Q2 2025 Aehr Test Systems Inc Earnings Call
James Diffely, James Diffely, James
Greetings.
Welcome to the Airtest Systems Fiscal 2025 Second Quarter 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 Pondell Wilkinson Investor Relations. You may begin.
Jim Byers: Thank you, operator. Good afternoon and welcome to Airtest Systems' second quarter fiscal 2025 financial results conference call.
Jim Byers: With me on today's call are Airtest Systems President and Chief Executive Officer Gayn Erickson and CFO Chris Siu. Before I turn the call over to Gayn and Chris, I'd like to cover a few items.
Jim Byers: This afternoon, after market closed, Airtest issued a press release announcing its second quarter fiscal 2025 results.
That release is available on the company's website at www.air.com.
Jim Byers: This call is being broadcast live over the internet for all interested parties and the webcast will be archived in the investor relations page of the Airtest website. I'd like to remind everyone that on today's call, management will be making forward-looking statements today that are based on current information and estimates.
Jim Byers: 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.
Jim Byers: These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC.
Jim Byers: These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Airtest Systems undertakes no obligation to update the forward-looking statements.
Jim Byers: Now with that I'd like to turn the conference call over to Gayn Erickson, President and CEO.
Gayn Erickson: Thanks, Jim. Good afternoon, everyone, and welcome to our second quarter Fiscal 25 earnings conference call.
Gayn Erickson: Thanks for joining us today. I actually have a number of topics that I'm going to go through. I'll try and get through them quickly. We've had a lot of inbound
Gayn Erickson: request for information and to clarify all the different markets that we have been expanding into, particularly a lot of questions around the AI side. So I thought I would spend a little bit of time just making sure to bring everybody up to speed and kind of normalize what everybody understands about that. So bear with me.
Chris Siu: as I go through this. Chris will then cover some details related to
Chris Siu: We're excited to share the significant progress we've made on the key objectives we outlined at the start of the fiscal year, particularly expanding our product reach into additional large and fast-growing markets.
Chris Siu: Our market diversification into sectors such as artificial intelligence processors, gallon nitride power semiconductors, data storage devices, silicon photonics integrated circuits, and flash memory is driving new opportunities to attract customers and drive revenue growth.
Chris Siu: This progress includes our wafer-level burn-in solutions and also the success we're achieving with the new semiconductor packaged part test and burn-in product lines we acquired through our acquisition of In-Cal Technology that we closed last August.
Chris Siu: This acquisition has led to the acceleration of our market diversification, with particular success and leverage expanding our total available market in AI processors.
Chris Siu: We're pleased to report meaningful progress in our efforts to penetrate the high-power processors market, including artificial intelligence or AI processors.
Chris Siu: graphics processor units or GPUs, and application-specific integrated circuits or ASICs, AI processors, and accelerators. These advancements include wins in both wafer-level burn-in and package-part burn-in applications.
Chris Siu: Let me start with our new success with the AI processors for wafer-level test and burn-in.
Chris Siu: Last month we are thrilled to announce a major milestone for us securing our first AI processor customer for wafer-level burn-in.
Chris Siu: After successfully demonstrating the performance and throughput of our systems at our headquarters here in California, this innovative AI customer selected our new high-power FOX XP solution for production, wafer levels, test, and burn-in of their AI processors.
Chris Siu: This includes initial volume production orders for multiple high-power FOX XP systems and our proprietary wafer pack contactors, which enable full wafer contact for testing and burning in of AI processors in wafer form before system integration.
Chris Siu: This achievement represents a significant technological and commercial breakthrough for AIR, significantly expanding the market potential for our FOX XP wafer-level test and burden systems.
AI processor burn-in is a significant opportunity for AI.
Chris Siu: AI processors have tens of billions to even greater than 200 billion transistors on a single semiconductor die. Transistors act as the fundamental building block, functioning as an electronic switch to control the flow of electrical current.
Chris Siu: Essentially, representing the on and off states necessary for processing information on digital circuits, allowing for the creation of complex logic operations within a single chip by combining numerous transistors together.
Chris Siu: Large, complex processors have always been subject to the challenge of early failure rates that are higher than the application requires.
Chris Siu: Companies use test and burn-in systems to qualify a new process and AI processor design to determine the device's early failure rates, intrinsic and steady state failure rate over time, and also how long the devices will last before they begin to fail due to the end-of-life wearouts.
Speaker Change: This is really where our acquisition of Intel plays a huge role in our strategy for AI processors as the Sonoma Ultra High Power Package Test and Burn System is extremely good for this qualification application. I'll also talk about Sonoma in more detail later.
Speaker Change: During the semiconductor qualification process, customers characterize the failure rates over time for a given device, and then implement a production burn-in to effectively accelerate and induce the early failures so that these devices can be screened out and not shipped to customers.
Speaker Change: In the case of wafer-level burden and screening, they can remove the devices before they're packaged with other processors and high-bandwidth DRAM memory, or HBM, into very expensive packages using substrates like Kaoss packaging from TSMC.
Speaker Change: Once you understand that AI processors need production burn-in, and then you look at devices such as Hopper or Blackwell from NVIDIA, or the AMD Instinct MI325X GPU accelerator, it becomes intuitively obvious why customers would like to move this production burn-in step to wafer level if they can.
Speaker Change: to avoid throwing away very expensive packages and the remaining good processors in HBM.
Speaker Change: With AIR providing the first-ever solution for wafer-level burn-in in an AI processor in partnership with this customer and their Outsourced Assembly and Test, or OSAT, partner.
Speaker Change: We have shown that our high-power FOX XP multi-wafer systems and proprietary wafer pack contactors can be a viable solution for testing and burn-in of AI processors in wafer form.
Speaker Change: to avoid having to burn-in these devices in package or system form, where the cost of test and the cost of yield loss due to failing devices during burn-in is much more expensive and impactful to overall manufacturing yield.
Speaker Change: We've already shown the solution working at our facility in California and will begin shipping the production systems and wafer packs already this month.
Speaker Change: The systems will have a very visible footprint at the OSAT they will be installed and used at, and we're working together on marketing this wafer-level production burning capability to other AI processor suppliers in partnership with this OSAT as they speak.
Speaker Change: Now let me turn to the package part test and burn-in level of AI processors using our new Sonoma system.
Speaker Change: This customer is a large-scale data center hyperscaler providing computing power and storage capacity to millions of individuals and organizations worldwide.
Speaker Change: System shipments have already commenced to their OSAT contract manufacturer doing testing burn-in for them in Asia. Again, this is for production burn-in screening of all devices shipped to screen out early failures.
Speaker Change: This customer was and continues to use the Sonoma system for process and device qualification as I detailed a few minutes ago.
Speaker Change: The Sonoma system is a system that combines high-parallelism, ultra-high-power devices under tests or duds with very high-current, high-performance power supplies that allow many voltage zones ranging from multiple core power zones to many other lower power zones on the same device.
Speaker Change: very flexible digital test resources per device, individually controlled liquid cooling of each device under test, and what we feel is the world's best software and user interface for device testing and debug for device qualification and reliability testing and bring up.
Speaker Change: I have personally heard from multiple customers that they often use the Sonoma system to debug the test patterns of their devices and use this data to feedback to their multi-million dollar ATE systems from the likes of Advantest and Teradyne.
Speaker Change: We have a large and growing installed base of Sonoma systems around the world at test labs, OSATs, and IDMs used for this qualification and reliability testing of new devices and semiconductor process nodes.
Speaker Change: What is new is this is the first customer, and it's a large one, that is purchasing Sonoma for their volume production needs for test and burn-in of their AI processors.
Speaker Change: This is an area where the combination of In-Cal and AIR was very well received by customers, as In-Cal simply did not have the support infrastructure worldwide as AIR does to support the needs of production customers.
Speaker Change: Nor did they have the manufacturing capacity that we do to build a large number of systems for production customers.
Speaker Change: We see significant potential to expand our package part test and burn-in business in the rapidly growing AI semiconductor market with our ultra-high power Sonoma product line and already have a team working on multiple enhancements.
Speaker Change: to address both qualification and production test and burn-in needs of a wide range of AI processor suppliers, test labs, and OSAPs.
Speaker Change: AIR is now able to offer our customers both the ability to do production wafer-level burn-in of their AI processors and accelerators, as well as reliability, qualification, and production burn-in at the package part level with our Sonoma system. AIR Test Systems is the only company in the world offering the flexibility to customers of both wafer-level and package-level test and burn-in solutions for AI processors.
Speaker Change: We estimate that the combined market for wafer-level and package-part reliability, test, and production burn-in of AI processors will surpass a hundred million annually, a hundred million dollars annually.
in the future.
Speaker Change: The AI semiconductor processor market is growing very fast. According to the S&S Insider, the AI chip market size was valued at over $60 billion in 2023.
Speaker Change: and is expected to grow to over $600 billion by 2032, a 10x increase and a cager of almost 30% over that period.
Speaker Change: used for LLM generation and inference to application-specific integrated circuits aimed at specific accelerator functions in data centers and hyperscalers and Edge AI processor used in autonomous vehicles, robotics, and security.
Speaker Change: These devices and their applications demand extremely high quality, reliability, and security. With our comprehensive product portfolio for reliability, test, and burn-in of AI semiconductors, we feel AIR is poised to capture a meaningful share of this market.
Speaker Change: Now let me talk about the expansion into our gallium nitride market.
Speaker Change: We're thrilled to have received their initial production purchase order, marking their commitment to advancing volume production, wafer-level burn, and other GAN devices using our FOXxP platform.
Speaker Change: Data Center Power Conversion and Solar to now include GAN, a high-performance compound semiconductor optimized for mid-power applications such as data centers, solar energy, automotive systems, and consumer electronics and PCs.
Speaker Change: Over the past 12 months, we've collaborated with this lead customer using our FOX NP system, leading to their purchase of multiple wafer pack reference designs on a diverse set of GAN applications.
Speaker Change: GAN offers a much broader application range than silicon carbide and is poised for significant growth in the coming decade.
Speaker Change: While the largest market segment for silicon carbide, about 70%, is for the electric vehicle and EV charging infrastructure markets, GAN is very diversified and is not dominated by EVs or autos.
Speaker Change: With many more end-use applications, there are many more customers and broader market for Gantt Semiconductor suppliers than for SICK with our fewer EV and charging customers But our higher volume per customer than the average customer for Gantt suppliers
Speaker Change: With an expected compound annual growth rate CAGR exceeding 40%, the GAN market is projected to surpass $2 billion in annual device sales by 2029, according to Yoel Group.
Speaker Change: Additionally, Frost and Sullivan estimates GaN semiconductors will account for over 10% of the worldwide power semiconductor as soon as 2028. This transformative technology represents a significant growth opportunity for AERS wafer-level test systems and wafer-packed full wafer contactor.
positioning us to capitalize in the expansion of GAN market.
Speaker Change: My next topic is silicon photonics, which continues to show signs of market adoption for chip-to-chip communication and for optical networking switching.
Speaker Change: We remain very enthusiastic about the silicon photonics market, particularly for the new application of silicon photonics integrated circuits for use in optical chip-to-chip communication that we see as a significant market opportunity for our products.
Speaker Change: Last year, we shipped a new high-power configuration of our FOX XP system to our lead customer for a new family of silicon photonics integrated circuits aimed at optical chip-to-chip communication.
Speaker Change: This system, with our proprietary wafer-packed full wafer contactors, allows for testing over 8,000 high-power optical devices in parallel on each of nine wafers before they're simulated and placed into a fiber-optic transceiver for data center and telecommunications infrastructure or for placement in co-packaged optics for optical chip-to-chip communication.
Speaker Change: Multiple companies, including AMD, NVIDIA, Intel, TSMC, and Global Foundries have announced product roadmaps for devices using optical chip-to-chip communication.
Speaker Change: with new announcements in just the last week coming out of Taiwan on new silicon photonics-based ICs by TSMC and NVIDIA.
Speaker Change: The new FOX XP system configuration with higher power wafer packs enables production tests of up to 3,500 watts of power per wafer and up to nine full wafers in parallel. It also includes Airtest's latest chamber configuration which has a smaller overall footprint and is compatible with AIR's new wafer pack auto aligner that provides AIR customers with fully automated material handling, enhanced re-operation of 6 to 12 inch wafers using industry standard wafer cassettes and foobs, and can also support mobile robot and overhead transfers of wafers in those foobs.
Speaker Change: This is a system that we leverage for the production system for wafer-level burn-in of AI processors as well.
Speaker Change: We've designed a number of new wafer packs for engineering and initial samples for this lead customer of our high-power silicon photonic solution this fiscal year.
Speaker Change: These are very impressive devices with significant improvements in size, power, and data rates that we feel are likely to ramp to production in time to address the chip-to-chip optical communications market opportunity.
Speaker Change: The hard disk drive market is another opportunity for AERA's wafer-level testing burn-in systems and we're excited about our opportunity for production burn-in and stabilization of devices used in hard disk drives using our FOX-CP systems and wafer pack contactors.
Speaker Change: Our lead customer for this application is ramping this year and has told us they will purchase multiple production systems from us over the next few quarters to support their planned production rollout and ramp.
Speaker Change: This customer, first announced back in 2019 prior to the COVID-19 pandemic, initially purchased our FOXCP Single Waiver Test and Burden Solution to support the qualification and early test stages of this new product aimed at the enterprise and data center markets.
Speaker Change: We view the data storage market both for hard disk drives and flash-based semiconductor solid-state disk drives as significant growth opportunities for our systems.
Speaker Change: These devices require exceptionally high levels of quality and long-term reliability of the die before they are put into the packages or systems, which aligns perfectly with the capabilities of our wafer-level test and burn-in systems.
Speaker Change: And speaking of solid-state disk drives and NAND flash memory, we're making steady progress on our ongoing benchmarking project with a major flash memory supplier to evaluate the benefits of using our FOX XP solution for wafer-level testing, burn, and other flash memory devices.
Speaker Change: This application is for 100% test and burn in of devices to be used in mission critical applications such as enterprise storage.
Speaker Change: As part of this evaluation, we're advancing the development of a low-cost, high-pin count, fine-pitched MEMS-based wafer pack for full wafer contact of all NAND devices on a 300mm wafer, including support for high-density 3D NAND technology supporting up to greater than 200 layers.
Speaker Change: One of the key challenges with addressing the new devices on customers' NAND Roadmap is that not only is there a significantly higher number of die per wafer, but the power per die and therefore power per wafer to test these wafers has increased significantly.
Speaker Change: Support for high-power wafer testing is something that AIR is particularly good at with our FOX XP multi wafer test and burn-in systems and wafer packs.
Speaker Change: This new wafer pack design is also capable to support DRAM testing should customers choose to pursue DRAM burning in the future.
Speaker Change: We aim to complete the proof of concept phase in a few months, enabling us to advance this benchmark to either a production solution evaluation or secure a commitment from the customer to develop a production test cell.
Speaker Change: This would position us to generate our first revenue from the stand opportunity as early as our next fiscal year.
Speaker Change: We believe this represents the leading edge of a significant opportunity for our solutions for semiconductor memories, with the NAND flash market being the key initial focus. Looking ahead, we see long-term potential to expand the DRAM wafer level test in Vernon, further broadening our market reach.
Speaker Change: So you'll notice that I led with the new market opportunities, but we'll now provide an update on silicon carbide wafer level test and burn-in, a market that in fact was almost 90% of errors revenue last year.
Speaker Change: AIR also continues to expand its presence in the silicon carbide power semiconductor market, a critical sector for power conversion for electric vehicle traction inverters, charging infrastructure and a range of industrial data center and infrastructure applications.
Speaker Change: Based on recent market forecasts and large suppliers of silicon carbide semiconductors, growth in silicon carbide sales outside of China should remain challenging before recovering in calendar 2026.
Speaker Change: We believe we're well positioned in this market as we have a large customer base and are currently engaged in benchmarking efforts with multiple potential new silicon carbide customers around the globe including in China.
Speaker Change: Recently, we filed a lawsuit in China against a local supplier for intellectual property infringement.
Speaker Change: This action relates to features of products by that company, targeted at wafer-level burn-in and silken carbide devices, that we believe infringe on AIR's intellectual property and patents, granted to AIR by the Chinese Patent Office.
Speaker Change: Our current fiscal year forecast includes contemplated orders and revenue yet to be booked for silicon carbide wafer-level burning systems and wafer packs destined for silicon carbide manufacturers in China.
Speaker Change: It is important to bring this to our shareholders' attention, as recent trade-related developments in the U.S. and the emergence of competitive offerings in China that we believe infringe on our intellectual property have heightened the risk associated with bookings and revenue from Chinese customers.
Speaker Change: As we look at the composition of our total revenue for this fiscal year, silicon carbide is expected to account for less than half of our total revenue as we've seen our expansion into additional other markets capture real market share gains.
Speaker Change: AI processors, including wafer-level and packaged parts, could comprise as much as 40% of our total revenue this fiscal year, up from effectively zero revenue last year.
Speaker Change: GAN, Hard Disk Drive, Silicon Photonics Integrated Circuits, and other semiconductor package part revenues will comprise about another 20% of revenue.
Speaker Change: We're not pivoting away from silicon carbide, but rather are generating what we see are the growth in the other market opportunities while not seeing the growth in silicon carbide this year like we saw last year.
Speaker Change: According to recent market research from companies such as Yoel, the estimated revenue for silicon carbide semiconductors in 2024 was around 2.5 billion dollars and expected to reach 10 billion by the end of the decade, a 4x increase.
Speaker Change: To put this into perspective, the semiconductor market is projected to grow from about 600 billion dollars overall in 2024 to over 1 trillion dollars by the end of this decade. So silicon carbide will be about 1% of the overall semiconductor market by 2030.
Speaker Change: AIR's innovative solutions are poised to capitalize on this growth in the overall semiconductor market by addressing the critical reliability needs of next-generation applications and leveraging key megatrends shaping the semiconductor industry.
Speaker Change: Reliability has become a critical priority across a wide range of industries, including combustion and electric vehicles, data centers, electrification of the world's infrastructure, and a wide range of artificial intelligence applications.
Speaker Change: Factors such as smaller semiconductor geometries, the increase in adoption of compound and optical semiconductors,
Speaker Change: and the complexities of ensuring semiconnector reliability on ever-increasing power and performance of semiconductors and advanced packaging are driving the demand for wafer-level and package-part test and burn-in systems.
Speaker Change: With strong customer engagements expanding market opportunities and innovative products designed to meet the volume demands, we're optimistic as we move in the second half of our fiscal year and maintain our previously stated financial guidance for the fiscal year.
Speaker Change: As we've stated before, though, given the nature of our business with our high average selling prices of a single production system and a set of wafer packs, our quarterly revenue can experience significant variability if system orders anticipated by the quarter end are delayed by even a few days. This was the case in last quarter.
Speaker Change: and one of the key reasons we do not provide quarterly guidance.
Speaker Change: In the case of both our new GAN and wafer-level AI customers, both requested us to pre-build systems that we fully expected to ship to them within the quarter. However, the purchase orders were not finalized until after the quarter ended.
Speaker Change: Looking ahead and above the quarter-to-quarter variations, we're excited about the current and emerging market opportunities for our products, which not only position us for a successful fiscal year, but also lay a solid foundation for long-term sustainable growth in years ahead.
Speaker Change: Lastly, and before I turn it over to Chris, it's with great sadness that we acknowledge the passing
Chris Siu: of Ovi Raychoudhury, our EVP of Research and Development, who lost his battle with cancer last month.
Chris Siu: On behalf of everyone at Airtest, we extend our deepest sympathies to his family. Ovi's friendship, leadership, and the tremendous contribution to Airtest will always be remembered and cherished. It was an honor to work alongside Ovi, and he'll be deeply missed.
Speaker Change: In the interim, Don Richmond, our CTO who previously held this role before OBI joined us a year and a half ago, had stepped in and assumed OBI's responsibilities at AIR and would continue in this capacity until further notice.
Chris Siu: With that, let me turn it over to Chris, and then we'll open up the lines for questions.
Chris Siu: Thank you, Gayn. Good afternoon, everyone. The company recognized bookings of $9.2 million in the second quarter of fiscal 2025.
Chris Siu: compared to $16.7 million in the first quarter of fiscal 2025.
Chris Siu: At the end of the quarter, our backlog was $12.4 million. In the first six weeks of the third quarter of fiscal 2025, we received $14.2 million in additional bookkets.
Chris Siu: This growth was driven primarily by the first AI processor customer, utilizing our high-powered FOXXP solution for wafer-level production tests and burn-in of AI processors, which we announced in December.
Chris Siu: With these recent bookings, our effective backlog has now reached 26.6 million.
Chris Siu: Turning to our Q2 performance, which included a full quarter of the financial results from the In-Calc acquisition, we faced a challenging environment due to overall softness in the Zircon carbide-powered semiconductor market.
Chris Siu: Second quarter revenue total $13.5 million, a 37% decline compared to $21.4 million in Kyoto last year.
Chris Siu: A significant portion of this revenue was driven by demand for our wafer packs and Sonoma Ultra High Power systems acquired from the In-Cal Acquisition, which support high volume production tests and burning of AI processors.
Chris Siu: WaferPak revenues came in at $8.6 million, accounting for 64% of our total revenue in the second quarter, an increase from 43% in the same period last year. This highlights the important role of our WaferPaks as a key source of recurring revenue for our business.
Chris Siu: Additionally, system sales from our Sonoma and Tahoe packaged part burning products made a substantial contribution to our second quarter revenue.
Chris Siu: We are excited to see the significant progress we have made to incorporate the in-cow products into our product portfolio to address the AI market opportunities.
Chris Siu: We believe our strategy to expand AIRS product offerings to diversify into sectors beyond silicon carbide applications, such as AI, gallium nitride power conversion, and other sectors, will drive revenue growth in the future.
Chris Siu: Non-gap growth margin for the second quarter was 45.3% compared to 51.6% in the same period last year.
Chris Siu: Non-GAAP operating expenses in the second quarter were $5.9 million, a 19% increase from $5 million in Q2 last year.
Chris Siu: The year-over-year increase is primarily due to incorporating a full quarter of INCAL's operating expenses into our financial results, as well as higher legal and professional services fees.
Chris Siu: We expect to incur higher legal fees in the next few quarters as we vigorously protect our intellectual property rights in China and defend class action and derivative complaints in the United States.
In Q2, we recorded income tax benefits totaling $217,000.
Chris Siu: non-GAAP net income for the second quarter which excludes the impact of stock-based compensation.
Acquisition related cost
Chris Siu: The acquisition will lead to fair value adjustment to inventory and the amortization of intangible assets.
Chris Siu: was $0.7 million, or $0.02 per dollar share for the second quarter.
Chris Siu: This compares to non-GAAP net income of $6.7 million or $0.23 per diluted share in Q2 FY2024.
Chris Siu: Now turning to the balance sheet. At the end of Q2, our cash, cash equivalents, and restricted cash total $35.2 million, down from $40.8 million at the end of Q1.
Chris Siu: During the quarter, we used $5.9 million in operating cash flows primarily to pay our suppliers and service providers.
Chris Siu: With a strong balance sheet, we continue to invest in scaling our business and pursuing new market opportunities.
Chris Siu: We have no debt and continue to allocate excess cash to money market funds. In the second quarter, we earned $228,000 in interest income.
Chris Siu: On October 15, 2024, we filed a new S3 registration statement with the Securities and Exchange Commission to support potential future financing needs.
Chris Siu: The new S3 shelf filing for $100 million was approved by the SEC on October 25th, and it's good for three years.
Chris Siu: Looking ahead to the remainder of fiscal 2025, which ends on May 30, 2025, we are reaffirming our previously provided guidance.
Gayn Erickson: As Gayn noted, we expect total revenue of at least $70 million with a non-GAAP net profit before taxes of no less than 10% of revenue.
Gayn Erickson: Lastly, looking at the investor relations calendar, Airtest will be participating virtually in the Needham Growth Conference on Thursday, January 16, 2025. We look forward to connecting with many of you during this event.
Gayn Erickson: This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.
Speaker Change: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Once again, please press star 1 if you have a question or comment. And the first question comes from Christian Schwab with Craig Hallam. Please proceed.
Christian Schwab: Hey, good afternoon, guys. So, Gayn, thank you for all the detail on all the different market opportunities. I guess the question...
Speaker Change: I really only have one question. It's a question we get all the time. We've been at $65 million, $70 million here for three years.
That's it. Thank you, Gayn.
Speaker Change: All right, Kristen. Well, as you know, and maybe not everyone else knows as well or understand, we have yet to give multi-year forecasts, which is kind of going to feel a little less
that what you're asking for.
Speaker Change: But let me at least try and put it in perspective as well, you know, we had been
Speaker Change: If you go back and look at multiple quarters, we've been talking about some of these other markets and alluding or being very direct about some of the expansion, whether it be us talking about the investments in the silicon photonics.
Speaker Change: our initial engagement with customers in GAN a year and a half ago that said we were evaluating them for production use in hopes that it would prove out that they need production burn-in which we've now determined have.
Speaker Change: engagements with the flash memory and we even we were a little more guarded about it but about a year ago if you look at the the notes I was referring to another exciting application for a high-power application for way below burning we were engaged in which was actually the leading edge of the AI stuff
Speaker Change: As we talked about AI, you know, these could be $100 million a year numbers, and flash memory is probably the largest among it, and DRAM larger than that.
Speaker Change: There are enormous opportunities in the space as a whole in semiconductors, but of course we were seeing this year-over-year growth of 40-50% for silicon carbide, and that seemed to be where the focus was.
Speaker Change: So I've always tried to balance, particularly with our customers that still really need us for their silicon carbide ramps and their fabs they're putting in. We're not a banning in the silicon carbide. I think we have the most competitive solution, the best roadmap as well to continue to meet customers' needs.
Speaker Change: And we'll see that growth. We think that silicon carbide still has a lot of legs on it as we...
still anticipate, you know, 30%...
Speaker Change: of electric vehicles by the end of the decade, or of total vehicles being electric vehicles.
Speaker Change: We're still getting our arms around it and doing some introductions as we're taking the in-cal package bar burn-in production system and marketing around the world and at the same time having conversations with customers about the wafer level.
Speaker Change: and we'll hopefully be able to give you more insight as to what that looks like and of course we'll provide our annual guidance in our July release which will summarize the fiscal year and as we head into fiscal year 26.
Speaker Change: Great. Thank you for that, Gayn. No other questions. Thank you. Thanks, Chris.
Speaker Change: Up next we have Jed Dorsheimer with William Blair. Please proceed.
and Chris Siu. Thank you. Thank you.
Hi, yeah, thanks for taking my questions
Speaker Change: Gayn, despite the mess, backlog looks pretty strong, so I'm just wondering, you know, were there any tools on the shipping dock? Is this more of a timing issue? I'm guessing that it is, but I'm just curious if you could add any more color, and then I have some follow-up questions.
Speaker Change: Yeah, they were on the shipping dock, very much so. Yeah, we were quite frustrated. I don't want to get into it. This isn't the first nor the last time we had...
Speaker Change: I'll just say one or more customers, because it's kind of narrowed down to two, asking for some concessions and things that just seem quite unreasonable, recognizing it was the end of our fiscal quarter and we dug our feet in at the same time.
But
It's very interesting that
Speaker Change: But yeah, these are, they're both orders for immediate shipments because we had pre-built them.
Speaker Change: Into it and had we you know had we had either one of those orders ahead of time You know the our quarterly number would have been Significantly higher, but it just moved into this quarter
Got it. And thanks for the color.
It sounds like...
Speaker Change: the hard disk drive, I think, for the Hammer process product or platform, that's the biggest near-term driver of the business beyond, you know, ex-silicon carbide, and that
Speaker Change: But you've got a lot of different irons in the fire around AI and even HBM.
Speaker Change: So, in my misunderstanding, I'm just trying to understand sort of near-term drivers that then potentially lead to, you know, inflection on future growth.
Speaker Change: Realistically, if you look at it, so if you go through the numbers of our numbers, just by the numbers, we did what 26 something, we have 26 something in backlog, with 75%, almost to the
Dime
Speaker Change: of revenue scored and or backlog of the 70 million dollars. So we have like 16, 17 million to go, I think, wherever the math is.
Speaker Change: You guys think this is easy, it's not, with the granularity of our stuff. But, you know, near term, you know, we've got some silicon carbide orders in our expectation for Q4.
Speaker Change: with some new customers. We've got more AI production both in package part and wafer level burn-in.
I think both of those
Speaker Change: All three of those are probably bigger than the hard disk drive one in the near term.
Speaker Change: Over the next several years, as they ramp out, the hard disk drive business looks to be really attractive.
Speaker Change: there's some variation on some of the stuff we can't get into with respect to their forecast, but we're pretty happy with that and they're very happy with us about that application. You know, Flash for sure is kind of bigger than everything, although maybe the AI stuff will end up being bigger than Flash. We'll see how it plays out, but that's a year out.
Speaker Change: And we're not alluding to a timing of when the DRAM stuff comes.
Speaker Change: You know, it's pretty full plate. You guys, we're still, you know, you hear it all the time, we're still doing benchmarks.
Speaker Change: You know, Vernon and I will tell you, we've won customers that haven't placed orders yet for silicon carbide. It's a very interesting market with all the dynamics that are going on in there. You know, winners and losers and market share shifts between customers.
Bye!
Speaker Change: I try and use this 80-20 rule. Vern and I talk about, Vern's our VP of sales for people that don't know. We try to talk about this all the time. You know, we can't wake up every day and spend 80% of our time in silicon carbide. You know, we've spent a ton of energy. We've got these great solutions. We've won these benchmarks. The customers need us to be there. But most of the days we wake up, we're focusing on these other market opportunities where we can really have an impact.
Speaker Change: and we'll let Adil, our VP of Operations or COO, deal with manufacturing capacity. Just take the orders and ship them. Because we certainly bought the inventory.
Speaker Change: against what we really believed a forecast was going to be there last year. Bought the inventory against those forecasts from verbal forecasts from customers that have pushed out, we still think are going to come.
Speaker Change: Got it. One last question for me and then I'll jump back in the queue and maybe it's for Chris here.
Speaker Change: Just margins, gross margin took a steep decline. I'm assuming that that's mixed shift from the wafer packs to the In-Cal systems, Sonoma, but I'm just curious.
Do you expect...
Speaker Change: expect to be at these levels you mentioned in backlog that you have some silicon carbide I'm assuming some wafer packs there how should we think about the normal margin levels is you certainly you know to achieve your 70 million would imply you know getting a pretty big bump in in revenues how should we think about that for the right yeah so you're correct yet so so as we talked about it before the In-Cal products the gross margins is
Speaker Change: It's a little bit lower than what we have in legacy air test systems and wafer packs. So the order you can think about it is the wafer packs always has the best...
Speaker Change: and then the air test systems, and then would be the in-counter system. So it really depends on the.
Speaker Change: So, we're at a good point right now, we of course do all these live, and you don't hear the construction in the background, but we're doing our remodel here, adding a huge amount of capacity, capability out on the floor, clean room space, etc.
Speaker Change: before we move the In-Cal products over. They're only a few miles down the road, but that whole team and the manufacturing will be in here, I think, completed by the end of our fiscal
Speaker Change: year so it's only a few months out. That facility is also burdening our cost of sales too so that comes off our books I think by a year and a half.
Speaker Change: That's about a half a million dollars a year or something like that too. So we'll get some goodness out of this thing. We don't really focus our energy on the goodness of the in-cow merger. Mostly it's the revenue opportunities and the customers, but there will be some operational efficiencies as well.
Speaker Change: Great. Thanks for the color. I'll jump back in the queue. Thanks, guys.
Thank you, Jed.
Speaker Change: Once again, if you have a question or a comment, please indicate so by pressing star one on your touchtone phone. The next question comes from Tom DeFilly with DA Davidson. Please proceed.
Tom DeFilly: Yeah, good afternoon and thanks for the question. Gayn, curious what your view is of the Chinese market for silicon carbide if you are not successful in your PET infringement case. Is there still a market there for you?
Thank you.
Tom DeFilly: And obviously the trade-related things between the U.S. and China, particularly kind of recently, those are harder to get your finger off. The system, and you know...
Tom DeFilly: Yeah, I want to be careful too much that system that we've named in our 10Q etc. It's not very it's not very good I know that's pretty directed You know, we've had feedback from customers that it wasn't it's not working very well. It has repeatability issues It can't really do what we do. We have parallels advantage. We have number wafers. We have automation We have a lot of capability But nevertheless, we're not just going to put up with people trying to encroach on us and step on patents that we have in China
provided by the Trade Captain's Office.
and so we're not going to put up with it.
Tom DeFilly: You know, there's two things. There's a legal aspect of this thing, and then there's just the flat-out competitiveness. And, you know, we have a team of people in China.
Tom DeFilly: I think we've already talked about it. I think we had 14 customers in China over time. One of them is waiting for the rest of her package to depart from Airtest.
Tom DeFilly: So we've done business in China for a long time. It's not our plan to change. It's just some of the uncertainties related to how to trade things that make it a little harder to put your finger on and we're just trying to be open with that with people.
Tom DeFilly: Okay, so maybe to summarize, if, you know, worst case scenario, they're able to get away with whatever they've copied on their tool, you feel like you still have a pretty strong competitive advantage for both reliability and productivity versus their system as it is.
Tom DeFilly: We do, we do. You always have to be careful because people have roadmaps and we have roadmaps too. I don't want to get too carried away with that.
Tom DeFilly: Yeah, that is the case. And again, it's very focused on silicon carbide. It has issues even testing gallium nitride. It doesn't do power semiconductors. So it's, you know, it's kind of a specific niche target at something. But nevertheless, we're taking it seriously, at least in China.
Speaker Change: Okay, and then your concern over the orders this year is the concern that you lose them competitively or that they get pushed out?
The End.
Speaker Change: Well, there's always, you know, I worry about a lot of stuff, Tom, but in general when we were trying to describe China, you know, we have some, you know, we have a production system in our plans, at least in those numbers. We also have other opportunities and things like that too, but, you know, an AFP of our waver level burden systems, which sets a waiver tax, is, you know, several million dollars, and so if, you know, something happens and...
Speaker Change: There's always the, they still buy us, but they don't take it by May. That's kind of the normal thing we've been dealing with. You know, I mean, I think a lot of people understand. I mean, a lot of our
Speaker Change: shareholders are, you know, experts in semiconductor, semiconductor tap. I mean, semiconductors are in a downturn right now. I mean, outside of AI, there's a lot of, it's tough out there in automotive customers, etc. And so, you know, as those of us that have been here for a long time, this too shall pass.
Speaker Change: you know, call from your customer and say, oh, can you help us with pricing? You know, because we're struggling and you're like, you are 50 times larger than I am. Like, I'm not sure I can help you with your numbers, but we're here for you, you know, kind of thing. So there's just some of that in the background.
Speaker Change: And maybe one last question on the flash market. When you look at the opportunity for you specifically, is that going to be driven by a technology change in the chip or the package, or what do you think really starts that market for you?
Speaker Change: Yeah, I mean, flash memory, as actually, Tom, as you know from my history in...
Speaker Change: H.P. Agilent, Baraji, running the memory business there for many, many years. People refer to it as a treadmill.
Speaker Change: You know, you get on it, and you always have to keep going because, you know, the customers every two, three years are shipping, you know, more bits at the same price, so they have to always look at ways to be more and more cost-effective. That's true in their process equipment, their front-end equipment, and their back-end equipment and test equipment.
Speaker Change: So, uh, there are things specifically on the NAND Flash Roadmap
Speaker Change: that in addition to just cost, just connects. Meaning, I've got to ship...
Speaker Change: more flash memory in four years than I am today, and my revenue is not going to be up 4x, how do I do it more cost effectively? That's sort of a commercial requirement. There are also technical issues, and I was pretty specific in there to be clear. These NAND devices are 3D stacked, they're not actually stacked, they're just printed.
Speaker Change: You know, several, how many NAN guys are out there, but they're all talking about 200 layered NAN.
Speaker Change: What that ends up being is you end up having way more power per device to think of like a you know a 200-story building.
And the amount of light
Speaker Change: You know, when you light up the light on the first floor, that takes certain power, but when you have light on 200 floors, you have 200 floors of lights on.
Speaker Change: When you go to test, there are some test methodologies whereby you can do things by testing multiple floors at a time.
Speaker Change: But when you do that, all the energy is used as if you're lighting up all those floors. Whereas in normal applications, you're reading and writing data only on one floor at a time.
Speaker Change: So the actual device in its application is using 1 200th of the power, but you could do test methodologies to test 20 floors at a time, but then you need 20 times the power. That's a thermal problem. That's a test or resource problem. Those are things we're really good at. So I'm trying to give you some hints there as to what's going on. So there's some technical disconnects.
Speaker Change: that we are looking to address as well as the commercial side on the NAN side.
Speaker Change: And by the way, DRAM, I'll go into that too, just the whole HBM is super dynamic and people are, there's so many things going on with Spectre because DRAM also needs to be burnt in. So how are you doing that again before you put it into an HBM stack onto a COOS package along with an AI processor?
Speaker Change: So I like where we're at right now where there's a lot of vectors pointing towards us right now
Appreciate the color. Thanks, Gayn.
Thanks, Tom.
Speaker Change: Once again, if there are any remaining questions, please press star 1 on your touchtone phone. The next question comes from Larry Shlobina with Shlobina Capital. Please proceed.
Larry Shlobina: Hi, Gayn, I got a question on your recent $10 million win on the GPUs for the accelerator.
Larry Shlobina: I know you said that the potential market with the packaged part would be over $100 million a year down the road, but I'm looking at the wafer-level portion of it.
Larry Shlobina: You said that that customer was not NVIDIA, not the big guy. It has over 90% market share. So, assuming it's the second largest, which is I think around 5%,
Speaker Change: and the 10 million represented two machines. That would be like 30, possibly 40 XPs for just doing the GPUs.
Is that the right way to look at that?
Speaker Change: Okay, so I don't want to help you with who the customer might be, so if you're listening, I'm ignoring you on that one, Larry.
Speaker Change: Yeah, the numbers are really big. You don't have to try very hard to fall out of bed and hit a $100 million number. And we're not trying to poo-poo that. But, you know, if this gets into available, addressable, timing of this, you know, it could be a lot bigger than that.
Speaker Change: Well, that's not really what I'm getting at. I'm actually getting at the next component on the accelerator, the HBM, high bandwidth memory. The current 12-stack...
Speaker Change: 12 stacks. If you do the math on the silicon involved, it's about six times
Speaker Change: The Silicon and the GPUs currently, and they're talking about going to 16 high stacks later this year with a roll map to get the 24 high stacks next year, which would be 12 times the silicon. My point is with your fine pitch.
Speaker Change: wafer pack. It just seems like you ought to have a ready
You could address that.
When we talked a couple of years ago...
Speaker Change: and, you know, imagine DRAM and what was going on. I would have and certainly did say that we thought that was something probably more towards the end of the decade because companies just weren't that motivated to try and figure out how to do, you know, DRAM, wafer-level burning compared to what they were doing. And it's, you know, maybe it would take something else. And now you look at AI, which, you know, most of us weren't even talking about two years ago, right? And you look at these and it's like, wow, are you motivated now? So I agree with you.
Speaker Change: in terms of the motivation to put in the DFT and local contest modes and to try and address this issue.
Speaker Change: I think part of the reason why HBM is more expensive than the GPU is probably their terrible yields that they're experiencing and hopefully you can help them out on that.
Speaker Change: Well, that's, you know, on each stack, if you will, or each individual die. And then just, you know, I always have to remind people, the reason you do production burn-in...
Speaker Change: is because things fail. It's not to make you feel good. As soon as they stop failing, you would stop doing it. So when I say, oh, people are doing a production burn-in of these devices.
Speaker Change: You have to you have to recognize that means there is a non There is a material number of failures that they do not want to ship to their customer Every one of those takes out all those HBM stacks in the co-op substrate plus the package
Speaker Change: So, it's, you know, our whole premise about things moving to multi-chip modules that we've been touting for the last, you know, 5, 6, 7 years.
Speaker Change: with the, you know, kind of the leading edge of what's going on with wafer level. At that time, we were struggling. You know, people were like, okay, which devices is that going to look like? And we kept saying, they're coming.
Speaker Change: And because Moore's Law is failing, it's failed, it's fallen down, you now need to put multiple devices together and stack them up and put them side by side in order to get the functionality that used to just be done with a shrink of a wafer.
Yeah, more vectors heading our way later.
Speaker Change: Assuming this comes to pass, would you be able to handle all that demand through the capacity of, potential capacity in Fremont, is that even possible?
Speaker Change: For those that haven't attended us especially with our new facility upgrades that we're doing right here you know we have I mean the manufacturing capacity up here is bigger than I had it at you know Barragee so people might be shocked at that so
Speaker Change: There's always ways of doing it. Keep in mind, we use subcontract manufacturers. In most cases, we have multiple suppliers of every subsystem.
You know, that could be...
Speaker Change: increased 100-fold, if you need it, without actually impacting our resources. So, even though we do assembly tests here...
Speaker Change: What we do is just a small piece to control the final assembly and quality before it ships and we have some other tricks up our sleeve. So right now I have more capacity than demand.
Speaker Change: by a lot and we could increase our capacity significantly if we needed to for different market opportunities. And when we bring customers through, by the way, that is very obvious when they come in and look at our facility, they kind of go, wow, okay.
Speaker Change: This is not, you know, this is not your typical de-rating or burning company in terms of the capacity we have.
Speaker Change: Well, you got a great opportunity. I'll be looking forward to seeing you accomplish them.
Thank you very much. Thank you.
Speaker Change: Okay, I'm showing no further questions in the queue. I'd like to turn it back to management for any closing remarks.
Speaker Change: Thank you, Operator. Everyone, I appreciate your time here. I know we tried to cover a lot of detail. I hope to see you at one of the investor conferences, or if you want, please get in contact with our folks so we can set up a follow-on meeting to discuss your questions further. Until then, we'll see you next time.