Release Date: January 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Aehr Test Systems (NASDAQ:AEHR) reported significant progress in expanding its product reach into large and fast-growing markets, including AI processors and gallium nitride power semiconductors.
• The company secured its first AI processor customer for wafer-level burn-in, marking a technological and commercial breakthrough.
• Aehr Test Systems (NASDAQ:AEHR) has diversified its market presence, with AI processors expected to comprise up to 40% of total revenue this fiscal year.
• The acquisition of Intel technology has accelerated market diversification, particularly in AI processors, enhancing the company's product offerings.
• The company maintains a strong balance sheet with no debt and continues to invest in scaling its business and pursuing new market opportunities.

Negative Points

• Aehr Test Systems (NASDAQ:AEHR) faced a 37% decline in second-quarter revenue compared to the same period last year, primarily due to softness in the silicon carbide power semiconductor market.
• The company experienced a decline in non-GAAP gross margin to 45.3% from 51.6% last year, attributed to lower overall revenue levels.
• There are ongoing legal challenges, including a lawsuit in China for intellectual property infringement, which could incur higher legal fees in the coming quarters.
• The company acknowledged the risk of geopolitical trade and intellectual property issues affecting bookings and revenue from Chinese customers.
• Aehr Test Systems (NASDAQ:AEHR) has not provided multi-year forecasts, creating uncertainty about the timing of long-term sustainable growth.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with AEHR.

Q: What is the outlook for Aehr Test Systems' long-term sustainable growth, and when can we expect to see significant top-line growth? A: Gayn Erickson, President and CEO, mentioned that while they have not provided multi-year forecasts, they are optimistic about growth in fiscal year '26 and beyond. The company is focusing on expanding into new markets such as AI processors, gallium nitride, and flash memory, which are expected to drive revenue growth. Erickson emphasized that while silicon carbide remains important, the company is diversifying its focus to capture opportunities in these emerging markets.

Q: Were there any tools on the shipping dock at the end of the quarter, and is the backlog more of a timing issue? A: Gayn Erickson confirmed that there were indeed tools on the shipping dock, and it was primarily a timing issue. Some customers requested concessions at the end of the fiscal quarter, which delayed the finalization of purchase orders. However, these orders are now being expedited for shipment.

Q: What are the near-term drivers for Aehr Test Systems beyond silicon carbide, and how do AI and HBM factor into this? A: Gayn Erickson highlighted that AI production, both in package part and wafer level burn-in, is expected to be a significant near-term driver. While the hard disk drive market is attractive, AI and flash memory opportunities are likely to be larger contributors to growth in the coming years. The company is actively pursuing these opportunities to capture market share.

Q: How should we think about gross margins for the rest of the fiscal year, given the recent decline? A: Chris, CFO, explained that the decline in gross margins was due to a mix shift towards lower-margin Intel systems. Wafer packs have the highest margins, followed by Aehr Test Systems' legacy products, and then Intel systems. The company expects margins to improve as they integrate Intel products into their operations and achieve operational efficiencies.

Q: What is Aehr Test Systems' competitive position in the Chinese market for silicon carbide, especially if the patent infringement case is not successful? A: Gayn Erickson stated that despite the patent infringement case, Aehr Test Systems maintains a strong competitive advantage in terms of reliability and productivity. The company is committed to protecting its intellectual property and believes its solutions offer superior capabilities compared to local competitors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.