Aehr Test Systems

Greetings. Welcome to the Aehr Test Systems third quarter fiscal 2024 financial results call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers at MKR Investor Relations. You may begin.

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' third quarter fiscal 2024 financial results conference call. With me on today's call are Aehr Test Systems President and Chief Executive Officer, Gane Erickson, and Chief Financial Officer, Chris Hsu. Before I turn the call over to Gane and Chris, I'd like to cover a few quick items. This afternoon, right after the market closed, Aehr Test issued a press release announcing its fiscal 2024 third quarter financial results. That release is available on the company's website at aehr.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 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 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 Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now I'd like to turn the conference call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal 24 earnings call. Thanks for joining us today. I'll start with a quick summary of the quarter and spend some time to address what we're seeing across key markets, areas addressing for our semiconductor wafer-level test and burn-in systems. We've actually had a lot of questions in the last couple weeks and also feedback coming in, so our plan is to take some time to cover all of the markets that we're addressing, and then we'll open it up for questions. As we discussed in our second quarter earnings call, we'd seen several pushouts of forecasted orders by current and new customers that impacted our fiscal year revenues. We believe that this was due to two key factors. There's clearly softness in the overall semiconductor capital spending, particularly in automotive applications, as related to a glut in inventory driving down near-term orders to these companies that has caused them to push out capital spending and drive cost reductions. Multiple companies, including the companies we had expected orders from, have publicly discussed inventory-related headwinds in their public earnings calls and press releases. In addition, we've seen specific shifts in order timing of our equipment used for wafer-level test and burn-in of silicon carbide power semiconductors used in electric vehicles. In just the last two weeks of the quarter, we saw delays in orders for silicon carbide systems with customer requested shift dates within the quarter, as well as a last-minute push-out by a customer of a system in our backlog. The net effect of this was a significant shift in revenues out of the third and fourth quarters. Until this time, we'd been hearing from those customers that their silicon carbide-based capital investments were not being impacted. It is now clear that the recent overall softness in semiconductors and the impact of shifts in electric vehicle introductions and ramps are impacting our bookings and revenue forecasts more than we understood only two months ago at our last earnings call. We now expect this to last for another quarter or two before the orders resume based on the latest roll-up of direct forecasts from over a dozen silicon carbide companies. Due to this, last month we revised our guidance for our fiscal 24-year end, ending May 31, 2024, to be greater than $65 million in total revenue and net income of at least $11 million, which we're reiterating today. We still expect to finish this year with annual revenues that are near or above our full-year record. Our discussions with customers indicate that the key markets Aehr is addressing for semiconductor wafer-level test and burn-in have significant growth opportunities that will expand this year and throughout this decade. And we're seeing increased customer engagement in each of these markets. We've also seen a recent strengthening in the silicon carbide market for electric vehicles outside the U.S. in what appears to be a shift in market share of electric vehicle suppliers. This clearly includes Asia, where we recently had an extensive and very productive visit with a significant number of silicon carbide suppliers and electric vehicle suppliers. On today's call, I'll discuss each of the major market segments AehrA is addressing for wafer-level burn-in of semiconductors, which includes silicon carbide, gallium nitride, silicon photonics, and memory semiconductors, as well as tee up an opportunity we hope to discuss in the coming months. I'll also include the trends we're seeing in the Asia EV suppliers and impact on silicon carbide and air's opportunity to address this market. According to market forecasts, including the Semiconductor Industry Association, the semiconductor industry expected to grow from $600 billion in 2022, and by the way, we apologize, someone noted that that was incorrectly noted as million in our press release, so we'll get that corrected, to over $1 trillion at or around 2030. This acceleration is coming from mega market drivers, including artificial intelligence, green energy and decarbonization, and IoT-based digital transformation. Increased reliability concerns about semiconductors in a growing number of mission-critical applications, as well as more multi-chip modules or heterogeneous integration with multiple devices being assembled together in a single package, are driving the need for wafer-level burn-ins. At semiconductor industry conferences around the world, we've seen an increased focus on moving test and burn-in to wafer level before these devices are put into multi-chip packages or modules. These favorable macro trends are driving the business that drives Aehr Test and include the following. Silicon carbide power devices going into high-density modules for power conversion in electric vehicles. Gallium nitride power semiconductors going into automotive, solar, and other industrial applications where reliability and safety are critically important. Silicon photonics, where photonics integrated circuits are being put into transceivers for data center infrastructure and optical chip-to-chip communication of CPU, GPU, and AI processors to address the insatiable data storage and bandwidth needs of these applications. And memory devices, whether stack die for solid state disk drives to use in enterprise and data storage, or with AI processors, again, to address the ever-increasing need for memory density and bandwidth of these applications. Now, let me touch on each of these briefly, starting with silicon carbide market. While we remain cautious looking ahead to the next quarter or two, we're seeing signs of improvement in the silicon carbide market. Last week, we announced an order from a new customer for our FOXNP solution for engineering qualifications for all-out production of their silicon carbide power devices. This customer is a multibillion-dollar-per-year global semiconductor company with locations across Europe, Asia, and the Americas, and has a wide range of automotive products and is entering the silicon carbide market to address several applications that include automotive, industrial, and electrification infrastructure. This customer sees the enormous opportunity for silicon carbide power devices and has told us they plan to transition to our Fox XP multi-wafer test and burn-in systems as they ramp to high-volume production. This is the third straight customer in a row for silicon carbide for us that is primarily focused on applications other than EVs. These additional applications expand our market opportunity beyond the 4.5 million six-inch equivalent silicon carbide wafers that William Blair forecasts will be needed per year by 2030 just for electric vehicles. These new applications are driving an additional 2.8 million six-inch equivalent wafers annually by 2030 to address industrial, solar, electric trains, energy conversion, and other applications. Interestingly, this is also the third customer row that did not need to see their wafers tested on our system before they moved forward to purchase from us. I've mentioned this before, but the need for testing before purchase was essentially a requirement with our early customer engagements, and it's clear that many of our potential new customers have become much more comfortable moving forward with Aehr simply on our assurances that our solution will perform as committed. This allows the customers to accelerate their time to market. Of course, we're still happy to engage with customers if they want to see their wafers tested first. We still have yet to lose a prospective customer after demonstrating our test and burning capabilities on their wafer and have never lost a head-to-head evaluation to a competitive product since introducing our Fox NP and XP configured with the silicon carbide and gallium nitride test resources. While we are seeing the impact of a slower adoption of battery electric vehicles than most imagined a year ago, our initial wins and ongoing qualifications at multiple device manufacturers drive our optimism from a longer-term perspective. So far, we have secured a total of seven silicon carbide customers that have ordered our FOXP family of systems and proprietary wafer pack for wafer contactors. We're engaged with well over a dozen additional silicon carbide players in evaluations of our systems and our wafer benchmarks, where we build a Fox wafer contactor for them and test their devices at air test to demonstrate the feasibility and correlation of results to meet their reliability requirements. We're focused on the qualification process with as many new customers as possible, as again, Once we've demonstrated our Fox wafer-level test and burn-in solution using their own wafers, we've not lost a potential customer yet. Our benchmarks with multiple silicon carbide suppliers continue to progress this quarter. This includes on-wafer benchmark that we've been working on for multiple years. We believe and understand now that some of the market share shifts in both total market and specific end customers had an impact on and delayed new customer decision timelines. We still believe that their silicon carbide module and dye sales plans will drive the need for known good dye and wafer-level burn-in, and that we will win more than our fair share of these opportunities. In addition to our customer-related travel to Europe and across the U.S., we most recently had extensive visits with a significant number of Asian silicon carbide suppliers and the electric vehicle suppliers themselves. The tone and demand for EVs is much stronger outside the U.S., particularly in China and South Korea. Clearly, we also heard that there's a real need for quality, low-cost, high-volume, automated solution for wafer-level burning of silicon carbide devices, particularly in the automotive segment. Based on what we saw, the electric vehicle suppliers in China have a very strong focus on silicon carbide, to the point of actively marketing silicon carbide power conversion as a differentiating feature. We personally visited several EV supplier sales stores, which were basically all in malls or retail shopping areas, like we see Tesla here in the U.S., and three of them basically positioned their silicon carbide-based EVs as superior, almost apologizing that this particular version is only IGBT, but next year's model is silicon carbide-based. They had no idea who we were or that we have any skin in the game for silicon carbide. Another notable was that we heard across the board from both the EV suppliers themselves and also the power semi suppliers is that all the Asia electric vehicle suppliers appear to be driving to build module-based silicon carbide for their power inverters in their cars. rather than the discrete devices like what Tesla has done. And they also have a very high expectation for delivering quality. We even heard from multiple companies that they're driving to supply silicon carbide and wafer level burn-in to local suppliers because they believe they can get higher quality known good dye than they can from suppliers outside of Asia. Driving away for level burn-in of devices before they're put into modules is critically important to them to remove infant mortality, which bodes well for our solutions. Per a report last year, UBS forecasted that in 23, 91% of the batteries sold in electric vehicles would be 400 volt and only 9% would be 800 volt. But by 2026, UBS expects the percentage of 800 volt batteries to be above 30%. The report also focused on the progression of electric vehicle batteries from 400-800 volt, which is generally recognized by the industry where the silicon carbide is mandatory to get the range and recharging speed consumers are demanding. This is why it appears so many silicon carbide suppliers are timing their major ramps to be in 2025 and 2026 timeframe. So in the next couple years, we expect Aehr to benefit from both an increased number of electric vehicles being sold as well as a significant increase in silicon carbide in our solution for those electric vehicles. The electric vehicle market in Asia, particularly China and South Korea, is very robust, supported by public and consumer sentiment. And they have some really incredible cars that are being built for electric vehicles. And I now fully understand why Tesla stated that their key competition is from Asia and why both U.S. and European auto suppliers in particular are so worried. From the feedback we received from a significant number of potential customers in Asia, we believe that Aehr's proprietary wafer-level burning systems, based upon our patented proprietary wafer pack contactors, appear to have a key value proposition, and we see a high degree of interest in our solutions. We already have people and infrastructure across Asia, including China. We have shipped and supported our packaged part burning systems into China for many years, and have also already shipped our Fox wafer-level test and burning systems into China a few years ago. Based on customer commitments, we're discussing expanding our presence in China in terms of support infrastructure and resources. We have also put additional measures in place to ensure the protection of our IP and patents that we feel will help to secure our proprietary capabilities and allow us to grow and maintain market share over time. We look forward to providing updates on our plans over the next few months. Now let me discuss our progress with testing burning gallium nitride power semiconductors. We continue to be encouraged by this market and believe it will be significant in terms of market size for semiconductors. In addition to its wide adoption in consumer devices such as cell phones, tablets, and laptop computers, gallium nitride is being targeted for use in solar, data centers, and automobiles, whether electric or traditional gasoline automobiles. The critical reliability needs of these target markets appear to be increasingly driving production burn-in requirements. And Aehr's FOXP multi-wafer system can deliver both the power and high voltage required to do massive parallel per die and multiple wafer test of gallium nitride devices for a very cost-effective solution. During the quarter, we announced our first order for a FOX wafer-level test and burn-in system to be used for gallium nitride devices. And we have a second potential FOX system customer that has been purchasing our wafer pack contactors for their onsite evaluation that we believe is progressing very well. As I've noted before, we're working with several of the GAN suppliers, including the two market leaders, which positions us front and center in this market that we believe is another potential significant growth driver for our wafer-level solutions. The test requirements for GAN for full wafer are actually quite different than silicon carbide in terms of technical implementation. However, our FOX platform has been capable has been capable of testing these devices with the functionality and flexibility of our unique Fox blade architecture, which allows us to configure the test blade for specific applications with the same infrastructure. This has proven to be very impressive to these customers, as in fact, even they did not understand the implications of testing an entire wafer at very high voltage and the resulting impact on the test schematic due to leakages of their devices. We were able to address this with our channel modules and proprietary custom wafer packs to address the test challenge. And honestly, both air and our customers were very happy with the flexibility of our systems to do this. We've been told now that burn-in will be required for GAN going into mission-critical applications, such as automotive, solar, and some industrial applications, and the amount of burn-in time is still being worked on. Still, this is good news for us, and we feel we're well positioned to capitalize on this opportunity with our solutions in these lead customers. We're also seeing some additional new small and large players engage with us for GAN. We've been seeing consolidation within the industry of smaller key gallium nitrate players being acquired by the larger suppliers. So all potential customers are believed to have real potential in the future. Turning to silicon photonics, which are silicon-based semiconductors with integrated photon or light-based transmission of signals within and into and out of the silicon via laser photonic emitters and photonic receivers. We're very excited to have shipped during the quarter and ahead of schedule the first order from a major silicon photons customer for a new high-power configuration of our FOX-XB system for volume production, wafer-level burn-in, and stabilization. of next-generation silicon photonics integrated circuits. This new high-power configuration expands the market opportunities of the Fox XP system and is configured to enable cost-effective volume production tests of wafers of next-generation photonic integrated circuits, which are targeted for use in the new optical I.O. or co-packaged optics market for chip-to-chip communication. As we discussed before, companies such as AMD, NVIDIA, Intel, TSMC, and Global Foundries have all announced plans for silicon photonics integrated circuits and integration of these in packages with other devices such as CPUs, GPUs, and AI processors. Our FOX wafer-level test and burn-in solution with a proprietary wafer-packed full wafer contactors are a great fit for the silicon photonics market. These next-generation silicon photonics-based integrated circuits can require up to two to four times as much power for full wafer test burn-in and stabilization. Our new Fox production system configuration, which can be used to test and burn in these new optical IO devices, expands the market opportunity of the Fox XP system even further. In addition, the power and functionality of lasers used to transmit data are critically important to the performance of the communication channel. And Aehr solutions not only weed out early life failures, but also improve the performance of the device through what the photonics industry refers to as stabilization. During the first day or two of normal operation, the laser output characteristics change in an exponentially decaying manner and must be stabilized until the decaying stops before the final product can be tuned to meet its performance specifications. Aehr can do this across an entire wafer of fully integrated photonic integrated circuits with embedded or attached laser emitters. Aehr currently has six customers using our systems for production tests of their silicon photonics devices. five using our NP and XP systems for wafer-level test and burn-in, and one using both systems for engineering and production burn-in of individual simulated dye and modules using our proprietary dye packs. While the timing of these devices and volume ramps are not publicly clear, we remain very enthusiastic about the silicon photonics market and are watching this market very closely. We continue to work with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application. Now on to memory. According to the average of multiple market forecasters in 24, memory semiconductors will make up over 50% of the total semiconductor wafer shipped in the whole world. This is approximately half NAND flash memory and half DRAM. We are making continued progress in our ongoing discussions with multiple memory suppliers, We see the memory market as a significant opportunity for us to deliver wafer-level burning solutions to help memory suppliers meet their reliability and quality needs, particularly with stacked die applications. During the next year, we're driving for our first on-wafer benchmark in partnership with a leading NAND supplier using our proprietary wafer packs and FOX wafer-level test and burning system with our new fully automated wafer pack aligner. We see an initial opportunity for testing NAND for solid-state disk drives used in enterprise and data storage where Aehr can deliver compelling cost effectiveness and also weed out infant mortality issues before multiple die are put in a single package. Longer term, we believe DRAM will be a critical target market for our systems, particularly as the percentage of DRAM going into multi-chip modules such as GPUs, CPUs, and AI processors increases. Now I want to spend a minute on the overall artificial intelligence semiconductor market. I've already discussed how we're working with silicon photonics suppliers for their plans at integrating silicon photonics as optical communication transceivers and devices, including AI processors. We also see co-packaged, quote, memory in AI processors as a key driver for wafer-level burn-in of DRAM for these devices. We also see a significant opportunity for the AI processors themselves. Our new high-power FOX system that we discussed for optical I-O semiconductor burn-in The Fox XP multi wafer production system we began shipping last month is the world's highest power per wafer system on the market, and it handles up to nine wafers at a time, also unprecedented in the industry. This system is capable of testing up to full 300 millimeter wafers of processors, up to several thousand watts of power, and over 2,000 amps of current on each of nine wafers in parallel. By moving the burn-in from package module or final system form as is done today and move it to wafer level, our customers can achieve enormous savings related to yield loss of modules with up to hundreds of other devices or chiplets in the same module. On the case to system level test, the cost of the WIP inventory and yield loss of infrastructure of the system surrounding these modules or chips. The wafer level burn-in challenges we're working on include putting extremely high currents onto the wafer without damaging the wafer or the contactor, thermal management of the high power devices with very high leakage currents associated with the high burn and temperatures we can apply, and automation and handling of these very expensive wafers built on the most state-of-the-art logic process geometries in the world. Stay tuned to hear more about this exciting new application for our products over the next several months. And lastly, I want to discuss our wafer packs, which are basically the consumable that accompanies and is required with all of our Fox wafer-level testing and burning systems. We continue to be very pleased with the continued stream of new designs for wafer packs. Our new design volume has almost doubled this year compared to last year, as we're seeing more and more designs spanning silicon carbide, GaN, silicon photonics, and other applications. As a result, our customers are buying additional wafer pack contactors for these new designs highlighting the recurring revenue part of our business. As we've noted before, our proprietary wafer pack contactors are needed with our FOX wafer level test and burden systems to make contact with the individual dye on the wafer and are designed specifically for a given device. As our customers win new designs from their customers, Aehr eventually secures orders for new wafer packs to fulfill these new wins. With each new design, our customers will need enough new wafer packs to meet the volume production capacity need for those new devices. our wafer packs will be greater than 50% of our total revenues this fiscal year, which is fantastic and underscores the business model that allows us to grow both from added capacity from our Fox systems, but also with wafer packs to serve an ever-increasing installed base. To conclude, as we head toward the start of fiscal 25 on June 1st, we're very encouraged and optimistic about our increase in engagements and the long-term growth opportunities of all these markets. and are excited to continue on our path of becoming the world standard for wafer-level test and burn-in for the semiconductor industry. With that, let me turn it over to Chris before we open up the line for questions.