Q2 2024 Aehr Test Systems Earnings Call

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Greetings and welcome to Air <unk> Test systems second quarter fiscal 'twenty 'twenty four financial results call. At this time, all participants are in a 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 of MTR Investor Relations, Jim you may begin.

Thank you operator, good afternoon and welcome to air test systems, second quarter fiscal 2024 financial results conference call with me on today's call or air test systems president and chief executive officer gain Ericsson and chief financial officer Chris you.

Thank you operator, good afternoon, and welcome to Air Test system.

Second quarter fiscal 2024 financial results conference call.

With me on today's call are Air Test Systems', President and Chief Executive Officer gain Ericsson and Chief Financial Officer, Christy you before I turn the call over to gain and Chris I'd like to cover a few items. This afternoon right after market close.

Speaker Change: Before I turn the call over to Gane and Chris, I'd like to cover a few items this afternoon right after market close.

Airtest issued a press release announcing its fiscal 2024 second quarter results.

Eric has issued a press release announcing its fiscal 2024 second quarter result.

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.

That release is available on the company's website at <unk> Dot 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.

Speaker Change: 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 statement.

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.

Speaker Change: Those factors that could cause actual 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.

Factors that could cause actual 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 are forward looking statements, including guidance provided during today's call are only valid as of this date.

and air test systems undertakes no obligation to update the forward-looking state.

And there are test systems undertakes no obligation to update the forward looking statements.

And now with that, I'd like to turn the conference call over to Gane Erickson, President and Chief Executive Officer.

And now with that I'd like to turn the conference call over to gain Erickson, President and Chief Executive Officer.

Gane Erickson: Thanks, Jim. Good afternoon, everyone, and welcome to our second quarter of fiscal 24 earnings conference call. Thanks for joining us today.

Thanks, Tim Good afternoon, everyone and welcome to our second quarter of fiscal 'twenty Four earnings conference call. Thanks for joining us today.

Gane Erickson: We'll start with a quick summary of the highlights of the quarter and the continued momentum we're experiencing in the semiconductor wafer-level test and burn-in markets. Then Chris will go over the financials in more detail. After that, we'll open up the lines to take your questions.

We'll start with a quick summary of the highlights for the quarter and the continued momentum we're experiencing in the semiconductor wafer level test and burn in markets and Chris will go over the financials in more detail after that we'll open up the lines to take your questions.

Chris: We had another solid quarter with strong year-over-year growth in revenue and net income, both ahead of consensus estimates. Revenue for the quarter was $21.4 million, an increase of 45% year-over-year. And we generated non-GAAP net income of $6.7 million, slightly over 31% net profit.

We had another solid quarter with strong year over year growth in revenue and net income. Both ahead of consensus estimates revenue for the quarter was $21 $4 million, an increase of 45% year over year, and we generated non-GAAP net income of $6 $7 million slightly over 31% net profit.

Chris Yu: For the first half of the fiscal year, we grew revenue 65% over the same period last year.

For the first half of the fiscal year, we grew revenue 65% over the same period last year.

Chris Yu: We continue to see increased demand for our wafer-level burden products and remain confident about the future demand for our unique technology solutions and the multiple market opportunities they address.

We continue to see increased demand for our wafer level burn in products and remain confident about the future demand for our unique technology solutions and the multiple market opportunities they address.

Chris Yu: In just the last 60 days, we've seen how the slowing of the growth rate of the electric vehicle market has had a negative impact on the timing of several current and new customer orders and capacity increases for silicon carbide devices used in them.

And just the last 60 days, we've seen how the slowing of the growth rate of the electric vehicle market has had a negative impact on the timing of several current and new customer orders and capacity increases for silicon carbide devices used in them.

Chris Yu: For clarity, we do not see the silicon carbide market actually decreasing, only a slowing of the growth rate. And we've seen delays in both current customer and new customer purchase orders for production ramps to meet those electric vehicle demand compared to what we're expecting even within the last several weeks and days.

For clarity, we do not see the silicon carbide market actually decreasing only a slowing of the growth rate and we've seen delays in both current customer and new customer purchase orders for production ramps to meet those electric vehicle demand compared to what we were expecting even within the last several weeks and days.

Chris Yu: I'll discuss more detail on our new customer engagements, but a very large customer that we've been engaged with on a significant automotive benchmark in particular has modified their timing for taking multiple production systems, which we feel most likely pushes them out of this fiscal year and is reflected in our lowered revenue forecast for this fiscal year.

I will discuss more detail on our new customer engagements, but a very large customer that we have been engaged with on a significant automotive benchmark in particular has modified their timing for taking multiple production systems, which we feel most likely pushes them out of this fiscal year and is reflected in our lowered revenue forecast for this fiscal year.

Year.

Recent announcements from some automotive semiconductor suppliers are slowing growth due to their customers stockpiling parts suggests that the automotive semiconductor slowdown may be due in part to a temporary excess in inventory, but in addition to slowing sales of automotive worldwide automobiles worldwide related to overall caution.

Chris Yu: Recent announcements from some automotive semiconductor suppliers of slowing growth due to their customers stockpiling parts suggest that the automotive semiconductor slowdown may be due in part to a temporary excess in inventory, but in addition to slowing sales of automobiles worldwide related to overall caution by automotive buyers due to increased interest rates and its impact on new auto sales.

By automotive buyers due to increased interest rates and its impact on new auto sales.

Chris Yu: Multiple companies we're engaged with are large suppliers of automotive semiconductors, and they have put in place temporary cost control measures that have trickled down to even silicon carbide plants, which we have heard are the area least impacted due to the expected growth that is forecasted by their customers.

Notable companies, we are engaged with our large suppliers of automotive semiconductors and they have put in place temporary cost control measures that have trickled down to even silicon carbide plants, which we have heard or the area of least impacted due to the expected growth that is forecasted by their customers.

Chris Yu: As a result, we've seen delays in customer ramps and capacity expansion plans, which has resulted in delays in expected existing and new customer orders for our product.

As a result, we've seen delays in customer ramps and capacity expansion plans, which has resulted in delays in expected existing and new customer orders for our products.

Chris Yu: We're also experiencing the impact of shifts in our customer's product mix, which specifically includes an increase in wafer pack wafer contactors for our largest customer. As our customers shift from one design to another, they will order additional wafer packs from us to be able to test and burn in those wafers. In the case of a large shift in the customer mix, this can be a very large number of wafer packs.

We're also experiencing the impact of shifts in our customers' product mix, which specifically includes an increase in wafer pack wafer contactor is for our largest customer as our customers shift from one designed to another they will order additional wafer packs from us to be able to test and burn in those wafers in the case of <unk>.

Large shift in the customer mix. This can be a very large number of wafer packs.

Chris Yu: Our largest customer's overall forecast for revenue with us has actually remained relatively flat for the year, but the revenue mix has shifted to fewer systems and more wafer packs.

Our largest customers overall forecast for revenue with US has actually remained relatively flat for the year, but the revenue mix has shifted to fewer systems and more wafer packs.

Chris Yu: Given the latest forecast from our customers and uncertainty on the timing of their orders, we believe it makes sense to take a more conservative approach to our fiscal year forecast and have reduced our growth estimates for fiscal 24 revenue.

Given the latest forecast from our customers and uncertainty on the timing of their orders. We believe it makes sense to take a more conservative approach to our fiscal year forecast and have reduced our growth estimates for fiscal 'twenty for revenue.

Chris Yu: We're reducing our revenue expectations of at least $100 million this fiscal year by 15% to 25% to a range of $75 million to $85 million in revenue. This is still a growth rate of 15 to

Reducing our revenue expectations of at least $100 million this fiscal year by 15% to 25% to a range of $75 million to $85 million in revenue. This is still a growth rate of 15% to 30% year over year.

Chris Yu: Despite this uncertainty and timing of orders, we remain confident about the future demand of our unique semiconductor test solutions in the markets they address.

Despite this uncertainty in timing of orders, we remain confident about the future demand of our unique semiconductor test solutions in the markets. They address we have not reduced our revenue our growth expectations for the years ahead, where we continue to see tremendous opportunity. We continue to hear from our current customers as well as companies were engaged.

Chris Yu: We have not reduced our revenue, our growth expectations for the years ahead, where we continue to see tremendous opportunity.

Chris Yu: We continue to hear from our current customers, as well as companies we're engaged in evaluations with, that wafer-level burn-in is critical to their product roadmaps to address multiple large and growing markets, including battery and hybrid electric vehicles, industrial and solar power conversion, data and telecommunications infrastructure, and the new and coming optical I-O and co-packaged optics semiconductor market.

The evaluations with that wafer level burn in is critical to their product roadmaps to address multiple large and growing markets, including battery and hybrid electric vehicles, industrial and solar power conversion data and telecommunications infrastructure and the new incoming optical Io and co packaged optics semiconductor markets.

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Chris Yu: Well, let me discuss our progress with Silicon carbide and gallon nitrite power semiconductor customers.

Well, let me discuss our progress with silicon carbide, and gallium nitride power semiconductor customers.

Chris Yu: As a reminder, silicon carbide is a compound semi-conductor. There's thermal conductivity that's retens better than that of silicon. And the dialectic breakdown strength of stick is around 10 times better than silicon, making this much better for high voltage high power application.

As a reminder, silicon carbide is a compound semiconductor this thermal conductivity that three times better than that of silicon and the dielectric breakdown. The strength of <unk> is around 10 times better than silicon, making this much better for high voltage high power applications Silicon carbide has become the semiconductor of choice for use in electric vehicle power conversion and Chargers.

Chris Yu: Silicon carbide has become the semiconductor of choice for use in electric vehicle power conversion and chargers. And in particular, it is a key differentiator in the motor traction inverter due to the longer range and faster charging than electric vehicles using silicon carbide C.

And in particular, it is a key differentiator in the motor traction and further due to the longer range and fast charging that electric vehicles using silicon carbide C.

Chris Yu: Silicon carbide semiconductor devices have a very high relative early life failure rate compared to pure silicon. But these failures can be weeded out with special electrical and thermal stresses referred to as burn-in, such as those supplied by Ayer's family of FOX wafer-level testing burn-in systems and our proprietary wafer-packed full wafer contact.

Silicon carbide semiconductor devices have a very high relative early life failure rate compared to pure silicon, but these failures can be weeded out with special electrical and thermal stresses referred to as burn in such as though supplied by Arris family of Fox wafer level test and burn in systems, and our proprietary wafer pack full wafer contactor.

Chris Yu: Our wafer packs make electrical contact to the tiny electrical pads of the semiconductors while still in wafer form and are unique and specific to each customer device and wafer layout.

Our wafer packs make electrical contacts the tiny electrical pads of the semiconductors, while still in wafer form and our unique and specific to each customer device and wafer layout cut.

Chris Yu: Customers are moving from package or module form of burn-in to save on the yield loss of the packages in particular for multi-dye modules used in the new electric vehicle.

Customers are moving from package, our module form of burn in to save on the yield loss of the packages and particular for multi die modules used in the new electric vehicles.

Chris Yu: AIR has a unique solution for being able to test thousands of silicon carbide devices at a time on a single wafer and also up to 18 wafers at a time so that our customers can remove extrinsic failures to get the quality and reliability critical to the electric vehicle suppliers in an extremely cost effective way.

<unk> has a unique solution for being able to test thousands of silicon carbide devices at a time on a single wafer and also up to 18 wafers at a time, so that our customers can remove extrinsic failures to get the quality and reliability critical to the electric vehicle suppliers and an extremely cost effective way.

Chris Yu: We can do this testing and burn in while ensuring that every single device is proven to be burned in before they're shipped to the end customer.

We can do this testing and burn and while ensuring that every single device has proven to be burned in before theyre shipped to the end customer.

Chris Yu: This cost-effectiveness and assurance that 100% of the devices are burned in is critical to this market.

This cost effectiveness and assurance at 100% of the devices are burned in is critical to this market.

Chris Yu: Last month we announced our first order for a FOX wafer level test and burn-in system to be used for gallium nitride devices.

Last month, we announced our first order for our Fox wafer level test and burn in system to be used for gallium nitride devices.

This customer is a leading global supplier of semiconductor devices used in electric vehicles and power infrastructure and adds another major customer to the list of companies using <unk> Fox products for wafer level test and burn in of Wideband gap compound semiconductors.

Chris Yu: we were already able to ship this system within a few weeks to them to meet their needs.

We were already able to ship this system within a few weeks two to them to meet their needs.

Chris Yu: We're now working with two of the market leaders in gallium nitride which positions us front and center in a market that we believe is another potential growth driver for our wafer-level solution.

We're now working with two of the market leaders in gallium nitride, which positions us front and center in the market that we believe is another potential growth driver for our wafer level solutions.

Chris Yu: Gallium nitride is similar to silicon carbide in that both of these compound semiconductors are considered wide bandgap semiconductors that are more efficient in higher voltage power conversion applications than pure silicon semiconductors.

Gallium nitride is similar to silicon carbide and that both of these compound semiconductors are considered wide bandgap semiconductors that are more efficient and higher voltage power conversion applications than pure silicon semiconductors.

Chris Yu: We believe the gallium nitride market is another potential growth driver for our wafer-level solutions, particularly for automotive and photovoltaic applications where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets.

We believe the gallium nitride market as another potential growth driver for our wafer level solutions, particularly for automotive and photovoltaic applications, where burn and appears to be critical for meeting the initial quality and reliability needs of those markets.

Chris Yu: We continue to make great progress with our previously announced benchmarks and engagements with prospective new customers, including the significant automotive qualification of wafer-level burning we've been doing with one of the market leaders in silicon carbide.

We continue to make great progress with our previously announced benchmarks and engagements with prospective new customers, including the significant automotive qualification of wafer level burn in and we've been doing with one of the market leaders in silicon carbide.

Chris Yu: We believe we have a large opportunity with this potential new customer and feel confident they will move forward with our Fox XP MultiWafer solution for their high volume needs, but the timing is taking longer than anticipated. We remain confident that we'll receive initial purchase orders from them in fiscal 24. However, it's not clear whether they will have the infrastructure ready to take shipments from us within our fiscal year that ends May 31st.

We believe we have a large opportunity with this potential new customer and feel confident they will move forward with our Fox XP multi wafer solution for their high volume needs, but the timing is taking longer than anticipated. We remain confident that we'll receive initial purchase orders from them in fiscal 'twenty. Four however, it's not clear whether they will have the infrastructure ready.

To take shipments from us within our fiscal year that ends may 31.

We made significant progress in expanding our customer base for silicon carbide are sick and gallium nitride or Gan wafer level burn in for a wide variety of applications. We currently have a total of seven customers purchasing our solutions for second devices and are also actively engaged with more than two.

Chris Yu: We've made significant progress in expanding our customer base for silicon carbide or SIC and gallium nitride or GAN wafer-level burn-in for a wide variety of applications.

Chris Yu: We currently have a total of 7 customers purchasing our solutions for SICK and GAN devices and are also actively engaged with more than 2 dozen SICK and GAN companies to address their needs for wafer-level tests and burn-in of these devices.

Two dozen sic and again companies to address their needs for wafer level test and burn in of these devices.

Chris Yu: Importantly, 10 of these additional companies have already engaged with AIR for on-wafer benchmarks.

Fortunately 10 of these additional companies have already engaged with care for on wafer benchmarks. We have never lost a full wafer level burn in evaluation since introducing our Fox NP and XP systems configured with silicon carbide and gallium nitride test resources and we believe we will have over 12 silicon carbide.

Chris Yu: We have never lost a full wafer-level burn-in evaluation since introducing our FOX NP and XP systems configured with silicon carbide and gallium nitride test resources. And we believe we will have over 12 silicon carbide slash gallium nitride customers buying our wafer-level test and burn-in solutions by the end of this calendar year 2024.

Gallium nitride customers buying our wafer level test and burn in solutions by the end of this calendar year 2024.

Chris Yu: These companies are projecting revenue growth and the need for burning in their devices at the wafer level to weed out the early failures that would otherwise show up in their devices or modules or worse in their customers' applications.

These companies are projecting revenue growth and the need for burning in their devices at the wafer level to weed out the early failures that would otherwise show up for their devices or modules or worse in our customers applications.

Speaker Change: We firmly believe that AIR provides the most competitive solution to burn-in devices that will be used in power modules, and I've shown examples where a cost of test in burn-in is significantly cheaper to do in waveform than in the historical package platform. Package part burn-in as an option for discrete devices and individual packages, but the yield hit, placing multiple devices in a single package or in modules exceeds the cost of test significance.

We firmly believe that air provides the most competitive solution to burn and devices that will be used in power modules and have shown examples where our cost of test and burn in is significantly cheaper to do in wafer form and then the historical packaged part form packaged part burn in as an option for discrete devices and individual packages, but the yield hit placing multi.

<unk> devices in a single package our modules exceeds the cost of test significantly for example at a loss of 1% per die during burn in a module containing 32 die experienced a 32% yield loss of the entire module and all the die inside are thrown away.

Speaker Change: For example, at a loss of 1% per die during burn-in, a module containing 32 die experience a 32% yield loss of the entire module. And all the die inside are thrown away if they're burnt in at that time.

If they are burnt in at that module level.

Chris Yu: This is a real-life example that we have seen across every customer we've talked to.

This is a real life example, that we have seen across every customer we've talked to.

Chris Yu: In anticipation of both our current and new customers' forecasted needs, AIR has put in place the inventory, infrastructure, and processes to increase our manufacturing and installation capacity, as well as significantly lower lead times to meet growth in our customer capacity needs.

In anticipation of both our current and new customers forecasted needs Air has put in place the inventory infrastructure and processes to increase our manufacturing and installation capacity as well as significantly lower our lead times to meet growth in our customer capacity needs.

Chris Yu: This allows us to ship a large number of systems and wafer packs within the same quarter that we receive purchase orders, which is certainly the case in this current fiscal year.

This allows us to ship a large number of systems and wafer packs within the same quarter that we received purchase orders, which is certainly the case in this current fiscal year.

While we've seen delays in orders from our automotive customers, we're actually seeing a pickup in opportunities for silicon carbide wafer level burn in for applications outside of the electric vehicle market, which includes the industrial solar and commuter electric trains as efficiency and value of Silicon carbide is being recognized for these additional markets.

Chris Yu: While we've seen delays in orders from our automotive customers, we're actually seeing a pickup in opportunities for silicon carbide wafer-level burn-in for applications outside of the electric vehicle market, which includes the industrial, solar, and commuter electric trains, as the efficiency and value of silicon carbide is being recognized for these additional markets.

Chris Yu: Even though the largest market opportunity for silicon carbide is still electric vehicles and charging infrastructure, industrial and other power conversion market segments represent significant additional opportunities for silicon carbide for AIRS products.

Even though the largest market opportunity for silicon carbide is still electric vehicles, and charging infrastructure industrial and other power conversion market segments represent significant additional opportunities for silicon carbide for air products.

Chris Yu: William Blair forecast that the total silicon carbide marking is growing at a cager of greater than 4% annually to $8.5 billion in 2025 and over 25% of that will be an industrial and energy power conversion application.

Liam Blair forecast that the total silicon carbide market is growing at a cager of greater than 4% annually to $8 5 billion in 2025 and over 25% of that will be in industrial and energy power conversion applications.

Chris Yu: As we noted on last quarter's call, we're also seeing a continued stream of new designs for our wafer packs, as more and more electric vehicles are coming online with their own specific device designs for inverters and onboard chargers.

As we noted on last quarter's call. We're also seeing a continued stream of new designs for our wafer packs as more and more electric vehicles are coming online with their own specific device designs for inverters and onboard Chargers, our proprietary wafer pack contractors are needed with our Fox wafer level test and burn in systems to contact with the individual die on the <unk>.

Chris Yu: Our proprietary wafer pack contactors are needed with our FOX wafer level test and burning systems to contact with the individual die on the wafer and are designed specifically for a given device.

Paper and are designed specifically for a given device.

Chris Yu: As our customers win new designs from their customers, AIR will eventually secure 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 needed for those new devices.

As our customers win new designs from their customers are will eventually secure 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 needed for those new devices.

Chris Yu: Last quarter we mentioned that our new wafer pack and application test program design volume has tripled over the past previous nine months and this quarter will be a new company record for new wafer pack designs for customers.

Last quarter, we mentioned that our new wafer pack and applications Test program design volume has tripled over the past previous nine months and this quarter will be a new company record for new wafer pack designs for customers. Each design can turn into a high volume production application driving tens or even hundreds of wafer packs needed for production.

Chris Yu: Each design can turn into a high-volume production application driving tens or even hundreds of wafer packs needed for production, highlighting the recurring revenue part of our business.

Highlighting the recurring revenue part of our business.

Chris Yu: We believe that for the semiconductor test markets we serve, our customers desire, if not require, short lead times for test and burning systems, and particularly for the wafer packs used with them. During this fiscal year, we've been able to increase our manufacturing capacity to enable us to ship up to 50 or more Fox test blades per month, representing 50 or more wafers of full wafer test and burning capacity each month.

We believe that for the semiconductor test markets, we serve our customers desire if not require a short lead times for test and burn in systems, and particularly for the wafer packs used with them.

During this fiscal year, we've been able to increase our manufacturing capacity to enable us to ship up to 50 or more Fox test blades per month, representing 50 or more wafers, a full wafer test and burn in capacity each month.

Chris Yu: We have the supply chain infrastructure and process in place to increase this another 50% by the end of this fiscal year and heading into our fiscal 2025 that begins June 1st.

We have the supply chain infrastructure and process in place to increase this another 50% by the end of this fiscal year and heading into our fiscal 2025 that begins June one.

Chris Yu: We've increased our wafer pack capacity to not only support wafer packs for new systems, but also for our installed base of systems so that customers can purchase and ship large quantities of wafer packs within a few months.

We've increased our wafer pack capacity to not only support wafer packs for new systems, but also for our installed base of systems. So that customers can purchase and ship large quantities of wafer packs within a few months.

Chris Yu: We believe the added inventory, increasing capacity, shorter lead times are creating an even larger competitive advantage for us, which in turn will result in continued market share expansion and growth in the markets we serve. So let me move on.

We believe the added inventory increasing capacity as shorter lead times are creating an even larger competitive advantage for us which in turn will result in continued market share expansion and growth in the markets we serve.

So let me move on talk a little bit about silicon photonics.

Chris Yu: We remain very enthusiastic about this market, which includes the current photonics transceiver market used in data and telecommunications, and the upcoming application of silicon photonics integrated circuits for use in optical chip-to-chip communication, which we see as a major market opportunity.

We remain very enthusiastic about this market, which includes the current photonics transceiver market, Houston data and telecommunications and the upcoming application of Silicon photonic integrated circuits for use in optical chip to chip communication, which we see as a major market opportunity.

Chris Yu: These next-generation silicon photonics-based integrated circuits can require up to two to four times as much power for full wafer test and burn and then stabilization. And our new high-power configuration of our FOX production system, which can be used to test and burn in these new optical I-O devices, expands the market opportunity of the FOX XP system even further.

These next generation Silicon Photonics based integrated circuits can require up to 2% to four times as much power for full wafer test and burn in and stabilization and our new high power configuration of our Fox production system, which can be used to test and burn in these new optical Io devices expands the market opportunity at the Fox XP system, even further with <unk>.

Chris Yu: We've been making good progress on our new volume production Fox XP system for these very high power silicon photonics device wafers, and expect to ship this system by the end of our current fiscal third quarter to fulfill our first order from our current major silicon photonics customer that we received last May.

Making good progress on our new volume production Fox XP system for these very high power Silicon Photonics device wafers and expect to ship. This system by the end of our current fiscal third quarter to fulfill our first order from our current major silicon photonics customer that we received last may.

Chris Yu: The system is configured to enable cost effective production test of up to 3500 watts of power per wafer and up to nine full wavers in parallel and also includes our latest chamber configuration, which has a smaller overall footprint.

The system is configured to enable cost effective production test of up to 3500 watts of power per wafer and up to nine full wafers in parallel and also includes our latest chamber configuration, which has a smaller overall footprint.

Chris Yu: This new system is also auto-aligner ready, enabling our customers to easily dock this to our new Fox wafer pack auto-aligner for hands-free operation of wafers from 6 to 12 inches using industry standard wafer cassettes and foots.

This new system is also auto aligner ready, enabling our customers to easily doctors to our new Fox wafer pack auto lender for hands free operation of wafers from six to 12 inches using industry standard wafer cassettes in foods.

Chris Yu: This new FOXXB configuration allows for the testing as many as 8,000 high-power optical devices in parallel on each of nine wafers before they're singulated and placed into a photonic application, such as fiber-optic transceiver modules, or for placement in co-packaged optics for optical chip-to-chip communication devices, such as those that have been announced on product roadmaps by companies including NVIDIA, Intel, AMD, TSMC, and Global Founders.

This new Fox XP configuration allows for the testing as many as 8000 high power optical devices in parallel on each of nine wafers before their simulated and placed into photonic applications, such as fiber optic transceiver modules of replacement and co packaged optics for optical chip to chip communication devices, such as those that have been announced on product roadmaps.

By companies, including Nvidia, Intel AMD TSMC and Globalfoundries.

Chris Yu: These photonic ICs require an extra step in their manufacturing process, referred to as stabilization or aging, where the devices experience a varying degradation and then stabilize of their optical output power as a function of the input power.

These photonic ice's require an extra step in their manufacturing process referred to a stabilization or AG, where the devices experience of varying degradation and then stabilize other optical output power as a function of the input power. This is critical to stabilize before integration into a transceiver or optical chip to chip.

Chris Yu: This is critical to stabilize before integration into a transceiver or optical chip-to-chip communication package. This process step takes many hours or even more than 24 hours for the stabilization and is critical to do before the dye is integrated into the system.

<unk> package. This process step takes many hours or even more than 24 hours for the stabilization and is critical to do before the die is integrated into the system are provides a unique solution for doing the stabilization of all devices, while still in relatively easy and repeatable wafer form one key challenge is doing this and massive parallelism.

Chris Yu: AIR provides a unique solution for doing the stabilization of all devices while still in relatively easy and repeatable wafer form. One key challenge is doing this in massive parallelism up to and including all the devices in the single wafer is the power and power density of testing the devices in this form.

Up to and including all the devices in the single wafer is the power and power density of testing of the devices in this form.

Chris Yu: The stabilization requires very high power, and this not only requires a test system to deliver the high power to the wafer, but all the power to the wafer must be removed in the form of heat to keep it from literally destroying the devices.

The stabilization requires very high power in this not only requires a test system to deliver the high power to the wafer, but all the power to the wafer must be removed as a form of heat to keep it from literally destroying the devices.

Chris Yu: Air can not only provide precise, regulated and calibrated voltage and current to the devices on the wafer up to 3500 watts per wafer and nine wavers at a time, but we can also remove this power while we maintain in a uniform temperature across all the wafer.

Air can not only provide precise regulated and calibrated voltage and current to devices on the wafer up to 3500 watts per wafer and nine wafers at a time, but we can also remove this power while we're maintaining a uniform temperature across all the wafers.

Chris Yu: At this time, we believe we're the only company providing

At this time, we believe we're the only company providing <unk>.

Chris Yu: both providing and removing this much power to silicon photonics wafers and are also doing it up to nine wafers at a time.

Both providing and removing this much power to silicon photonics wafers and are also doing it up to nine wafers at a time. This is a key differentiator in what we believe is an enabler for the capacity and scale needed to address the high power photonic integrated circuits used in very high speed optical transceivers and also the up and coming.

Chris Yu: This is a key differentiator and what we believe is an enabler for the capacity and scale needed to address the high-power photonic integrated circuits used in very high-speed optical transceivers and also the up-and-coming optical chip-to-chip communication devices market. As I noted in our last call, AIR currently has six customers using our systems for production tests of silicon photonics devices.

In optical chip to chip communication devices market as I noted on our last call. Eric currently has six customers using our systems to production test to Silicon Photonics devices. We are watching this market very closely and are working with some of the leaders in silicon photonics to ensure that they have the products and solutions available to meet their needs for this potentially cigna.

Chris Yu: We're watching this market very closely and are working with some of the leaders in silicon photonics to ensure that they have the products and solutions available to meet their needs for this potentially significant market application.

Forget market application.

Chris Yu: Let me conclude, we expect continued strong demand for our wafer-level burn-in solutions, giving the continued growth forecast for the markets they address and the expanded market opportunities we're seeing. While we've reduced our growth estimates for fiscal 24 revenue, given the uncertainty on the timing of customer orders, we believe we remain well-positioned to capitalize on the incredible growth of this industry and are poised for continued solid growth for years to come. With that, let me turn it over to Chris and then we'll open up the floor.

Let me conclude we expect continued strong demand for our wafer level burn in solutions given the continued growth forecast for the markets, we address and the expanded market opportunities. We're seeing while we have reduced our growth estimates for fiscal 'twenty four revenue given the uncertainty on the timing of customer orders, we believe we remain well positioned.

To capitalize on the incredible growth of this industry and are poised for continued solid growth for years to come.

With that let me turn it over to Chris and then we'll open up the line for questions.

Chris Yu: Thank you again. Good afternoon, everyone. We pleased to announce an solid quarter for air test systems with strong year-over-year growth in revenue and net income, both ahead of consensus estimates. Let me summarize our results for the fiscal

Thank you again and good afternoon, everyone. We're pleased to announce another solid quarter for air test systems with strong year over year growth in revenue and net income. Both ahead of consensus estimates, let me summarize our results for the fiscal second quarter.

Chris Yu: Second quarter revenue was 21.4 million of 45% from 14.8 million in Q2 of last year.

Second quarter revenue was $21 4 million up 45% from $14 8 million in Q2 of last year.

Chris Yu: Strong demand in all revenue categories, including systems, contactors, and services contributed to a significant year-over-year increase in revenue in the second quarter.

Strong demand in all revenue categories, including systems Contactor and services contributed to the significant year over year increase in revenue in the second quarter.

Chris Yu: Waverpack revenues were 9.2 million and accounted for 43% of our total revenue in the second quarter, which was consistent with 45% of our revenue in the prior year quarter.

Wafer pack revenues were $9 2 million and accounted for 43%, although total revenue in the second quarter.

Which was consistent with 45% of our revenue in the prior year quarter.

Chris Yu: Customers typically buy wafer packs from us subsequent to purchasing our Fox system.

Customers typically buy wafer packs for months subsequent to purchasing our Fox systems. We are seeing continued momentum for new wafer pack designs with existing and new customers to meet their customer and market requirements.

Chris Yu: We are seeing continuing momentum for new wafer pack designs with existing and new customers to meet their customer and market requirements.

Chris Yu: As Gane noted, we have seen how the slowing of growth in the electric vehicle market has had a negative impact on the timing of several current and new customer orders and capacity increases.

Again, no debt, we have seen how the slowing of growth in the electric vehicle market has had a negative impact on the timing of several current and new customer orders and capacity increases.

Chris Yu: As a result, bookings in the second quarter were $2.2 million and our backlog as of quarter end was $3 million.

Bookings in the second quarter were $2 2 million and our backlog as of quarter end was $3 million.

Chris Yu: We expect orders for systems, wafer packs, aligners, and services in this and next quarter in time to support our latest revenue forecast.

We expect orders for systems wafer packs Linas and services in this and next quarter in time to support our latest revenue forecast.

Chris Yu: Gap growth margin for the second quarter came in at 51.1%, down from 53.4% in Q2 last year.

GAAP gross margin for the second quarter came in at 51, 1%.

From 53, 4% in Q2 last year.

Chris Yu: The decrease in growth margin is primarily due to higher inventory reserve and increased period costs.

The decrease in gross margin is primarily due to higher inventory reserves and increased period costs.

Chris Yu: Operating expenses in the second quarter were $5.5 million, up 24% from $4.4 million in Q2 last year.

Operating expenses in the second quarter were $5 5 million up 24% from $4 4 million in Q2 of last year.

Chris Yu: The year-over-year increase is primarily due to previously noted increased headcount-related expenses to support our worldwide sales and marketing efforts, along with our R&D program.

The year over year increase is primarily due to previously noted increased head count related expenses to support our worldwide sales and marketing efforts.

Along with our R&D programs.

Chris Yu: Our investments in sales and marketing staff continue to have a positive impact on expanding our customer engagements in the U.S., Asia, and Europe , and marketing-rich to support revenue growth.

Our investments in sales and marketing staff continue to have a positive impact on expanding our customer engagements in the U S Asia, and Europe, and marketing, which to support revenue growth.

Chris Yu: The increase in R&D in Q2 from the same period last year was primarily due to costs associated with development programs for augmenting features and performance of our automated waiver aligner and higher personnel expenses.

The increase in R&D in Q2 from the same period last year was primarily due to costs associated with development programs for augmenting features and performance of our automated wafer aligner and higher personnel expenses.

Chris Yu: The first order for our Integrated Automated Aligner that was shipped in the fiscal first quarter of 2024 was accepted by our customer in the fiscal second quarter.

The first order for our integrated automated aligner that was shipped in the fiscal first quarter of 2024 was accepted by our customer in the fiscal second quarter.

Chris Yu: We continue to bring in R&D talent and invest in R&D programs to enhance our existing market-leading products and to introduce new products to maintain our competitive advantages and expand our applications and addressable markets.

We continue to bring in R&D talent and invest in R&D programs to enhance our existing market, leading products and to introduce new products to maintain our competitive advantages and expand our applications and addressable markets.

Chris Yu: non-GAAP net income, which excludes the impact of stock-based compensation, was $6.7 million, or $0.23 per diluted share for the second quarter.

non-GAAP net income, which excludes the impact of stock based compensation was $6 7 million or <unk> 23 cents per diluted share for the second quarter.

Chris Yu: This is up from non-GAAP net income of $4.5 million, or $0.16 per diluted share, in the second quarter of fiscal 23.

This is up from non-GAAP net income of $4 5 million or <unk> 16 per diluted share in the second quarter of fiscal 2003.

Turning to the balance sheet.

Chris Yu: We continue to maintain a strong cash position on our balance sheet. Our cash and cash equivalents were $50.5 million at the end of Q2.

We continued to maintain a strong cash position on our balance sheet, our cash and cash equivalents were $55 million at the end of Q2.

Chris Yu: flat from our cash and cash equivalence balance of $51 million at the end of Q1.

Flat from a cash and cash equivalents balance of $51 million.

At the end of Q1.

Chris Yu: With a strong balance sheet, we can continue to invest in scaling our business.

With a strong balance sheet, we can continue to invest in scaling our business over the past six months, we have invested financial and human resources and improving our own infrastructure to support the continued growth of our business.

Chris Yu: Over the past six months, we have invested financial and human resources in improving our own infrastructure to support the continued growth of our business.

Chris Yu: We recently went live with a new human resources information system in Q4 and are implementing a new enterprise resource planning system that will provide more sophisticated functionalities and capabilities to support decision making and compliance.

We recently went live with a new human resources information system in Q4.

And are implementing a new enterprise resource planning system that will provide more sophisticated functionalities and capabilities to support decision, making and compliance.

We expanded our policies and procedures in various functions to provide more internal control and structure.

Chris Yu: We expanded our policies and procedures in various functions to provide more internal control and structure.

Chris Yu: We have made improvements in our supply chain and engaged with contract manufacturers that offer more value-added quality components and services to support our growth.

We have made improvements in our supply chain and engage with contract manufacturers that offer more value added quality components and services to support our growth.

Chris Yu: We used half a million dollars in operating cash flows during the quarter to procure inventory components to support our revenue target in fiscal 2024.

We use half a million dollars in operating cash flows during the quarter to procure inventory components to support our revenue target in fiscal 2024.

Chris Yu: Even though our book-to-bill ratio is less than 1, we believe we have the necessary inventory components to build products quickly and ship them to our customers when we receive purchase orders from them.

Even though our book to Bill ratio is less than one we believe we have the necessary inventory components to build products quickly and ship them to our customers when we receive purchase orders from them.

Chris Yu: We have zero debt and continue investing our excess cash in money market funds.

We have zero debt and continue investing our excess cash in London market funds.

Chris Yu: Interest income earned during this favorable interest rate environment was $631,000 in the second quarter compared to $263,000 in the second quarter last year.

Interest income earned during this favorable interest rate environment was $631000 in the second quarter compared to $263000 in the second quarter last year.

Chris Yu: In Q3 of last year, we announced an ATM offering of up to $25 million in shares of the company's common stock on the open market.

In Q3 of last year, we announced an ATM offering of up to $25 million in shares of the company's common stock on the open market.

Chris Yu: We received gross proceeds of $7.3 million on the sale of 209,000 shares in fiscal 2023.

We received gross proceeds of $7 3 million on the sale of 209000 shares in fiscal 2023.

Chris Yu: We did not sell any shares during our last three fiscal quarters.

Did not sell initiatives doing our last three fiscal quarters.

Chris Yu: as of the end of the second fiscal of 2024.

As of the end of the second fiscal of 'twenty 'twenty four.

Chris Yu: The remaining amount available under the ATM offering was 17.7 million.

The remaining amount available under the ATM offering was $17 7 million.

Chris Yu: It remains our plan to only sell shares against this ATM offering at times and prices that are most advantageous to our shareholders and to the company.

It remains our plan to only sell shares against this ATM offering at times in prices that are most advantageous to our shareholders and to the company.

Chris Yu: Now turning to our outlook for the current fiscal 2024 year that ends on May 31st, 2024.

Now turning to our outlook for the current fiscal 2024 year that ends on May 31 2024.

Chris Yu: As Gay noted, we expect continuous strong demand for our wafer-level burning solutions for the markets we currently address, as well as increased demand from the new market opportunities we are seeing.

As Scott noted, we expect continued strong demand for our wafer level burn in solutions for the markets. We currently address as well as increased demand from the new market opportunities we are seeing.

Chris Yu: However, given the latest customer forecast and the uncertainty on the timing of their orders, we believe it makes sense to take a more conservative approach to our fiscal year forecast and reduce our growth estimates for fiscal 2024 revenue.

However, given the latest customer forecast and the uncertainty on the timing of their orders. We believe it makes sense to take a more conservative approach to our fiscal year forecast and reduced our growth estimates for fiscal 2020 forward revenue.

For the fiscal year, ending May 31, 2024.

Chris Yu: For the fiscal year ending May 31st, 2024, AIR-E is revising its expected full-year total revenue to be between $75 million and $85 million.

Revising is expect a full year total revenue to be between $75 million and $85 million reps.

Chris Yu: representing growth of 15% to 30% year over year, and gap net income of between 20% and 25% of revenue.

Representing growth of 15% to 30% year over year, and GAAP net income of between 20% and 25% of revenue.

Chris Yu: Even with this more conservative guidance, we expect solid year-over-year revenue growth and believe we are poised for continued strong growth for years to come.

Even with this more conservative guidance, we expect solid year over year revenue growth and believe we are poised for continued strong growth for years to come.

Lastly.

Chris Yu: Looking at the investor relations calendar, Airtest will be meeting with investors next week at the Needham Growth Conference taking place in New York.

Looking at the Investor Relations calendar are tests will be meeting with investors next week at the Needham growth conference taking place in New York.

Chris Yu: We will be meeting with investors throughout the day on Wednesday, January 17, and until noon on Thursday, January 18, and hope to see some of you at this conference.

We will be meeting with investors throughout the day on Wednesday January 17th and until noon on Thursday January 18th and hope to see some of you at this conference.

Chris Yu: This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead. Thank you.

This concludes our prepared remarks, we're now ready to take your questions.

Please go ahead.

Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone at this time, if you wish to ask a question on.

And one moment, please while we poll for questions.

First question today is coming from Christian Schwab from Craig Hallum.

Christian your line of lives.

Speaker Change: Thank you. Can you give us some indication of how you would anticipate the revenue?

Thank you.

Can you give us.

Some indication of how you would anticipate the revenue.

Speaker Change: you know, orders to come and support the second half of the year? Are you assuming, you know, the vast majority of

You know orders that come in support in the second half of the year are you assuming the vast majority of the of the revenue you're guiding for the fiscal year will come in the may quarter.

Speaker Change: of the revenue you're guiding for the fiscal year will come in the May quarter and

Hum.

That's different.

Speaker Change: Yeah, no, that that's a fair question. I mean, we're, you know, given where the orders are right now, with already a chunk into the third quarter, we think that second, second half of the half Q4 will certainly be bigger than Q3, I don't maybe, but not not majority, maybe a 6040 spread or something like that. So we're still expecting orders and, and have things lined up to ship for this quarter.

Yes.

That's a fair question.

Sure.

Given where the orders are right now.

Already a chunk into the third quarter, we think that second half.

Second half of the half I'm, sorry, Q4 will certainly be bigger than Q3, and maybe but not not majority, maybe a 60 40 spread or something like that so we're still expecting orders in.

And have things lined up to ship for this quarter.

Okay. Okay, and then you guys talked about our gain in your prepared comments you talked about.

Speaker Change: Okay. Okay. And then you guys talked about gave me your prepared comments. You talked about, you know, we're seeing a slowdown, you know, given all the reasons that you mentioned, but then he went on to say, you know, that that does not change your growth expectation.

We're seeing a slow down you know given all the reasons that you mentioned, but then he went on to say that that does not change your growth expectations for years ahead.

Speaker Change: for years ahead. Can you let us know, what are...

Can you let us know what are your growth expectations, what would kind of thing you know the top line growth rate of the company.

Speaker Change: What do you think the top-line growth rate of the company on a multi-year basis?

Multi year basis.

We will be.

Yes.

Speaker Change: Yeah, we probably set ourselves up for that, Christian, because as you know, we haven't given a multi-year growth strategy on here. Let me answer it this way instead. And I know that we'll be giving next year's guidance in July . I'm not yet sure we'll commit to a multi-year or not. But when we talk to the customers, one of the hardest things about preparing for this

Yes.

We probably set ourselves up for that Christian because as you know we haven't given a multiyear growth strategy on here.

So let me let me answer it this way instead and I know that we will be giving next year's guidance in July.

Im not yet sure will commit to a multiyear or not but.

When we talk to the customer is one of the hardest things about preparing for this.

Speaker Change: for this call was, you know, even not even 30 days ago, we were still hearing across the board from our customers, bookings and shipment slot requests that were consistent with us succeeding $100 million.

This call was even not even 30 days ago, we were still hearing across the board from our customers bookings and shipments slot requests that were consistent with us exceeding $100 million.

Speaker Change: It's only been in the last couple, a few weeks that we've seen things, including all the way in that last weekend, where they've sort of finalized what their plans are and push some things out. These customers have not changed their long-term plans.

It's only been in the last couple few weeks that we've seen things include all of the way the last weekend, where they've sort of finalized what their plans are and pushed some things out these customers have not changed their long term plans there forecast for their revenue growth their market share their silicon carbide.

Speaker Change: their forecast for their revenue growth, their market share, their silicon carbide, their test times, you know, those kind of things, we think are still consistent with what we have been.

Their test times those kinds of things.

We think are still consistent with what we had been sharing with US which includes by the way test time reductions over time.

Speaker Change: us, which includes, by the way, test time reductions over time, consistent with the models that we generated, you know, a couple few years ago.

System with the models that we generated.

A few years ago, where if you look at a 4 million wafer starts or thereabouts to support just the EV market.

Speaker Change: where if you look at a 4 million wafer starts or thereabouts to support just the EV market, it would take somewhere on the order of 2,000 wafers of capacity or 2,000 of our blades for the overall market. And so we haven't changed that. And in fact, I'll add one more thing here.

Would take somewhere on the order of 2000 wafers of capacity are 2000 of our blades for the overall market and so we haven't changed that and in fact I'll add one more thing here.

Speaker Change: And those numbers were based on this, you know, 30% penetration of 100 million vehicles or

Those numbers.

We're based on this you have 30% penetration of 100 million vehicles or <unk>.

Speaker Change: 30 million EVs in 2030. I keep using that 30, 30, 30 number.

<unk> 30 million Evs in 2030, I keep using that 30 30 30 number last year for the bulk of the year. There are many people, saying that evs, we're going to be faster than that.

Speaker Change: Last year for the bulk of the year, there were many people saying that EVs were going to be faster than that. There will be more than 30% penetration. We actually never repeated that because, you know, our feeling was that just seems...

There will be more than 30% penetration, we actually never repeated that because our feeling was that just seems.

Speaker Change: you know, too aggressive. So in some ways, people's growth estimates have kind of modulated back to be consistent, I think, with those 30, 30, 30 numbers.

Too aggressive so in some ways People's growth estimates have kind of modulate back to be consistent I think with those 30 30 30 numbers. So in that sense. It hasn't changed our opinion, but if you start looking at a discrete customer who was going to put in enough.

Speaker Change: And so in that sense, it hasn't changed our opinion. But if you start looking at a discreet customer who was going to put in enough, start installing tools this spring for having them ready in the fall, and they shift things out two or three or four months, all of a sudden, it impacts the quality of the product.

We started installing tools this spring for having them ready in the fall and they shift things out two or three or four months all of a sudden it impacts us and that that's the downside of the front end of this.

Speaker Change: And that, you know, that's the downside of the front end of this and

Speaker Change: what I hope people hear today and throughout the whole Q&A is.

What what I hope people here today and throughout the whole Q&A as we're trying to be as absolutely candid as possible and what the customers were telling us in previous quarters, we were communicating and now they have changed their timing of it and we're just trying to communicate that to it we still have the capacity.

Speaker Change: We're trying to be as absolutely candid as possible and what the customers were telling us in previous quarters, we were communicating.

Speaker Change: and now they have changed their timing of it and we're just trying to communicate that to it. We still have the capacity.

Speaker Change: and the capability to exceed $100 million this year. If the customers came in and said, just kidding, I need them after all, we still have the ability to do that.

And the capability to exceed $100 million. This year at the customers came in and said just kidding I need them. After all we still have the ability to do that but right now thats just doesn't seem like the most likely case, we don't think that is impacting our plans going forward.

Speaker Change: But right now that's just doesn't seem like the most likely case we don't think that is impacting our plans going forward and that we think we still have these you know pretty solid growth expectations for next year.

And that we think we still have.

Pretty solid growth expectations for next year and beyond.

Speaker Change: Just then maybe another way of thinking about.

Just.

And then maybe another way of thinking about.

Speaker Change: you know, as we exit this year and go into fiscal year 25, you know, would you assume that your lead significance

As we exit this year and go into.

Fiscal year 'twenty five.

You assume that your lead significant.

Speaker Change: you know, much greater than 10% customer, you know, can grow.

You know a much greater than 10% customer.

Can grow.

No.

Speaker Change: or sustain itself at a material run rate, 50, 60, 80 million, you know. So, yeah, that's a good question.

Or sustained itself at a in a material run rate 50 $60 million to $80 million.

No.

Sure.

How should we be thinking about.

Speaker Change: know, I understand you don't want to make a proclamation about what, you know, their aggre-

You know I understand you don't want to make a proclamation about what.

There.

Aggregate.

Speaker Change: demand test, but they've made comments about it. So given their public comments, I guess, let's start with that, you know, how would you anticipate that customer?

Yes, but they've made comments about it so given their public comments I guess, let's start with that you know how how would you anticipate that customer.

No.

Materiality in fiscal year 'twenty five.

Speaker Change: I mean, I believe that they will still be material. I don't know that they will be the dominant customer at times, but they may not be. My guess is they will not even be the largest.

I mean, we.

I believe that they will still be material I don't know that they will be the dominant customer.

Customer trends.

My guess is they will not even be the largest.

Speaker Change: As some of the other customers are kicking in with their ramps, you know.

As some of the other customers are kicking in with their ramps.

Yes.

Speaker Change: One thing we try to look at is, you know, how fast is the market growing itself? I mean, if silicon carbide is growing at, say, 40% a year, top line revenue.

One thing we've tried to look at is how fast is the market growing itself and silicon carbide is growing at say, 40% a year topline revenue.

Speaker Change: you know, can we grow faster than that? I think there's examples where we can, but I think, you know, it would be more realistic to think that we grow alongside the market itself. But, you know, as we displace potential package park burn-in, et cetera, there's opportunities. The wild card of this would be the mix. So as a customer, if, you know, they have purchased wafer packs from us,

Okay.

Can we grow faster than that I think there's examples where we can but I think.

It would be more realistic to think that we grow alongside the market itself, but as we displace potential packaged part burn in et cetera, theres opportunities. The wildcard of this would be the mix. So as a customer if they have purchased wafer packs from us and there is.

Speaker Change: and they're shipping, you know, $100 million with a revenue year to a customer. The next year if the devices stay the same, they wouldn't buy anymore wafer packs and certainly not systems to meet that $100 million. If that customer or our customer's customer goes from 100 to 200, they would buy more systems and more wafer packs.

Shipping $100 million worth of revenue a year to a customer the next year. If the devices stay the same they wouldn't buy any more wafer packs and certainly not systems to meet that $100 million, if the if that customer or our customer's customer grows from 100 to 200, they would buy more.

Systems, and more wafer packs, but if their customer mix of the product mix changes they might displace all of those wafer packs.

Speaker Change: But if their customer mix or the product mix changes, they might displace all of those wafer packs.

Speaker Change: So we would get revenue even though their revenue isn't growing.

So we would get revenue, even though their revenue isn't growing.

Speaker Change: That's a very important part of obviously our business for our shareholders, but also to our customers that we can continue to generate revenue and have the dollars to spend on R&D and applications and support and new enhancements for their needs, even if they're not necessarily buying new systems.

That's a very important part of obviously our business for our shareholders, but also to our customers that we can continue to generate revenue and have the dollars to spend on R&D and applications and support and new enhancements further needs, even if theyre not necessarily buying new systems, but.

Speaker Change: We, we do think that they will still be a significant customer for us next year. We believe that they, you know, and are consistent with what they have been telling people their growth plans are, but we think that there'll be other customers most likely that will be bigger than them next year.

We do think that they will still.

<unk> be a significant customer for us next year.

Believe that.

And are consistent with what they have been telling people their growth plans are.

But we think that there'll be other customers most likely there will be bigger than them next year.

Great and then my last question and I apologize for so many.

Speaker Change: Great. And then my last question, I apologize for so many, is, is the Chinese market, you know, still is a

Is it the Chinese market.

You know a faster adoption adopter of Silicon carbide has numerous manufacturers many manufacturers.

Speaker Change: A fast adoption, adopter of silicon carbide has numerous manufacturers, many, many.

Speaker Change: of silicon carbide. Is that a market?

Silicon carbide is that a market.

Do you plan on eventually targeting or are you currently targeting.

Speaker Change: eventually targeting or are you currently targeting? Let me give you that. That's a good one. You're taking all the good questions here, but let me talk about the Chinese market because I think there is a change there from last quarter.

That's a good one you're taking all the good questions here, but let me talk about the Chinese market because I think there is a change there from last quarter.

Speaker Change: and I'll be giving more updates probably at the next one. So the Chinese market, certainly the EV market itself is growing very fast. A lot of the things you hear in the U.S. with respect to, you know, why people should or shouldn't adopt EVs is just not the case outside of the U.S. and particularly in Asia and in China.

And I will be giving more updates probably at the next one so the Chinese market certainly the EV market itself is growing very fast a lot of the things you hear in the U S with respect to.

Why people should or shouldn't adopt evs is just not the case outside of the U S and particularly in Asia and China.

Speaker Change: Chinese EVs have exploding growth with big suppliers like BYD and NIO and others. We're actually shipping, we know we're testing products.

Chinese Evs are have exploding growth with big suppliers like BYD and.

Neo and others, we're actually shipping where we know we're testing products that are going into the Chinese market. Today. So they are being tested in China, but they are actually being tested on our systems and ship to it a lot of the silicon carbide, if not the majority.

Speaker Change: that are going into the Chinese market today. So they aren't being tested in China, okay? But they're actually being tested on our systems and shipped to it. A lot of the silicon carbide, if not the majority.

It is still being supplied outside of China into China, but we see that changing over time as there is a lot of players getting into the Chinese market for silicon carbide, a lot of them in the wafer in itself, but also in devices in the last quarter, we've had some.

Speaker Change: is still being supplied outside of China into China. But we see that changing over time, as there's a lot of players getting into the Chinese market for silicon carbide.

Speaker Change: a lot of them in the in the wafering itself but also in devices. In the last quarter we've had some

Speaker Change: pretty active conversations with some of the big Chinese suppliers.

Pretty active conversations with some of the big Chinese suppliers.

Speaker Change: who candidly are asking us to participate and

Who candidly are asking us to participate in.

Speaker Change: to engage with them more directly. And we've been having some conversations related to how can we protect our IP there? What would that look like, et cetera. And we are working on some strategies that I'm not trying to keep them from our shareholders. I'm just trying to keep them from our competitors. So we're keeping those close to our chest.

To engage with them more directly and we've been having some conversations related to how can we protect our IP there what would that look like et cetera.

And we are working on some strategies that I'm not trying to keep them from our shareholders I'm just trying to keep them from our competitors. So we are keeping us close to our chest, but.

Speaker Change: expect some movement there over the next quarter. And I will give you guys some movement in what we're doing. Next quarter, I'll try and give you guys some more update. But there are some key activities going on in China that I think ERA is going to be participating in. Okay.

Expect some movement there over the next quarter and I will give you get.

The movement in what we're doing.

Next quarter I'll try and give you guys some more uptake but.

There are some key activities going on in China.

But I think era is going to be participating in.

Okay great.

That's great. Thanks gained no other questions.

Thanks Christian.

Thank you. The next question is coming from Jed <unk> from William Blair. Your line is live.

Speaker Change: Hey, thanks for taking my questions. Sorry for the background noise. I'm in Las Vegas.

Hey.

Thanks for taking my question, sorry for the background noise I'm in Las Vegas meeting with your customers actually so just trying to reconcile.

Speaker Change: So just game trying to reconcile it sounds like there was a.

It sounds like there was a material change in the lapses.

Speaker Change: 30 days in terms of demand and visibility to your business. Is that correct? And I just ask that because, you know, your largest customer did flag some things last quarter, but I want to separate

30 days in terms of.

Demand and visibility to your to your businesses is that correct and I just asked that because your largest customer did flag some thing last quarter, but I want to separate what happened.

Speaker Change: know, in in the past versus what's occurred in the last 30

In the past versus what's occurred in the last 30 days.

Speaker Change: All right, well, you know, one thing I'm going to start giving people heads up on is I.

Right.

One thing I'm going to start giving people heads up on us.

Speaker Change: you know, I'm trying to be more thoughtful about giving insight into our customers to be fair, but I'm going to specifically answer what I think you're implying.

I'm trying to be more thoughtful about giving insight into our customers to be fair, but I'm going to specifically answer what I think you're implying.

Speaker Change: Our lady right after our largest customer talked about their change in their forecast, we not only did

<unk>.

Write off for our largest customer talked about their change in that forecast.

Not only did not hear it.

Speaker Change: a negative impact to us. Candidly, it flipped around and for a period of time, it was actually an uptick, okay? Which was a little hard to imagine and explain, but it had to do with the wafer pack and the shift to new customers and some other things.

A negative impact to us candidly, it's flipped around and for a period of time. It was actually an uptick okay, which was a little hard to imagine.

And explained but it had to do with the wafer pack.

And the shift to new customers and some other things.

Speaker Change: literally in the last seven days, they have reconciled their plans, etc. And we've tried to thoughtfully reflect that in the latest one. But again, I actually said in my prepared remarks, their revenue to us is pretty close to what we were expecting.

Literally in the last seven days they have reconciled.

Their plans et cetera, and we've tried to thoughtfully reflect that in the latest one but again I actually said in my prepared remarks, there revenue to us is pretty close to what we were expecting.

Speaker Change: would win when this all came out. So the, you know, if you want to say the bulk of the, the, you know, the, the, the 15 to $25 million decrease was not from them.

When this all came out so.

If you want to say the bulk of the the the.

$15 million to $25 million decrease was not from them.

Speaker Change: That was actually from other customer forecasts that had changed over the last, you know, like, you know, three to four weeks.

That was actually from other customer forecasts that have changed over the last.

Three to four weeks candidly.

Speaker Change: But our lead customers forecast settled in only in the last week or so. Now, having said that, folks, and I may not

Got it our lead customers' forecast settled in all new in the last week or so now having said that.

Folks.

It may not be the right answer.

Speaker Change: There's still a range. We took a very conservative stance in hopes there's no way we'll miss it on the low end. But I can see scenarios where we could be higher than the range I gave you.

There is there is still a range we took a very conservative stance in hopes there.

No way, we'll miss it on the low end.

But I can see scenarios, where we could be higher than the range I gave you but.

Speaker Change: You know, we're, you know, going out and saying we have a range of 75 to 100 million just seeing.

Going out and saying, we have a range of $75 million to $100 million just seemed weird.

Speaker Change: we're, you know, silly. And so, you know, we were taking this stance. I think we really think that this is appropriately communicating what the customers are telling us. And we could defend that. And, you know, we're doing our best to just be open with people. Okay.

Silly and so.

We're taking this stance I think we really think that this is appropriately communicated what the customers are telling us.

And we could defend that and we're doing our best to just be open with people okay.

Speaker Change: That's helpful. I guess getting to that point. So if I look at what you've done this year versus the guide of 75

That's helpful I guess gain to that point.

If I look at what you've done this year versus the guide of 75 to 85 and subtract out.

Speaker Change: tracked out the delta there, that would imply.

The Delta there that.

That would imply.

Speaker Change: uh, equal between each, each of the next two quarters, somewhere between 16 and 19 million each quarter. And I know to Christian's earlier question, you said it, it would be 60, 60, 40, but I guess it does beg the question with the, with the current bookings, what gives you the confidence, you know, towards the, towards the low end there, because you seem pretty confident.

Equal between each each of the next two quarters somewhere between $16 million to $19 million each.

Each quarter and I know to Christian's earlier question.

It would be 60, or 60, 40, but I guess it does beg the question with the with the current bookings what gives you the confidence.

Towards the towards the low end, there because you seem pretty confident in that.

Speaker Change: you know, that it's been conservative and there would only be upside. But I guess what's giving you that? Is that the sort of verbal commitment that you that's happened in the last few weeks with the customer?

It's been conservative.

Would only be upside but.

I guess, what's giving you that is that the sort.

Sort of verbal commitments that you that's happened in the last few weeks with the customers.

Speaker Change: Yeah, I mean, I would warn you know what a verbal commitment really is.

Yes.

Good one.

What a verbal commitment really is.

Speaker Change: We are in constant communication with all of these customers.

We are in constant communication with all of these customers.

Speaker Change: And, you know, our lead customer is daily, they can't.

Our lead customer is daily it candidly.

Speaker Change: I'd say that the numbers and the forecast they've given us have been constant for the last 30 to 60 days, but on the low end. And so that's why

I'd say that the numbers and the forecasts they've given us have been constant for the last 30 to 60 days, but on the low end and so thats why we have more clarity I think they have direct visibility of orders that they have from their customers and what that drives in terms of wafer packaging capacity et cetera, but.

Speaker Change: more clarity. I think they have direct visibility of orders that they have from their customers and what that drives in terms of wafer packs and capacity, et cetera. But

Speaker Change: I will, you know, my personal belief is I don't think they have perfect visibility. And I think, you know, there's a little bit of reaction to the seeming slowdown, but now with interest rates recovering, and perhaps people getting through their inventory, you know, maybe they'll be pleasantly surprised on their side.

I will.

Personal belief is I don't think they have perfect visibility and I think there's a little bit of reaction to the seeming slowdown, but now with interest rates recovering and perhaps people getting through their inventory.

Maybe there'll be pleasantly surprised on their side.

Speaker Change: But yeah, you know, I mean, we're down to knowing when we have these forecasts, we know what wafer pack mix it is, you know, et cetera. So we have pretty good visibility.

But yes.

I mean, we're down to knowing when we have these forecast we know what wafer pack mix. It is.

Et cetera, So we're pretty good visibility I'd say very good visibility.

Speaker Change: So two more questions for me. The first is.

So two more questions for me.

The first is.

Speaker Change: with the inventory that you've built, which is good if you get to move to a terms business and a book and ship, but I'm just wondering whether or not that presents a challenge of holding pricing, whether or not, you know, if pricing was to erode it all, you know, would that, you know, how should we be thinking about a margin impact and then also with wafer pack versus system?

With the inventory that you built.

Which is good if you get to move to a turns business in the book and ship, but I'm, just wondering whether or not that presents a challenge of holding pricing whether or not.

If pricing was to erode.

<unk>.

Would that how should we be thinking about a margin impact and then also with wafer pack versus system.

Okay. There's a couple of things so first of all on the inventory the inventory that we built we believe is allows us to address the needs across all of the markets. We've talked about plus the <unk> <unk>, including memory that we didn't spend much time spending.

Speaker Change: First of all, on the inventory, the inventory that we built, we believe, allows us to address the needs across all of the markets we've talked about, plus the 2D, 3D sensing, including memory that we didn't spend much time spending.

Speaker Change: that we built this platform of a mix that basically we can ship to multiple different customers. That gives us the confidence that we bought this material, we're not going to be writing it down or anything along those lines. So that one is really important. We've had a lot of conversation about that. The terms business has the advantage of you can get an order today and ship a lot in the next month. It has the disadvantage of customers can wait.

We built this platform of the mix that basically we can ship to multiple different customers.

That that gives us the confidence that we bought this material, we're not going to be writing it down or anything along those lines. So that that one is really important we've had a lot of conversation about that the turns business has the advantage of you can get an order today and ship a lot in the next month. It has the disadvantage of customers can wait.

Speaker Change: and kind of try and hold you up. We're not and have not been in conversations with people and don't really entertain conversations of people trying to hold us over a barrel. If you

Got it.

Trying to hold you up we are not.

And have not been in conversations with people.

Really entertain conversations with people trying to hold us over a barrel.

<unk> you.

Decrease your price.

Speaker Change: decrease your price, then I'll place the order or I'll take a shipment. Candidly, we're we've tried not to do that. I think that's the wrong answer. You know, would pricing come down over time? You know, we.

The order or I'll take the shipment candidly, where we've tried not to do that I think that's the wrong answer.

Wood pricing come down over time.

We.

Speaker Change: We have not been experiencing that. What we have been doing, and we've expressed this to customers, our costs, like everybody else's costs, increased during COVID. But we did not pass those on to our customers, even in extreme cases when shipping costs were out of control.

We have we have not been experiencing that what we have been doing.

We've expressed this to customers our costs like everybody else is cost increased during COVID-19, while we did not pass those on to our customers even in extreme cases, when shipping costs were out of control.

Speaker Change: Um, so we've been able to hold our pricing, which, you know, as a vendor, I appreciate a lot.

So we've been able to hold our pricing, which as a vendor I appreciate a lot.

Speaker Change: And so, you know, candidly, our customers raised their prices on us because we buy their components, but we've been able to hold.

And so candidly our customers raise their prices on us because we buy their components.

But we've been able to hold our pricing.

Speaker Change: even in a time when we're extra competitive and we've not been gouging our customers. And I think that's really important. By the way, I wasn't sure if I was gonna do this. I'm gonna throw this out publicly out here. We are aware of a scenario where an investor approached one of our customers.

Even in a time when were extra competitive and we've not been gouging or customers and I think that's really important.

I wasn't sure if I was going to do this I'm going to throw this out publicly out here, we are aware of a scenario where a an.

An investor.

Each one of our customers and had some conversation related to we believe it was a hedge fund that had a short our stock we have like a 20% short position approach one of our customers and was complaining to them about how much money, we're making they clearly had a vested interest.

Speaker Change: and had some conversation related to, we believe it was a hedge fund that had our short our stock, we have like a 20% short position, approached one of our customers and was complaining to them about how much money we're making.

Speaker Change: they clearly had a vested interest to try and get the customer to try and negotiate our prices down. And I think that's garbage, but it's not against the law.

To try and get the customer to try and negotiate our prices down and I think thats garbage, but its not against the law.

Speaker Change: But, you know, I'm publicly pointing that out out there. We did not, as a result, raise, lower our prices or something else. But, you know, people have all kinds of reasons to, you know, want to communicate with our customers. And, you know, I might by the way, you just say you're talking to customers. I'm not accusing you of that, please. That is not the case. But somebody did. And it really upset our customer.

But.

Im publicly cleaning that out out there we did not as a result, while our prices or something else, but people have all kinds of reasons too.

I want to communicate with our customers and.

By the way you just say youre talking our customers I'm not accusing me of that please that is not the case, but somebody did and it really upset our customer.

Speaker Change: And one of the challenges we need to do in being so forthright with all the information is that people use that information against us in sort of the weirdest of ways. But at this point, we are able to maintain our pricing to our customers, maintain good margins.

And one of the challenges, we need to do and being so forthright with all the information is that people use that information against us in sort of a weird as to ways, but at this point, we are able to maintain our pricing to our customers maintain good margins in.

Speaker Change: And that includes on our systems and on our consumables and the wafer packs, which is critically important for us to maintain healthy growth so we can meet our customers needs as well.

And that includes on our systems and on our consumables and the wafer packs, which is critically important for us to maintain healthy growth. So we can meet our customers' needs as well.

Alright.

Speaker Change: Thanks for all the color game. I appreciate it. Look forward to seeing you tomorrow night. Okay

Thanks for all the color again I appreciate it look forward to seeing you Tomorrow night.

Okay. Thank you Chad.

Thank you and once again, please press star one on your phone if you wish to enter the Q&A queue at this time.

Star One if you wish to ask a question today.

The next question is coming from Tom <unk> from D. A Davidson Tom Your line is <unk>.

Speaker Change: Yeah, good afternoon. Thanks for the question. Quite a few have been asked already, so I'll stick to a couple of just industry questions for you.

Yes, good afternoon, and thanks for the question.

Quite a few have been asked already so I'll stick to a couple of just industry questions for you if you don't mind.

Speaker Change: I'm curious where we are as an industry and we'll talk about power conversion device.

I'm curious, where we are as an industry when you're talking about power conversion devices in the move from silicon to Silicon carbide, and then inside that where we are from discrete silicon carbide to kind of a multi di systems.

Speaker Change: in the move from silicon to silicon carbide, and then inside that, where we are from discrete silicon carbide to kind of multi-diode.

Okay.

Speaker Change: So it's interesting, the ISS summit is going on right now, and people have been feeding me slides of what's going on.

So it's interesting.

The ISS summit is going on right now and I think people in feeding these slides of what's going on.

Speaker Change: And that's just an industry forum where large players like Infineon and ST, for example, were presenting.

And that's.

Just an industry forum, where large players like Infineon and S. T. For example, we're presenting and they were showing their roadmaps and talking about the importance of silicon carbide and gallium nitride to the power semiconductor industry and how that fit with silicon why that's important is they plus on semiconductor.

Speaker Change: And they were showing their roadmaps and talking about the importance of silicon carbide and gallium nitride to the power semiconductor industry.

Speaker Change: and how that fit with silicon. Why that's important is they plus on semiconductor as an example.

As an example are not pure plays they have both silicon IGT large businesses multibillion dollar businesses as well as silicon carbide businesses and gallium nitride businesses in the cases of.

Speaker Change: are not pure plays. They have both silicon IGBT, large businesses, multi-billion dollar businesses.

Speaker Change: as well as silicon carbide businesses and gallium nitride businesses in the cases of ST and Infineon in particular. So they have a, I would call it a good

S T and infinity and in particular, so they have I would call. It a good balanced opinion about what's going on because they're doing both.

Speaker Change: balanced opinion about what's going on because they're doing both.

Speaker Change: They talk about how important it is for kind of a greener planet because of the efficiencies associated with both silicon carbide and gallium nitride and how those markets are going to grow significantly and not only displace some of the IGBT, but create new markets that didn't even exist before.

They talk about how important it is for kind of a greener planet because of the efficiencies associated with both silicon carbide and gallium nitride and how those markets are going to grow significantly and not only displace some of the IGT, but create new markets that did.

Even exist before.

Speaker Change: Um, so, uh, you know, my feeling is, is silicon carbide, you know, we've had a chance to sit in front of customers in Asia and Japan, um, Europe , U S.

So.

My feeling is silicon carbide.

<unk> had a chance to sit in front of customers in Asia and Japan.

Europe U S.

Speaker Change: you know, there continues to be a ton of excitement around silicon carbide and not just in the EVs. And guys, we're not pivoting. EVs are critically important and they're a huge opportunity for Airtest. But there's a lot of companies. In fact, the last two customers that placed orders with us

There continues to be a ton of excitement around silicon carbide are not just in the Evs and guys. We're not pivoting evs are critically important.

There are a huge opportunity for air test, but theres a lot of companies in fact, the last two customers that placed orders with us they were not aimed at the Evs I said that already publicly they were actually at other applications and so those companies are making their whole strategy related to.

Speaker Change: They were not aimed at the EVs. I said that already publicly. They were actually at other applications.

Speaker Change: And so those companies are making their whole strategy related to industrial motors or solar or electric trains, or there's a bunch of push and discussion going on with respect to the power that's going into the big server farms or the large charging infrastructure, which again is part of EVs, but still, and power, like battery storage.

Industrial motors or solar or electric trains or Theres, a bunch of pushing discussion going on with respect to the power that's going into the big server farms or the large charging infrastructure, which again is part of evs, but still and power.

Like battery storage.

Speaker Change: So there's, it feels like a little bit of, you know, silicon carbide was so much around its initial focus, which was of course with Tesla Model 3 and the inverter, which kind of created the whole segment.

So there is it feels like a little bit of Silicon carbide was so much around its initial focus which was of course with Tesla model, three and the inverter, which kind of created the whole segment, but it's like once people have made the investments to put the silicon carbide out there. There are all these other applications that would benefit.

Speaker Change: But it's like once people have made the investments to put the silicon carbide out there, there are all these other applications that would benefit from it.

Speaker Change: And, you know, to some extent with more suppliers, and I don't want to say, you know, pricing, reducing as much as it is just availability of it. There's a lot more people getting into it. And so silicon carbide is the real deal. It's going to grow. I recently heard from one of the biggest suppliers. They think that silicon carbide will still be in short supply.

From it and to some extent with more suppliers and I don't want to say.

Pricing, reducing as much as it is just availability of it theres a lot more people getting into it and so silicon carbide is the real deal it's going to grow I recently heard from one of the biggest suppliers. They think that silicon carbide will still be in short supply.

Speaker Change: to certain applications all the way through the end of the decade, even with all the investment that's going on.

Just certain applications all the way through the end of the decade, even with all the investment that's going on now.

Speaker Change: Now, silicon carbide, kind of the over-under we've been using, is this 1,000-watt thing. At 1,000 watts and above power transfer, silicon carbide is going to dominate.

Now sales.

Silicon carbide kind of the over under we've been using is the <unk> thousand one thing.

1000 watts and above power transfer silicon carbide is going to dominate.

Speaker Change: But for applications 1,000 watts and below, which could be individual servers, microinverters, and solar, certainly all the little chargers for Apple, your devices, etc., they're all going to be gallon nitride. That's what we think.

For applications, or 1000 watts, and below which could be individual servers micro inverters and solar certainly all the little Chargers for Apple.

Youre devices et cetera, they're all kind of be silica, they're all going to be gallium nitride. That's what we think and are completely shift away. The idea that you're going to have a little transformer that plugs into the wall and heats up and it's the size of your first to power. Your computer that's all going to be gone there won't be any of those things.

Speaker Change: And they'll completely shift away the idea that you're going to have a little transformer.

Speaker Change: that plugs into the wall and heats up and it's, you know, the size of your fist to power your computer, that's all going to be gone.

Speaker Change: there won't be any of those things in a few years. They'll all be these gallium nitride, they call solid-state transformers or solid-state converters done through high-speed switching of gallium nitride and, to some extent, also silicon.

In a few years, so, albeit these gallium nitride.

Because solid state Transformers, our solid state converters done through high speed switching gallium nitride.

To some extent also something I think in the low end up less than 1000 watts again is going to win.

Speaker Change: And those things are important. Now, your next question was discrete versus module. This is where I always have a show and tell, and we don't do these things with video feeds. But discrete normally refers to a single device sitting in a package form with the two or three leads from it. This discrete device, if it fails, it only costs you the package.

And those things are important now your next question was discrete versus module. This is where we have a show and tell her that we don't do these things with video feeds but.

Discrete normally refers to a single device sitting in like a package form with the two or three leads from it.

This discrete device if it fails it only costs use of packaging and so the world had been actually testing those devices in the package form before we got here and when people said, we're going to put up to say 32 of these devices 10 of these devices $24.

48, we've seen all kinds of different ones. They put them in multiple die in the same package, we refer that as a module, although technically it's still a package, but our module, meaning multiple value inside of it.

Yield loss associated with that becomes a real problem.

And so if you have 30% yield loss because you had 30 die in there.

That's pure cost gear manufacturing cost would be increased by 30% your output would be decreased by 30%. So that was really what started this wafer level why it became such a big deal in Silicon carbide was because companies were moving to the module level, we still see that transition the likes that.

Very public announcements by Borgwarner, that's all in the U S based guys and more.

The out of the European ones.

The danfoss folks out of Europe.

Volkswagen has publicly talked about this there's multiple companies.

Folks out.

It's starting to come out of what's going on in Japan, and also out of Korea.

We think that the bulk and what we've been told by our customers the bulk of electric vehicles and the big power conversion will all be modules and.

So when they go to modules. They have it's so much more cost effective or even a must to do the wafer level burn in of those before you put them into the modules and so that has been the leading indicator that was driving our business and so now pushes did something happen have things slowed down to those cars et cetera, I mean, clearly we've seen.

Some.

Push outs of Roadmaps and stuff from the likes of GM and Ford I don't think anyone's confused but I will tell you. What you don't see that is that offset by the pull in of Toyota.

Speaker Change: who, you know, last February was still maintaining they didn't believe in electric vehicles until the CEO was displaced.

Who last February was still maintaining they didn't believe in electric vehicles until the CEO was displaced.

We're seeing.

If you get outside of the U S. You can just sort of you can see the roadmaps for people.

There are companies like Hyundai just announced they just shut down two engine plants, it's like the old Viking days of burn in the boats theyre not going backwards, there getting rid of that in the U S. You can't do that because of.

Unions and things like that so it's a big contrast, and we think that.

Modules are coming they're going to be.

From the largest to even some of the smallest automobiles that are out there and evs.

So even though it's on everyone's roadmap you would you say today.

It was very early in that transition.

I believe it's still I do not.

Not everybody is doing it.

I don't want to get into anything other than what is publicly described out there, but even some of the shifts with respect to what's going on in Tesla's business has had an implication because I think people now and again I'm not saying anything that's not public.

Tesla, which started this segment they actually use a form of a discrete device in their current inverters. It has to die in each device.

Call It a module and depending on the supplier they can either do it with package form our wafer level and some of those shifts could have an impact on us in the near term, but although I don't know.

Im not providing any insight into what.

Tesla's plans, our long term, but the.

Prevailing thought processes that by the end of the decade.

Certainly before that you will see also in part by engines in modules or most of them.

Great I appreciate all the extra color.

Thanks, Tom.

Speaker Change: Thanks, Tom.

Thank you. The next question is coming from Matt Smith from Halter Ferguson, Matt Your line is live.

Yeah. Thanks gain I wanted to kind of piggyback on that last question.

Hearing everything you've talked about in the longer term kind of prospects around gan or photonics or even new markets within auto.

Am I right to presume that youre kind of.

Level of expectation for.

Okay.

Okay.

Matt you just broke up on your last sentence on levels of expectation what.

Okay.

Sorry, apologies can you hear me now that any better.

Yes Yep.

Alright.

Your level of expectation around some of these either new markets or new segment seems to be.

Increasing relative to maybe what you would've thought a couple of years ago.

Even a couple of quarters ago. So despite the kind of short term noise or.

Tanker demand, we might be seeing on auto is your expectation on the other segments kind of increasing to the point, where you think it might be close to capacity in a couple of years.

Okay. Okay. So yes, let me let me kind.

Kind of the historical perspective of the timing of it I'll pick on.

What do I do memory, Okay, we didn't talk much at all about memory.

What we've said is if you invest in area of investing in memory memory has always been on our plans and we have different level of engagement and we're still talking with memory suppliers about potentially wafer level burn in it is not deployed in mass yet it makes sense at flash. It ultimately makes sense in DRAM that's the law.

Longest term out there we're not planning to get revenue in the next year, but have you been shared we have specific long term bonus and <unk> for every manager on my staff and myself to get into memory. So that is a real thing back up a little bit.

Is gallium nitride, we just talked about gallium nitride just like within the last nine months and what we said at the beginning of the year as we're getting we're going to work to engage with the leaders, which now I'm very comfortable we are to understand the requirements and.

And what their needs are and so we can be there to address their needs and to learn and understand if there is a large production opportunity what I'll share with you is that we've learned a lot already together with those customers.

There's some things about it and I'm not going to get into it on this thing, but there is some real tricks that we have been able to help our customers to solve that are unique to gan versus silicon carbide and honestly.

I'm Super happy about a bit of a technical nerd, but the things that we're able to do with the customers are really impressive and thats, great and puts us in a very good comfortable position to be able to be there. There is data that is now supporting the need for production burn in we're still getting our arms around how big that is and so we haven't put out any.

Actual numbers, but I do believe.

Confidently now than two quarters ago that there will be production business for us versus before it was more of an investigation.

And then the one prior to that would be.

Another one was silicon photonics, the first time I talked about Silicon Photonics Io was December of 'twenty. Two so it's only been a little bit of a year ago.

And at that time, I mentioned that early indications from the likes of Intel had actually started to talk about it in demos. They are on their website they were.

Pat Gelsinger was giving up and talking about this and it's like boy something sure seems like Theres brewing around that and people say what do you think and my question was listen.

That would be fantastic and it makes sense because it has all the same.

Need it.

It needs Bernann inter compound semiconductor both for reliability and stabilization.

Its application is a multi chip module, meaning you'd want to do it or die level, because if you put it in with the graphics processor or a central processor or something else you don't want that device being thrown away. If this one fails.

The early indicators, where we were we had gotten some NP engineering and then we got a production order last may and people ask what did you think I said I was surprised it seems sooner than expected Thats one were working on to ship this quarter by next month.

So we're now seeing more visibility of that and candidly and I don't want to get too carried away on this AI thing, but the people are out there Nvidia.

AMD and Intel has been talking about that one of the big problems with these Ah processors is there chip to chip bandwidth.

They can talk internally to the di they're inside but even that set of bandwidth limitation. So each of those have talked about how do I actually integrate an optical interface to be able to overcome the bandwidth limitations of an electrical interface and TSMC and globalfoundries have been making big investments.

To be able to help them with that or the ibms of the world like an Intel would be doing it themselves and somewhere in between so what we think is that looks like a really interesting opportunity and is right up our pop because what.

What we do there is candidly even more unique than even the silicon carbide because of the power. The interesting thing is if you walk up and look at it it looks like the same system that we're shipping to silicon carbide, but instead of high voltage we're talking about high power in this case lower voltage and a lot of current and so.

Mix and match of the platform allows us to do that so this is actually just a reconfiguration of the same system that we were shipping to the likes of Silicon photonics customers <unk> centers like on the facial recognition.

On mobile phones, it's the same one, but even higher power than that.

I'm.

I'm still not clear I would tell you People's Roadmaps are really close to their chest. This is not something youre going to publicly read about how big the market is going to be one of these days you are just going to see one of those big suppliers show up with a product.

And Thats, where the market is going to come from so some of the stuff. We're doing the hardest thing is you can't go out and read about how big the market is going to be because it didn't even exist beforehand.

So anyhow those are some of the other markets that we're doing and I hope that gave you probably more color than you have been looking.

I think what I was trying to get at is it seems to me that the growth rate of these let's call. It non core business segments four for air today, it's probably going be higher than the growth rate within the kind of core automotives silicon.

Silicon carbide market is that kind of how you would think about just the sheer quantity and the sheer magnitude of those opportunities. Okay. Two things. Okay. So if youre going to take growth rate be careful because a small number of growth rate can see margin. It's a small number. So are there are those bigger.

<unk>.

The optical Io market. We've said, we think can be as big or even potentially bigger than even silicon carbide simply because of the potential units and the test time.

The dollars it turns out it's actually much more expensive for us to build even though it's extremely cost effective.

So it has the ability to be bigger memory, absolutely is the biggest of all of them, Okay and Gan as a TBD I think.

But looks promising so if I try and give you relative sizes okay.

Alright, Thanks, I appreciate the color.

Okay.

Thank you. The next question is coming from Larry Levine from Ciena capital.

Gary Your line in earnings.

Again, I have several questions that we get through them pretty quickly with it late.

Do you expect follow on orders.

Shipments this fiscal year to the fully automated.

Silicon carbide customer that you just book the revenue.

Last quarter.

Speaker Change: Do you expect shipments and revenues, additional follow-on revenues this fiscal year from that customer?

You expect shipments and revenues additional follow on revenues.

This fiscal year from a classroom.

Yes.

We dug.

Through the whole list here.

I think we are expecting some level of revenue for most customers including them.

Yep.

That's helpful.

That was a significant order and since they ordered two or more I would expect.

We have a significant ramp that there.

Oh goodness needs more capacity.

All of these all of the customers need significant more capacity to meet their revenue forecasts.

That's correct.

Could it be the.

He was a slower uptake of some of these customers, particularly the one you've been working on forever.

It is simply the fact that they are building 200 millimeter fabs and they are waiting for the 200 millimeter wafers before they commit to your full system. So that they don't have to buy two sets of wafer packs why started 150, if you wait a little bit you're going to be on 200.

Speaker Change: you know, White Star at 150. If you wait a little bit, you're going to be on 200. Maybe they have a bunch of single wafer probers that they can get by on. It's not efficient, but going to be something.

Maybe they have a bunch of single wafer probe or is that they can get by on.

It's not a position but.

Could it be something along those lines.

I don't think that.

It could be Larry I mean.

Don't think so I look at each individual customer most of them are all planning to go from 150 to 200.

It's not it's not so if you if let's say the 200 is a new line completely.

Very often people may want to change their strategy and Gulf from discrete to die level on a new line, let's say in that case, maybe youre right. They would time it with the 200 millimeter ramps, but that isn't there hasnt been how it has felt to us.

Speaker Change: but that hasn't been how it has felt to us. I think the 200 millimeter is coming. I mean, we're testing 200 millimeter wafers today from multiple customers, right? We see it. I think it's kind of consistent with everything that everybody's hearing. We don't have any particular great insight.

People have.

I think the 200 millimeter is coming I mean, we're testing 200 millimeter wafers today from multiple customers.

We see it.

Think it's kind of consistent with everything that everybody is hearing we don't have any particular, great insight I just don't it is not.

I think it's slower than people had originally thought.

Don't think its going to be 100% of the market, it's going through the end of the decade, theres still going to be.

Big chunk of 150 millimeter wafers being built one of the big discussion Thats going on as will a 200 millimeter wafer yield higher than 150 at a lower cost per yielded die.

And right now I think everything I've read is not yet so.

But that's also very true with most of these transitions yet it's sort of a chicken and egg you have to lead with it and then eventually your costs come under control but.

One thing with US is that the system is fully compatible between $1 50, and 200, you can build our auto aligner and it can work with both we have current customers that in the same day are doing both.

Yes.

And so in the wafer packs there are some things we can do with wafer packs to actually leverage and help with that too but.

Yes.

I don't think Thats, the majority of it but it might be on some customers.

Okay on the optical oil customer.

Interesting.

They started with E&ps.

If I recall forum was scattered around the world.

Now they are pushing you to to pull in and complete as soon as possible the production XP for the application that.

It would seem the.

On a fairly short time, maybe sooner than later they might be needing quantities of production tools.

As fast as that market is growing.

Frank.

Possibly it would give them a terrific leg up on the.

On the other competitors.

You like that to be something that might be at work here.

Maybe now I mean, we're preparing the tool that will allow us to duplicate and build multiple of the same flavors.

One of the nice things in.

That we did with this one is the system is actually in the new chamber configuration. So at bolt right under the front for the back if you will of the aligner. So they could do it either with offline or integrate it. It was not purchased with the integrated aligner, but we could easily upgraded in the field if they wanted to do that.

And we think I think that makes sense for that market I think the aligner is the right answer.

And as you know high volume that would totally makes sense exactly so along the high volume last question on the.

You mentioned many times every DRAM was burned and I'm, assuming some kind of exotic packaged part burn in.

But.

You know the large DRAM producer in the U S.

The planning on buildings several fabs in the U S.

And they are also introducing a high bandwidth memory.

This quarter I believe with 12 stacks of DRAM on top of it because it just seems like a layup.

No it's more complicated than that.

The application that would.

Lend itself towards wafer level burn in versus.

Doing testing on that stack and planning you go to bed.

And there are some weird.

One of them makes sense too.

I'm trying to get an evaluation tool on our fully automated XP overlap.

Memory customer before they set their plans.

Clean room space, and so on and so forth.

Sure, particularly before they commit.

The building goes.

Yes.

I don't want to get too much into it but our DRAM. There is a couple of other things that need to happen with DRAM to be able to cost effectively do a wafer level burn in and we've had some conversations related to those DFT modes, and what would be needed.

Fundamentally I mean, the HBM device can have a thousand opinions on it.

Let's say you have 1000 die on a wafer that would be a $1 million and wafer pack that.

We couldnt build one of those.

And then if you could it wouldn't be very cost effective. So then that here is that's not the right answer the answer has to do more with the DFT modes of something like a flash memory that.

I'm familiar with and so there is some other things that need to happen and we're going to help enable that flash memory is probably the the leading edge of this instead.

Easier to get there but.

That's pretty pretty specific Larry but.

I mean, DRAM would be probably the most impactful to the financials of those companies and so they would have divested interest to make those changes to their devices.

And I'll leave it at that okay.

Oh.

That's all I had.

Thanks, Good morning, Thanks, Larry Thank you.

Thank you. This does conclude today's call I will now turn the call back to Air Test management team for closing remarks, alright. Thank you.

I actually wrote myself a couple of comments here I just wanted to do just to make sure to summarize because I mean candidly. This is the first time, we've come in and lowered.

And so we.

We've tried to do our best to ensure that all of our shareholders our customers our employees understand that where we're at.

And Def Con <unk> position here.

We lowered our growth expectations, but believe that theyre going to.

Recover as we go forward.

Air Test has spent a lot of time selecting and focusing on some really incredible markets. Some of those selected us if you will and we believe we're going to give us the opportunity to have more than our fair share of growth in the semiconductor capital equipment market, we are actually growing faster than semi semiconductor capital equipment. This year. Okay. So that is.

A little interesting people don't put it perspective.

We're focused on production wafer level test and burn in.

Silicon carbide gallium nitride, we've talked about the growth in electrification worldwide infrastructure electric vehicle traction inverters.

Infrastructure datacenter solar numerous industrial application.

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We're candidly focus on engaged with multiple companies in the silicon photonics.

Hi.

And we talked about.

Large companies that have roadmaps that are heading in a direction. If you will where we have gotten to a place where they are coming towards us.

We also talked about memories and.

I think as memory goes towards things like heterogeneous integration for graphics, AI processors et cetera, long term thats going to make sense for this as well. There is these large macro trends that are going on semiconductors are going to double in the next seven eight years.

More semiconductors are less reliable compound semiconductors smaller line width et cetera, and more and more semiconductors are going into applications that really matter like automotive applications and sensors and things like this and the heterogeneous integration, which is the result at the end of Moore's law people are.

Having to put more chips together in the same package to be able to continue to meet the technical roadmaps and when they do that burning them in in the package and module form doesn't makes sense. These are all things that are aiming towards us for R. R.

Our solution and candidly, we think we have a unique integrated.

And unique technology and solution for providing a one stop shop for the systems contactor applications test programs.

Have the ability and the capacity and the lead times to meet the customer needs.

So we're going to focus on market share and we're going to focus on maintaining and growing profitably.

If we can maintain a high market share in these new exciting growth market. We think we can achieve strong growth and a healthy profitable manner and thats going to reward our shareholders employees and our customers and so with that I really thank everyone for attending and we look forward to providing all with a update at our next quarterly conference call take care.

Okay.

Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.