Aehr Test Systems (NASDAQ:AEHR) Q3 2024 Earnings Call Transcript April 9, 2024 5:00 PM ET
Company Participants
Jim Byers – IR, MKR IR
Gayn Erickson – President and CEO
Chris Siu – CFO
Conference Call Participants
Christian Schwab – Craig-Hallum Capital Group
Jed Dorsheimer – William Blair
Larry Chlebina – Chlebina Capital
Operator
Greetings. Welcome to the Aehr Test Systems Third Quarter Fiscal 2024 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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.
Jim Byers
Thank you, operator. Good afternoon and welcome to Aehr Test Systems’ third quarter fiscal 2024 financial results conference call. With me on today’s call are Aehr Test Systems President and Chief Executive Officer, Gayn Erickson; and Chief Financial Officer, Chris Siu.
Before I turn the call over to Gayn and Chris, I’d like to cover a few quick items. This afternoon, right after the market closed Aehr Test issued a press release announcing its fiscal 2024 third quarter financial results. That release is available on the company’s website at aehr.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the investor relations page of the company’s website.
I’d like to remind everyone that on today’s call management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors are discussed in the company’s most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today’s call are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements.
And now, I’d like to turn the conference call over to Gayn Erickson, President and CEO.
Gayn Erickson
Thanks Jim. Good afternoon everyone and welcome to our third quarter fiscal 2024 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 here as 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 had seen several pushouts of forecasted orders by current and new customers that impacted our fiscal year revenues. We believe that this was due to two key factors. There is 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 two weeks of the quarter, we saw delays in orders for silicon carbide systems with customer requested shift dates within the quarter, as well as a last minute push out by a customer of a system in our backlog. And that effect of this was a significant shift in revenues out of the third and fourth quarters. Until this time, we had 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 forecasts more than we understood only two months ago at our last earnings call. We now expect this to last for another quarter or two before the orders resume — excuse me, based on the latest rollup of direct forecasts from over a dozen silicon carbide companies. Due to this, last month we revised our guidance for our fiscal 2024 year-end ending May 31st, 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 US in what appears to be a shift in market share of electric vehicle suppliers. This clearly includes Asia, where we recently had an extensive and very productive visit with a significant number of silicon carbide suppliers and electric vehicle suppliers.
On today’s call I discuss each of the major market segments Aehr is addressing for wafer level burn-in of semiconductors, which includes silicon carbide, gallium nitride, silicon photonics, and memory semiconductors, as well as tee-up and opportunity we hope to discuss in the coming months. I’ll also include the trends we’re seeing in Asia EV suppliers and impact on silicon carbide and Aehr’s opportunity to address this market.
According to market forecasts, including the Semiconductor Industry Association, the semiconductor industry expected to grow from $600 billion in 2022, and by the way, we apologize, someone noted that that was incorrectly noted as million in our press release, so we’ll get that corrected, to over $1 trillion at or around 2030. This acceleration is coming from mega market drivers, including artificial intelligence, green energy and decarbonization, and IoT-based digital transformation. Increased reliability concerns about semiconductors in a growing number of mission-critical applications, as well as more multi-chip modules or heterogeneous integration, with multiple devices being assembled together in a single package are driving the need for wafer level burn-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 multi-chip packages or modules. These favorable macro trends are driving the business that drives Aehr Test and include the following. Silicon carbide power devices going into high density modules for power conversion in electric vehicles. Gallium nitride power semiconductors going into automotive, solar, and other industrial applications, where reliability and safety are critically important. Silicon photonics, where photonics integrated circuits are being put into transceivers for data center infrastructure and optical chip-to-chip communication of CPU, GPU, and AI processors to address the insatiable data storage and bandwidth needs of these applications. And memory devices, whether stacked die for solid state disk drives to use in enterprise and data storage or with AI processors, again to address the ever-increasing need for memory density and bandwidth of these applications.
Now let me touch on each of these briefly starting with silicon carbide market. While we remain cautious looking ahead to the next quarter or two, we’re seeing signs of improvement in the silicon carbide market. Last week, we announced an order from a new customer for our FOX-P solution for engineering qualifications while at production of the silicon carbide power devices. This customer is a multi-billion dollar per year global semiconductor company with locations across Europe, Asia, and the Americas and has a wide range of automotive products and is entering the silicon carbide market to address several applications that include automotive, industrial, and electrification infrastructure. This customer sees the enormous opportunity for silicon carbide power devices and has told us they plan to transition to our FOX-XP multi-wafer test and burn-in systems as they ramp to high volume production.
This is the third straight customer in a row for silicon carbide for us that is primarily focused on applications other than EVs. These additional applications expand our market opportunity beyond the 4.5 million, 6-inch equivalent silicon carbide wafers that William Blair forecasts will be needed per year by 2030 just for electric vehicles. These new applications are driving 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 simply on our assurances that our solution will perform as committed. This allows the customers to accelerate their time to market. Of course we’re still happy to engage with customers that 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 a slower adoption of battery electric vehicles than most imagined a year ago, our initial wins and ongoing qualifications at multiple device manufacturers drive our optimism from a longer term perspective. So far we have secured a total of seven silicon carbide customers that have ordered our FOX-P family of systems and proprietary wafer pack for wafer contactors. We’re engaged with well over a dozen additional silicon carbide players in evaluations of our systems and our wafer benchmarks where we build a FOX wafer contactor for them and test their devices at 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 timelines. We still believe that their silicon carbide module and die sales plans will drive the need for known good 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 US, 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 suppliers, sales stores, which were basically all in malls or retail shopping areas like we see Tesla here in the US. And three of them basically position their silicon carbide-based EVs as superior, almost apologizing that this particular version is only IGBT, but next year’s model is silicon carbide-based. They had no idea who we were or that we have any skin in the game for silicon carbide.
Another notable was that, we heard across the board from both the EV suppliers [indiscernible], 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 the 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 to remove infant mortality, which bodes well for our solutions. For a report last year, UBS forecasted that in 2023, 91% of the batteries sold in electric vehicles would be 400 volt and only 9% would be 800 volt. But by 2026, UBS expects the percentage of 800 volt batteries to be above 30%. The report also focused on the progression of electric vehicle batteries from 400 to 800 volt, which is generally recognized by the industry where the silicon carbide is mandatory to get the range and recharging speed consumers are demanding. This is why it appears so many silicon carbide suppliers are timing their major ramps to be in 2025 and 2026 timeframe.
So in the next couple years we expect Aehr to benefit from both an increased number of electric vehicles being sold, as well as a significant increase in silicon carbide need or solution for those electric vehicles. The electric vehicle market in Asia, particularly China and South Korea is very robust, supported by public and consumer sentiment. And they have some really incredible cars that are being built for electric vehicles. And I now fully understand why Tesla stated that their key competition is from Asia and why both US and European auto suppliers in particular are so worried.
From the feedback we received from a significant number of potential customers in Asia, we believe that Aehr’s proprietary wafer level burn-in systems based upon our patented proprietary wafer pack contactors, appear to have a key value proposition, and we see a high degree of interest in our solutions. We already have people and infrastructure across Asia, including China. We have shipped and supported our package 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 test and burn-in gallium nitride power semiconductors. We continue to be encouraged by this market and believe it’ll be significant in terms of market size for semiconductors. In addition to its wide adoption in consumer devices such as cell phones, tablets, and laptop computers, gallium nitride is being targeted for use in solar data centers and automobiles, whether electric or traditional gasoline automobiles. The critical reliability needs of these target markets appear to be increasingly driving production burn-in requirements. And Aehr’s 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 FOX system customer that has been purchasing our wafer pack contactors for their onsite evaluation that we believe is progressing very well. As I’ve noted before, we’re working with several of the GaN suppliers, including the two market leaders, which positions us front and center in this market that we believe is another potential significant growth driver for our wafer level solutions. The test requirements for GaN for full wafer are actually quite different than silicon carbide in terms of technical implementation.
However, our FOX platform has been capable of testing these devices with the functionality and flexibility of our unique FOX blade architecture, which allows us to configure the test blade for specific applications with the same infrastructure. This has proven to be very impressive to these customers, as in fact, even they did not understand the implications of testing an entire wafer at very high voltage and the resulting impact on the test schematic due to leakages of their devices. We were able to address this with our channel modules and proprietary custom wafer packs to address the test challenge and honestly both Aehr and our customers were very happy with the flexibility of our systems to do this.
We’ve been told now that burn-in will be required for GaN going into mission critical applications such as automotive, solar, and some industrial applications, and the amount of burn-in time is still being worked on. Still, this is good news for us and we feel we’re well positioned to capitalize on this opportunity with our solutions in these lead customers. We’re also seeing some additional new small and large players engage with us for GaN. We’ve been seeing consolidation within the industry of smaller key gallium 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 have shipped during the quarter and ahead of schedule the first order from a major silicon photonics customer for a new high power configuration of our FOX-XP system for volume production wafer level burn-in and stabilization of next generation silicon photonics integrated circuits. This new high power configuration expands the market opportunities of the FOX-XP system and has configured to enable cost-effective volume production tests of wafers of next-generation photonic integrated circuits, which are targeted for use in the new optical IO or co-packaged optics market for chip-to-chip communication.
As we discussed before, companies such as AMD, NVIDIA, Intel, TSMC, and Global Foundries have all announced plans for silicon photonics integrated circuits and integration of these in packages with other devices, such as CPUs, GPUs, and AI processors. Our FOX wafer level test and burn-in solution with a proprietary wafer pack for wafer contactors are a great fit for the silicon photonics market. These next generation silicon photonics based integrated circuits can require up to two to four times as much power for full wafer test, burn-in and stabilization. Our new FOX production system configuration, which can be used to test and burn-in these new optical IO devices expands the market opportunity of the FOX-XP system even further.
In addition, the power and functionality of lasers used to transmit data are critically important to the performance of the communication channel, and Aehr solutions not only weed out early life failures, but also improve the performance of the device through what the photonics industry refers to as stabilization. During the first day or two of normal operation, the laser output characteristics change in an exponentially decaying manner and must be stabilized until the decaying stops before the final product can be tuned to meet its performance specifications. Aehr can do this across an entire wafer of fully integrated photonic integrated circuits with embedded or attached laser emitters.
Aehr currently has six customers using our systems for production tests of their silicon photonics devices, five using our NP and XP systems for wafer level test and burn-in and one using both systems for engineering production burn-in of individual simulated die and modules using our proprietary die packs. While the timing of these devices and volume ramps are not publicly clear, we remain very enthusiastic about the silicon photonics market and are watching this market very closely. We continue to work with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application.
Now on to memory. According to the average of multiple market forecasters in 2024, 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 reliability and quality 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 wafer packs and FOX wafer level test and burn-in system with our new fully automated wafer pack aligner. We see an initial opportunity for testing NAND for solid state disk drives using enterprise and data storage where Aehr can deliver compelling cost effectiveness and also weed out infant mortality issues before multiple die are put in a single package. Longer term we believe DRAM will be a critical target market for our systems, particularly as the percentage of DRAM going into multi-chip modules such as GPUs, CPUs and AI processors increases.
Now I want to spend a minute on the overall artificial intelligence semiconductor market. I’ve already discussed how we’re working with silicon photonics suppliers for their plans at integrating silicon photonics as optical communication transceivers in devices including AI processors. We also see co-packaged 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 IO semiconductor burn-in, the FOX-XP multi-wafers production system we began shipping last month is the world’s highest power per wafer system on the market and it handles up to nine wafers at a time, also unprecedented in the industry. This system is capable of testing up to full 300 millimeter wafers of processors, up to several thousand watts of power and over 2,000 amps of current on each of nine wafers in parallel.
By moving the burn-in from package module or final system form as is done today, 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 chip lets in the same module. On the case to system level test, the cost of the whip inventory and yield loss of infrastructure of the system surrounding these modules or chips. The wafer level burn-in challenges we’re working on include putting extremely high currents onto the wafer without damaging the wafer or the contactor, thermal management of the high-power devices with very high leakage currents associated with the high burn-in temperatures we can apply, and automation and handling of these very expensive wafers built on the most state-of-the-art logic process geometries in the world. Stay tuned to hear more about this exciting new application for our products over the next several months.
And lastly, I want to discuss our wafer packs, which are basically the consumable that accompanies and is required with all of our FOX wafer level test and burn-in systems. We continue to be very pleased with the continued stream of new designs for wafer packs. Our new design volume has almost doubled this year compared to last year as we’re seeing more and more designs spending silicon carbide, GaN, silicon photonics and other applications. As a result, our customers are buying additional wafer pack contactors for these new designs, highlighting the recurring revenue part of our business.
As we’ve noted before, our proprietary wafer pack contactors are needed with our FOX wafer level test and 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, Aehr eventually secures orders for new wafer packs to fulfill these new wins. With each new design, our customers will need enough new wafer packs to meet the volume production capacity need for those new devices. Our wafer packs will be greater than 50% of our total revenues this fiscal year, which is fantastic and underscores the business model that allows us to grow both from added capacity from our FOX systems but also with wafer packs to serve an ever-increasing install base.
To conclude, as we head toward the start of fiscal 2025 on June 1st, we’re very encouraged and optimistic about our increase in engagements and the long-term growth opportunities of all these markets and are excited to continue on our path of becoming the world standard for wafer level test and burn-in for the semiconductor industry.
And with that, let me turn it over to Chris before we open up the line for questions.
Chris Siu
Thank you, Gayn. 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, wafer packs, 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 pre-announcement last month, the decrease in revenue was due to the timing of some significant customer orders. In just the last two 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 a backlog from the fiscal third quarter to the current fiscal fourth quarter.
Wafer pack 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 wafer packs from us subsequent to purchasing their new FOX systems. Additionally, customers also buy wafer packs from us as they change their chip design for smaller and more efficient devices for their OEM customers. We’re seeing 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 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 a 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 can 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 permanently to support our operations. We have zero 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 three fiscal quarters. It remains our plan to only sell shares against this ATM offering at times and prices that are most advantageous to our shareholders and to the company.
Now turning to our outlook for the current fiscal year that ends on May 31st, 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 in 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 three investor conferences over the next few months. We will be meeting with investors at the Craig Hallam Institutional Investor Conference taking place in Minneapolis on May 29th. And we’ll be presenting and meeting with investors at the William Blair 44th Annual Growth Conference taking place in Chicago on June 5th. We will also be meeting with investors at the CO 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.
Question-and-Answer Session
Operator
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Christian Schwab with Craig Hallam. Please proceed.
Christian Schwab
Hey guys. Thank you for all the details gained on other target market opportunities. I just had a few questions regarding the silicon carbide electric vehicle opportunity. As you’re looking into calendar 2025, or I guess next fiscal year 2025, 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 largest customer? And how do you see the different customers? I know you kind of put in the press release different time frames. I was just wondering if you could just make that a little bit more clear.
Gayn Erickson
I mean, at this point normally we’re not really talking about next year, we’ll do that in the 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, but they pushed them out before, so I’m not I’m not foreboding 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 probably the most notable would be in China, was really, I guess, encouraging. If you spent 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 [indiscernible] and she was making comments about what she felt and saw with the EVs. You look around Shanghai and it’s like, is there really more than 50% of these cars are EVs? 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 US it has sort of this wet blanket over it that I think has 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 were talking specifically about silicon art EVs. I do believe that there’s a lot of fabs that are being built, there’s people that we believe have the inside scoop. It’s kind of odd, 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 know that right now, candidly nobody wants to hear about silicon carbide and EVs, but it’s still going to be a good business for us going forward, but certainly not going to be the only one for us. Okay.
And by the way when I was — when I say 2025, I actually mean fiscal. So ratcheting on me in June but I think that they — a lot of that when we talk about the 2025-2026 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.
Christian Schwab
Great. And then on a follow-up on China, would you anticipate seeing measurable revenue from that marketplace in the next fiscal year then?
Gayn Erickson
I think there’s a very real chance of that and that would be our hope if not expectation. The 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 aware of silicon carbide, of what the quality is, what the issues with there are with respect to the manufacturing material defects, why you need to burn-in, and how long you need to do it for, what are the burn-in requirements. I candidly found them to be quite knowledgeable, and this may come across a little boisterous but that 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 be much more clear about why they need wafer level burn-in and what they’re looking for. And that bodes well because I believe — I truly believe we have the best solution on the market.
Christian Schwab
And then my last question Gayn, just to 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?
Gayn Erickson
Yes, a little both. And we’ve already done that. I mean, I think we have a dozen customers in China. Most people don’t remember that. But if you go back and look, we had a bunch of ABTS systems that were sold all over China which has a FOX system. So we have local Aehr employees there, both sales, applications, and infrastructure. But in China, it’s 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.
Christian Schwab
Okay great. No other questions, Thank you.
Gayn Erickson
Okay.
Operator
The next question comes from Jed Dorsheimer with William Blair. Please proceed.
Jed Dorsheimer
Hey guys, just a few questions. I guess first one, the FOX-NP new customer, you described as a semiconductor — global semiconductor manufacturer. Is that also a Tier 1 automotive customer? I’m just wondering if some categorize it as both.
Gayn Erickson
So I’m going to try throughout today and in each call try and get more and more vague only because we’ve been getting feedback from customers to be particularly vague. Now this particular customer wasn’t one of those. But I’ll answer that question, it’s not a Tier 1. Their entire business is semiconductors.
Jed Dorsheimer
And what would you expect the timing to be in terms of conversion from an NP to an XP with that customer?
Gayn Erickson
I 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 etc. But if I told you over the next couple of years, it’s pretty generic, I realize, but they — 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 of being able to address their production. So whether it be next year or the following year, you can leave it at that for now. Maybe I’ll give you more visibility next time, okay?
Jed Dorsheimer
Okay. And then, it’s helpful on your excitement over the China market. I’m just curious, are you going to outline how you intend to address the dilemma, which has kind of caught most tool companies off guard where local subsidies require re-engineering of tooling to a local supply chain?
Gayn Erickson
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’s 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.
Jed Dorsheimer
Got it. And that non-silicon carbide, Gayn. 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. If 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 think will be the gating factor there?
Gayn Erickson
Okay, so if you want to step back and just say, okay, what are the really big things driving our market? Okay, first of all, 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 processors, CPUs, they’re all burnt in today. That’s nothing new. They’re just burnt in 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. 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 into multi-chip modules, right? So specifically on memory, you’re like, wait a minute, which ones does it matter? Memory has long required a burn-in process. Every DRAM is burnt in and all of 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. So that burn-in, if you’re looking for opportunities, you look for the devices that then themselves need burn-in, 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, consumer. I remember that was all, everything that mattered was always consumer. And now consumer is not what’s driving the test requirements. Consumer’s sort of left for dead. All of the applications in data, AI, processing, automotive, et cetera, are driving all the test requirements and that definitely is a 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 are 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 of DRAM, a chipset on there, future would be an optical IO chipset or something along those lines, those devices often need to be burnt in. Are you going to burn them 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 of 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 burden.
So the applications that will be driving our business today are very different than I think they will be in a couple years. I mean, I still think silicon carbide is going to be a really good business for us, but it won’t be the only one.
Jed Dorsheimer
So, Gayn, sorry, the move to multi-chip modules from an economic perspective is the driver then in terms of…
Gayn Erickson
It’s the catalyst that makes them relook at their test strategy and say, I’m going to need to do more wafer level, correct.
Jed Dorsheimer
Got it. And the reason they’re not doing that with your system today is they’re selling for a price where they can eat the yield loss or…
Gayn Erickson
That’s a good question, but it’s not crazy. Sorry, [indiscernible] you’re crazy, Jed. But if you’re able to get 97% margin and you eat 50% yield loss, who cares, I guess? I’m not implying I know that answer and if I did, I’m not telling it. 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 tops down initiatives for shifting things towards wafer level.
Jed Dorsheimer
Got it. That’s helpful. I’ll jump back in the queue. Thank you.
Gayn Erickson
Okay. Thanks, Jed.
Operator
Thank you. [Operator Instructions] Up next we have Larry Chlebina with Chlebina Capital. Please proceed.
Larry Chlebina
Hi, Gayn. How you doing? Corning’s 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 IO production system to get it out as soon as possible, do you have a sense of when this may show up in the marketplace?
Gayn Erickson
Yes. And I — okay. So it’s one of the most — 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 do we have everything. What I have mentioned I think you’ve heard me in the past and what I sort of struggled with is, if you go out and you look at someone like a [YOL] (ph) who’s really smart and understands this optical space very well, okay. And they look at the optical IO, they’re like, well, I’m not sure how big that market’s going to be, et cetera, et cetera. It’s like, oh, what does NVIDIA or AMD tell you? Oh, they won’t tell me anything. Like, you got your own figure, right? Of course they’re not telling us.
The reality in my mind is what AMD, Intel, NVIDIA, pick your other processor [indiscernible], what their plans are, that’s what’s going to drive it. And those are very closed environments. They are 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 tech. But my belief is, and I kind of shared this even about a year ago, it feels like we’re a couple years out to volume production, and the question is, how big is it and could it be much sooner than that? You know, 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 at 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. 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 then expanding the need for more optical even within the data centers.
Larry Chlebina
He seemed to think it was pretty imminent, whether it was late this year, next year, or I don’t know if…
Gayn Erickson
I hope he’s right and we’ll be ready for it.
Larry Chlebina
Okay. Hey, 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 you be engaged with them by now or 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 [Multiple Speakers]
Gayn Erickson
[Multiple Speakers] not 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 in a hard position as a CEO to be saying this, but personally, I would believe that people will have implemented DFT and low-pin count 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 things in the background to do that. Be ready for it.
Larry Chlebina
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 you said with significantly smaller clean rooms and less equipment costs. So you can get to a record destination as soon as possible.
Gayn Erickson
Agreed.
Larry Chlebina
Of the seven current silicon carbide customers that you said you have, that’s a correct statement, right? You have seven?
Gayn Erickson
Yes. Seven — we officially called — yes, that’s correct.
Larry Chlebina
Okay. How many of those have bought the XP, the production system?
Gayn Erickson
Wow, maybe half of them. I have to think real fast on that.
Larry Chlebina
Well, half is three and a half. Is that three or four?
Gayn Erickson
I’ll tell you what, let me do the background real quick. We’ve announced them one at a time. I’ll just do them — I think it’s three XP’s and four NP type customers. It might be four to go one more. Go ahead.
Larry Chlebina
That’s all I have…
Gayn Erickson
And all of the NP customers still have given us plans and paths to the — all the NP customers all plan to do XP. I don’t know if they’ll ever buy another NP, they’ll only do XP’s next.
Larry Chlebina
Right, that makes sense. So the long lead item customer that’s been running around the block for a couple of years, what do you think is the holdup? Is it because they don’t have a large demand for modules yet, full modules, just their big customer or the big businesses in the — what their packaged [Multiple Speakers]
Gayn Erickson
I think we have a pretty good idea and I cannot 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 everyone and their brother is going to be driving an EV in four years to now, oh my gosh, is it going to deploy as fast or whatever. That shift over the last six 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’s 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 dabble in, aren’t going to, right? I mean, like, you don’t want it to 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 they’ll have. And so — but [Multiple Speakers] Go ahead.
Larry Chlebina
Do you think it might have anything to do with waiting for 200 millimeter then going full throttle with your fully automated systems?
Gayn Erickson
I mean, each of the customers we talked 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.
Larry Chlebina
So they want have to buy multiple wafer packs?
Gayn Erickson
Yes. We’ve got some tricks around that as well, but there may be some of that Larry and it may be that okay why don’t we start the line on the 200 millimeter line instead of — there’s always — there’s always process things. I think I can think of some customers where that’s the case. But like I said, it’s actually interesting. We’re — I’m engaged with a customer right now, I want fully automation 200 millimetres, [indiscernible]. Yes, the first wafer is going to be 6 inch, they are like, okay. Well, it’s an end effector on our automation. It’s no big deal. So, I don’t know if that clean, sorry.
Larry Chlebina
Well, I’m thinking, So they don’t have to buy a bunch of 6-inch wafer packs, or just go with 8-inch and move forward. Anyway, getting back to memory, did you say — did you give a timeline on when you thought you were going to penetrate one of them in terms of a eval tool or…
Gayn Erickson
In our prepared remarks I said something in effect this year we are hoping to have a on wafer benchmark process going. That’s what we said.
Larry Chlebina
I mean 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? [Multiple Speakers]
Gayn Erickson
I don’t want to share all the way we would have structured the conversations with the — more than one 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 and working with them on their key testability and DFT modes and how they go about their cycling burn-in test, DFT, BIS, low pin on test modes, all things that I spent my whole career at 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 per month. So those are 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.
Larry Chlebina
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 the smaller clean rooms and whatever, right?
Gayn Erickson
Yeah. I mean yes and no. I mean, again, I don’t give. So traditionally, burn-in is considered a backend — backend of test. All of test is considered backend in semiconductors, but burn-in is often done. So you can ship your wafers to your backend 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, I’ve missed it. That’s just not true.
Larry Chlebina
Okay. I was thinking the sorting on — especially flash, the sorting is still in the back — in the fab, right?
Gayn Erickson
Most of the time, yes.
Larry Chlebina
Yeah, okay. All right, that’s all I had. Thank you.
Gayn Erickson
Thank you.
Chris Siu
Thank you.
Operator
[Operator Instructions] So, no one further in queue. I’d like to turn it back to management for any closing remarks.
Gayn Erickson
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 Aehr, and we’ll look forward to either seeing you at one of the investor conferences or on our next call. That will be Q4 and fiscal year 2024 and it’ll be somewhere mid-July or so. At that point we’ll also be giving guidance for our fiscal 2025. As always, if you happen to be anywhere near the Bay Area in 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.
Chris Siu
Thank you.
Operator
This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.