, I think we better end it there. I know we've got some follow-on calls and stuff with people that have set up. And as always, folks, if you do want to set up calls as follow on MKR folks can help us with setting those up and we do do that kind of usually fill up the week afterwards with it. So be happy to set those up with folks. I really do want to thank everybody for joining us. Please stay healthy and safe. One thing I do want to add is that if you guys do not already do this, we have been using kind of as our primary blog. We do use LinkedIn. And Airtest is publishing maybe two to three articles a week, including primary content, things that talk about our products, and then we direct things towards market and industry announcements and stuff that we think are pertinent to our space. Got a lot of activity in silicon carbide, but also silicon photonics, and you'll see some other things as well. So I would encourage you to go ahead and go connect with us on LinkedIn. And go back if you just knew and go scroll back a ways because we've been putting on content pretty aggressively for, you know, several months now. And it's a great way to keep in connection with us. With that, I appreciate your time and we'll look forward to talking to you next quarter. And for those that are going to be at the DA Davidson, we'll see those folks next week as well. Take care. Bye-bye.
spk02: And so this concludes today's call. Thank you for your participation. You may now disconnect.
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