There was a good deal of information shared during the call. I’ll mention two that stood out.
- A twist to the razor-blade business model.
I had previously thought that the WaferPak (blade part of the business model) would provide recurring income when they had to be replaced every 3-4 years. Turns out it may not necessarily be so. Moreover, each AEHR razor may need more than one blade, driven by new designs that their customers are coming with.
"During the quarter, we had record shipments of our FOX WaferPak Contactors in both revenue and units with revenues reaching well over 50% of total revenues for the quarter. We’re also very pleased with the continued stream of new designs for WaferPaks we’re seeing.”
“Our new design volume has tripled over the last nine months as we’re seeing more and more electric vehicles coming online with their own specific device designs for inverters and onboard chargers. As a result, our customers are buying additional WaferPak Contactors for these new designs, highlighting the recurring revenue part of our business.”
“With each new design, our customers will need enough new WaferPaks to meet the volume production capacity need for those new devices.”
Me speaking: It seems like I wasn’t the only one realizing this for the first time. One of the analysts spent some time clarifying the exact same point.
That’s great. And then I kind of wanted to clue in on a question or a statement that you had in the sort of the prepared remarks, which was you’re seeing more electric vehicles with their own specific design for inverters. Are you saying that like XYZ, major auto OEM will want a specific inverter design from their supplier and then that’s going to require a different chip design or different device design than someone else? Or I assume that everyone would have pretty similar designs for the inverters. Would that mean that there’s more WaferPak because of this?
Yes. And I know more than I can share, but I still don’t think I know everything in this space around this. But yes, people with seemingly the same power are dictating specific requirements of the chip size. It gets into thermal trade-offs, voltage trade-offs, power trade-offs, acceleration trade-offs, how much power you have on hand, what kind of efficiency you have.
And so I’m actually kind of surprised that even the same automotive supplier will dictate multiple different flavors. And then the next automotive guy won’t buy the same ones. So I’m sure it drives our customers crazy because I’m sure they way rather everybody buy one.
[T]he net is, for us, there is more and more WaferPak designs. And I know I said a specific call automotive, but candidly, a lot of the new industrial designs, there’s a much broader array of those two, and those designs have been increasing, too.
So in the past, I think it might have even been like a year ago, you mentioned that sort of you’d expect people to change WaferPak maybe every two to three years or designs every two to three years. Do you think that still remains the case? Or do you think that people will have to have more WaferPaks relative to, say, an XP can fit 18 or 9 of them, they might have more than that 18 or 9 because there’s three or four different designs across their third of major customers, and then they might have to switch them out more often. I’m just trying to get a sense of that.
So I’m pretty sure I would have said because I remember I probably was pricing three or four years. I think two to three might be aggressive, but we weren’t sure. We know like in memory, for example, every like 18 months to 24 months, the probe cards are all swapped out. But that’s probably the most extreme. Generally speaking, automotive lasts longer. But the issue with silicon carbide is it’s in the sort of infant phase where people are going Gen 2, Gen 3, Gen 4, Gen 5, they’re going from 150 to 200 millimeter.
And as those happen, there is more evolution. To me, if you can look at it over 15 years, my guess is there’s more activity in the next five to seven years than there will be in the back half of seven years. But for sure, we’re going to see customers with more than one WaferPak per blade, like an 18-blade or 18 tester XP. If you ask me in three years to what do I think? I bet you, for every WaferPak that’s in the system, there’s a couple on the shelf that wouldn’t shock me for just how they will do it to meet customer demand.
Me speaking: This changes somewhat the original assumption that recurring revenue will be driven by the WaferPaks’ 3-4 year replacement cycle.
Given how fast designs are changing right now (according to Erickson), we may be on new designs by the time replacements are due. Hence, the recurring portion of revenues may be smaller than originally thought. However there is an upside.
Given that we expect multiple wafer designs used on the FOX machines (for e.g. more than 18 WaferPaks used on a 18-tester machine), the revenue contribution from the WaferPak ‘blade’ in the AEHR razor-blade business model may likely be higher than what most people would expect.
- AEHR’s competitive advantage in testing 800-volt batteries (i.e. no arcing issues) will benefit the company in the coming 2-3 years.
“The [UBS] report also focuses on the progression of electric vehicle batteries from 400 volts to 800 volts, which is the level generally recognized by the industry at which silicon carbide is mandatory to get the range and recharging speed consumers are demanding. Devices used in the traction inverters for 800 volt DC battery systems actually operate up to almost 1,200 volts AC.
At this voltage, the devices will experience electrical arcing when tested at 1,200 volts under normal testing environments, which creates a very real problem for conventional testers on wafer probers and probe cards. At such high voltages, the 1,200 volt bias to the device will actually create an electrical arc through the air or on a wafer even if surrounded by 100% nitrogen.
This is basically how a spark plug works. However, this spark actually damages the devices permanently. Aehr’s proprietary WaferPaks have individual chambers that encapsule each wafer and allow us to control the temperature, gas makeup and pressure within this chamber on each wafer. Our proprietary gas and pressure control option allows us to test and burn-in an entire wafer up to 2,000 volts without arcing or damaging the wafer.
By contrast, other competitive systems using standard wafer progress see arcing in as little as 900 volts, which makes it impossible to do high-voltage reverse bias test and burn-in at the wafer level for devices aimed at these new 800-volt battery vehicles.
Me speaking: While the advantage may not yet be apparent because most batteries are still on 400 volts, it will become more apparent.
“Per UBS in 2023, 91% of the batteries sold in electric vehicles are forecasted to be 400 volts and only 9% are 800 volts. But by 2026, UBS expects a percentage of 800-volt battery cars to be above 30%, which is why it appears so many silicon carbide suppliers are timing their major ramps to be in the 2025 to 2026 time frame.”
“So in the next couple of years, we expect Aehr to benefit from both an increased number of electric vehicles being sold as well as a significant increase in silicon carbide needing our solution for those electric vehicles.”