Q3 2025 Aehr Test Systems Inc Earnings Call

Speaker Change: With me on today's call are Air Test Systems', President and Chief Executive Officer gain Ericsson and Chief Financial Officer, Christa, you before I turn the call over to gain and Chris I'd like to cover a few quick items. This afternoon. After market close their test issued a press release announcing its third quarter fiscal 2025 results.

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

Speaker Change: 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 air website.

Speaker Change: 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.

Speaker Change: 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: These factors that may cause results to differ materially from 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.

Speaker Change: Yeah.

Speaker Change: And and other issues are only valid as of this date and are test systems undertakes no obligation to update the forward looking statements.

Gain Erickson: Now I'd like to turn the conference call over to gain Erickson, President and CEO.

Gain Erickson: Thanks, Tim Good afternoon, everyone and welcome to our third quarter fiscal 25 earnings conference call. Thanks for joining US today I'll begin with a few opening comments and then I'd like to spend some time discussing tariffs and erez perspective on the near and long term implications as this topic is obviously on everyone's mind, we received many inquiries.

Gain Erickson: Seeking answers regarding this matter I'll then provide a brief overview of the quarter's key highlights and share updates on the primary markets that are targets for semiconductor testing and burn and including the significant progress. We've made so far this year in new markets.

Gain Erickson: After that Chris will deliver a detailed review of our financial performance.

Gain Erickson: And finally, well open up the floor to your questions.

Gain Erickson: We're pleased to report third quarter revenue growth and solid bookings and backlog and that we exceeded the street financial forecast consensus for both revenue and bottom line for the quarter were particularly excited by the significant progress we've made expanding into additional key markets and unlocking new opportunities to attract customers and <unk>.

Gain Erickson: <unk> revenue growth.

Gain Erickson: <unk> wins have helped us meaningfully diversified beyond silicon carbide and into high growth markets like AI processors, with our industry, leading wafer level and packaged part test and burn in solutions.

Gain Erickson: Okay. So tariffs.

Gain Erickson: Currently it appears that the actions of announcements from the U S administration regarding tariffs are dominating the news cycle. At this time, we do not believe that the impact of the tariff announcements made by the U S administration last week will significantly affect are directly.

Gain Erickson: We're looking at the near term secondary effects on our current and potential new customers along with the uncertainty this quarter regarding possible pauses or delays in customer orders and shipments are supply chain delivery delays or disruptions. Our immediate goal is to assess the impact on a customer by customer basis.

Gain Erickson: And communicate this to them quickly to remove any uncertainty or risk so that they do not slow down or delay any orders.

Gain Erickson: We already have on hand, the material needed for shipments of our wafer level burn in and package part burn in systems over the next couple of quarters for wafer level burn in systems, it's much longer than that for consumables, such as our wafer packs for wafer level burn in and burn in boards and modules for our packaged part burn in systems.

Gain Erickson: Our quick turn items with material purchased and built to order.

Gain Erickson: We're already redirecting these materials and looking to drop ship finished goods from our subcontractors as well as shifting assembly and test of our wafer packs to one of our international locations as needed to minimize tariffs and avoid any possible supply chain disruption.

Gain Erickson: We also have wafer pack aligner is on hand to buffer us from any tariff noise for several quarters for.

Gain Erickson: For the high power progress for our Fox C. P for hard disk drive customer the progress come from Japan, and we May look to drop ship directly from Japan to this customer so as to not even have to consider the U S. Tariff implication however, give it a couple of days. So we may have a new tariff number with Japan or it may be zero.

Gain Erickson: I provide this detail to help our customers and shareholders understand that we do have a robust supply chain and have put spot into the resiliency of our shipments for customers. So they can count on us.

Gain Erickson: Again, we do not believe the impact on margins or demand will be significant for air or on customer demand over time, but the challenge is not being able to control near term secondary effects on our current and potential new customers such as possible near term near term delays in customer orders or requested delivery dates.

Gain Erickson: Given the unknown potential tariff implications on their products or supply chain.

Gain Erickson: I'll be happy to answer any additional questions on tariffs as best I can in the Q&A section.

Gain Erickson: Now on to running our business and to meet the needs of our customers and shareholders and stakeholders.

Gain Erickson: We have been laser focused on the initiatives, we set out to expand our total addressable market diversify our customer base and develop new products capabilities and capacity to grow the business moving forward.

Gain Erickson: I'll cover this in more detail, but we believe that the total available market for these target wafer level packaged part burn in markets. We are addressing this year plus the added flash memory wafer level burn in that we're working on.

Gain Erickson: <unk> has an addressable market of over $500 million in systems alone.

Gain Erickson: Another $500 million in consumables, and wafer and device handling equipment by 2027.

Gain Erickson: We're excited by the significant progress we've made this year and expanding into new key markets and unlocking new opportunities to attract customers and drive revenue growth and particularly in diversifying our markets and customers beyond our revenue concentration last fiscal year with silicon carbide wafer level burn in.

Gain Erickson: Silicon carbide wafer level burn in accounted for over 90% of our business in fiscal 2024, while this year its tracking to less than 40% with artificial intelligence processors bernann representing over 35% of our business in just the first year.

Gain Erickson: For the third quarter, we had four customers representing over 10% of revenue and three of these are new customers <unk> markets for air.

Gain Erickson: Wafer level burn in for AI processor processors package part burn in for qualification and ongoing process monitoring of AI processors and wafer level burn in of gallium nitride semiconductors.

Gain Erickson: If you look at bookings, yet another customer and market hard disk drive components accounted for over 15% of bookings.

Gain Erickson: We're very excited about our expansion into new customers and markets. While at the same time, we believe we're well positioned to continue to continue to grow our business in the silicon carbide wafer level burn in market.

Gain Erickson: For AI processors during the quarter, we qualified received orders for and ship the world's first wafer level burn in systems, specifically designed for AI processors.

Gain Erickson: Our new high power Fox XP wafer level burn in system can test up to nine 300 millimeter wave processor wafer simultaneously.

Gain Erickson: This new customer ordered multiple X P systems and sets of air proprietary wafer pack for wafer contactor is for installation at their.

Gain Erickson: Oh is that test house, which is the.

Gain Erickson: Offshore or outsourced assembly and test house areas.

Gain Erickson: <unk> has worked with this Oh sat test house for many years, including working on wafer level burn in and Silicon photonics devices and optical sensors on our Fox systems and on packaged part burn in of AI processors, and Asics on our Sonoma Ultra high power test and burn in systems are is the only company on the market that offers both the wafer level burn in.

Gain Erickson: System as well as a package part burn in system for both qualification test and production screening and burn in of AI processors.

Gain Erickson: Another new market for areas, adding the production side of package part burn in for AI processors. In addition to the processor qualification bernann.

Gain Erickson: We've now shipped multiple Sonoma production burn in systems this year to a world leading hyper scaler for production package part burn in.

Gain Erickson: AI application specific processors.

Gain Erickson: Excuse me and expect to complete the installations on this initial order by the end of the current quarter.

Gain Erickson: We've also successfully integrated the Sonoma system from the acquisition of <unk> technology last August into areas engineering, and manufacturing operations, which has enabled us to scale our output to two to three times the previous record shipment volume.

Gain Erickson: In addition to AI related orders and installations for wafer level burn in and packaged part burn in this quarter.

Gain Erickson: <unk> achieved several other key milestones.

Gain Erickson: We expanded into production wafer level burn in for gallium nitride power semiconductors, we secured our first high volume production orders for new wafer level burn in and hard disk drives we completed production qualification of our new high power multi wafer system for wafer level burn in the silicon photonics devices used in co package optics and optical.

Gain Erickson: Oh devices, and we made significant progress on proof of concept work with a leading flash memory supplier on a new wafer level burn in system for high volume production of next generation Flash memory devices.

Gain Erickson: Yeah.

Gain Erickson: Let me expand on each of these for just a moment and then come back to Silicon carbide.

Gain Erickson: I believe our most significant achievements. So far this year is a successful validation of our new high power Fox XP wafer level burn in system, which can test up to nine 300 millimeter wafer simultaneously with a power output of up to 300 500 watts per wafer.

Gain Erickson: The key lies in delivering thousands of amps of current to and from each wafer while maintaining precise voltages and thermally controlling these wafers to prevent thermal runaway we achieved this by running bidirectional logic and memory test patterns on each device, ensuring accurate burning conditions, and traceability, including reading device Ids and on wafer.

Gain Erickson: Temperature sensors for every device.

Gain Erickson: This customer has told us that they're very excited about our system and that no other product on the market has the capability of capacity of tests their wafers like our system they've ordered multiple Fox XP systems in sets of air proprietary wafer pack contractors and have already completed the first system installation and we will complete the installations of all of the systems.

Gain Erickson: This first order this quarter at the customers' OS at one of the largest so sets in the world.

As I mentioned areas worked with their Soc that test us for many years, including one working on wafer level burn in silicon photonics devices and optical sensors on our Fox systems in a package part burn in of AI processors, and Asics are Sonoma Ultra high power test and burn in systems.

Gain Erickson: We believe that allowing customers to test and burn in their processors at the wafer level before packaging them into multi chip arrangements with other processors and memory adds significant value. We're confident that we're not only years ahead and this technology, but we also hold critical IP and patents around the world to safeguard our wafer level burn in technology and solutions.

Gain Erickson: <unk>.

Gain Erickson: The cloud accelerator semiconductor market is experiencing explosive growth UBS estimates that revenues in 2024 will exceed $120 billion and the market is growing at a CAGR of over 30%.

Gain Erickson: These devices are currently burned in almost entirely at the system level, where a failed device starting burn in is significantly more expensive than at the wafer level.

Gain Erickson: It is not just the cost of the advanced packaging that matters, but also the expense of co packaged memory as well as customer shift into multiple processors within the same package.

Gain Erickson: And annual capital test budget of 2% to 5% of revenue is typical in the semiconductor test industry, implying a budget of $3 billion to $9 billion for overall testing in 2024.

Gain Erickson: The potential for a solution that can do test and burn in screening of devices, while still in wafer form is remarkable and areas. The first and only company in the world to demonstrate successfully achieve this for production burn in at the wafer level.

Gain Erickson: I'm very proud of our team for this achievement with AI wafer level burn in <unk>.

Speaker Change: Simultaneously, the finance R&D and manufacturing teams did an incredible job integrating <unk> technology into air within months, they ramped up production to levels that in Cal couldn't may never had been able to reach to meet the demand from AI processor companies for the qualification and production of their devices.

Era has shipped more in Cal package part burn in systems in the past nine months than in Cal had shipped in the previous three years.

Speaker Change: Great job to the combined team, let's keep it up as we ramp these new customers into volume production with these systems.

Speaker Change: We're also already developing multiple enhancements to increase power cooling parallelism and add automation to meet the needs of the AI processor market in the future I am very pleased with the customer feedback on these enhancements so far.

Speaker Change: We also shipped our first Fox XP high power multi wafer production system with high voltage to a world leading gallium nitride power semiconductor supplier. This quarter. The system is installed and configured with our fully automated integrated wafer pack aligner, which can test six inch and eight inch wafers and can even be.

Speaker Change: Configured for future 12 inch or 300 millimeter Gan wafers, while the system is installed for volume production of Gan devices is also configured to test silicon carbide wafers in the same system by simply changing the wafer pack full wafer contact us.

Speaker Change: <unk> is a new and exciting semiconductor technology with high value applications, such as automotive power conversion solar Inverters and solid state Transformers breakers.

Speaker Change: We're thrilled to have been selected as the production solution for this company, which is one of the largest suppliers of power and automotive qualified semiconductors in the world.

Speaker Change: Another exciting market opportunity, we're making significant progress in on is the hard disk drive market. This quarter, we received orders for multiple Fox <unk> single wafer production test and burn in systems with an integrated high power wafer probe where for the burn in and stabilization of new devices and hard disk drive heads we're excited to.

Speaker Change: Finally start this production ramp after several years of working with this company on qualification and process development.

Speaker Change: This order arrived later than we expected. However, the customer is your question shipment of all the systems as soon as possible and has already requested a forecast for when we can ship additional systems.

Speaker Change: Lastly, I want to update you on our flash memory proof of concept project that we've been working on this year as noted in earlier calls we're collaborating with one of the world's leaders in flash memory to demonstrate the capability and cost effectiveness of our Fox XP platform for high volume production testing and burn in of Flash memory wafers are.

<unk> has been to demonstrate this over the next quarter and we're on track, we're setting up that test cell and new wafer packs with a high density fine pitch probe head during the upcoming months. This.

Speaker Change: This is very exciting as we believe are has the ability to successfully demonstrate how we can achieve a high density high power and fully automated test cell, enabling us to advance to the next development phase that.

Speaker Change: That next phase phase involves collaborating to develop a next generation test system, specifically tailored to meet this customer's needs and future requirements stay tuned for more updates on this demonstration and the potential for the NAND wafer level testing and burn in market.

Speaker Change: To provide perspective, the NAND market in 2025 is expected to exceed 80 billion in U S dollars. According to Youll group again, using the 2% to 5% rule of thumb for the budget for overall testing of semiconductor devices annually translates to a capital and expense budget in 2025 of between one.

Speaker Change: Six and $4 $2 billion.

Speaker Change: Another way of looking at it is that a 1% yield improvement on the $80 billion market amounts to $800 million.

Speaker Change: New technologies, and NAND are driving new requirements for wafer level burn in to address the manufacturing and negative yield implications of testing. These NAND devices in package or system level test, it's easy to see why the potential for the market for wafer level burn in for NAND is substantial.

Speaker Change: Okay. So now let me close with silicon carbide wafer level burn in market.

Speaker Change: The silicon carbide market continues to be a large opportunity for error and as I noted earlier, we believe we're well positioned to continue to grow our business. In this market recently, we have noticed some signs of improvement in the utilization rates of our installed base of wafer level burn in systems for silicon carbide demand for Silicon carbide remains significant.

Speaker Change: Driven by electric vehicles, and that's even further strengthens its presence in EV market due to lower prices and better supply availability.

Speaker Change: Electric vehicles are still expected to be over 30% of all vehicles shipped in 2030 worldwide.

Speaker Change: Simultaneously silicon carbide devices are gaining traction in other markets, such as power infrastructure solar and various industrial applications.

Speaker Change: According to market research firm Youll group, despite a temporary slowdown in battery electric vehicle shipments the silicon carbide market continues on a robust long term growth trajectory.

Speaker Change: All projects that the powers, so silicon carbide market will exceed $10 billion by 2029, driven by a strong rebound expected in 2026, along with a compound annual growth rate of nearly 20% from 24 to 29.

Speaker Change: In response to this growing demand we've expanded our wafer level burn in offering for silicon carbide to support high voltage testing across up to 18 wafers on a single system doubling the capacity of our industry, leading nine wafer Fox XP system.

Speaker Change: We have already received our first order for this 18 wafer high voltage system as an upgrade to our customer's existing Fox XP configuration.

Speaker Change: This enhancement further strengthens our technical and cost advantages for Silicon carbide testing and it is also highly applicable to high volume production of Gan devices and important capability for customers working on both types of wideband gap compound semiconductors.

Speaker Change: Now here's some more details I mentioned I would say on our available market assumptions. According to market researcher verified market research, which aligns with air internal forecast based on customer and other data from Youll UBS and other market forecasters.

Speaker Change: Vernon test systems market for semiconductors has estimated to grow from approximately $750 million in 2024 to over $1 $2 billion in 2030, a caterer of 9%.

Speaker Change: This is for systems alone laughter consumables, such as our wafer packs are bibs or handling equipment, such as our liners probursa, our auto loaders for packaged part burn in historically.

Speaker Change: Historically semiconductor burning consumables are up to three times the annual spending on burn in systems.

Speaker Change: By 2027, the burn in systems Tam is forecasted to be $1 billion and we estimate that just for the new systems purchased and 26% and 27, the consumables and handling equipment or at least another $1 billion.

Speaker Change: And this Tam our AI and high performance computing processors, other microprocessors DRAM flash optical and compound semis.

Speaker Change: DRAM in M. P use are interesting and that the top M. P. You company and one of the top three DRAM companies make their own burn and equipment. So this is not included in the system Tans.

Speaker Change: With the introduction of our new products and compound semi optical both wafer level package for AI and high performance computing processors, and our target to enter the flash wafer level burn in market air addresses over half of this Tam. We believe that we can address over $500 million of this Tam in 2027 for <unk>.

Speaker Change: Systems alone and since Air provides turnkey solutions for Hamlin and consumables, we address another $500 million annually for a total of $1 billion Tam for.

Speaker Change: The largest portion of this is clearly the AAR market followed by the flash market with Gan in sick Silicon Photonics and hard disk drive optical devices rounding out the total addressable market. Obviously, we're very excited about all of these opportunities for growth.

Speaker Change: Now, let me close it out and hand, it over to Chris looking ahead, with our $45 million in revenue and $22 million in backlog to date this fiscal year, our customer forecasts and our success in adding new markets and customers. We feel very good about our business, we've already surpassed $66 million and combine.

Speaker Change: Revenue and orders this fiscal year.

Speaker Change: Currently we do not believe that the impact of the tariff announcements made by the U S administration. This week will significantly affect air directly however, considering the secondary effects on our current and potential new customers along with the uncertainty this quarter regarding possible delays or pauses in customer orders.

Speaker Change: Our supply chain delivery delays or impact were temporarily withdrawing our guidance for this quarter slash fiscal year, which ends may 30th and we'll reassess our guidance policy as clarity develops.

Speaker Change: We're encouraged by the increasing number of engagements with both current and potential customers as well as the long term growth potential across our device diverse target markets, our strategic expansion in the high growth sectors, including artificial intelligence processors gallium nitride power semiconductors data storage devices silicon.

Speaker Change: Photonic integrated circuits and flash memory opens up new opportunities to attract customers and drive revenue growth.

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

Speaker Change: Thank you gain before reviewing our financial results I would like to provide an update on the integration of our <unk> acquisition, which closed last July.

Speaker Change: Our plan to consolidate personnel and manufacturing into S. Fremont facility is progressing well and we remain on track to complete the integration by the end of this fiscal year on may 30th.

Speaker Change: As part of this effort, we have upgraded water and power systems and added new clean rooms to remodel Fremont headquarters to ensure the infrastructure supports the needs of both organizations will be shutting down to in house facility. No later than the first quarter of fiscal 2026.

Speaker Change: Since the acquisition it has committed significant financial and human resources to successfully integrate <unk> into our operations we.

Speaker Change: We have completed the migration of ink house financial HR and manufacturing functions into air systems.

In addition, we have finalized the transfer and documentation of all product designs. So let's code and work instructions for assembly and test into S release processes.

Speaker Change: I want to extend my sincere thanks to both teams for their dedication and outstanding execution throughout this integration.

Speaker Change: Turning to our Q3 performance, which include a full quarter of the financial results from the <unk> acquisition.

Speaker Change: Our Q3 results exceeded analysts' consensus on both the top and bottom lines.

Speaker Change: While we faced a challenging environment marked by continued softness in the silicon carbide power semiconductor market.

Speaker Change: We would incur encouraged by our success in penetrating the artificial intelligence market.

Speaker Change: With AI processor, Spooning now representing over 35% of our business this year.

Speaker Change: During the third quarter with four customers representing over 10% of total revenue and two of these customers are new customers that target AI market.

Speaker Change: Revenue for the third quarter totaled $18 3 million, 142% increase compared to the $7 6 million in Q3 last year.

Speaker Change: The significant year over year revenue growth was driven primarily by the shipments of our new high power Fox XP solution for wafer level production test and burn in of AI custom AI processors.

Speaker Change: Liver to al first AI processor customer, which we announced in December.

Speaker Change: In addition, we are pleased with the significant progress we've made integrating potash from our acquisition of <unk> into our product portfolio to address the AI market opportunities.

Speaker Change: System sales from our Sonoma Tahoe and alcohol packaged part burn in products made a strong contribution to our third quarter revenue.

Speaker Change: We believe our strategy to broaden its offerings and diversify beyond silicon called out applications is beginning to show positive results, both operationally and financially.

Speaker Change: Wafer pack revenues were $5 9 million.

Speaker Change: Accounting for 32%, although total revenue in the third quarter, a decrease from 63% in the same period last year.

Speaker Change: The company recognized bookings of $24 1 million in the third quarter fiscal 2025 compared to a $9 2 million in the second quarter of fiscal 2025.

Speaker Change: Our backlog at the end of the quarter was $18 2 million.

Speaker Change: Since the end of the third quarter of fiscal 2025, we have received $3 6 million in additional bookings.

Speaker Change: With this recent bookings our <unk> backlog now stands at $21 8 billion.

Speaker Change: non-GAAP gross margin for the third quarter was 42, 7% compared to 42, 5% in the same period last year.

Speaker Change: The overall change in gross margin was flat.

Speaker Change: Due to a much higher over overall revenue level than in Q3 last year offset by a less favorable product mix and one time items.

Speaker Change: Even though our revenue in the third quarter was much higher than that in the same period last year. Our non-GAAP gross margin was slower than expected due to certain onetime charges to our cost of revenue.

Speaker Change: After we upgraded our ERP from a legacy system to Oracle Netsuite, our new ERP allowed us Jay Council standard costs and inventory more precisely and revised so.

Speaker Change: So it isn't a county estimates, which resulted in a onetime charge in the third quarter.

Speaker Change: Additionally.

Speaker Change: We incurred higher manufacturing overhead due to under absorption.

Speaker Change: We had lower utilization of our manufacturing capacity due to the renovation of our Fremont manufacturing facilities.

Speaker Change: non-GAAP operating expenses in the third quarter were $6 3 million, reflecting a 34% increase from the $4 7 million in Q3 last year.

Speaker Change: This year over year rise is primarily attributed to the inclusion of <unk> operating expenses in our financial results, along with higher legal and professional service fees.

Speaker Change: We anticipate incurring additional legal expenses in the upcoming quarters as we strive to protect our intellectual property rights in China and defend against the class action and derivative complaints in the United States, which we believe lack merit.

non-GAAP net.

Speaker Change: Net income for the third quarter, excluding the impact of stock based compensation acquisition related costs.

Speaker Change: The fair value adjustment to inventory related to the acquisition amortization of intangible assets and the accelerated severance benefits paid to an executive.

Speaker Change: Who passed away unexpectedly unexpectedly in December was 2.0 million or seven cents per diluted share.

Speaker Change: This compares to a non-GAAP net loss of 888000 or negative <unk> <unk> per diluted share in the third quarter of fiscal 2024.

Speaker Change: Turning to our balance sheet at the end of Q3, our cash cash equivalents and restricted cash totaled 30, $31 4 million.

From $35 $2 million at the end of Q2.

Speaker Change: During the quarter, we used $1 $6 million in operating cash flows primarily to payoffs appliance it service providers.

Speaker Change: We have no debt and continue to invest excess cash in money market funds in the third quarter, we earned $270000 in interest income.

As Scott mentioned concerning the secondary effects of the tariff announcements on a recent and potential new customers along with the uncertainty this quarter regarding possible pauses or delays in customer orders shipments or supply chain delivery delays we.

Speaker Change: We are temporarily withdrawing our guidance for our current fiscal 2025 year ending may 30th.

Speaker Change: And we'll reassess our guidance policy that's clarity develops.

Speaker Change: Looking ahead to fiscal 2026, we are encouraged by the growing number of engagements with both current and potential customers as well as the long term growth potential across our diverse target markets.

Speaker Change: Our strategic expansion into high growth sectors, including artificial artificial intelligence processes gallium nitride power semiconductors data storage devices Silicon photonics integrated circuits and flash memory opens new opportunities to attract customers and drive revenue growth.

Speaker Change: Lastly, looking at the Investor Relations calendar.

Speaker Change: The test will be participating in two investor conferences over the next couple of months.

Speaker Change: We will be meeting with investors at a quite Hallum institutional Investor Conference taking place in Minneapolis on May 28, and we will be presenting and meeting with investors on June 3rd at the William Blair 45th annual growth conference taking place in Chicago we.

Speaker Change: We hope to see some of you had this conferences.

Speaker Change: This concludes our prepared remarks, we're 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 one on your telephone keypad, a 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.

Speaker Change: Before pressing the star keys, one moment, please while we poll for questions. Once again. Please press star one if you have a question or comment.

Speaker Change: Our first question comes from Christian Schwab with Craig Hallum. Please proceed.

Speaker Change: Hey, guys. This is Tyler on behalf of Christian Thanks for letting us ask a couple of questions. Here. So maybe first to start you know on the on the tariffs and the uncertainty here I guess you know any.

Speaker Change: Any color on you know, maybe which end markets, you're seeing maybe the most potential impact or most potential uncertainty being caused on the near term here.

Speaker Change: I think we certainly prepared lots of different things. That's a good that's a that's a good question no I don't I don't it's not markets, sometimes it's more customers and geographies right. So in this case.

Speaker Change: I'll give you I'll give you. One example, our hard disk drive customer pie.

Speaker Change: Hi systems that are going to be going.

Speaker Change: So location outside of the U S.

Speaker Change:

Speaker Change: It includes a proper our heart we were basically worked with a supplier that developed a high power <unk> specific for this requirement pro where companies are out of Japan or Korea basically.

Speaker Change: Without saying, which one it was okay. They both are currently subject to a tariff.

Speaker Change: That <unk> landed in the Port Tomorrow, it's going to get hit by tariff.

Speaker Change: If it gets if it lands Friday, it may not and so I think people are like well, let's wait and see what happens I mean, because I don't think anybody believes that if you write a check where the tariff you get it back necessarily now having said that we're also looking at tariff drawbacks, which is basically a process by which.

Speaker Change: Historically.

Speaker Change: With duties you can if we import something.

Speaker Change: Do Assembly and then export it out you can actually recover that up to 99% of it are solid though there are some people, saying that there are people that help you with that get a cut so we're working through that as well now in the meantime, I'm going to drop ship. The probe is directly to that customer pass. The first one so the very first one is being <unk>.

Speaker Change: Impacted by which is kind of the over under unlike with respect to the end of our fiscal year, because we're going to do some integration of it here. We may have even have to re look at that so that its that sort of tactical thing and.

Speaker Change: Kevin a couple of days were about three days, and where Chris and I were saying could we have another week lifting.

Speaker Change: Let things settle out before this call.

Speaker Change: But again a lot of the material. We have we have already on hand, it will never be subject to any tariffs I guess, unless we ship it out to someone who then increases their tariffs last night I went to bed thinking that Europe was going to come back and raise their tariffs today, they wake up and they see.

Speaker Change: <unk> 040, so it's kind of hard to look at it and honestly, we're not I.

Speaker Change: I don't think anyone so desperate to try and solve these things in the next couple of weeks either if you look at your schedules and so I think we can manage through this and then even then we start looking at material in many cases, because remember our IND or.

Speaker Change: Our endow inbound material tariffs are on the material. We then of course have a mark up or margin to ship it and so attacks on the material.

Speaker Change: 10% is not a tax of the price that makes sense because it's so we kind of walk through that I would say that theres not a specific market.

Speaker Change: Obviously, China is its own challenge in that.

Speaker Change: I think they came back and said, it's 104% starting tomorrow.

Speaker Change: We actually have if you specifically look at kind of risks related to China.

Speaker Change: Just a couple of things Eric has basically had no revenue shipments into China for the last few years that includes both our wafer level stuff in the end cow products. So.

Speaker Change: We're not dependent upon shipping a lot of revenue and to China that has not been the plan and so if China comes back and says.

Speaker Change: All shipments are we're going to double the tariffs or whatever it doesn't really affect us right now.

Speaker Change: Similarly, we have been pretty happy and proud that we almost do not seen in China from a supply chain perspective, I said that in previous calls.

Speaker Change: We have some things like blank printed circuit board fabs, but not be assembled ones and so it's pretty simple and we have secondary suppliers for that just from a risk perspective, we continue to buy from them because of landed costs made more sense, but we also can supply it out of several other countries.

Speaker Change: We wake up at like which countries should we supply right. So like given a day, so theres a little bit of like settling out on this and that again isn't even so much of the cost implications to margins as potential supply chain risks what if they.

Speaker Change: They put that in a crate, it's shipped over here and it gets stuck in customs because people are.

Speaker Change: Trying to figure out what country. It came from and what day to come in because that's a tariff it supply too. So we're actually doing things to try and avoid anything coming into the U S for customs in the near term.

Speaker Change: It's not even so much for terrorists just simply don't cluster.

Speaker Change: Having a cluttered up and then you have hitting the wrong place. We can redirect things we have things we have supply from material and sub system for them all over the world. They can drop ship directly into our customer internationally, we don't even have to worry about any of that stuff. So we have the infrastructure. We have the ERP systems, we have that legal entities.

Speaker Change: That we can do that.

Speaker Change: And.

Speaker Change: Candidly, we're kind of proud of that supply chain customer you know I mean with the China Covid thing I think everybody had to take a look at it. We actually were also quite immune from anything during COVID-19, but there has been an important thing to show your customers what happens as such and such happens, we've said youre not going to Miss a shipment we're going to be okay.

Speaker Change: So it's kind of an important.

Speaker Change: Thing to note so people understand it but at the same time, we don't we can't answer everything member May 30th is what seven weeks away I mean, we're like.

Speaker Change: And as you know youll plus or minus one system on ours can move the bar. So that's why we that's why we just pulled the near term guidance.

Speaker Change: Alright I appreciate it that's that's a bunch of really great color. So I guess following up on that then you know given those comments uncertainty around additional orders and timing of of of you know when customers might demand shipments.

Speaker Change: You know you had $18 million of backlog ex in the quarter $22 million effective sense, then would it be reasonable or you know erring on the conservative side at least a reasonable.

Speaker Change: To think that you know you you you probably won't even ship all of the backend you hit backlog you currently have on hand in the quarter or is that Oh, great way to think about it one of the keys is if we're going to say, we're not going to give guidance, we can't really give guidance, but nevertheless, let me still answer that directly.

Speaker Change: For sure some of that backlog is not going to ship this quarter, because it's multiple systems for the hard disk drive Guy and we were only planning to maybe ship one of those we said that last quarter. So the over under right now as one maybe a second one for this quarter.

Speaker Change: But not all of them. So some of those are already planned for the the interesting thing is we have multiple customer forecast for things to ship this month or this quarter that they haven't ordered yet.

Speaker Change: [laughter] alike.

Speaker Change: Okay is that going to happen.

Speaker Change: Would that happen I can still turn that some of it we have material on hand, and some of it is stuff that's inbound.

Speaker Change: So I'd love to tell you its that simple and if it was I'd, probably just give you a new guidance, but it's sort of.

Speaker Change: Now there is theres kind of upside and downside to all of this so.

Speaker Change: I apologize for not being really clear I think the important thing is.

Speaker Change: We Miss it we miss it by a little whatever it's going to be close.

Speaker Change: It might chip on that next week.

Speaker Change: That's the thing that's really can be very scary as a public company right. If they're private I wouldn't even be worried about it I'm only worried about the customers getting their shipments get into them on time.

Speaker Change: Plus or minus one day on May 30th is a big deal to us as a public company.

Speaker Change: So this is more the things I'm talking about here. This is just timing stuff we think.

Speaker Change: Hi, This is more timing things I don't think.

Speaker Change: No.

Speaker Change: The customers that are already buying they've taken in some cases six months.

Speaker Change: Two a year to qualify.

Speaker Change: If you look at the Gan customer the hard disk drive customer this AI customer packaged part burn in AI customer.

Speaker Change: We worked with them for over a year Theyre fully qualified there theyre committed now the question is how do we make sure that they can get the equipment on time with the least duties or tariffs at all possible.

Okay.

Speaker Change: Alright, I appreciate that.

Speaker Change: Great.

Speaker Change: I have another one.

Speaker Change: If you think of another one Taylor Terry you can always come back to go ahead. What's the next question sorry, now lets move on past the tariff. So it you know as we think about next year and growth you know you've diversified your revenue nicely away from Silicon Carbide, you know maybe at least rank order you know it sounds like Silicon carbide is expected to continue to recover we would expect to see growth there but.

Speaker Change: You know maybe AI is going to be the primary growth driver as we look out the next year or two just any color kind of rank order, where you expect to see the growth from your more diversified end markets. Yeah. I mean, we're really we're feeling really good about next year I mean, they're definitely as you know.

Speaker Change: Evidence that.

Speaker Change: Silicon carbide will will.

Try to get back to tap capital equipment growth in putting more capacity in place. We're also seeing a shift from low voltage gate to high voltage testing.

Speaker Change: Something we've done by working with several of the Oems the actual EV suppliers for quality that they're driving to their customers, which drives them towards us.

Speaker Change: That even if they have equipment they may need to upgrade it.

Speaker Change: That also turns into wafer pack revenues. So we think we can see revenue from our current installed base in both wafer packs and system upgrades, but then also incremental capacity and Theres still a few customers that effectively selected us if you will or.

Speaker Change: Haven't bought their first systems, because they have delayed some of their fabs that youll is saying there will start to turn on in 'twenty six.

Speaker Change: And 26 is when they say it's calendar by fiscal 'twenty six starts June.

Speaker Change: Some of that capacity may be second half, but we feel some of the some of this already in the first half or so our second half of 'twenty five our fiscal year is kind of message people up so.

Speaker Change:

Speaker Change: Let's see here.

Speaker Change: Dan.

Speaker Change: We're pretty excited about that there's some we have done a large number I mean.

Speaker Change: Have a good number of designs that have been qualified into automotive industrial applications. Theyre now just going into production. So we've kind of got our fingers crossed related to that around their capacity and their needs to to grow and we're talking with several other customers.

Speaker Change: We've actually heard our silicon photonics customer is talking now about ramping this year.

Speaker Change: And thats with the very high power remember, we upgraded their fleet to the extra high power system, and which needs new wafer packs and needs a new system upgrades.

Speaker Change: That's encouraging because of all the stuff. That's finally going all around the silicon photonics side, but I think we think that the package part burn in qual is going to continue to grow there is a lot of new devices coming out with higher power, that's going to drive demand and then burn in the production side of it. So the production Bernann, we're seeing our first customer.

Speaker Change: <unk> ramp that's in a very visible Osaka and.

Speaker Change: We're literally shipping all the systems. We finished this quarter and then they start their first ramp we think they'll need more systems. We're also working on some enhancements I don't want to get ahead of myself here in too much public, but we're working on some automation and some very specific things in the capability to add to that package part burn in and.

Speaker Change: <unk> been communicating that to the customers and the <unk> right now.

Speaker Change: And I'm, hoping I'm very hopeful and encouraged by the feedback that could drive production more and more production burn in to our systems.

Speaker Change: With full automation with the Sonoma line.

Speaker Change: And then lastly, but honestly maybe most impactful is what's going on with the wafer level that first customer is expected to ramp.

Speaker Change: And we already have inbounds from other people there people are really leaning in to understand what do they need to do what testability modes do they need to add to their wafer how can they do this because the implications of being able to weed out the failure of that processor before you stick it into.

Speaker Change: You know a large package with co packaged memory optics and other processors is huge.

Speaker Change: That could be some of the most exciting stuff that's going on.

Speaker Change: Flash memory, we spent actually we're spending a good a significant amount of R&D money. This year, we're spending our money I would say our is collectively as shareholders.

Speaker Change: It's a great investment, we're going to need to invest even more next year and developing that test solution to go in that.

Speaker Change: Maybe we could get some revenue at the end of the year, but this is really a early 2007.

Speaker Change: What we're thinking in terms of the timing.

Speaker Change: That's why I use those terms around 27 is kind of capture at that point, we would hope to have flash memory revenue wafer level burn in across more than.

Speaker Change: Hopefully several or more customers pack.

Speaker Change: Packaged part burn in across several customers silicon carbide, hitting gan starting to ramp and the hard disk drive.

Speaker Change: Continue to buy along with Silicon Photonics.

Speaker Change: Okay.

Speaker Change: That's great all right that's all for Us Thanksgiving.

Speaker Change: Okay.

Speaker Change: The next question comes from Jed door Shimer with William Blair. Please proceed.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: So again.

Speaker Change: I don't want to ask you a bunch of questions you don't want to answer.

Speaker Change: I guess.

Speaker Change: First one just on the balance sheet.

Speaker Change: I'm curious.

Speaker Change: Your accounts receivable jumped up quite a bit.

Speaker Change: Is that just from <unk> is there a change in terms could you.

Speaker Change: Could you just talk about what was going on there because I saw that positively inventories actually came down while revenues grew so I'm just wondering.

Speaker Change: About the receivables seemed to jump out.

Speaker Change: And then I've got a follow up.

Speaker Change: Yeah. So we also have an unbilled receivable in in our receivable balance that we were able to recognize revenue, but cannot bill yet, but I think by now we have set out an invoice at this point.

Speaker Change: It's called shipments towards the last month of the quarter right.

Speaker Change: Not atypical loved that.

Speaker Change: And.

Speaker Change: Yes, I think that was that I think we may have had a special term with one of the customers with respect to billing at final shipment or something out in the first tool.

A couple of those things I wouldn't read too much into it.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Over time.

Speaker Change: Want to be.

Speaker Change: <unk> sensitive to this because we have customers listening as well.

Speaker Change: We do do down payments under most circumstances, sometimes with short lead times and things like that we will work with the customer billing them.

Speaker Change: 30% and then two weeks later hitting them with the other one sometimes isn't most optimum we try and be balanced on it but in general we want to make sure that customers have skin in the game when they're placing the orders on these systems and so theres a little of that but yeah. There's no flags no nothing theres nothing there.

Speaker Change: Okay, and then just on that the.

Speaker Change: The AI on that.

Speaker Change: On the processing side of things and Bernie I was wondering if you could go through the value proposition and a little bit more granularity.

Speaker Change: And.

Speaker Change: What needs to be achieved for this has this gone from R&D to.

Speaker Change: Commercial level or or do you feel like there is still even though the size of the size and scale of the orders.

Speaker Change: B.

Speaker Change: Commercial size compared to that of Silicon carbide for this for these customers do you feel like it's progressed more debt.

Speaker Change: It has gone beyond in your.

Speaker Change: What are you looking at to get the determination that.

Speaker Change: We're gonna start ramping on on this.

Speaker Change: In a durable way.

Speaker Change: Alright, so that I think I understand it let me try and answer it well.

Speaker Change: Repeating the question a little bit along the way. So if the question is is this sort of like an NPI prototype there.

Speaker Change: A trial run and they haven't really worked that.

Speaker Change: That kind of thing that's not the case, so this customer and we've alluded to it before.

Speaker Change: Somewhat sensitive to what they've what's known publicly and what they've said and yes, we have not identified who it is yet okay.

Speaker Change: But.

Speaker Change: They what we have said is that they were doing which is very similar to a lot of other AI guys. They were doing this burn in what's known as system level test.

Speaker Change: So this is very late in the process basically damn near at the product side of things.

Speaker Change: And the problem with doing that at system level test is that it's we're very late in the process and any processing implications et cetera, and you have to use a much more different and sophisticated piece of equipment or the equipment itself to burn itself in to actually find these failures. The other challenge is is that in a system level test.

Speaker Change: <unk>, you're you're often have this memory or this processor is coexist and I'm going to be a little careful about too much detail on this because people are all trying to figure out is it.

Speaker Change: What kind of AI processor or is it not we hope to come what's much more public with it the customers talked about doing that but.

Speaker Change: It exists with other things memories infrastructure heat sinks power supplies are all this.

Speaker Change: Burn in.

Speaker Change: I know a.

Speaker Change: A lot of people understand.

Speaker Change: It sounds like you basically are heating it up and you're actually adding more power to it to stress the device to a point that little weed out infant mortality are weak devices, you do not want to break it. Okay. So the trick is to try and get it right to the edge to accelerate this.

Our stress test to weed out things as shorter time as possible.

Speaker Change: And generally speaking the more power you put in and the more heat you put in the faster you can do it if you put in too much power in too much heat you Rex apart right now so it turns out at <unk>.

Speaker Change: Each device has a different optimum spot flash memories like 85 degrees DRAM can be 105 degrees and microprocessors are 125 degrees Silicon carbide is 140 degrees. They are all at different numbers. If you put them all into the same package and I'm not saying you put silk.

Speaker Change: Carbide Endo that package K, but let me try on silicon.

Speaker Change: Tonics Theres actually two burn in temperatures for it you do one process at one temperature and one at the other for ideal now stick them all into a large package what are you burn it in that.

Speaker Change: It's a problem. So if you if you burn if you were to put it in an oven and you burnt in the processor at a 125 you could wreck the DRAM.

Speaker Change: Alright.

Speaker Change: You certainly can't bring the processor to a 140 degrees like you do the silicon photonics devices.

Speaker Change: So what you do is you bring it to the lowest common denominator, but here is another problem that system is not designed to be run hot. So point is it's being run cold with big heat sinks and water cooling think of all the stuff that's going on in these racks. So it's normally trying to run at 30 degrees and I use.

Speaker Change: Centigrade, sorry for everybody.

Speaker Change: A little bit more in room temperature right. That's what you were trying to run it at.

Speaker Change: When you burn it in we're running it at 125 degrees centigrade, 25% more than boiling water you can't do that with our system you would ruin everything you'd run all the printed circuit boards you'd record the memory the power supplies would all die that's not good so you burn it in way lower temperature maybe.

Speaker Change: 60 degrees.

Speaker Change: You do that then the burn in times like 10 times longer.

Speaker Change: So if you actually move it to the wafer level I can burn in your memory.

Speaker Change: Right within a few degrees of 125 degrees.

Speaker Change: And keep it from going in our thermal runaway that minimises the burn in time, I perfectly optimize that and you take that device and now when you put it in the system it will not fail.

Speaker Change: It's a big deal.

Speaker Change: So really a big deal and by the way.

Speaker Change: Like on our packaged part burn in systems, which we have as I was one of my favorite things to have a front row seat on the Sonoma systems. We're testing these packages and we're testing the memory stacks and they're in the processors and the chipsets and we have to actually test those at different conditions, it's very interesting challenge, but its way.

Speaker Change: More effective if you can break it down and do it at the memory at the wafer level, but until now no one has ever even imagine doing that.

Speaker Change: And we now have the technology with the power the power supplies the capability the they J tag and am best patterns and functionality and read right capability to actually test. These things our wafer level at a cost effective way, that's a real alternative to doing system level test or a package level burn in test and by the way if you want packaged.

Speaker Change: Hello, Brennan test or sell them to you all day long with by Sonoma systems.

Speaker Change: Okay hope that yes.

Speaker Change: It does.

Speaker Change: What's the stability of the power.

Speaker Change: Over that duration.

Speaker Change: Is that that seems like it would be a critical feature in terms of within a tight tolerance yes.

Speaker Change: Some of the many tricks in the keys are being able to actually regulate.

Speaker Change: And dry power to each device on the wafer individually.

Speaker Change: Now that doesn't seem intuitive right.

Speaker Change: And traditional package part burn in systems like those from our competitors. They have bulk power supplies that supply to eat the devices all with the same voltages. They achieve a parallelism by actually trying to share all of that data and worked very well because each of the devices need a different voltage.

Speaker Change: Sonoma one of the greatest things about it as a package part burn in system is we can individually program. The power for every device that's being tested we will actually read it in the device comeback adjust our power and tune it for that device for an optimum Vernon.

Speaker Change: That's an amazing thing that people don't have in packaged part burn in that we do in Sonoma, We're doing the same thing at wafer level.

Speaker Change: Alright, so and Theres more tricks and I'm, just not going to do them publicly there's other things that we've done and in fact, there's some patents you can go and find that we've done.

Speaker Change: That we can implement in our wafer level burn in system and our wafer pack that you just can't do in a normal wafer probing environment, either that allow us to be able to test. These devices, but it's it's pretty fun talking with the customers because they kind of light up as you talk about what you can do and they're like wait a may have never even thought of that before.

Speaker Change: I'll give you one other hand, okay.

Speaker Change: One of the reasons everyone's says this will never work at wafer level burn in is because these devices might one core core might take a 100 amps, maybe it takes multiple hundred amps okay.

Speaker Change: So what you do is you have 100 amp power supply and you run it through a probe card and the probe card needles can only do maybe.

Speaker Change: I have an app or $50 million I heard somebody say the other day, Okay. And then so I have to put 100 of them in parallel or whatever the math is sorry.

Speaker Change: Tough online like this to get you to 100 apps.

Speaker Change: Our thousand pins to get to a 100 amps.

Speaker Change: This.

Speaker Change: What happens at that section of the device sales.

Speaker Change: Sales in shorts.

Speaker Change: It will ruin your probe card.

Speaker Change: So when people when we first engage them they're like this is absolutely impossible. Because you know every wafer I have a device that shorts in the middle of the burn in and it's going to ruin your probe card and we we have features in our wafer level burn in systems that prevented from doing that we've got burnt one pin.

Speaker Change: And yet we've been working on this AI with this customer at wafer level burn in for nine months, we've not burned one pin.

Speaker Change: Which is crazy.

Speaker Change: I understand how you do that so there is some cool things about it that are just not intuitive debtors as differentiated as anything and we're we're excited about it it's a fund market.

Speaker Change: Alright, well listen Thats. It for me I'll jump back in queue. Thanks game for the additional color.

Speaker Change: Youre welcome.

Speaker Change: Okay. The next question comes from Larry <unk> with <unk> capital. Please proceed.

Speaker Change: Hi, Jane when was the first AI processor XP.

Speaker Change: Let's see was that what the auto aligner when was it up and running at that also.

Speaker Change:

Speaker Change: That's good question, we added up and running here first.

Speaker Change: As you as those that have visited us. They know we have these tests all labs, which we're upgrading.

Speaker Change: And we were actually shipping wafers out of our facility here.

Speaker Change: It's now up and running.

Speaker Change: The first one then we will have the rest of them are completed.

Speaker Change: This quarter whatever the next few weeks here.

Speaker Change: So, but it was running at the old son Nguyen.

Speaker Change: We haven't we haven't always said it is it's up and running now.

Speaker Change: Alright.

Chris: Hey, Chris I got a quick question what was the packaged part revenue in Q3.

Chris: Packaged part in Q3.

Chris: Uh huh.

Chris: Yeah.

Chris: Okay.

Chris: Yes.

Chris: Q3 is.

Chris: In the past, we only disclose yet but.

Chris: I would say.

Chris: Let me say it this way I would say more than 20% more than.

Chris: Okay.

Chris: Well, that's all right.

Chris: Hey gain.

Speaker Change: Is there any product launch on your flash customer that they're particularly wanting to use your systems.

Speaker Change: I know this is an enterprise application and I see these big Ssds coming up.

Speaker Change: Later this year that.

Speaker Change: They have.

Speaker Change: I have like 123 terabytes of data capacity auto, which if you do the math on it they consume.

Speaker Change: Recent yield each one consumes like wafer and a half for NAND.

Speaker Change: Stuff into that two and a half inch form factor SSD is there a product like that that they are interested in using your system to improve the yields because obviously, they're stacking up what I have done.

Speaker Change: So is that.

Speaker Change: The motivation.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: I'm going to buy this is three in a row where at.

Speaker Change: Answering a little bit indirectly I just wanted to be a little careful of customers, but we've talked to multiple multiple theres not that many NAND customers and we have not talked to every single one of them. Okay.

Speaker Change: Some geographical obvious reasons.

Speaker Change: But we've talked to several of them and there is a general theme going on with those customers and with the industry. If you watch what's going on and that theme is so a couple of things in general revenues are growing.

Speaker Change: They were down last year, and the year before and Theyre growing again, but wafer capacity is not.

Speaker Change: So theres not a lot of NAND fabs that are being coming online and.

Speaker Change: And the capacity may be go into higher utilization, but the bits are exploding.

Speaker Change: So what that means is that there is more and more density per wafer.

Speaker Change: As you do that the test methodology.

Speaker Change: Is either going to increase and test time, or youre going to need to increase in power to address it.

Speaker Change: The other thing that's going on is theres multiple kind of technologies out there that like stacked or not stack, that's where online layers. So the NAND layers are going to hundreds of layers, which are just basically when I think of like a like a high rise building, there's a lobby floor and then theres floors above the lobby floor.

Speaker Change: They have the logic on it for the interface and the floors above or what store all of the information. Okay. Now some people might say Io is on the top but don't go into that this is on one device then they take those devices and they stack them together into a package like you said with an SSD.

Speaker Change: So one of the things that's going on in the memory itself is the die are actually getting taller.

Speaker Change: And to hit the right things that the footprint the XY footprints getting smaller which means the die count on a wafer is getting up so the way theyre getting density is they're shrinking theyre getting the di the footprint of that building to be smaller and theyre, making it taller alright, and thats, how theyre getting more.

Speaker Change: Out of a wafer, but that's causing problems with respect to parallelism manpower.

Speaker Change: A key thing that would be driving that new requirement now the other thing that's going on is this thing around hybrid bonding.

Speaker Change: And this is the first time I've talked about this on the on a call but on the hybrid bonding. There are several people out there that are introducing products that are coming up over the next year or so.

Speaker Change: But what they do is they make that lobby floor.

Speaker Change: The logic Io on one process wafer.

Speaker Change: And then they make all the buildings are the floors that hold all of the data on another wafer and then they actually glue them together with a hybrid bond when they do that they can actually make the lobby floor smaller.

Speaker Change: And faster because they can use the Cmos technology that will work without it that'll still that because they want to make a memory cell out of it then they take a different technology that is good at memory cells that is lousy at lobbies or the iOS speed and they can make those taller.

Speaker Change: So now I can make the building toller by separating the Mam NAND cells from the lobby floor Io and I just have to glue them together and I say Glu fancy. There is there are people that do this for a living but its a hybrid bonding process similar to TSV bonding. When you think of some of the other things that are going on in the world. If you do that.

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: For the flash for the for the NAND component of that rate and or the combined comp or <unk>. The combined combination of it et cetera. So there's some I don't want to get into too much of it but there is there is technological things that are breaking the infrastructure and those are the.

Speaker Change: Those are the opportunities to get in because it's not that someone's throwing into new fab makes sense.

Speaker Change: And why would you want to go build a bunch of new equipment for that so that's.

Speaker Change: That's the message I wanted to get across.

And that provides an opportunity for things to be a disruptive enough to actually change the way your processes doing and it's not just one company ultimately it would be all of them.

Speaker Change: Just looking at the you know one of those SSD drives and the amount of NAND that they consume.

Speaker Change: For a reasonable expectation on sales of those drives.

Speaker Change: You worked the number backwards and it seems like they would need something like $70 million worth of your equipment.

Speaker Change: Process, those waivers and in order to improve the yield that they get as they stack all those guys on top each other into that small package.

Speaker Change: Yes that was where I was going within the in the prepared remarks that you know.

Speaker Change: And I'm not trying to get there is couple of different ways of cutting this thing, but if you are spending 80 billion, if you're incrementally selling $80 billion a year of NAND.

Speaker Change: And the process is technology is changing to allow you to be competitive ticket or beds to do whatever what kind of spend would you be doing it's interesting if saying that youre not necessarily spend it all on new capital equipment.

Your test budget might be bigger.

Speaker Change: So being able to spend $80 million as you said that's not at all out of reason I was pretty astounding that one customer one flash memory customer on one product.

Speaker Change: Would require that kind of a.

Speaker Change: Spend in order to get the yields where they have to get them anyway.

Speaker Change: I want to switch your fine pitch wafer pack.

Speaker Change: And then I guess you are developing for that application does that open up the DRAM high bandwidth market for you guys.

Speaker Change: It opens it yes in terms of being able to test the DRAM.

Speaker Change: There's other things that would need to be done in order to do that particularly around the DFT and low pin count test modes, but the interesting thing and I've shared this with you of all people kind of track it over what.

Speaker Change: The last how many quarters. If you go back and look at what I said two years ago whenever it was let's just any quarter prior to AI chat JBT.

Speaker Change: I kept saying that.

Speaker Change: Wafer level burn and well first go to.

Speaker Change: To NAND and then ultimately it will go to DRAM, but in order for it to go to DRAM.

Speaker Change: DRAM guys need to have the critical required they need to there needs to be more pain than the pain needs to be when they start stacking DRAM.

Speaker Change: And then when they do that they'll have to figure out a low pin count mode, and test ability or else, they're going to get eaten up in yield.

Speaker Change: So now what you see is with HBM, which is still not the biggest part, but it's certainly the fastest growing part of DRAM HBM requires this advanced packaging and stacking and guess what yields a big problem for them and now you saw was it just last month Nvidia came out and told and said publicly I'm now ask.

Speaker Change: Scheme that all DRAM suppliers start supplying me with known good stacks of DRAM.

Speaker Change: What does that mean, well, obviously means theyre not good.

Speaker Change: And I already told you 10 minutes ago that Rmi package part burn in systems. When we burn in those devices were burning and the memories to why are we burning and the memories there.

Speaker Change: What a horrible to do it right now.

Speaker Change: Wow.

Speaker Change: A lot of interesting, but I thought the fine pitch wafer pack, though it gets it gets to a point where it can touchdown on all of those.

Speaker Change: Contact points on the DRAM. So opens opens that up as am I missing something there yeah no no no not really okay. So I mean, it's HBM memories. They may have a thousand pins on them. They're all TSB is there like 10 microns.

Speaker Change: No one can touch those TSV pads not form factor not anything theyre still testability pads, but on a DRAM like that maybe used to have 50 pins are 60 pans or something.

Speaker Change: <unk> 3000 Die you go through that math, that's a big probe card.

Speaker Change: So a full wafer probe cards quite expensive.

Speaker Change: And cost effectiveness is it really there if you implement a DFT mode.

Speaker Change: Interestingly like is done in the package, but anyhow, you can drop down to a J tag Io quarter in <unk>, which is a single eye open.

Speaker Change: So why not do that the NAND guys did so as that is implemented you could see that people might drive towards a DRAM and if any of the DRAM guys are listening I'd love to talk to you again.

Speaker Change: If I'm not already talking to you about this because I think we can help.

Speaker Change: No.

Speaker Change: Definitely but you would issue.

Speaker Change: Last question real quick there is a long term customer of yours that is ramping up on a three D packaging.

Speaker Change: <unk> in new Mexico.

Speaker Change: Cool.

Speaker Change: And.

Speaker Change: There are assembling a three to five triplets onto a subgroup.

Speaker Change: And I don't know I think the throughput of that facility.

Speaker Change: Facility eventually be at least 25 billion worth of product.

Speaker Change: At what point do you go to that your customer.

Speaker Change: I'd say youre already in that fab.

Speaker Change: On the optical side.

Speaker Change: But at what point do you say, hey, what would you spend if I could improve your yields some of the things you said earlier, if I can improve your overall yield 3%.

Speaker Change: On those heterogeneous chips.

Speaker Change: What would they spend to achieve that.

Speaker Change: Going forward every year.

Speaker Change: We have to spend at once once they.

Speaker Change: Spend like 300 million Bucks to get the capability I know you'd be testing all the incoming component of wafers before very good.

Speaker Change: And then put it into the triplets, but.

Speaker Change: This is a hell of an opportunity for you guys.

Speaker Change: Okay, well I have never mentioned.

Speaker Change: We have systems installed in new Mexico are all of those things that you've said.

Speaker Change: Confirm.

Speaker Change: Confirm or deny anything here I don't want to get myself in trouble with any potential customers, but some.

Speaker Change: One who is doing that would certainly be attractive to us what we've definitely side and what you were implying there is that we have what six seven optical customers related to silicon photonics. One in particular that has been our lead customer and a 10% or several years.

Speaker Change: And they are.

Speaker Change: Yes.

Speaker Change: Within that those customers, we have work with the largest to build this very high power Silicon Photonics based system that is amazing and we've qualified that we shifted for the first time last year.

Speaker Change: I spent the last year qualified we've been doing all kinds of engineering runs and things with different types of wafer packs and we've heard that they are talking about ramping this year.

Speaker Change: With these new optical devices, which the target for those or chip to chip or chip led type things.

Speaker Change: We say that out loud so I'm excited about that I think as you said well why not use it in every other chip along the way I think that's a good point.

Speaker Change: And if we can do very well with what we're planning right now maybe that opens up an opportunity with that customer if not others.

Speaker Change: Right.

Speaker Change: I would just as a reminder for everybody listening on the call our toolset, primarily around the wafer level till the <unk> acquisition of packaged part.

Speaker Change: A system that was that was designed around these mega trends with.

Speaker Change: With semiconductors that are growing to a trillion dollars.

Speaker Change: Where semiconductors are not more reliable year to year, they are less reliable due to line width.

Speaker Change: The compound semiconductors, like optical and silicon carbide stacking them, all together and multi chip modules are in modules like.

Speaker Change: Memories that are put together for ssds are modules that are power going in electric vehicles and then unfortunately, they are putting them in things that matter does it reliability like automotive devices, our datacenters or these very expensive AI processors. So that opens up an opportunity to do this burn in <unk>.

Speaker Change: Conditions on those devices before they put it into the packages and Thats why the burn in market now is so much bigger and more interesting than it has ever been in its history at least going back to the early eighties.

Speaker Change: Because of its enabling capabilities technology wise it otherwise you wouldn't have been able to.

Speaker Change: We are picking up customers in markets, along the way and I always say gathered a year and we will have another one and Larry if you have a <unk>.

Speaker Change: Specific contact on so I went along those lines it would not be the first time one of my shareholders is introduced me to a customer and I got an order out of it.

Speaker Change: Thank you.

Speaker Change: It would be a big one alright, great. Thanks for your time.

Speaker Change: Thank you.

Speaker Change: Okay. Your last person in queue is Charles Tao private Investor. Please proceed.

Speaker Change: Hi, Good morning, good afternoon, Thanks for taking my question.

Speaker Change: I think that my first question has been asked for by Larry. So My second question is.

Speaker Change: Again, if everything its own check when do you expect to receive mass.

Speaker Change: <unk> orders from the flash memory.

Speaker Change: Company.

Speaker Change: Currently working with.

Speaker Change: Yes, it's a good question.

Speaker Change: What we've said right or wrong, so that we're trying to be totally visible. It's always a little dangerous will all your potential competitors listening in is that this year, we spent the year.

Speaker Change: Working on some technological steps to prove the proof of concept of our low cost test sell that.

Speaker Change: It is really.

Speaker Change: Route this wafer pack carrier that allows everything else to be lower cost and allows higher power higher density.

Speaker Change: With that our hope edge upon successful completion of that which we were targeting and try and be around this next quarter or so.

Speaker Change: Then want to work with the customer around the next step which would be in co development of a test system that would go into that machine.

Speaker Change: We think thats going to take about a year or so maybe it could take longer.

Speaker Change: But.

Speaker Change: You know there is reasonably maybe a year.

Speaker Change: So I wouldn't expect volume orders for that until the following year. So were where you are.

Speaker Change: A year out or so but yeah.

Speaker Change: If we if you told me I was taking volume orders and shipping for revenue in our fiscal 2027, which begins in June 26, I would tell you that's awesome.

Speaker Change: Okay, So I hope that yeah.

Speaker Change: Oh what sites.

Speaker Change: How big the site.

Speaker Change: Okay you bet.

Speaker Change: How big is the site.

Speaker Change: The ISI, yes, the size of the market as.

Speaker Change: This is where what we think is if you were to look at and I don't want to pick on any customer okay, but the market. Just this year is $80 billion I think it is growing at maybe 10%, 20% revenue bits are growing 40% something like that so two years out from now I mean, okay, maybe it's.

Speaker Change: Uh huh.

Speaker Change: $100 billion something like that.

Speaker Change: How much that is you divided by what Theres six customers by customers that matter.

Speaker Change: They're not all even but each one is 20% maybe a little less.

Speaker Change: Then that spend by them is substantial.

Speaker Change: And the cost savings advantage to be able to do that would be substantial so.

In order for us to actually help them with yield there is a considerable market.

Speaker Change: This is embedded in the number that I said during my prepared remarks.

Speaker Change: Total available market is a combination of 500 and test in $500 million in <unk>.

Speaker Change: Consumables.

Speaker Change: And the flash memory could be.

Speaker Change: Certainly, 10% if not more of that overall market. So 100 $150 million just wafer level burn in for flash memory in that timeframe.

Speaker Change: Minimum.

Okay. Thank you.

Speaker Change: Youre welcome.

Speaker Change: Okay sure no further questions in the queue I'd like to turn the floor back to management for any closing remarks.

Speaker Change: Alright, well I appreciate everybody as always for jumping on here I just want to do before closing the call just.

Speaker Change: Personnel related thing I hadn't gotten too I'm just happy to announce the addition of a new member to the team did here winners to our organization as our EVP of engineering he is replacing Ov.

Speaker Change: As we previously announced passed away unexpectedly last year DDS Incredible addition to air.

Speaker Change: He brings decades of direct experiences leading engineering teams in semi test is pretty well known.

Speaker Change: <unk> said he is famous in the AG space. He headed up all of Schlumberger HPE for many years also manage the engineering team at form factor.

Speaker Change: Basically one of the largest semiconductor test probe card companies in the World I work with form factor for many years in my memory experienced before and Thats, where I had met DDA in the past so I've known them for a long time, maybe 20 years myself as a great leader extensive knowledge in hte wafer probing.

Speaker Change: Great experiences.

Speaker Change: A great manager and also a nerdy guy, which I say very warm way.

Speaker Change: He is a great member team member I am excited to have them on because of his experience in hte system level testing and even burn in systems before joining air. So we welcome him on board and excited to have him as always.

Speaker Change: We appreciate everybody joining in if you happen to be anywhere near the Bay area.

Speaker Change: And are interested we can try and set up something our facility here we are.

Speaker Change: Getting right down to the final of it about we're about a month away from it being pretty well completed.

Speaker Change: And.

Speaker Change: We've done a little bit of just a remodel in general for cubes and facility areas for the employees, which they really love.

Speaker Change: We did a major remodel and the manufacturing and the clean room labs, which allow us to increase both manufacturing prototype engineering capacity, but particularly manufacturing capacity of our systems, our new packaged part systems from Sonoma that those systems will be coming over here over the next couple of months.

Speaker Change: And also our wafer packs and our bim consumables from the packaged part side. So all of that will be consolidated here Q1 ish I don't know this summer okay.

Speaker Change: But if you come by then it will probably be finally happy with everything kind of put together.

Speaker Change: All the lights are up and everything too. So I. Thank you everyone for for your encouragement I've gotten a lot of calls of hang in there a lot of people very excited about the stuff that we're working on and.

Speaker Change: We're all kind of enduring through all these tariff things, but this to my favorite saying this too shall pass. So thank you all and we'll talk to you next quarter.

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.