Earnings Call Transcript
AEHR TEST SYSTEMS (AEHR)
Earnings Call Transcript - AEHR Q4 2021
Operator, Operator
Good day. And welcome to the Aehr Test Systems Fiscal 2021 Fourth Quarter and Full Year Financial Results Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead.
Jim Byers, Investor Relations
Thank you, Operator. Good afternoon. And welcome to Aehr Test Systems’ fiscal 2021 fourth quarter and full year 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, Ken Spink. Before I turn the call over to Gayn and Ken, I’d like to cover a few quick items. This afternoon right after market close Aehr Test issued a press release announcing its fiscal 2021 fourth quarter and full year 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 Aehr Test 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 that 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 that may cause the results to differ materially from those in the forward-looking statements are discussed in the company’s most recent periodic and current reports filed with the SEC. 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. Now, with that said, I’d like to turn the conference call over to Gayn Erickson, President and CEO.
Gayn Erickson, CEO
Thanks, Jim, and good afternoon. And welcome to our fiscal 2021 fourth quarter and full year earnings conference call. Thank you for joining us today. Let’s start with a quick summary of the highlights of the quarter and the improved business momentum we’re experiencing. And then I’ll dig deeper into our expectations for increased revenue growth in our new fiscal year, which is already underway. We saw continued signs of recovery and a strong increase in customer demand during the fourth quarter, which is a positive turnaround from the customer production ramp delays and pushouts we experienced this past year related to COVID-19. I’m pleased to report improved revenue and operating profit for the fourth quarter that reflect the return to above pre-pandemic levels. Fourth quarter revenue was up 45% sequentially quarter-on-quarter and up over 100% from Q4 last year, and we’re profitable for the quarter on a GAAP basis. Additionally, we’re off to a strong start for fiscal 2022 with $5.4 million in bookings and an effective backlog of $7 million as of today. We are seeing improvement in multiple test and burn-in segments including silicon carbide, silicon photonics, and mobile sensors, each of which we expect will contribute to our expectations for significant revenue growth year-over-year in our new fiscal year. Now let me dig a little deeper into each of these opportunities starting with silicon carbide. This past fiscal year we made significant inroads into the emerging silicon carbide device market, which continues to be a very promising key growth driver for Aehr and will be a major focus in the coming fiscal year. Silicon carbide power semiconductors have emerged as the preferred technology for battery electric vehicle power conversion in onboard and offboard electric vehicle battery chargers and the electric power conversion and control of the electric engines. Our FOX-P family of products are very cost-effective solutions for ensuring the critical quality and reliability of devices in this market, where performance and reliability can not only mean increased battery life but also whether you have to walk home from a vehicle whose power semiconductor fails in the powertrain. I once heard from a very wise General Manager of automotive semiconductor components supplier that the quality and reliability of devices such as these power semis in the engine drive train of vehicles should not be measured by how many failures per million they have but how many walk homes per million they have. As a failure in this component results in the driver and passengers walking home after it fails in the vehicle. During this last fiscal year, our lead silicon carbide customer qualified Aehr’s FOX-XP system for high volume production burn-in and infant mortality screening of silicon carbide power devices at wafer level for electric vehicles. This customer is a leading Fortune 500 supplier of semiconductor devices with a significant customer base in the automotive semiconductor market. They have now qualified several devices for automotive applications on our solution, ordered multiple FOX-XP systems, and have purchased multiple new WaferPak contactor designs that are expected to be qualified and moved to production during this new fiscal year. During our fiscal fourth quarter, we received and shipped a follow-on order from this customer for an additional FOX-XP system for higher volume production testing and burn-in of those devices. And this past week, we announced another follow-on from them for an additional FOX-XP system and multiple WaferPaks to meet their increased production capacity needs. These follow-on orders for additional FOX-XP systems and WaferPaks are the results of our working closely with this lead customer to achieve their test requirements and validation of our FOX-XP platform and WaferPak full WaferPak contactors as their production qualified solution. This customer is forecasting orders for multiple additional FOX-XP systems and WaferPaks this year and a significant number of systems and WaferPaks over the next several years due to the electric vehicle semiconductor test and burn-in demand. Each of these silicon carbide focused FOX-XP systems are configured to test 18 silicon carbide WaferPaks in parallel in the footprint of a typical single wafer test solution by contacting and testing 100% of the devices in parallel on each wafer. Our solution can not only test 4-inch and 6-inch silicon carbide wafers but can test the future 200-millimeter 8-inch wafers planned to be introduced over the next several years. Aehr provides a unique fully integrated solution that includes the test systems full wafer WaferPak contactors and the WaferPak Aligners. In addition to the very large opportunity for silicon carbide with our lead customer, we’re currently engaged in detailed discussions with several other major suppliers of silicon carbide, some of which have also publicly indicated plans for significant capacity increases. We expect to move to on-wafer evaluations with multiple potential new customers this fiscal year. As I mentioned on our last call, we’re very excited that a new potential customer that produces silicon carbide power devices has asked us to demonstrate our full wafer-level burn-in solution on their silicon carbide wafers, including putting the system on their manufacturing floor to demonstrate our capabilities. While this is a new customer for us for silicon carbide, they’re actually currently a customer for us in other applications and they already have several FOX-XP systems in production for testing and burning in mobile sensors. They are a significant player in silicon carbide right now, and we’re confident that we can prove to them that our solution will catch their infant mortality failures that otherwise show up in customer devices. As I’ve discussed many times, silicon carbide is an optimal material for high power and particularly high voltage devices for applications such as electric and hybrid electric vehicle powertrain and electric vehicle charging infrastructure. These devices reduce power loss by as much as greater than 75% over power silicon alternatives like IGBT devices, which has essentially changed the entire market dynamic. With this development, we’ve seen most if not every automotive company that’s working on electric vehicles moving to silicon carbide-based powertrain and charging systems in the near future. The challenge with silicon carbide is that it’s known to have high infant mortality rates. However, with the reliability burning and screening that Aehr is able to offer with our FOX Product Solutions, these defects can be removed to provide extremely reliable devices for these mission-critical applications. Aehr’s FOX-XP solution allows for one of the key reliability screening tests to be completed on an entire wafer full of devices, basically testing all of them at one time while also testing and monitoring every device for failures during the burn-in process to provide critical information on those devices. This is an enormously valuable capability as it allows our customers to screen devices that would otherwise fail after they are packaged into multi-die modules where the yield impact is 10 times or even 100 times costly. Silicon carbide appears to be one of the hottest potential application spaces that Aehr Test has seen in many years, and we’re extremely excited about our ability to service this emerging market. We anticipate that wafer-level testing and burn-in will become the industry standard for quality and reliability screening for silicon carbide devices for the automotive market. And with the most cost-effective solution on the market to address this opportunity, we believe that Aehr has the chance to build a dominant market share. Our semiconductor market for electric vehicles is expected to triple between 2020 and 2026, growing at nearly 26% CAGR to $5.6 billion according to Yole Research, and a report with Deloitte forecasts total electric vehicle sales will grow at a CAGR of 29% from 2020 to 2025 before reaching 31.1 million units by 2030 and securing approximately 32% of the total market share for new car sales. These stats highlight the tremendous opportunity Aehr Test has in front of it with its wafer-level test and burn-in solution for electric vehicle semiconductors. Now turning to silicon photonics, we’re seeing an improvement in the silicon photonics market, which was significantly impacted by the pandemic this past year. During the fourth quarter of fiscal fourth quarter, we shipped FOX-XP systems and multiple WaferPak contactors to an existing customer that’s transitioning from our FOX-NP system for initial production burn-in to our production FOX-XP system to begin volume production in other high-performance silicon photonics devices. This customer is a major supplier of fiber optic transceivers in the data center interconnect market today. Silicon photonics fiber optic transceivers, which are used in data storage and 5G infrastructure require a process step in manufacturing called stabilization, where the devices are subjected to high temperatures and power to stabilize their output power. Our customers are using our FOX wafer load test and burn-in solution for production testing and burn-in of their integrated silicon photonics devices, and we currently have five silicon photonics customers that are shipping products to their end customers using our FOX solutions. We see a significant opportunity for growth as we expand within these customers and add additional new silicon photonics customers in this fiscal year. Now let me touch on the mobile sensor market. This past year we successfully implemented our FOX systems and DiePak Carrier for production testing and burn-in of two new applications for 2D, 3D sensors for mobile devices. Aehr has now successfully executed on a number of programs for highly custom and unique sensors and packaging and configurations unlike any other devices on the market. Aehr’s engineering team has been able to design and develop custom DiePak Carriers and contactors to address the unique electrical, mechanical, optical and thermal needs of these devices with our FOX-XP systems in proprietary DiePak Carrier. These solutions are turnkey with development of the proprietary carriers and test schematic, custom DiePak, singulated die and module sockets and carriers, highly proprietary thermal conductivity and transfer solutions, custom application test plans, and automated handling systems to load and unload our DiePaks with 100% traceability of test results in binning. We feel we continue to meet and exceed the customer’s expectations and are happy to continue to meet their needs on this extremely challenging test and burn-in applications. We expect to see follow-on orders for system capacity and DiePaks this year and continue to be optimistic about this market space. Now let me talk a little bit about our consumables and contactor business. As I mentioned on past calls, our FOX family of test systems includes our customized WaferPaks and DiePaks that are proprietary full wafer singulated die and module contactors, and are needed not only for full new system orders but also for each new design win or each new device added to production testing. During the fourth quarter, we launched our newest DiePak solution, which is capable of handling extremely small and complex devices and very high power density devices with higher parallelism than ever before. This new class of DiePaks can handle devices small enough to rest on the tip of a pen or a pencil, devices this small are extremely hard to handle, particularly in any kind of parallel. Often a discrete device as small as this is handled with special handling equipment and a tester that can only test one device at a time. This new FOX-XP system and DiePak solution is capable of testing very complex die and modules in addition to them being tiny. This solution is a great addition to our product family and we believe it further sets us apart from any other company in the industry. As we increase our installed base for FOX systems with current and new customers, particularly with our FOX-NP and XP multi-wafer and simulated die module test and burn-in systems, we expect this consumables business will continue to grow in absolute value and also as a percentage of our total sales. Over the long-term, we expect these recurring consumable sales to account for up to half or even more of our total annual revenues. And lastly, touching on our package part business, we continue to see indications of renewed demand for package part burn-in applications, particularly from customers in automotive applications and those taking high voltage capability. Our new package part burn-in product with very high voltage test capabilities continues under development, and we expect to generate additional new opportunities with our planned shipments to begin later this fiscal year. So let me go ahead and touch on supply chain. I’ve received many questions from customers and shareholders about our supply chain and ability to meet capacity demand for systems and contactors. Given all the issues with semiconductor shortages and rising costs in raw materials and lengthening lead times across many industries, I quickly have to acknowledge this as a reasonable concern and understand where the questions are coming from. Aehr has a very robust supply chain with world-class subcontract manufacturers on subsystems of our test systems, contractors, WaferPak Aligner, and DiePak Carrier. These subcontractors have successfully supplied the subsystems for years to Aehr and are very mature. In all cases, these suppliers have capacity well in excess of Aehr historical shipment and the ability to ramp significantly higher as well. We’re very confident in our ability to meet the customer forecasted demand plus considerable upside. The one area that we do want to highlight is the risk associated with semiconductor component lead times that have been very irrational over the last six months, which is causing us to jump through many hoops to ensure we have near- and long-term volumes to meet both our forecasts and considerable upside to this forecast. I don’t want to overstate the risk because we’re confident in meeting our projected revenues that we’re guiding for this fiscal year, and we believe we can meet a considerable upside to this forecast. However, we know there’s a risk in the near-term, in particular with some semiconductor component shortages, but also we’ve seen logistics issues with shipping lead times that continue to make our team keep on their toes and may add to the lumpiness of our quarterly shipments and revenues. So let me conclude my remarks. We’re now a month and a half into fiscal 2022 and we’re confident in our revenue growth projections for this new fiscal year. We’re seeing a recovery across our customer base along with significant demand for wafer level test and burn-in of silicon carbide devices for electric vehicles, silicon photonics devices for data center and 5G infrastructure, and 2D and 3D sensors for mobile devices. For the fiscal year ending May 31, 2022, Aehr expects full year total revenue to be greater than $28 million, which would represent growth of approximately 70% year-over-year and to be profitable for the fiscal year. Now before I turn over the call to Ken to go over our financials, I want to note that during the quarter we announced the appointment of Fariba Danesh to our Board of Directors. Fariba is a technology industry veteran with special emphasis on semiconductor, photonics, telecommunications, and data storage. And she brings incredible knowledge, experience, and contacts in the compound semiconductor and optical semiconductor spaces. We, and certainly I, am really excited to have her on our Board. With that, let me turn it over to Ken to review our financial results in more detail before we open up the line for questions.
Ken Spink, CFO
Thank you, Gayn, and good afternoon, everyone. As Gayn noted, we saw continued signs of recovery and a strong increase in customer demand during the fourth quarter, resulting in improved revenue and operating profit for the fourth quarter that reflect a return to above pre-pandemic levels. To add some perspective on this, our fourth quarter revenue of $7.6 million is our highest reported quarterly revenue since Q2 of fiscal 2018. Looking at our financial results in more detail, starting with the fourth quarter, fourth quarter net sales of $7.6 million are up 45% sequentially from $5.3 million in the third quarter and up 102% year-over-year from $3.8 million in the fourth quarter last year. The sequential increase in net sales from the preceding Q3 reflects an increase of $2 million in wafer level burn-in revenue and $386,000 in customer service revenues. The increase in wafer level burn-in revenues is primarily due to an increase in system revenue of $1.4 million and an increase in WaferPak and DiePak revenues of $577,000. The increase in Q4 last year includes an increase in wafer level burn-in revenue of $3.4 million and customer services revenue of $509,000. The increase in wafer level burn-in revenue is primarily due to an increase in system revenue of $3.8 million, partially offset by a decrease in WaferPak and DiePak revenue of $487,000. It is important to note that there were no system revenues in Q4 of fiscal 2020. Non-GAAP net income for the fourth quarter was $870,000 or $0.04 per diluted share, compared to a non-GAAP net loss of $464,000 or $0.02 per diluted share in the preceding third quarter and a non-GAAP net loss of $720,000 or $0.03 per diluted share in the fourth quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation and in the fourth quarter of fiscal 2020 included a $1.6 million excess and obsolescence provision and $220,000 in restructuring charges. On a GAAP basis, net income for the fourth quarter was $567,000 or $0.02 per diluted share. This compares to GAAP net loss of $735,000 or $0.03 per diluted share, which included a $337,000 warranty provision in the preceding third quarter and GAAP net loss of $2.9 million or $0.13 per diluted share, which included the impact of $1.9 million or $0.08 per share in inventory write-down and restructuring charges taken in the fourth quarter of the previous year. Gross profit in the fourth quarter was $3.5 million or 46% of sales, up from gross profit of $1.9 million or 36% of sales in the preceding third quarter and gross loss of $93,000 or 2% of sales in the fourth quarter of the previous year. The increase in gross margin from the preceding Q3 is primarily due to a decrease in unabsorbed overhead costs and percent of sales due to higher revenue levels in Q4 2021, accounting for a 5.5-percentage-point improvement in gross margin and a decrease in other cost of goods sold as Q3 2021 included a warranty provision accounting for 4.8-percentage-point improvement in gross margin. Because our manufacturing overhead costs are relatively fixed, we scale very well. As our revenues grow, the increases flow to the bottom line, and our margin percentages are favorably impacted, which is reflected in our Q4 2021 results. Product mix also impacts our gross margin percentage. The increase in gross margin from the fourth quarter last year is primarily due to a decrease in inventory reserves as Q4 last year included a $1.6 million charge related to the write-down of excess and obsolete inventory, accounting for a 43.2-percentage-point improvement in gross margin and absorbed overhead cost decreased as a percentage of sales, resulting in a 7.2-percentage-point improvement in gross margin due to higher revenue levels in Q4 2021 compared to Q4 2020. Operating expenses in the fourth quarter were $2.9 million, up $387,000 or 15% from $2.5 million in the preceding third quarter and up $185,000 or 7% from $2.7 million in the fourth quarter of last year. The sequential and year-over-year increase in operating expenses is primarily due to an increase in employment-related expenses for bonuses in Q4 2021 and annual pay increases to employees effective Q4 2021 and an increase in R&D project materials. This was partially offset by a reduction in restructuring charges as Q4 2020 included $220,000 in costs related to the closure of our subsidiary in Japan and reduction of headcount in our Germany subsidiary. With customer activity and business improving, we eliminated the 30% pay reductions for our executive staff at the start of June 2021 at the beginning of our current fiscal year. SG&A was $1.9 million for the fourth quarter, up $261,000 from the preceding third quarter and up $230,000 from the prior year fourth quarter. R&D expenses were $1 million for the fourth quarter, up $126,000 from the preceding third quarter and up $175,000 from the prior year fourth quarter. Now turning to the results for the full fiscal year. Net sales for fiscal 2021 were $16.6 million, down 26% from net sales of $22.3 million in fiscal 2020. The decrease includes a decrease in wafer level burn-in system revenues of $5.8 million; customer service revenues were relatively flat. While year-over-year net sales decreased, second half fiscal 2021 revenues were $12.9 million, compared to $9.9 million in the second half of fiscal 2020, an increase of 31% over the prior year. Fiscal 2021 net sales were comprised of $13.1 million in wafer level burn-in revenues and $3.5 million in customer service revenue. For the full year 2021, system revenues accounted for 44% of revenues, compared to 36% in prior 2020. WaferPak and DiePak consumable revenues accounted for 35% of total revenue in 2021, compared to 48% of revenues in fiscal 2020. Customer service revenues accounted for 21% of revenues in fiscal 2021, compared to 15% of revenues in fiscal 2020. Non-GAAP net loss for fiscal 2021 was $3.3 million or $0.14 per diluted share, which excludes the impact of stock-based compensation and the non-cash net gain of $2.2 million and a tax benefit of $215,000 related to the closure of Aehr’s Japan subsidiary in the first quarter. This compares to a non-GAAP net loss of $27,000 or zero cents per diluted share, which excludes the impact of stock-based compensation expense, inventory reserves of $1.6 million, and restructuring charges of $220,000 in fiscal 2020. On a GAAP basis, net loss for the fiscal year was $2 million or $0.09 per diluted share. This compares to a GAAP net loss of $2.8 million or $0.12 per diluted share, which included the impact of approximately $1.9 million or $0.08 per share and inventory write-down and restructuring charges taken in fiscal 2020. Gross profit for fiscal 2021 was $6 million or 36% of net sales, compared to a gross profit of $8.4 million or 38% of net sales in fiscal 2020. The decrease in gross margin percentage in FY 2021 compared to the prior year is primarily due to a decrease in unabsorbed overhead costs to cost of goods sold related to higher revenue levels in the prior year, a change in product mix, and an increase in warranty cost as a percent of sales. This was partially offset by a reduction in inventory reserves as FY 2020 included the $1.6 million provision for excess and obsolete inventory. Operating expenses for fiscal 2021 were $10.2 million, a decrease of $922,000 or 8% from $11.1 million in fiscal 2020. The decrease is primarily due to a decrease in SG&A of $960,000 and restructuring charges of $220,000, partially offset by an increase in R&D of $266,000. SG&A was $6.6 million in fiscal 2021, down from $7.5 million in fiscal 2020. The decrease includes a decrease in labor-related costs resulting from cost reduction initiatives implemented in fiscal 2021, lower commissions related to a decrease in bookings and revenues, and lower travel and sales expenses due to restrictions in place from the pandemic. R&D expenses were $3.7 million in fiscal 2021, up from $3.4 million in fiscal 2020 due to higher R&D project materials and employment costs due to headcount increases. Turning to the balance sheet for the fourth quarter, our cash and cash equivalents were $4.6 million at May 31, 2021, down $156,000 from $4.7 million at the end of the preceding quarter. Included in the cash balance at Q4 2021 and Q3 2021 quarter-end were $1.4 million of borrowings under our line of credit. Accounts receivable at quarter-end was $5.2 million, an increase of $2.5 million, compared to $2.7 million of the preceding quarter-end related to the increase in revenue in Q4 compared to Q3 and an increase of $1.5 million from Q4 last year. Inventories at May 31st were $8.8 million, an increase of $510,000 from $8.3 million at the preceding quarter-end. The increase in inventories at May 31st is to support forecasted revenues, obtained long lead time materials, and to ensure an adequate supply of critical components. Property and equipment was $677,000 compared to $617,000 in the preceding quarter-end. Customer deposits and deferred revenue short- and long-term were $288,000, a decrease of $379,000 at the preceding quarter-end related primarily to the decrease in backlog from the prior quarter. Our current and long-term debt of $1.7 million is related to funds we received during the fourth quarter of the last fiscal year under the Paycheck Protection Program through the Small Business Administration. Last month, we received notice from Silicon Valley Bank that the Small Business Administration has forgiven the loan and accrued interest. We will be posting a benefit of $1.7 million in our first quarter fiscal 2022 results related to the loan forgiveness. Booking in the fourth quarter totaled $5.5 million. Backlog at May 31st was $1.6 million, compared to $3.7 million at the preceding quarter-end. Effective backlog, which includes backlog at the end of the fiscal fourth quarter plus orders since the end of the fourth quarter, is $7 million. Now turning to our outlook for the coming fiscal year, as Gayn noted, we’re a month and a half into our fiscal 2022 and off to a strong start. With $5.4 million in bookings and an effective backlog of $7 million as of today, we are seeing a recovery across our customer base, along with significant demand for wafer-level testing and burn-in across our markets, which is giving us confidence in our revenue growth projections for this new fiscal year. For fiscal 2022 year ended May 31, 2022, we expect full year total revenue to be greater than $28 million, which would represent growth of approximately 70% year-over-year and to be profitable for the fiscal year. This concludes our prepared remarks. We’re now ready to take your questions.
Operator, Operator
Thank you. Our first question comes from Christian Schwab of Craig-Hallum Capital Group.
Christian Schwab, Analyst
Hey. Congratulations guys on a great quarter and a solid outlook. Gayn, in your greater than $28 million outlook, can you tell us your expectations for how many 10% customers you’ll have in that?
Gayn Erickson, CEO
Let me think. My guess is we’ll have two or three, three, I’m getting the signal three from Ken off the left, about three in our current estimates.
Christian Schwab, Analyst
Okay. Fantastic. And then by application, can you walk us through between silicon carbide, silicon photonics, and just maybe recovery orders from existing customers that were kind of pushed out last year. Can you give us an idea of the mix?
Gayn Erickson, CEO
I want to be cautious in my comments, not for proprietary reasons but because it's always challenging to predict these things. However, I believe that silicon carbide will be our largest segment this year. Following that, I expect silicon photonics and then the 2D and 3D sensor markets, each of which should contribute substantially, around 15% to 20% or more. You can do your own calculations from there. We anticipate some package part burn-in business, although it will remain relatively small, likely around 10% focused on service and support. Overall, we see significant strength in silicon carbide, and I'm confident it will be the largest segment this year.
Christian Schwab, Analyst
Fantastic. And then my last question has to, we talked a lot about electric vehicles and have you guys done the math is penetration rates look to improve meaningfully over the next five years to 10 years, for sure? Do you have any idea of the potential market cam that your products could address over kind of a mid- to long-term basis?
Gayn Erickson, CEO
We may defer that question for now until we have more clarity. As we engage with multiple customers and gain insights into their capacities, anticipated testing and burn-in times, and quality expectations, it reinforces a framework I presented during our last call. Specifically, for every million cars, there are significant system requirements. We estimated that around eight systems are needed for each additional million cars shipped annually. Looking ahead to 30 million cars by 2030, which is a few years away, there will be a substantial demand for our full range of FOX-XP class systems. Currently, we have a considerable cost and footprint advantage. For example, a large silicon carbide customer might have several systems on their floor, with each system capable of holding 18 wafers. For every 10 systems, they can potentially process 180 wafers daily during a one-day test cycle. When we examine the capacity forecasts needed to meet the silicon carbide demands for battery electric vehicles and charging solutions, the numbers are significant. I will provide more clarity once we finalize our calculations and consistently capture our insights. We are conducting extensive research into testability and quality reliability, enabling us to offer customers proprietary testing solutions. We do not simply follow customer instructions on testing; we utilize proprietary test schematics that we keep confidential. Our FOX-XP system supports full wafer contacting for wafers ranging from 4-inch to 8-inch with device counts between 500 to 3,000 per wafer, all tested on our FOX-XP blades. As we correlate quality and reliability with our testing times, we will be able to provide more confident insights into market expectations. However, data suggests that wafers will require burn-in times exceeding 24 hours to address potential infant mortality issues before they manifest in discrete components and modules. This market is currently our primary focus, with estimates pointing to its size being comparable to the memory burn-in market.
Christian Schwab, Analyst
Great. All right. Fabulous. Thank you. No other questions.
Gayn Erickson, CEO
Okay.
Operator, Operator
Our next question comes from Jon Gruber of Gruber & McBaine.
Gayn Erickson, CEO
Hey, Jon.
Jon Gruber, Analyst
I have a, I guess, it’s a nitpick here. You said your effective backlog is a backlog plus the orders but then it should be minus a shipment since the quarter is 60% over. I take it you did not take the shipments out of that price is really…
Gayn Erickson, CEO
Correct.
Ken Spink, CFO
You are correct. Yes.
Jon Gruber, Analyst
So it's not a backlog. Let's not refer to it as such. Additionally, we're discussing an amount over $28 million. If everything goes well, are we looking at a range between $28 million and $30 million, or perhaps $28 million to $36 million? We need some clarity on this because $28 million was the target three years ago, and it seems that in a favorable year, that's a bit underwhelming. So, if things progress positively, what is the highest estimate we can expect for shipments?
Gayn Erickson, CEO
I appreciate the question and I fully understand that last year we discussed achieving $28 million, but we fell short of that goal. I feel more confident now, particularly regarding our U.S. customers, as they seem to have overcome the COVID-related challenges, allowing us to conduct installations effectively. We chose our words carefully and I don't want to set a high target. There is significant potential beyond the $28 million, and as we secure bookings and provide updates, we'll move forward from there. However, we've been optimistic for some time, and we believe our forecast remains conservative. I truly believe we are in a stronger position this year than ever before.
Jon Gruber, Analyst
I take it…
Gayn Erickson, CEO
We will give you...
Jon Gruber, Analyst
You’re talking $28 million to $36 million more likely than $28 million to $30 million, correct?
Gayn Erickson, CEO
If you had to pick a number and I’m not going to have you do another one. Yes.
Jon Gruber, Analyst
Okay. Thank you guys. Right.
Gayn Erickson, CEO
Thanks, Jon.
Operator, Operator
Thank you. We’ll take our next question from Larry Chlebina with Chlebina Capital.
Larry Chlebina, Analyst
Hi, Gayn.
Gayn Erickson, CEO
Hi. Hi.
Larry Chlebina, Analyst
Congratulations on the highest EPS score, I think in six years, right, is that correct?
Gayn Erickson, CEO
It sounds about right. Thank you.
Larry Chlebina, Analyst
And the next silicon carbide hopeful for customer that you discuss, that’s a current customer on your 3D sensing. Have you started the testing of those wafers yet?
Gayn Erickson, CEO
I just want to…
Larry Chlebina, Analyst
You are not quite yet.
Gayn Erickson, CEO
Yeah. Not quite yet. Yeah.
Larry Chlebina, Analyst
That’s just start any time now?
Gayn Erickson, CEO
Yeah.
Larry Chlebina, Analyst
Any, like, within days?
Gayn Erickson, CEO
I tell you what, Larry. I’m not trying to be coy to you folks. Competitive knowledge is, there are lots of ears out there. If I’m less concerned about being clear with my shareholders than I am with being letting everybody know what we’re up to exactly. But we will be on wafer with test results this quarter, and we’re only halfway through it.
Larry Chlebina, Analyst
The $4.3 million system that you delivered in the May quarter, and obviously, something slipped on an application. Is that the application? Is there a problem with it, where it may actually not show up in the next product release, nor is it just kind of delayed? I will say a month or two and it’s...
Gayn Erickson, CEO
You know, Larry, actually, I’m sorry, I am not really found you. The $4.3 million in what segment?
Larry Chlebina, Analyst
For the pick and place application on the sensor?
Gayn Erickson, CEO
Okay. Okay. Okay. Okay. Yeah. That’s, I mean, actually, the revenue for that was it was in a Q3 or something. Okay. Fair enough. What was the question again?
Larry Chlebina, Analyst
That may relate to, there apparently was a problem and that product launch, the ultimate product launch may have flipped. But is it just a slippage of the launch of that product and why you haven’t had a follow on?
Gayn Erickson, CEO
Yeah. Let me know.
Larry Chlebina, Analyst
Well, you guys keep these really good questions, again. That particular customer is unbelievably secure and understanding. What I will share is the following. We continue to believe that that program is going well. We continue to believe we are planning to record and we do have forecast for incremental systems and DiePaks in our fiscal year, and I think that’s the most I can say right now. But generally speaking, at least, I personally believe that that was going to happen a little sooner, and I’ll leave it at that rather than talking about whether there was actually a product slipped or not. I think that’s best. But they’re very happy with us. All right. Then, lastly, is there any opportunity on the big OSAT that you’re currently engaged with or other...
Gayn Erickson, CEO
Yeah.
Larry Chlebina, Analyst
...you...
Gayn Erickson, CEO
There is active engagement with customers beyond the initial lead customers for OSAT, and I'm getting updates on their progress. They still believe we will eventually integrate this, but there are impacts from COVID regarding new customer engagement. I plan to fly to Europe next Sunday, but our representatives there advised me to use Teams because customers won't see me in person. Everything is still being done face-to-face or over the phone. In California, things are mostly open, and Ken and I are in the office without masks since everyone is vaccinated. However, there is still some slowing with customers, which isn't critical for our plans. I'm optimistic about their engagement, but we've heard from the major OSAT that they are booked out for the next six to nine months. Therefore, I don't foresee significant volume from new customers this year, but perhaps toward late this year and definitely into the following year. Does that help?
Larry Chlebina, Analyst
Yes. And you said you’re traveling to Europe next week, did you say?
Gayn Erickson, CEO
I didn’t say where, I don’t think I did.
Larry Chlebina, Analyst
You said that…
Gayn Erickson, CEO
But I say what it, I do it. It was Europe, that was where I was headed. And I was ready to go Sunday, and I’m not.
Larry Chlebina, Analyst
So you’re not going.
Gayn Erickson, CEO
No, I'm going to sit here and do some more team meetings and similar tasks for now. Even though I'm the CEO, I sometimes feel like I'm also a sales guy. So right now, they will allow applications engineers and support personnel to go in and install things. However, there are still a lot of restrictions in Europe regarding salespeople, and the same is true in Asia.
Larry Chlebina, Analyst
One last question, then on the CP opportunity for the data centre. Is that still ongoing and do expect that to get kicked off anytime soon?
Gayn Erickson, CEO
It is still ongoing. They use it every day. In fact, I think last quarter and the one before that, they were purchasing some parts and spares. That system continues to maintain impressive uptime. I was curious about their purchases since it hadn't gone down at all. However, my understanding is they are currently using it continuously. I’ll be a bit more candid about the identity of the user since no one has guessed who it is yet. It seems that the program has been delayed again, and I believe we have little to no forecast for this fiscal year, but they are still fully committed to pursuing that path. However, that project is likely to be extended, I would estimate by about two years compared to what we initially heard.
Larry Chlebina, Analyst
All right. Is that a silicon photonics application?
Gayn Erickson, CEO
I haven’t said what it is. I called it a data storage application. And I’ve been wonderfully elusive that nobody’s guessed who it is because once you find out, you’ll know why. Sorry.
Larry Chlebina, Analyst
All right. That’s all I have. Thanks for your time.
Gayn Erickson, CEO
Thanks, Larry.
Operator, Operator
Thank you. We’ll take our next question from Matt Winthrop of Aegis Capital.
Matt Winthrop, Analyst
Hi. How are you, sir?
Gayn Erickson, CEO
We are good.
Matt Winthrop, Analyst
Congratulations. It sounds like things are doing much better. And I’m not going to beat you up like these other guys. I’m excited for the story.
Gayn Erickson, CEO
You’re just going to ask me if it’s greater than 36. I’m waiting for each one of you to ask me just one question, I know. All right, go ahead, Matt.
Matt Winthrop, Analyst
No problem. I have two quickies? Can you sort of in layman’s terms because I talk to clients all the time. I’m a retail guy, I’m not an analyst. On the electric vehicle, how can I explain in an elementary level, what your product addresses, in terms of average vehicle, is that okay to ask?
Gayn Erickson, CEO
Sure. Let me explain it simply. Imagine you approach a Tesla. It has an internal charger that allows it to take electricity from your garage and convert it from AC to DC to charge its batteries. This charger uses silicon carbide semiconductors, which perform better than traditional options. Tesla and Elon Musk have been pioneers in using this technology, leading to an increase in battery range for their vehicles. Now, every Tesla has this feature, and other manufacturers are starting to adopt it too. This efficient charging means batteries can be filled up quicker. However, even though you charge batteries with DC, the Tesla's motor actually runs on AC, so it needs to convert the electricity back to AC using an inverter.
Matt Winthrop, Analyst
Okay.
Gayn Erickson, CEO
So their MOSFETs are there to efficiently charge your car. And they’re there to efficiently power the car. And they’re directly in line with the power to the electric engine. So if they fail, your car is dead, right?
Matt Winthrop, Analyst
Okay.
Gayn Erickson, CEO
So there’s one other place and that is the more and more we’re seeing them were like, the electric gas stations where you go in, there’s an electric charge pump.
Matt Winthrop, Analyst
Yes.
Gayn Erickson, CEO
Those are significant converters as well. They also include silicon carbide electric MOSFETs. For example, I have a module here that’s about the size of your hand. Inside, there are eight or ten different semiconductors, specifically silicon carbide FET switches. The reason for having multiple devices is that they are arranged in parallel, allowing them to handle 400 Amps of current. Each individual device may only handle 50 Amps, but combining eight of them enables the total current capacity to reach 400 Amps. Initially, our first customer discovered that they needed to incorporate eight silicon carbide devices in one module. They had to run a burn-in test, but since each device had a failure rate of about 1%, using eight devices resulted in an 8% failure rate within the first 24 hours, leading to the entire module being discarded. Currently, these modules can be purchased for around $600, and prices are rapidly decreasing. However, imagine the cost implications if even one device fails, resulting in discarding a $300 module. Our value proposition is that we test each device before they are assembled into the module, which not only reduces the cost per device but also eliminates all potential failures, preventing the loss of the entire $100 package.
Matt Winthrop, Analyst
Is it fair to assume that this technology also would be applicable to a Ford or GM or an Audi. It’s not just a Tesla thing. This is…
Gayn Erickson, CEO
100% of them. Every electric vehicle is going to have silicon carbide in it, every one of them.
Matt Winthrop, Analyst
On the sales side, last couple of quarters you were feeling better than before, and a while back you were quite upset about the progress. It seems like you're more enthusiastic now. You had set up a room in your facility for testing; is that starting to be used? Are you doing actual displays in this room now?
Gayn Erickson, CEO
Displays, we’re testing wafers how’s that? Customers still aren’t coming. But that’s okay. It actually works out pretty nice. We kind of marketed as, hey, look, it’s a touch free environment. But we’re kind of lonely. It’d be nice to have people come here, but we’re getting really good with Teams in Zoom and WebEx. But for example, that customer wafers that are going to be tested with silicon carbide will be in that room.
Matt Winthrop, Analyst
So you can do it and just virtually show it to them. They don’t have to physically be there, they give you the product in advance to test or something like that.
Gayn Erickson, CEO
Absolutely. So the silicon wafer has, say 1,000 die just to make it easy, right? Those devices already have some level of actual failure to them, so they don’t get 100% yield. So let’s say whatever. It doesn’t matter how many 10%, 20%, 30% of the die are failed. They’ll give us the wafer map or not. When we test it, I can tell you immediately which die have failed, and over 24, 48, 96-hour period, I can tell you exactly when it failed. On every single device with 100% traceability. So if they’re wondering if we’re serious, they could give us the wafer without the wafer map. I’ll tell them which die failed, and it always correlates.
Matt Winthrop, Analyst
All right. I appreciate the update. Let me ask you this: if your new sales manager has secured a number of significant contracts, what kind of run rate can you project? What is your potential capacity if everything goes according to plan over the next three or four quarters? I'm not suggesting you are guaranteeing that sales will reach that level, but what could you achieve out of California without any constraints on your factory?
Gayn Erickson, CEO
So there’s a few ways to look at it. We have subcontractors that...
Matt Winthrop, Analyst
Is that a fair question?
Gayn Erickson, CEO
Yes, that's a fair question. The simple answer is that there is nothing in our supply chain that couldn't allow us to reach even 10 systems a month within six to nine months. It would involve growing and adding some personnel, but...
Matt Winthrop, Analyst
What 10 systems retail out to you or wholesale out to your…
Gayn Erickson, CEO
If you consider an average selling price of approximately $2.5 million for a silicon carbide configuration and an additional $1.5 million for the corresponding WaferPak set, that totals $4 million for each unit. That’s accurate, and while these numbers might seem large, they are not excessive. Producing ten systems a month is feasible, even with each unit having a capacity of 18 wafers. Additionally, when comparing our blades to a J750 from Teradyne, each of our blades has more pins and electrical channels than a J750. These factors are significant.
Matt Winthrop, Analyst
Listen, so I would suggest, because you guys are on a roll, get off this Q&A’s and you can get on the phone and close a couple more, because it sounds like you’re really getting some…
Gayn Erickson, CEO
Let me say...