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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Greetings. Welcome to the Aehr Test Systems Third Quarter Fiscal 2024 Financial Results Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers at MKR Investor Relations. You may begin.
Thank you, operator. Good afternoon, and welcome to Aehr Test Systems Third Quarter Fiscal 2024 Financial Results conference call. With me on today's call are Aehr Test Systems and Chief Executive Officer Gayn Erickson and Chief Financial Officer, Chris Siu. We'll turn the [indiscernible] '24 3rd quarter financial results, that release is available on the company's website at air.com. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now I'd like to turn the conference call over to Gayn Erickson, President and CEO.
Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal '24 earnings call. Thanks for joining us today. I'll start with a quick summary of the quarter and spend some time to address what we're seeing across key markets, areas addressing for our semiconductor wafer-level test and burn-in systems. We've actually had a lot of questions in the last couple of weeks and also feedback coming in. So our plan is to take some time to cover all of the markets that we're addressing, and then we'll open it up for questions. As we discussed in our second quarter earnings call, we've seen several pushouts of forecasted orders by current and new customers that impacted our fiscal year revenues. We believe that this was due to 2 key factors. There's clearly softness in the overall semiconductor capital spending, particularly in automotive applications is related to a glut in inventory driving down near-term orders to these companies that has caused them to push out capital spending and drive cost reductions. Multiple companies, including the companies we had expected orders from have publicly discussed inventory-related headwinds in their public earnings calls and press releases. In addition, we've seen specific shifts in order timing of our equipment used for wafer-level test and burn-in of silicon carbide power semiconductors used in electric vehicles. In just the last 2 weeks of the quarter, we saw delays in orders for silicon carbide systems with customer requested ship dates within the quarter as well as the last minute push out by a customer of a system in our backlog. The net effect of this was a significant shift in revenues out of the third and fourth quarters. Until this time, we've been hearing from those customers that their silicon carbide-based capital investments were not being impacted. It's now clear that the recent overall softness in semiconductors and the impact of shifts in electric vehicle introductions and ramps are impacting our bookings and revenue forecast more than we understood only 2 months ago at our last earnings call. We now expect this to last for another quarter or 2 before the orders resume based on the latest roll-up of direct forecast from over a dozen silicon carbide companies. Due to this, last month, we revised our guidance for our fiscal '24 year-end ending May 31, 2024, to be greater than $65 million in total revenue and net income of at least $11 million, which we're reiterating today. We still expect to finish this year with annual revenues that are near or above our full year record. Our discussions with customers indicate that the key markets Aehr is addressing for semiconductor wafer-level test and burn-in have significant growth opportunities that will expand this year and throughout this decade, and we're seeing increased customer engagement in each of these markets. We've also seen a recent strengthening in the silicon carbide market for electric vehicles outside the U.S. and what appears to be a shift in market share of electric vehicle suppliers. This clearly includes Asia, where we recently had an extensive and very productive visit with a significant number of silicon carbide suppliers and electric vehicle suppliers. On today's call, I'll discuss each of the major market segments Aehr's addressing for wafer-level, burn-in semiconductors, which include silicon carbide, gallium nitride, silicon photonics and memory semiconductors as well as tee up an opportunity we hope to discuss in the coming months. I'll also include the trends we're seeing in the Asia EV suppliers an impact on silicon carbide and Aehr opportunity to address this market. According to market forecasts, including the Semiconductor Industry Association, the semiconductor industry is expected to grow from $600 billion in 2022 and by the way, we apologize, someone noted that was incorrectly noted as million in our press release, so we'll get that corrected to over $1 trillion at or around 2030. This acceleration is coming from mega market drivers, including artificial intelligence, green energy and decarbonization and IoT-based digital transformation. Increased reliability concerns about semiconductors and a growing number of mission-critical applications as well as more multi-chip modules or heterogeneous integration with multiple devices being assembled together in a single package are driving the need for wafer-level burn-in. At semiconductor industry conferences around the world, we've seen an increased focus on moving test and burn-in to wafer-level before these devices are put into multichip packages [indiscernible]. These favorable macro trends are driving the business that drives Aehr test and include the following: silicon carbide power devices going into high-density modules for power conversion and electric vehicles, gallium nitride power semiconductors going into automotive, solar and other industrial applications where reliability and safety are critically important. Silicon photonics where photonics integrated circuits are being put into transceivers for data center infrastructure and optical chip-to-chip communication of CPU, GPU and AI processors, to address the insatiable data storage and bandwidth needs of these applications and memory devices, whether Stack Die for solid-state disk drives used in enterprise and data storage or with AI processors, again, to address the ever-increasing need for memory density and bandwidth of these applications. Now let me touch on each of these briefly, starting with silicon carbide market. While we remain cautious looking ahead to the next quarter or 2, we are seeing signs of improvement in the silicon carbide market. Last week, we announced an order from a new customer for our FOX-NP solution for engineering qualifications small-lot production of their silicon carbide power devices. This customer is a multibillion dollar per year global semiconductor company with locations across Europe, Asia and Americas, and has a wide range of automotive products and is entering the silicon carbide market to address several applications that include automotive, industrial and electrification infrastructure. This customer sees the enormous opportunity for silicon carbide powered devices and has told us they plan to transition to our FOX-XP multi-wafer test and burn-in systems as they ramp to high-volume production. This is the third straight customer in a row for silicon carbide for us that is primarily focused on applications other than EVs. These additional applications expand our market opportunity beyond the 4.5 million 6-inch equivalent silicon carbide wafers that William Blair forecast will be needed per year by 2030, just for electric vehicles. These new applications are driving an additional 2.8 million 6-inch equivalent wafers annually by 2030 to address industrial, solar, electric trains, energy conversion and other applications. Interestingly, this is also the third customer in a row that did not need to see their wafers tested on our system before they move forward to purchase from us. I've mentioned this before, but the need for testing before purchase was essentially a requirement with our early customer engagements and it's clear that many of our potential new customers have become much more comfortable moving forward with Aehr solely on our assurances that our solution will perform as committed. This allows the customers to accelerate their time to market. Of course, we're still happy to engage with customers if they want to see their Wafers tested first. We still have yet to lose a prospective customer after demonstrating our test and burn-in capabilities on their wafer and have never lost a head-to-head evaluation to a competitive product since introducing our FOX-NP and XP configured with the silicon carbide and gallium nitride test resources. While we are seeing the impact of the slower adoption of battery electric vehicles that most imagined a year ago, our initial wins and ongoing qualifications at multiple device manufacturers drive our optimism from a longer-term perspective. So far, we have secured a total of 7 silicon carbide customers that have ordered our FOX-P family of systems and proprietary WaferPak Full Wafer Contactors. We're engaged with well over a dozen additional silicon carbide players in evaluations of our systems and our Wafer benchmarks where we build a Fox Wafer Contactor for them and test their devices at Aehr Test to demonstrate the feasibility and correlation of results to meet their reliability requirements. We're focused on the qualification process with as many new customers as possible as again, once we've demonstrated our FOX Wafer Level test and burn-in solution using their own wafers, we've not lost a potential customer yet. Our benchmarks with multiple silicon carbide suppliers continue to progress this quarter. This includes on-wafer benchmark that we've been working on for multiple years. We believe and understand now that some of the market share shifts in both total market and specific end customers had an impact on and delayed new customer decision time lines. We still believe that their silicon carbide module and Die sales plans will drive the need for [indiscernible] Die and wafer-level burn-in and that we will win more than our fair share of these opportunities. In addition to our customer-related travel to Europe and across the U.S., we most recently had extensive visits with a significant number of Asian silicon carbide suppliers and the electric vehicle suppliers themselves. The tone and demand for EVs is much stronger outside the U.S., particularly in China and South Korea. Clearly, we also heard that there's a real need for quality, low-cost, high-volume automated solution for wafer-level burn-in of silicon carbide devices, particularly in the automotive segment. Based on what we saw, the electric vehicle suppliers in China have a very strong focus on silicon carbide to the point of actively marketing silicon carbide power conversion as a differentiating feature. We personally visited several EV supplier sales stores which were basically all in malls, retail shopping areas like we see Tesla here in the U.S. and 3 of them basically positioned their silicon carbide-based EVs as superior, almost apologizing that this particular version is only [indiscernible], but next year's model is silicon carbide based. They have no idea who we were or that we have any skin in the game for silicon carbide. Another notable was that we heard across the board from both the EV suppliers themselves and also the power semi suppliers is that all the Asia electric vehicle suppliers appear to be driving to build module-based silicon carbide for their power inverters in their cars rather than the discrete devices like what Tesla has done. And they also have a very high expectation for delivering quality. We even heard from multiple companies that they're driving to supply silicon carbide and wafer-level burn-in to local suppliers because they believe they can get higher quality, known good Die than they can from suppliers outside of Asia. Driving wafer-level burn-in of devices before they're put into modules is critically important to them totality, which bodes well for our solutions. For a report last year, UBS forecasted that in '23, 91% of the batteries sold in electric vehicles would be 400-volt and only 9% would be 800 volt. But by 2026, UBS expects a percentage of 800-volt batteries to be above 30%. The report also focused on the progression of electric vehicle batteries from 400 to 800 Volt, which is generally recognized the industry where the silicon carbide is mandatory to get the range and recharging speed consumers are demanding. This is why it appears so many silicon carbide suppliers are timing their major ramps to be in 2025 and 2026 time frame. So in the next couple of years, we expect Aehr to benefit from both an increased number of electric vehicles being sold as well as a significant increase in silicon carbide in our solution for those electric vehicles. The electric vehicle market in Asia, particularly China and South Korea is very robust supported by public and consumer sentiment, and they have some really incredible cars that are being built for electric vehicles. I now fully understand why Tesla stated that their key competition is from Asia and why both U.S. and European auto suppliers, in particular, are so worried. From the feedback we received from a significant number of potential customers in Asia, we believe that Aehr proprietary wafer-level burden systems based upon our patented proprietary WaferPak Contactors appear to have a key value proposition and we see a high degree of interest in our solutions. We already have people and infrastructure across Asia, including China. We have shipped and supported our Packaged Part burn-in systems into China for many years. And have also already shipped our FOX Wafer Level test and burn-in systems into China a few years ago. Based on customer commitments, we're discussing expanding our presence in China in terms of support infrastructure and resources. We have also put additional measures in place to ensure the protection of our IP and patents that we feel will help to secure our proprietary capabilities and allow us to grow and maintain market share over time. We look forward to providing updates on our plans over the next few months. Now let me discuss our progress with testing and burn-in down nitride power semiconductors. We continue to be encouraged by this market and believe it will be significant in terms of market size for semiconductors. In addition to its wide adoption in consumer devices such as cell phones, tablets and laptop computers, gallium nitride is being targeted for use in solar, data centers and automobiles, whether electric or traditional gasoline automobiles. The critical reliability needs of these target markets appear to be increasingly driving production burning requirements. Aehr FOX-P Multi-wafer System can deliver both the power and high-voltage required to do massive parallel per die and multiple wafer test of gallium nitride devices for a very cost-effective solution. During the quarter, we announced our first order for our FOX wafer-level test and burn-in system to be used for gallium nitride devices. And we have a second potential system customer that has been purchasing our WaferPak contactors for their on-site evaluation that we believe is progressing very well. As I've noted before, we're working with several [indiscernible] suppliers including the 2 market leaders, which positions us front and center in this market that we believe is another potential significant growth driver for our wafer-level solutions. The test requirements for GaN for full wafer are actually quite different than silicon carbide in terms of technical implementation. However, our FOX platform has been capable of testing these devices, but the functionality [indiscernible] infrastructure. This has proven to be very impressive to these customers as, in fact, even they did not understand the implications of testing an entire wafer at very high voltage and the resulting impact on the test schematics due to leakages of their devices. We were able to address this with our channel modules and proprietary custom wafer packs to address the test challenge. And honestly, both Aehr and our customers were very happy with the flexibility of our systems to do this. We have -- we've been told now that burn-in will be required for GaN going into mission-critical applications such as automotive, solar and some industrial applications, and the amount of burn-in time is still being worked on. Still, this is good news for us, and we feel we're well positioned to capitalize on this opportunity with our solutions in these lead customers. We're also seeing some additional new small and large players engage with us for GaN. We've been seeing consolidation within the industry of smaller key gallium nitride players being acquired by the larger suppliers. So all potential customers are believed to have real potential in the future. Turning to silicon photonics, which are silicon-based semiconductors with integrated photon or light-based transmission of signals within and into and out of the silicon via laser photonic emitters and photonic receivers. We're very excited to ship during the quarter and ahead of schedule, the first order from a major silicon photon customer for our new high-power configuration of our FOX-XP System for volume production wafer level burn-in and stabilization of next-generation silicon photonics integrated systems -- circuit, sorry. This new [indiscernible] configuration expands the market opportunities of the FOX-XP System and has configured to enable cost-effective volume production test at wafers of next-generation photonic integrated circuits, which are targeted for use in the new optical I/O or co-packaged optics market for chip-to-chip communication. As we discussed before, companies such as AMD, NVIDIA, Intel, TSMC and Global Foundries have all announced plans for silicon photonics integrated circuits and integration of these in packages with other devices such as CPUs, GPUs and AI processors. Our FOX wafer-level test and burn-in solution with our proprietary WaferPak Full Wafer Contactors are a great fit for the silicon photonics market. These next-generation silicon photonics-based integrated circuits can require up to 2 to 4x as much power for full wafer test burn-in and stabilization. Our new FOX production system configuration, which can be used to test and burn- in these new optical I/O devices expands the market opportunity of the FOX-XP system even further. In addition, the power and functionality of lasers used to transmit data are critically important to the performance of the communication channel and Aehr Solutions not only read out early life failures but also some [indiscernible] what the photonics industry refers to as stabilization. During the first day or 2 of normal operation, the laser output characteristic exchange in an exponentially decaying manner and [indiscernible] until the chain stops before the final product can be tuned to meet its performance specifications. Aehr can do [indiscernible] across an entire wafer of fully graded photonic integrated circuits with embedded or [indiscernible] laser emitters. Aehr currently has 6 customers using our systems for production test of their silicon photonics devices, 5 using our NP and XP systems for wafer-level test in burn-in and one using both systems for engineering production burn-in of individual Singulated Die and Modules using our proprietary DiePak. While the timing of these devices and volume ramps are not publicly clear, we remain very enthusiastic about the silicon photonics market and are watching this market very closely. We continue to work with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application. Now on to memory. According to the average of multiple market forecasters in '24, memory semiconductors will make up over 50% of the total semiconductor wafers shipped in the whole world. This is approximately half NAND flash memory and half DRAM. We are making continued progress in our ongoing discussions with multiple memory suppliers. We see the memory market as a significant opportunity for us to deliver wafer-level burn-in solutions to help memory suppliers meet their [indiscernible] needs, particularly with Stack Die Applications. During the next year, we're driving for our first on-wafer benchmark in partnership with a leading NAND supplier using our proprietary WaferPaks and Fox Wafer Level test and burn-in system with our new fully automated WaferPak Aligner. We see an initial opportunity for tested NAND for solid-state disk drives used in enterprise and data storage where Aehr can deliver compelling cost effectiveness and also read out infant mortality issues before multiple Die are put in a single package. Longer term, we believe DRAM will be a critical target market for our systems, particularly as a percentage of DRAM going into multi modules such as GPUs, CPUs and AI processors increases. Now I want to spend a minute on the overall artificial intelligence semiconductor market. I've already discussed how we're working with silicon photonics suppliers for their plans at integrating silicon photonics as optical communication transceivers and devices, including AI processors. We also see co-package memory in AI processors as a key driver for wafer level burn-in of DRAM for these devices. We also see a significant opportunity for the AI processors themselves. Our new high-power FOX System that we discussed for optical I/O semiconductor burning, the FOX-XP multi-wafer production system we began shipping last month is the highest power per wafer system on the market. and it handles up to 9 wafers at a time, also unprecedented in the industry. This system is capable of testing up to full 300-millimeter wafers of processors up to several thousand watts of power and over 2,000 amps are current on each of 9 wafers in parallel. By moving the burden from packaged module or final system format is done today at to -- and move it to wafer level, our customers can achieve enormous savings related to yield loss of modules with up to hundreds of other devices or chiplets in the same module on the case to system-level test the cost of the [indiscernible] inventory and yield loss of infrastructure of the systems surrounding these modules are chips. The wafer-level burn-in challenges we're working on include putting extremely high currents onto the wafer without damaging the wafer of the contactor thermal management of the high-power devices with very high leakage currents associated with the high burn-in temperatures we can apply and automation and handling of these very expensive waivers built on the most state-of-the-art logic process geometries in the world. Stay tuned to hear more about this exciting new application for our products over the next several months. And lastly, I want to discuss our WaferPak, which are basically the consumable that accompanies and is required with all of our FOX Wafer Level test and burn-in systems. We continue to be very pleased with the continued stream of new designs for WaferPaks. Our new design volume has almost doubled this year compared to last year is we're seeing more and more design spending silicon carbide, GaN, silicon photonics and other applications. As a result, our customers are buying additional WaferPak Contactors for these new designs highlighting the recurring revenue part of our business. As we've noted before, our proprietary WaferPak Contactors are needed with our FOX Wafer Level test and burn-in systems to make contact with the individual Die on the wafer and are designed specifically for a given device. As our customers win new designs from their customers, Air eventually secures orders for new wafer packs to fulfill these new wins. With each new design, our customers will need enough new wafer pass to meet the volume production capacity need for those new devices. Our WaferPaks will be greater than 50% of our total revenues this fiscal year, which is fantastic and underscores the business model that allows us to grow both from added capacity from our FOX Systems but also with WaferPaks to serve an ever-increasing installed base. To conclude, as we head toward the start of fiscal '25 on June 1, we're very encouraged and optimistic about our increase in engagements and the long-term growth opportunities of all these markets and are excited to continue on our path of becoming the world standard for wafer level test and burn-in for the semiconductor industry. And with that, let me turn it over to Chris before we open up the line for questions.
Thank you, again. Good afternoon, everyone. The company recognized solid bookings in the third quarter of fiscal 2024. Bookings totaled $24.5 million compared to just $2.2 million in the second quarter of fiscal 2024. Our Backlog as of quarter end was $20 million. We expect to recognize revenue from the majority of these orders for systems, WaferPaks, Aligners and Services in the last quarter of fiscal 2024, which ends on May 31, 2024. Looking at our financial results for the third quarter. Total revenue was $7.6 million, down 56% from $17.2 million in Q3 last year. As we noted in our earnings announcement last month, the decrease in revenue was due to the timing of some significant customer orders. In just the last 2 weeks of the third quarter, we saw delays in a couple of customer orders, that had planned shipments in the quarter as well as a last-minute push out by a customer of a system in our Backlog from the fiscal third quarter to the current fiscal fourth quarter. WaferPak revenues were $4.8 million and accounted for 63% of our total revenue in the third quarter, which is higher than 37% of total revenue in the prior year Q3. Customers typically buy WaferPaks for subsequent to purchasing their new FOX systems. Additionally, customers also buy WaferPaks as they change their chip design for smaller and more efficient devices for their OEM customers. We've seen continued momentum for new wafer pack designs from both our existing and new customers as they look to meet their end customer and market requirements. GAAP gross margin for the third quarter came in at 41.7%, down from 51.6% in Q3 last year. The decrease in gross margin is primarily due to lower revenue resulting in a higher overhead absorption rate and lower manufacturing efficiencies. Operating expenses in the third quarter were $5.2 million, up slightly from $5.1 million in Q3 last year. The year-over-year increase is primarily due to higher R&D expenses, which were partially offset by lower SG&A expenses. The increase in R&D in Q3 was from the same period last year was primarily due to costs associated with our continuing efforts to augment the features and performance of our automated wafer pack aligner and higher personnel expenses. We have hired R&D talent in both hardware and software and have invested in R&D programs to enhance our existing market-leading products and meeting our competitive advantages. At the end of Q3, we announced we shipped the first order from a major silicon photonics customer for high-power configuration of our FOX-XP System for volume production wafer level burn-in and stabilization of next-generation silicon photonics integrated circuits. Non-GAAP net loss, which excludes the impact of stock-based compensation, was $900,000 or $0.03 per diluted share for the third quarter. This is down from non-GAAP net income of $4.7 million or $0.16 per diluted share in the third quarter of fiscal 2023. We expect to return to profitability in our fourth quarter of fiscal 2024. Moving to the balance sheet. We continue to maintain a healthy balance sheet. Our cash and cash equivalents were $47.6 million at the end of Q3, down from $50.5 million at the end of Q2. With a solid balance sheet, we continue to invest in scaling our business and entering into new markets and supporting new opportunities. We used $2.8 million in operating cash flows during the quarter, to procure inventory components primarily to support our operations. We have 0 debt and continue investing our excess cash in money market funds. Interest income earned during this higher interest rate environment was $584,000 in the third quarter compared to $374,000 in the third quarter last year. As of the end of the third fiscal quarter of 2024, the remaining amount available under the previously announced $25 million ATM offering was $17.7 million. We did not sell any shares during the last 3 fiscal quarters. It remains our plan to only sell shares against this ATM offering and times and prices that are most advantageous to our shareholders and to the company. Now turning to our outlook for the current fiscal year that ends on May 31, 2024. As we noted in our earnings pre-announcement, our third quarter results reflect delays in wafer-level burn-in system orders for silicon carbide semiconductor devices used in electric vehicles. Due to this, we had revised our guidance for our fiscal full year ending May 31, 2024, to be greater than $65 million in total revenue and net income of at least $11 million, which we are affirming today. As I mentioned before, we ended the third quarter with $20 million backlog, and we expect to recognize the majority of that backlog as revenue in the fourth quarter. Lastly, looking at the Investor Relations calendar, Aehr Test will participate in 3 investor conferences over the next few months. We will be meeting with investors at the [indiscernible] Institutional Investor Conference taking place in Minneapolis on May 29. And we'll be presenting and meeting with investors at the William Blair 44th Annual Growth Conference taking place in Chicago on June 5. We will also be meeting with investors at the CEO Summit in San Francisco on July 10. We hope to see some of you at these conferences. This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead.
[Operator Instructions] Our first question comes from Christian Schwab with Craig-Hallum.
Thanks for all the details gain on other target market opportunities. I just had a few questions regarding the silicon carbide electric vehicle opportunity. As you're looking into calendar '25 or I guess, next fiscal year '25, I guess it wasn't necessarily clear to me. Do you guys have any idea of -- are you expecting to see material revenue again next year from your historically large [indiscernible]? and how do you see different customers? I know you kind of put in the press release different time frames. So I was just wondering if you had -- if you could just take it a little bit more clear?
I mean at this point, normally, we're not really talking about next year. We'll do that next call. But let me just still give you some insights because we do -- we certainly have visibility A lot of it was, candidly, some of the same numbers just pushed out in time. So at the same time, as I say, well, they're familiar to me, we need to at least put the caveat, yes, but they pushed them out before. So I'm not for boding anything. I'm just way more gun shy now of believing everything the customers tell me. If you will. But right now, yes, we do believe that next year, we'll be getting material revenues from our -- actually, I believe all of our customers are expected to be taking revenue next year. Including our largest historical one. We believe we'll be adding some of the key customers, candidly, some that we thought we were going to be closing by now, that we still have optimism and based upon our current assessment of their needs, our competitiveness the lack of a competitor for that specific application, we think we can win them. And obviously, as you win them, you can have more visibility as to really what's going on I think the other piece of this is that, candidly, our trip across several countries in Asia. And I would [indiscernible] most notable would be in China was I guess, encouraging. If you spend your whole life living in the United States listening to the news on electric vehicles, I mean, candidly, it's not -- I think we're all reading it. It's very different. And I saw a segment the other day, CNBC reporter was falling around [ yelling ] and she was making comments about what she felt and saw with the EVs and you look around Shanghai and is there really more than 50% of these cars are EVs? and we were taking pictures of it, and it's just a very different tone there. And it's just a much more positive thing everywhere. And in the U.S., it has sort of this wet blanket over it. That I think is placed in more political, but I don't want to get into that, okay? But nevertheless, as you look around, it's pretty encouraging. And again, we talked about these other markets too, but you're talking specifically about silicon [indiscernible] EVs I do believe there's a lot of fabs that are being built. There are people that we believe have the inside scoop. [indiscernible], we have some insight through the OEMs themselves as to who their favorite vendors are. Obviously, we can't share what that is, but that gives us a little bit more confidence in who we should be partnering with as well. So I don't -- I know that right now, candidly, nobody wants to hear about silicon carbide EVs, but it's still going to be a good business for us going forward, but it's certainly not going to be the only one for us, okay? And by the way, when I say '25, I actually mean fiscal, so ratcheting on me in June. But I think that the -- a lot of the -- when we talk about the '25, '26 model years, those are I don't even know exactly EVs aren't the same as they used to, but there's clearly people ramping up for high-volume production of a bunch of new cars by next summer.
Great. And then on a follow-up on China, would you anticipate seeing measurable revenue from that marketplace in the next fiscal year then?
I think there's a very real chance of that, and that would be our hope, if not expectation. Lawyers always tell me to be careful about expectations at this point. But yes, I mean, we went there and personally sat down with almost a dozen companies. And kind of got a first-hand feel and view and they're very -- they're very aware of silicon carbide of what the quality is, what the issues with there with respect to the manufacturing material defects. Why you burn-in and how long you need to do it for? What are the burning requirements I candidly found them to be quite knowledgeable. And this may come across a little [indiscernible], but candidly, I think the smarter people are with silicon carbide, the better we look because they really understand what it is we're doing. And that's what I felt when I was in Korea, Japan and China. So to some extent, they have learned this enough, and then they are now being much more clear about why they need wafer-level burn-in and what they're looking for. And that bodes well because believe -- I truly believe we have the best solution on the market.
And then my last question again and just a follow-up on the China market. Is that something that you would address with the direct sales force? Or would you partner with somebody local for distribution?
Yes, a little both, and we've already done that. I mean I think we have a dozen customers in China. Most people remember that. But if you go back and look, we had a bunch of ABTS Systems that were sold all over China. We have several FOX Systems. So we have local Aehr employees there, both sales, applications and infrastructure. But in China, it is pretty typical that you also use reps that have close relationships with sort of different geographies, and we have that as well. So they would get a specific commission on a sale. And that's -- I think almost everything we've sold in China has had some of that, not all of it, but most of it. So it's a little both. But we're also looking at upping our presence pretty significantly, including dropping in a demo center, some local infrastructure and some other things to give us more girth. Specifically at the request of about a half a dozen companies.
Next question comes from Jed Dorsheimer with William Blair.
Just a few questions. I guess, first one, the FOX-NP new customer, you described it as a semiconductor -- global semiconductor manufacturer. Is that also a Tier 1 automotive customer? I'm just wondering if some categorize it is both. So I'm going to try throughout today and they need to call try and get more and more vague only because we've been getting feedback from customers to be [ particularly vague ]. This particular customer wasn't one of those. But I'll answer that question. It's not a Tier 1. Their entire business is semiconductor. And what would you expect the timing to be in terms of conversion from an NP to an XP with that customer?
Actually, I want to hold back on that a little bit with respect to what their timing is because my understanding is that's part of their secret sauce, et cetera. But if I told you over the next couple of years, it's pretty generic, I realize that the -- we know that they have made some substantial purchases for front-end equipment and other things as well. And the NP is just their engineering bring-up tool. And that has no intention to be able to address their production. So whether it be next year, the following year, you can leave it at that for now. Maybe I'll give you more visibility next time. okay?
Okay. And then it's helpful on your excitement over the China market. I'm just curious, are you going to outline how your -- how you intend to address the dilemma, which his kind of caught most tool companies offguard, where local subsidies require reengineering of tooling to a local supply chain?
Yes. I mean I think what I want to say is we're not ignoring that, and we're not believing that we have all the answers. We have some specific legal IP security and contractual things that we're going to use I'd love to tell you something besides to slow it down. But we've also have -- there we have reason to believe that it's not that easy to directly knock off our system without actually violating our IP or to get close enough to do it. We also have a lot of software and a lot of other things. I don't think it's that easy to just simply do it. And then if you did, you would have some other issues. So we're conscious of it. I don't want to be -- and we're specifically doing things, and we're not going to publicly announce all the things that we're doing as part of the reason to keep it secure.
Got it. And then non-silicon carbide gain. For silicon carbide, the inherent defect density of the material combined with a shift to modules kind of created this perfect opportunity for wafer-level burn-in. As you look at the silicon market where you have a homogeneous material structure and chipset. Is it to open up memory and to some extent, silicon photonics, is this or largely memory in silicon. Is this really just a function of moving to modules or chiplets that kind of triggers that? Could you help articulate what you thought will be the gaining factor there?
Okay. So if you want to step back and just say, okay, what are the really big things driving the market? Okay. First of all, all right, the market is growing from $600 billion to $1 trillion. Semiconductors, many of them are not actually getting more reliable, things like very low geometry processes, the processors that we're talking about, AI processor, CPUs, they're all burned in today. okay? That's nothing new. They're just burned in a package form in normal. But then people are actually putting them into -- and by the way, in some cases, they weren't burning them in. Then they're putting them into applications where they were, okay? There are processor companies that ship devices to a consumer application that don't burn them in, but always burn them in into automotive. Well, there's more and more automotive and other things that matter to the reliability. And then the last thing, which really drives wafer-level would be you're putting in the multichip modules. right? So specifically on memory, you're like, wait a minute, which one does it matter? Memory has long required a burden in process. Every DRAM is burnt in and all the NAND devices that are going to end up going into a solid state disk drive have a cycling and burn-in measured in fractions of days, many hours, okay? So that burn-in if you're looking for opportunities, you look for the devices that they themselves need burning right? Silicon photonics, every single device is burnt-in. Doesn't matter where it needs to be burnt-in. Then you're looking for maybe discontinuities where large volumes are going to a new application where it matters. And if you look back, it's been 20 years now, but everything that drove -- the test business in the early 2000s was consumer. Consumer, consumer. I remember that was all -- everything that mattered was always consumer. And now consumer is not what's driving the test requirements. Consumers sort of left for debt, all of the applications in data, AI processing, automotive, et cetera, are driving all the test requirements, and that definitely is the case for burn-in. So for memories, it's the data centers. Okay? Memories are stacking together and then they're putting them together, I definitely remember and can talk to in great detail about how many Die being stacked into an SSD. And where do you want to burn them in, you should burn them in before you put them into that application. And then now what we're seeing with the likes of the A100 B200 type things, these modules [indiscernible] packaging that actually puts a processor, a big old stack in DRAM, a chipset on their future will be an optical I/O chipset or something along those lines. Those devices often need to be burned in [indiscernible] burn-in at the module level? The answer is yes. Why? Because it's the only place to do it. Well, that's ridiculously expensive. So there are initiatives to say how do we burn those devices in at the die level. And I can tell you sort of just front and center on my whole career at this thing, when you start with, I need to do it, there are testability DFT and other things that you can do to implement it. And we believe we have a solution that can partner with them to actually implement wafer level burn. So the applications driving our business we still think silicon carbide is going to be really a good business for us, but it won't be the only one.
So -- sorry, the move to multi-chip modules from an economic perspective is the driver then in terms of ...
Catalyst that makes them relook at their test strategy and say, I'm going to need to do more wafer-level, correct.
Got it. And the reason they're not doing that with your system today is there selling for a price where they can eat the yield loss or ...
That's a good question, but it's not crazy. Sorry, that i've to imply you're crazy, Jed. But if you're able to get if you're able to get 97% margin and 50% yield loss who cares, I guess. I mean I'm not implying I know that answer. And if I did, I'm not telling it is -- but that would be logical. But as things become more important or you don't have capacity or that money matters yes, you would drive it. And so I think that's what makes sense why we're feeling these sort of top-down initiatives for shifting things towards wafer-level.
[Operator Instructions] Up next, we have Larry Chlebina with Chlebina Capital.
According to CEO on his last quarter earnings report, he was really optimistic on what he called the second optical network that's going to be deployed hooking up GPUs and AI data centers. And since you were pushed to ship your optical I/O production system to get it all as soon as possible. Do you have a sense of when this may show up in the marketplace?
Yes. And -- okay. So it's one of the -- I feel like it's one of the most tightly guarded secrets. okay? And I don't believe that we're even being told everything correctly. That sounds probably you don't want to hear that. But I think we -- I know more than I can say, and I [ still know we ] have everything. What I mentioned, I think you heard me in the past and when I sort of struggle with is if you go out and you look at someone like a Yole who's really smart and understands this optical space very well, okay? And they look at the optical I/O. They're like, "Well, I'm not sure how big that market is going to be, et cetera, et cetera" So what is NVIDIA or AMD, tell you? They won't tell me anything. Like you've got -- you don't figure it, right? Of course, they're not telling them. The reality in my mind is what AMD, Intel, NVIDIA, pick your [indiscernible] processor Azure what their plans are. That's what's going to drive it. And those are very closed environments. They're not -- I don't believe for a minute that NVIDIA and AMD are talking together about how they can get their processors to talk to each other. okay? So you kind of have to watch on the edges. You watch where the investments are made, you watch what's going on. You see the technology, you watch patents, you watch [indiscernible]. But my belief is, and I kind of shared this even about a year ago, it feels like we're a couple of years out to volume production. And the question is, how big is it? And could it be much sooner than that. We're enabling that with our solutions and capabilities, and there was a big pull for it. And keep in mind, we also have the same capability on our NP systems installed to customers. So you don't have to see all of the front edge of this simply with new systems, but we would see it with wafer packs. So there's a lot of design activities that are going on right now that seem pretty interesting to me. But I'm a believer. I it makes sense. It is a critical bandwidth. It's going to be a pinch point. I think it's going to be a differentiator with all the AI guys. And it also may have the byproduct of the expanding the need for more optical even within the data centers.
He seemed to think it was pretty imminent, whether it was late this year or next year I don't know if ...
I hope he's right, and we'll be ready for it.
Over the last year, there's been tens of billions of dollars worth of memory fabs announced by every memory manufacturer in the globe. Should'nt you be engaged with them by now, if they're going to realize the benefits of your automated XP to reduce the size of their clean rooms and equipment costs? I mean...
[indiscernible] some with all of them. I'd love to be with all of them. I do think there's a little bit of a spread between the NAND and the DRAM guys timing just in terms of just where the DFT needs to be for DRAM to be able to actually do wafer-level burn-in. But I think within Again, I've been a position as a CEO to be saying this, but personally, I would believe that people will have implemented DFT and low income test modes in DRAM similar to what we did in NAND 15 years ago. Before the end of the decade. And when that does, you want to be there and ready for it. So we've been doing in the background to do that, be ready for it.
It seems like you should have some eval tools at these guys. So they can lay out their fabs and realize the benefits of what you can bring to them. Like I said, with significantly smaller clean rooms and [indiscernible] equipment costs. So you can get to a record designation as soon as possible.
Agree.
Of the 7 current silicon carbide customers that you said you have, that's a correct statement, right? You have 7?
Yes. 7 we officially call yes, that's correct.
How many of those have bought the XP, the production system?
Wow, maybe half of them, I have to think real fast on that.
Well, half is 3.5. Is that 3 or 4?
I have to -- I'll tell you whether we did the background quick. We've announced in one of the time not to do them.
I think it's 3 XPs and 4 NP type customers. It might be a fourth I have to go one more. Go ahead. And all of the NP customers still have given us plans and [indiscernible] to the -- all the NP customers all plan to do XPs. I don't know if they'll ever buy another NP. They'll only do XP next.
Right. That makes sense. So the long lead item, the customer that's been running around the block for a couple of years, what do you think is a hold up? What's is it because they don't have a large demand for modules yet, full modules, just they're a big customer or the big businesses and tell what their package...
I think we have a pretty good idea, and I can not be able to answer it directly. So I think -- if you look at the -- if you look at sort of what happened just in the shift of the EV from every one of their brother is going to be driving an EV in 4 years to now how the -- oh my gosh, is it going to deploy as fast or whatever. That shift over the last 6 months, I think, has really caught a lot of people off guard and made them sort of just look back and assess it and make sure this thing isn't going to go off a cliff. In reality, I think there are some things where the people that were strong will ultimately be stronger. My guess is some of the smaller players that thought this will be fun to [indiscernible]. Aren't going to, right? I mean, like I don't want to -- it will be more fortified. That gives the larger players, which this customer would be one of them, more confidence in their plans going forward. I think there's been things in the OEM space with respect to what kind of commitments need to be made in order to secure fab capacity that is being played out right now. And I think there have been some market shifts in the industry that can shift around seemingly with no particular impact but may have impacted us. I know -- and so ...
Do you think by having anything to do with waiting for 200-millimeter then going full-throttle with your fully automated systems?
I mean customers we talk to want to ensure that we could do both 6-inch and 8-inch or 200-millimeter. So in that sense, maybe, but nobody is saying, oh, your system only needs to do 200 millimeter.
So they want to have to multiple wafer packs?
Yes, we've got some tricks around that as well. But there may be some of that, Larry, and maybe that, okay, why don't we start on the 200 millimeter. There's always process things. I think I can think of some customers when that's the case. But like I said, it's actually interesting. I'm engaging with a customer right now. I want fully automation, 200 millimeter [indiscernible] we'll deliver 200 millimeter. First wafer is going to be 6-inch like okay. Well, it's an end effector on our automation. It's no big deal. But -- so I don't know it's that clean sorry.
But I'm thinking -- so they don't have to buy a bunch of 6-inch wafer pack. So just go with 8-inch and move forward. Anyway, getting back to memory, did you say -- did you give a time line on when you thought you were going to on the eval? [indiscernible]
This year, do you have a ... [Audio Gap]
I'm assuming they would want to have an evaluation tool at their disposal you would have to supply -- a tech person. But isn't that the way that kind of a business would have to go on most...
I don't want to share all of the way we would have structured the conversations with more than 1 memory customer just for maybe obvious reasons because people have slightly different variations of what their expectations are. But candidly, and publicly, we're in I think it's a matter of partnering with those customers, taking it -- working with them on their key testability and DFT modes and how they go about their cycling burn-in test. [indiscernible] contrast modes, all things that I spent my whole career prior to this, those key differentiations as a vendor, you want to say yes to, how can I help? The critical aspects are the low-cost contactor, the full automation and alignment, high-performance, high parallelism, very small footprint on wafer starts to move up. So those are the critical aspects that we have key differentiation on and then working with those customers on their specific and unique test requirements for their particular devices, it would be part of the process.
Yes. That's why you got to get in there before those fabs or fab designs are locked down so that they can design the fab around your equipment with a smaller clean rooms and whatever. Right?
Yes. I mean, yes and no. I mean, again, I don't want to get -- so traditionally, burn-in is considered a back-end back end of test, all of test is considered back end semiconductors. But burn-in is often done. So you could ship your way first to your back-end facility before singulation. As well. So again, I don't -- if I see a fab is built, and they haven't put my tool in there, I don't -- I'm not saying, "Oh gosh, that's just not true"
Okay. I was thinking that sorting on specialty flash sorting is still in the back -- in the fab, right?
Most of the time, Yes.
[Operator Instructions]. No one further in queue. I'd like to turn it back to management for any closing remarks.
All right. Well, then we certainly covered enough of the topics and the questions, hopefully, it answered all the people that it sent in. As always, we appreciate your time on here, and we look forward to either seeing you at 1 of the investor conferences or on our next call. that will be Q4 and fiscal year '24 end. So it will be somewhere in mid-July or so at that point, we'll also be giving guidance for our fiscal -- as always, if you happen to be anywhere near the Bay Area and Silicon Valley look us up, we'd be happy to do a meet and greet and give you a tour of our manufacturing floor. It's quite impressive. Thank you, everybody, and have a nice day. Thank you.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.