AEHR - Some Good News

Investment Analysis Clubs Saul’s Investing Discussions
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OK, we’ve got a very long thread about Aehr on Saul’s mid-month update. I thought it best to start a new thread.

I won’t belabor this. STM reported this morning. They had a what I would call a mixed report but the stock is up 5+% as I write. So go figure. But, in particular, I will quote a short bit from the CEO’s prepared remarks:

"First, wide bandgap semiconductors, we began volume production of gallium nitride transistors, which simplifies the design of high-efficiency power commercial systems. We support the development of safe and valuable wide bandgap-based power systems for high-power application with industry-leading galvanically-isolated drivers.

In the quarter, we introduced new STGAAP products, specifically designed for power GaN transistor based on ST’s unique IP and advanced BCD technology.

In silicon carbide, we continue to increase the number of engagements, we are now working with 94 customers and 150 projects up from 90 customers and 140 last quarter, wins here ranged from electrical vehicle applications, such as on board chargers to power module in solar power system. We confirm our revenues for silicon carbide products will reached about $1.2 billion this year."

And this from the Q&A"

" Joshua Buchalter

Thank you for all that color. For my follow-up, I wanted to ask about silicon carbide. There is concerns given some slightly weaker commentary at your lead customer, that silicon carbide growth could slow. Could you talk about the diversification efforts that you are undergoing? And in particular, how is your visibility into substrate supply both externally and your internal vertical integration efforts going for next year? Thank you.

Jean-Marc Chery

For us next year, it will be a step rate consistent with our objective to deliver $2 billion in 2025. And so, we have the capacity installed. We have the supply chain secured. And we have a customer base and backlog consistent with this objective. And I will communicate, at the Q4 earnings end of January, the objective of silicon carbide revenue, we would have next year. But, be sure it would be a consistent step with the $2 billion objective of 2025."

There’s more detail if you wish to read the entire transcript. I am unfamiliar the STM’s products, so there’s a lot I just didn’t understand. But, the stuff I did understand appears positive for Aehr.

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Since Raylight pointed out that Intel made some significant investments in AEHR in fiscal 2020 and 2021, it made me wonder if the payoff for Intel’s investment is in this detail from their earnings tonight:

  • Intel foundry services, the company’s nascent chip manufacturing business, remains a small part of Intel with $311 million in revenue, but it grew nearly 300% on an annual basis. Intel said that a major customer had committed to using some of Intel’s capacity, and had paid a pre-payment.

That’s a quote from this CNBC article about the earnings, not their earnings report itself.

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I see no reason there’d be a correlation.

Foundry’s ship the wafers to the buyers untested. Intel foundry business is Silicon and there’s no reason to believe those wafers will require burnin by the chip company sourcing the wafers from Intel.

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And some lousier news. On-semi reported today and it was not well received including guidance. Apparently this did not sit well with AEHR shares as they tumbled 20% today. It appears to be because of On-Semi’s report.

It looks like Saul and others gut feel was right again.

Randy
Long AEHR

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from their ER call “However, for the full year, a single automotive OEM’s recent reduction in demand will impact our $1 billion target, and we now expect to ship more than $800 million of silicon carbide in 2023, 4x last year’s revenue. In '24, we expect the growth of our silicon carbide business to double the market growth.”

“As we navigate the current market conditions, LTSAs continue to provide demand visibility and stability in pricing. EV traction remains the fastest-growing part of our SiC business, with 70% growth sequentially. Most recently, an OEM awarded onsemi a platform for their 750-volt and 1,200-volt EV traction inverters previously awarded to an incumbent. Opting for superior technology and a vertically integrated supply chain, this leading OEM has now signed an LTSA with onsemi through 2031, putting us in a position to support higher volume production.”

I’m a 39 year vet of the Semiconductor industry and I don’t see SiC growth waning, perhaps just a brief pause in growth rate. I also don’t see Aehr as a slam dunk investment 3-4 years out, but in the near term they should benefit at about the same growth rate. I opted to buy some shares this morning for the first time.

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SiC still looks strong in 2024.

From the earnings call: “Silicon carbide is – what we are looking at is silicon carbide in '24, basically growing about 2x the market. So it’s still on track to the target that we’ve put out in Analyst Day of growing 2x the market, that we still have that visibility in '24.”

I’m still long Aehr at 4.77% - i added some today at around 24/share.

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@MFChips

Would you care to clarify that comment? If not Aehr for burn-in test of SiC chips then what process or which company do you feel might displace Aehr? I reluctantly sold my shares as I felt I could put the cash to work more productively. However, I did replace some of them with leaps. I may well buy some shares as well.

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I don’t really consider any high-growth stock a slam dunk. I do presume that SiC will continue to grow rapidly for the 3-4 years without much risk, driven by EV traction growth. I do not have a crystal ball as to whether the Aehr system will hold market share, given they have mostly achieved their success so far with ON Semi. ON seems poised to continue to grow at the pace of the overall SiC market, if not faster.

There will be massive investment into this area to lower the cost of SiC test, possibly eliminating burn-in or reducing it to “sample of population” testing. Semiconductor companies know how to continuously attack costs, if nothing else.

This is hardware at the end of the day (mostly) and hardware always evolves quickly. 3-4 years is an eternity in hardware. There is no stickiness.

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@MFChips - Well, I too don’t possess a crystal ball, but I have some pretty unique experience which is directly related to this topic.

Several many years ago I wrote the receiving inspection specifications for the commercial airplane group at Boeing. For more than a year I worked closely with the guys who wrote inspection plans for receiving along with their managers and the quality assurance mathematicians for the two assembly plants and the sole fabrication plant. Separately, I reviewed the quality assurance processes that were in place for Jeppesen when Boeing acquired that company. They made maps for just about every pilot in the world, those flying single engine Pipers to commercial airliners. I imagine they still do, though the whole thing has been digitized by now.

Admittedly, that was a long time ago, but math doesn’t change. I might be going out on a limb, but based on what I know about inspection and what I’ve read about the quality requirements for SiC (and GaN) semis - in a nutshell, nine nines, or 1 part in a billion maximum failure rate, it seems really unlikely that burn-in testing will get eliminated. Same holds true for sampling as a sampling table for 1:1,000,000,000 doesn’t exist. Well OK, didn’t exist when I was working on this stuff. Yeah, it’s just math, the table could be created, but nine nines would demand a sample size of pretty much the entire population.

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I should have referred to “wafer-level burn-in” not “burn-in”. As semiconductor processes mature, the yields dramatically improve. Many Silicon chip applications that used to require burn-in, no longer do and those that do require it, do not do it at the wafer level (and never did). Will SiC for automotive applications always require wafer-level burn-in? That’s an open question. What we do know is that the total cost to manufacture product will continuously be driven down with time. Relentlesly. Yields will vastly improve - relentlessly. And perhaps Aehr’s technology will lead that drive and they can continue to grow and maintain margins for years to come.

It simply feels to me that we are in the golden age on SiC where performance improvements and new applications will continue to open up new doors for demand and simply “delivering in quantity” will be the focus in the near term, and take precedence over lowering the cost of test equipment. Wafer-level burn-in is the only way today to prevent a huge bottleneck at burn-in and I’m following ON Semi’s growth projections closely.

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I think SiC will continue to grow too. Lately, a lot of news in Taiwan and China about SiC and Silicon Photonics, and many companies have invested or are investing in SiC, so I don’t think that is a short story. About ON said today EV Slowing demand that just a short-term factor, don’t forget they have other applications, so I do not worry about it, but I worry about the customer concentration problem.

If believe SiC Silicon Photonics and GaN will be a long-term trend you should invest in it, otherwise investing in other upward-trend companies is better than investing in AEHR now.

*I have position in AEHR, but I checked for excessive optimism

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Hi all. I have a very anecdotal input which comes from an extremely well positioned expert (CEO) who is developing next generation charging and power solutions to the EV market.

I told him my terrible story about AEHR, and it was really bad. I ignored all you guys all year long who talked this company up while watching it climb tremendously. It just wasn’t the kind of company I invest in (too small, I have no real competence to judge, seemed far afield from the SaaS companies that I tend to frequent). Finally, the day of earnings, I just couldn’t take it anymore and bought in, making it one of my largest positions. You all know the story, the thing tanked huge. I got out right away and really beat myself up that I was “crowd following” and I had no conviction, and I really had no business investing in this stock.

Well, the expert I talked to had never heard of AEHR. But he did say something to the effect of: “I will tell you this, in 5 years all new EVs will use SiC technology”. and “this thing has to grow to be very very large” and “it is inevitable”. He said basically if AEHR truly has a unique niche technology, which others can’t replicate, it’s going to grow very fast and become large over time.

Even though it was anecdotal, I thought this was an interesting point from an industry insider that should be shared on this board. I will spend more time researching AEHR and may one day develop enough conviction to invest in it. But unlike last time, I will start with a small position and build up my confidence like I usually do, as opposed to just following the crowd (albeit a very smart and successful crowd) with insufficient conviction when the !^#%!*$ hits the fan!

Thanks,
Rob

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Rob,
You’re going pretty hard on yourself, man. I am pretty new here myself and I find myself continuously challenged to figure out which stock I want to hold after a decline (AEHR) and which ones I need to jettison (ENPH and BILL, both too late, I might add). I will say this - you need to have courage of your convictions, which means having some and you have to be comfortable being wrong. But one premise that should be remembered above all else - Saul - " I have kept a permanent safety fund out of the market that I could live off for several years if necessary, and I feel everyone who does not have a secure regular source of income should do the same."

I find this board invaluable and am learning from it every day.
Vince

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Hi @rhill0123, if you’ve been following the commentary about Aehr you will know that I was one of the big supporters. I had a very large position that obviously tanked after earnings. I held on for a while longer, but Saul’s words saying something to the effect that it may do well, but too much uncertainty, we just don’t know when. So yeah, I sold at a substantial loss.

But then when it tanked further after On Semi reported (they didn’t say anything negative about SiC) I felt that it was overdone and I bought back in. I had already redeployed most of the money, so I didn’t take on as a large a position as I had previously held, but to compensate for it, I bought a substantial position in leaps.

I didn’t have the same insight that your ‘well positioned expert,’ in other words I had no idea that eventually all BEVs will adopt SiC. I felt that the low end of the market would stay with IGBTs. But if the whole market moves to SiC so much the better for Aehr. They have the only real solution to a production bottleneck. One top end FOX will test 18 wafers in about 18 hours. There’s about 250 devices per wafer, so that’s 4,500 in a day and a half less a loss rate of about 50 devices. I don’t know what the total cycle time is, but say it takes an hour to load and an hour to unload (that’s just a guess, it could easily be more or less). Anyway, one FOX system clears 4450 devices in 20 hours.

I’m 99.99% confident that a lithography machine can etch more than 18 wafers in that amount of time. The only way to increase production throughput is to increase the number of FOX systems.

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