OnSemi reported 2Q23 earnings yesterday. Here are some quotes relevant to Aehr Testing from Hassane El-Khoury, the CEO, in his prepared statement.
“Given our progress in Q2 silicon carbide revenue growing nearly 4x over Q2 '22, we remain on track to achieve our first $1 billion revenue year and remain on track to have more than 50% of our substrates coming from our internal production by the end of Q4.”
And, “In Q2 alone, we signed more than $3 billion of new Silicon Carbide LTSAs, bringing our total lifetime Silicon Carbide revenue committed through long-term supply agreements to over $11 billion. One of our largest wins last quarter was with Vitesco, a leader in modern drive technologies and electrification solutions, who signed a $1.9 billion agreement to support their growing need for silicon carbide in electric vehicles. They are co-investing $250 million as part of this 10-year LTSA to ensure capacity for the ramp.”
Further, “We also extended our silicon carbide engagement with BorgWarner to integrate our EliteSiC 1200 and 750 volt power devices into its power modules to deliver increased power density and higher efficiency, which increase the range and overall performance of EVs. We have had a longstanding relationship with BorgWarner and this extended LTSA now amounts to $1 billion of committed silicon carbide revenue.”
In addition, “Finally, with Magna, one of the world’s largest automotive suppliers, we have signed a silicon carbide LTSA to expand our strategic collaboration, which has long included technologies across our intelligent power and sensing portfolio.”
But probably the most relevant comment which is likely directly related to AEHR is this, "In addition, they [Magna] will co-invest $40 million in new silicon carbide equipment in our Hudson and Czech Republic locations to ensure access to future supply. As well as this, “Solar is forecasted to surpass coal and gas in installed capacity by 2027. And Onsemi has the number one market share position with a full suite of silicon, silicon carbide and packaging technologies to deliver the most highly efficient and system optimized solutions to customers.” And his closing remark, "Once again, I want to thank all our employees who work on our incredible silicon carbide effort around the world . . . "
Then there’s this from Thad Trent, the CFO, “Turning to silicon carbide. Hassane mentioned our continued execution and increasing number of LTSAs with automotive and energy infrastructure customers. We are ramping our silicon carbide production to support the increasing demand and remained ahead of our internal plans.”
Followed by, “In the second quarter, our silicon carbide business nearly doubled gross margins sequentially. And I’m proud to report our silicon carbide business achieved its first profitable quarter, delivering high-teen operating margin on a fully loaded basis, which includes all start-up cost.”
And this, "Our GAAP and non-GAAP gross margin of 47.4% improved 60 basis points quarter-over-quarter driven by silicon carbide . . . " And finally, “As we indicated previously, we are directing a significant portion of our capital expenditures towards silicon carbide and enabling our 300 millimeter capabilities at EFK and expect our capital intensity to be in the mid to high teen percentage range for the next several quarters.”
There was still more SiC related commentary during the Q&A, but I’ve already overburdened this post with quotes.
I have a couple of takeaways from this. First, SiC accounts for a significant percentage of OnSemi’s revenue. And they are ramping up their production of SiC based products over the coming years. And second, given that this is the case for OnSemi, one can surmise with high confidence that it will be true for their competitors in this market segment.
All this bodes incredibly well for Aehr Testing for two years or more as they are pretty much without competition when it comes to high throughput test equipment fro SiC based products.
While the future remains difficult to predict, we may see Aehr’s business taper off somewhat after that. Aehr will have repeat business with respect to expendable components of their test equipment and we really have only limited insight with respect to their GaN test equipment. But Aehr warrants close attention as it is obvious that they will reach a saturation point for their expensive FOX-XP test equipment. They have a limited number of customers and even if a few other semiconductor manufacturers enter the SiC market, sustained explosive revenue growth appears to be limited.