Aehr Test Systems (AEHR) New Customer & CFO

Investment Analysis Clubs Saul’s Investing Discussions
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AEHR is up about +10% this morning and I suspect it is related to this press release they put out about a new customer

Aehr Test Systems (NASDAQ: AEHR), a worldwide supplier of semiconductor test and production burn-in equipment, today announced a new silicon carbide semiconductor customer and initial order for a FOX-XP™ multi-wafer test and burn-in system, multiple WaferPak™ Contactors, a WaferPak Aligner, and a high-volume production support kit to be used for volume production of silicon carbide MOSFETs for electric vehicles, trucks, and train traction inverter modules. The turnkey system including the FOX-XP, WaferPak Contactors and WaferPak Aligner is expected to ship within the next two quarters.

In addition, Aehr has also signed a long-term supply agreement with this new customer covering FOX-XP systems, WaferPaks, WaferPak Aligners, and support. This new customer is a multinational industrial conglomerate and manufacturer of semiconductors, including power semiconductors.

As far as I can tell, they didn’t identify the customer, but given that they put out a press release, I assume it is a pretty decent sized deal. This is good news regarding them hopefully diversifying their customer base a bit from what is currently very concentrated.

After reading up some of the thoughts on Cloudflare in various other monthly writeups this week, giving me less confidence in NET going forward, I decided to sell half of my Cloudflare today and put it into Aehr, essentially doubling my AEHR stake this morning. Although I’m paying a higher price compared to my initial purchase last week, I feel a bit more confident holding a little bit higher percentage in Aehr in my portfolio.

Looking at their investor relations website, I see they just appointed a new CFO yesterday, which I hadn’t noticed:

It sounds like it was a planned retirement for the previous CFO who had been with the company for 15 years.

Fremont, CA (May 31, 2023) – Aehr Test Systems (NASDAQ: AEHR), a worldwide supplier of semiconductor test and production burn-in equipment, today announced the appointment of Chris Siu as the Company’s Chief Financial Officer, Executive Vice President of Finance, and Secretary effective June 1, 2023. He will succeed Ken Spink, who previously announced his planned retirement after 15 years with the Company. Mr. Spink will stay on through the completion of Aehr’s fiscal 2023 year that ends May 31, 2023 and annual 10-K filing to ensure an orderly transition.

Mr. Siu brings more than 27 years of finance and accounting experience in the semiconductor, medical equipment, and public accounting industries. Before joining Aehr Test Systems, he most recently served four years in senior finance executive positions at publicly traded Ultra Clean Technologies, a global leading developer and supplier of critical subsystems, components and parts, and ultra-high purity clean and analytical services primarily for the semiconductor and semiconductor equipment industry, including Senior Vice President of Finance, Corporate Treasurer, and Chief Accounting Officer. Prior to Ultra Clean Technologies, Mr. Siu held senior management roles at PDF Solutions and also GlobalFoundries, a multinational semiconductor manufacturing company, where he served for eight years including leading all global accounting functions as Corporate Controller for four years. He was also Chief Accounting Officer and Director of Finance at semiconductor company Trident Microsystems and served in several senior finance management positions at medical device and software manufacturer Varian Medical Systems. Mr. Siu also worked three years with Deloitte and left as an Audit Manager, and began his career in public accounting serving over five years with EY. He is a Certified Public Accountant (inactive) in California. Mr. Siu holds a Bachelor of Science degree in Accounting from Brigham Young University in Hawaii and a Master of Business Administration degree from the University of California at Berkeley.

-mekong

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Thanks, that’s great news, and the market thinks so too as it’s up 16% today already :grinning: ! And no wonder, it sounds as if it’s a new long term contract with a major huge new client. This is not a one time sale but recurring revenue.

In addition, Aehr has also signed a long-term supply agreement with this new customer covering FOX-XP systems, WaferPaks, WaferPak Aligners, and support. This new customer is a multinational industrial conglomerate and manufacturer of semiconductors, including power semiconductors.

Saul

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So far as I have been able to determine, before this deal Aehr had four significant customers, which is not as big a risk as might otherwise be. The reason I assert that is because they really have no competition with respect commercial applications.

Yes, there are other vendors that sell SiC test equipment, but the alternatives on the market can only process one unit at a time. Aehr’s test equipment is capable of processing up to 12 units in the same amount of time. You don’t need to be a genius to understand that the improvement in efficiency is well worth the money unless you run something like a laboratory that only needs to test one unit at a time.

Also mentioned were all the add on equipment. I don’t know what those things do, but it seems that they are required in order to complete the process. I am ignorant of potential competitors for this equipment, but even if there some, it makes sense to get all the things needed from a single vendor.

The new CFO was announced during the last quarterly report.

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One of the differences about AEHR compared to recent companies the board has focused on is, at first glance, that it seemed like AEHR just made “things”, but Saul I think you pointed out (last week I think) that they really can and should be considered a recurring revenue generating entity like the shave and razor blade analogy. And this press release describes a tangible example.

Do we have any data or can someone point me to any of the AEHR press releases that describe the contribution or relationship of supply agreement revenue to overall customer spend?

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This is interesting. Thank you for posting all these news and thoughts and data about AEHR. I’m starting to look at the company myself.

The market opportunity looks compelling, and it looks like they have a competitive product advantage “to address the very large silicon carbide opportunity that is being driven by the increased adoption of electric vehicles.” (from their last annual report)

My very basic questions, though, are the following:

  1. they’ve been in business for 40 years, yet they made $63m in LTM revenue (and maybe $70m+ for the current fiscal year). Is this because they sort of “reinvented themselves” into this new silicon carbide market opportunity by building a new generation of equipment (and consumables that go with it)? If so, what were they doing before this opportunity came along? If not, what have they done all these years?

  2. (related to question #1) they say they have an installed base of 2500+ machines all over the world. So maybe this sort of answers my previous question, in the sense that they’ve been selling these types of machines for a while. But if this is the case, why do they say they have such a high customer concentration (85%+ of revenue from top 5 customers)? Is it because one customers buys hundreds of these machines?

  3. their numbers are all over the place, I’m frankly unable to see a trend of any sort. Is this because the chip industry is inherently cyclical? If so, what makes us think they’re going to grow at hyper rates (and at the regular pace that we on this board have been used to) going forward?

Again, I realize these are basic (maybe even silly) questions, but I’m not afraid to ask them when I’m trying to learn about something.

Thank you so much in advance for any clarification/explanation.

Silvio

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@silviocast This does not directly answer your questions, but it is a highly informative article on Aehr Test Systems:

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Thank you so much, this is very helpful!

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More good news from AEHR:

Aehr Test Systems (NASDAQ: AEHR) , a worldwide supplier of semiconductor test and production burn-in equipment, today announced it has received $13.7 million in orders from its lead silicon carbide test and burn-in customer for WaferPak™ full wafer Contactors to meet their increased production capacity needs for silicon carbide power semiconductors for the electric vehicle market. This customer is a leading Fortune 500 supplier of semiconductor devices with a significant customer base in the automotive semiconductor market.

“As we have noted in the past, FOX-XP system orders are required to increase general manufacturing capacity, while our proprietary WaferPak Contactors are unique to each device design. As our customers win new designs from their customers, Aehr secures orders for new WaferPak Contactors to fulfill these new wins. Over time, we expect to see our follow-on WaferPak business grow both in absolute dollars and as a percent of our overall revenue.

The from Saul mentioned razor & blade model is growing. This should be very good news for AEHR. The $13.7 million order will be delivered over the next 6 months. That would mean 30% growth on quarterly revenues compared to actual consensus estimates.

Stock is up 5% in pre trading.

Best
HaikiliKona10

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I am sure anyone who owns AEHR is well aware of the customer concentration risks.

For AEHR: “Two customers accounted for approximately 82% and 12% of the Company’s net sales in the three months ended February 28, 2023.”

An example of where it could go wrong, very badly:
There is a company that I discovered this week while researching for stocks that may benefit from an AI boom. The company is CRDO.
This company’s revenue was growing at a blistering 70% YoY pace……and then the stock price unexpectedly cratered, just absolutely completely out of the blue on February 15, by -48% in a single day. FORTY EIGHT percent!!

That was when CRDO suddenly released news that one of their largest hyperscaler customers (MSFT) cut their orders, which nobody could expect, especially when you think about the ongoing rush for AI hardware data center buildouts, and yet, it happened to them. Meanwhile, the company stated the rest of their revenues excluding MSFT will still continue to grow 100% YoY…but the cuts by MSFT still meant overall revenue will grow flat YoY

CRDO last earnings call: “if we exclude Microsoft, what that means is we have in excess of 100% year-on-year growth of other product revenue from other customers, which, again, we’re very confident based on all of the traction that we’ve seen recently that we’ll be able to achieve that. And of course, I’ll just reiterate, one of the key drivers is AI in some of those programs.”

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Some paraphrased quotes from the Blair Conference this week. If you are at all thinking about Aehr, or are skeptical about it, you should read this post carefully, and certainly read the Blair transcript.

" Every manufacturer of silicon carbide chips is currently at least in talks with us by now.

AI push causes great need for more band width and also more compute in data analyzing centers. Silicon photonics and optical IO (OIO) can multiply the bandwidth by 10x to 1000x. Aehr sees this as a big new market in the future. They already have a new machine burning chips for silicon photonics. The process takes 3x as long and their machine costs three times as much, because it’s a much more complicated process (not just getting rid of infant mortality but smoothing out the output from the chips).

Here’s a definition that I googled for Optical IO:

OIO is a optical interconnect solution integrated in the same package as the compute chips (CPUs, GPUs, XPUs), and designed to enable seamless communication among them in a distributed compute system (across boards, racks and compute rows) at the bandwidth density, energy cost, and latency comparable to in-package electrical interconnects.

Low latency, high-bandwidth density and low energy make OIO uniquely suitable for compute fabrics (i.e., memory-semantic fabrics), which are emerging as the key drivers of new data center architectures tailored for machine learning.

Let me elaborate a bit more about the importance of OIO for advanced AI and data center design, since it is very important. In 2022, we saw dramatic breakthroughs in machine learning driven by foundational models like ChatGPT.

These models are trained continuously and require thousands of GPUs (both for compute power and memory footprint), making the hardware that supports them a permanent part of the new data center infrastructure… OIO is uniquely suited to enable this to happen in terms of power usage and cost-efficiency."

Saul here: did you notice : “Every manufacturer of silicon carbide chips is currently at least in talks with us by now”. So much for customer concentration. When a company that no one had ever heard of, and who most people still haven’t heard of, like Aehr, is up 54% in 4 weeks, there’s probably a good business reason.

And some paraphrased information from their new order, and my comments at the time.

Aehr announced it has received $13.7 million in orders from its lead silicon carbide test and burn-in customer for WaferPak full wafer Contactors, to meet their increased production capacity needs for silicon carbide power semiconductors for the electric vehicle market.

This customer is a leading Fortune 500 supplier of semiconductor devices with a significant customer base in the automotive semiconductor market.

“As we have noted in the past, FOX-XP system orders are required to increase general manufacturing capacity, while our proprietary WaferPak Contactors are unique to each device design.

As our customers win new wafer designs from their customers, Aehr secures orders for new WaferPak Contactors to fulfill these new wins. Over time, we expect to see our follow-on WaferPak business grow both in absolute dollars and as a percent of our overall revenue."

Saul : The razor & blade model is growing. This should be very good news for AEHR. The $13.7 million order will be delivered over the next 6 months. That would mean 30% growth on quarterly revenues compared to actual consensus estimates.

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PS - Aehr’s total revenue last year in their Aug and Nov quarters (its next two quarters, the ones in which they expect to ship this new $13.7 million order), were $10.7 million and $14.8 million. You can see how massive a single $13.7 million order is.

While for one of our larger companies with $250 million in quarterly revenue, a $13.7 million order might not move the needle much, for Aehr, with an average revenue in those two quarters last year of about $12.8 million, $13.7 million in a single order is a massive order.

Saul

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Customer concentration is always something that should cause concern. But, that concern should be tempered by market forces.

I admit, I know nothing about CRDO and why MSFT cut their orders. Did they go to a competitor? Did they decide that they just didn’t need the CRDO products at this time? I don’t know. I’ve not taken the time to research it.

What I do know is this about AEHR. The demand for SiC is growing at a blistering pace. The single biggest inhibition to production at scale is testing of the finished product prior to packaging and shipping. AEHR provides equipment that vastly speeds throughput of testing. The AEHR products (as Saul has pointed out) consists of the central machine and an array of expendables. The expendables constitute what is tantamount to recurring revenue as we’ve seen in the subscription model.

For all intents and purposes, AEHR is without competition. In addition AEHR has a sturdy moat. They are protected by an array of patents and very high cost of entry.

While AEHR does have high customer concentration at this time, as you have pointed out, they are also in consultation with virtually every SiC manufacturer that exists, as Saul has pointed out. This bodes well for the potential of a growing customer base, and hence increased revenue.

AEHR is not sitting on their laurels so to speak. They have an active R&D program devoted to the development of a similar product line for the processing of germanium semiconductors that address similar needs as the SiC semiconductors.

I could go on but I don’t think I need to. In the face of customer concentration risk, I am still willing to devote about 14% of my investment dollars to AEHR. We each make our own decisions about how we invest. I certainly find no fault if you feel that your investments are more secure and hold the promise of high returns elsewhere.

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The demand for SiC is growing at a blistering pace.

they are also in consultation with virtually every SiC manufacturer that exists

Regarding SiC and customer growth, I’m just not seeing the same thing as you and the other members of the board are - every announcement of orders with a dollar sign attached has been from their existing leading customer (25.1m in January, 6.7m in March, 13.7m in June), which, since AEHR is a seller of things, replaces rather than adds to revenue from prior years. The announcements with new customers have no amounts attached, which I can only assume is intentional because the trial $ is small (otherwise, why announce amounts with the other press releases?)

The timelines stated for each of the orders is over the next 6 months, so added together it’d be about 45m over the next 2 quarters, assuming the Jan order hasn’t already bled into Q1 financials, certainly an improvement over the $15m reported in Q1 (assuming 22.5 per quarter for the next 2 Qs just from Onsemi, which was 84% of Q1 business, we’re looking at around 25m total, so a 60% QoQ increase, 15 → 25). But again, they’re completely reliant on Onsemi to continue to order the razorblades. Too much of a risk for my tastes.

Still, I think the stock could do very well over the next year, what a run it’s had already. Perhaps there will be another pop during Q2 earnings release because of the 60% QoQ increase in revenue - I’m staying away until it proves it can actually establish contracts with other customers, and not just initiate contact with them.

Edit to add: I think a good warning sign to exit your position is to check if these quarterly press releases announcing Onsemi’s orders stop, or if the amounts begin to significantly decrease or disappear. So if nothing is released by late September, it could be a sign of trouble

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@Aphalite I appreciate your words of caution. It could be that my enthusiasm is excessive. I will heed your advice and keep my eyes open to future order announcements. If the current discussions lead to new contracts with new customers, that will be a green light. But, as you noted, if we don’t see new orders from new customers or even the established ones by early fall, I will take that as a sign to either exit or at least prune my position. My crystal ball has been known to be cloudy upon occasion.

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Since Aehr has a razor and blade model, do we know the pricing (or at least relative pricing) of the test machines versus the consumable testing packs?

As for announcements of future business with or without pricing, there could be many factors at play. Lots of companies don’t want their competition to know what they’re using, so some Aehr customers may decline to let Aehr put out a press release. Others may be OK with an announcement, but not to let the dollar amount out. I’ve personally seen cases where doing a deal with a supplier who wanted to put out a press release involving some additional discounts or at least more favorable terms for that press release.

That we have any out of ER insight into customer acquisition is a good thing, but I wouldn’t go so far as to rely on those announcements as more than just insight.

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The mentioned in the William Blair conference that 1/3rd is consumables which is the individual contactor done per design. The other 2/3rds in from machines (testers and aligners).

My theory on why they are releasing the deals being made is because they are going to blow away earnings expectations from this upcoming report and want to get ahead of it rather then shocking the market.

Listening to the last earnings call and the William Blair conference, there is just an crazy amount tailwinds for this company. They have a monopoly on a solution that is in urgent high demand, and a moat from their patents.

The CEO even said at the beginning of the William Blair conference they cannot detail too many results of the current quarter but they are doing really, really well financially. A couple other things the CEO said,

  • Not feeling any economic downturn, seeing updraft against the grain
  • Several bookings in the Q, setting record
  • Growing substantially in the bottom line also
  • Doing well while there is a lot of turmoil in the semi space
  • Nobody else doing anything like their solution
  • Highly differentiated solution which is enabling markets
  • Not aware of any knockoffs or competition, hold core patents protecting from anybody doing something similar
  • Silicon carbide will peak in 2026 or 2027
  • Nobody can do burn in from Silicon photonics besides Aehr and they can do 9 units at a time
  • Silicon photonics has potential to be bigger then silicon carbide and every device requires burn in
  • Six months ago they got indications something is brewing with silicon photonics, something is pulling the market forward
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As Saul suggested, I too went back and listened to the William Blair Conference. The following are my takeaways from the presentation with the CEO, Gayn Erickson that took place on 06/07/2023 at 3:20 Central Time

Biggest takeaways
• AEHR’s wafer level test and burn in system has a consumable part that allows them to test the device before it’s put into the car. This market will be growing 30-40% at least until the end of the decade.
• Every one of the silicon carbide suppliers in the world is in some form of engagement with AEHR because of their unique solution. AEHR thinks they’ll see a significant market share and perhaps a dominant market share.
• Adding everyone’s growth up, there’s still not enough supply of silicon carbide to meet demand.
• In an electric vehicle, which is driving the boom in silicon nitrite, you get 10-15% more battery use/capacity and it charges more quickly. That’s it, that’s the big driver.
• Silicon Carbide -Biggest opportunity they’ve seen that will peak in 2026. This is a new market.
• A normal system in their space costs about $18M. Their system holds 18 wafers in the same footprint and costs $2.5M vs. $18M. Customers say that without wafer level burn-in, you could never do this. So AEHR is enabling this technology. AEHR has a bunch of new patents that give them a moat and a true IP differentiation. For now, they have a head start and they’re working with the automotive manufacturers to get the AEHR system built directly into their assembly lines. Not aware of anyone trying to knock it off currently, perhaps in the future China will.
• Silicon Photonics – Has the potential to be bigger than silicon carbide. Every device must be burned in and it takes 3X longer to burn in. AEHR’s tester is 3X as expensive. Nobody can do a 2,000 watt wafer and nobody can do a full wafer in any form of silicon photonics burn in except AEHR, and they have a huge differentiator. If this switches to transceiver business to optical IO, the TAM can explode. It’s probably a couple/few years out, but something is pulling this in. Something else is brewing. AEHR is spending a lot of time designing a higher voltage testing system to differentiate themselves even more.
• Silicon photonics allows you to send signals up to as much as 1,000X faster than you can send an electrical signal.
Additional insights, some of which were covered above.

Pronounced “Air” Test Systems.
Company does wafer level burn in testing.
Trend is towards silicon carbide gallium nitrite.
AEHR’s market cap is just $1.06B.
Updraft that AEHR is clearly caught in is testing silicon carbide and gallium nitrite.
AEHR’s fiscal year had just ended and the company had forecast a $60-$70M revenue growth forecast that was already up 10-32%, but they’ll exceed that, and already setting a record. They did not forecast bookings for the year, so they’ll set a record there and will be growing in terms of their bottom line as well. Most of their customers are focusing their energy on silicon carbide and gallium nitrite (GA) products for energy efficiency.
Drivers: Electrification in electrical transportation infrastructure, shift to clean energy is driving it, as AEHR burns in (tests) every one of their wafers before the guts/circuits are applied to the silicon carbide wafer.
5G infrastructure is driving silicon photonics.
Companies are trying to put multiple chips into one device package, and AEHR does their testing before the chip is installed in the device.
Silicon carbide is a new type of semiconductor in TESLA’s inverter that’s embedded in their car.
AEHR’s wafer level test and burn in system has a consumable part that allows them to test the device before it’s put into the car. This market will be growing 30-40% at least until the end of the decade.
Every one of the silicon carbide suppliers in the world is in some form of engagement with AEHR because of their unique solution. AEHR thinks they’ll see a significant market share and perhaps a dominant market share. Adding everyone’s growth up, there’s still not enough supply of silicon carbide to meet demand. In an electric vehicle, you get 10-15% more battery use/capacity and it charges more quickly. That’s it, that’s the big driver.
Every semiconductor has a failure rate and over time, the likelihood that it will fail goes down. If a semiconductor has not failed after 1 year, it’s not going to fail. AEHR basically ages the wafer so it looks like it’s aged about a year, so their chip failure rate is at an acceptable rate to manufacturers and their customers.
Test could take you up to 24 hours, it’s very capital intensive. That’s good for AEHR because they sell the equipment (the “razor” which is 2/3 of the overall revenue) and the individual die (the blade, which is 1/3 of the revenue). They test the chip in the die form, and everyone of their customers they’re talking to is interested in doing it this way.
A normal system in their space costs about $18M. Their system holds 18 wafers in the same footprint and costs $2.5M vs. $18M. Customers say that without wafer level burn-in, you could never do this. So AEHR is enabling this technology. AEHR has a bunch of new patents that give them a moat and a true IP differentiation. For now, they have a head start and they’re working with the automotive manufacturers to get the AEHR system built directly into their assembly lines. Not aware of anyone trying to knock it off currently, perhaps in the future China will.
To do this, you need to do everything (all 3) all tester, probe card and a probe company. AEHR has an IP on each of these pieces of equipment. Customers must be confident that AEHR can supply them with the consumables and the equipment. They do not supply it to anyone else. 2/3 of revenue comes from testers and aligners and 1/3 of the revenue comes from the consumable. Over time, if companies don’t continue to purchase the testers and aligners (equipment), they’ll still have to purchase the consumables that comprise 1/3 of the revenue.
Cost of their test is less than $5/wafer/hour, so on a 500 die traction inverter, you’re talking about a penny per hour. Translation is approximately $60/wafer which is dwarfed by the cost of having one of the chips fail once it’s in the car.
Galium nitrate. There will be fewer small players and they’ll be acquired. They’ll need burn in and they’ll see business this year from it. Silicon nitrate will be at the high end.
Silicon photonics will be a really huge deal. AEHR is seeing this recover since the pandemic. Something is going on related to optical IO, which has a tendency to be a game changer. Be sure to look into this.
Optical IO, it’s coming. If you start stitching this together because the communications bandwidth is becoming limited and Optical IO can increase this by 1,000 X. Folks like Yoll have flipped. This could be a really big opportunity for AEHR that could become a driver for them. This will be very disruptive and you’ll hear a lot about this over the next year. They will expect revenue recognition this year from this.
As you lay out the 4 types of chips, please discuss market sizes and opportunities for
Silicon Carbide -Biggest opportunity they’ve seen that will peak in 2026. This is a new market.
Gallium Nitrite (GAN) has the opportunity to be bigger than silicon carbide. GAN will displace more than silicon carbide. This probably won’t be burned in. If it goes to Apple, it will need to be burned in, and they’ll get burned in.
Silicon Photonics – Has the potential to be bigger than silicon carbide. Every device must be burned in and it takes 3X longer to burn in. AEHR’s tester is 3X as expensive. Nobody can do a 2,000 watt wafer and nobody can do a full wafer in any form of silicon photonics burn in except AEHR, and they have a huge differentiator. If this switches to transceiver business to optical IO, the TAM can explode. It’s probably a couple/few years out, but something is pulling this in. Something else is brewing. AEHR is spending a lot of time designing a higher voltage testing system to even more differentiate themselves.
Silicon photonics allows you to send signals up to as much as 1,000X faster than you can send an electrical signal.
Me talking here: I admit to not being a techie, so the “electrical engineer speak” used by the CEO in the above discussion, is way above my knowledge level.
sjo

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For those wishing to understand the tech, here are some research notes I’ve put together:

Silicon Carbide chips. Understand that this is a specific “chip” application that is not associated with computing, but with power delivery, such as in electric vehicles. Here’s a 2-year old article on Tesla’s pioneering use of SiC chips for the inverters it uses in its cars:

Why is Tesla’s inverter innovative? Well, with the release of the Model 3 in 2018, Tesla became the first company to add SiC metal-oxide-semiconductor field-effect transistors (MOSFETs), sourced from ST Microelectronics, in an in-house inverter design. The overall design has several innovations beyond the use of SiC packages, but this is the main one. It has led to the overall weight of the inverter (4.8kg) to be under half that of the 2019 Leaf (11.15kg) and over a third less than that of the Jaguar I-PACE (8.23kg), which use Si IGBT inverters and off-the-shelf parts.

The result is Tesla’s overall inverter and permanent magnet motor combination is one of (if not the) best on the market, achieving a 97% efficiency, yielding more range without increasing expensive battery capacity. All at a similar cost to the older technologies being displaced.

Since then, other EV companies are likewise using SiC for their inverters.

Another good read is this recommendation for investing in AEHR about a year ago(!): Silicon Carbide Gold Rush - Aehr Test Systems

The 97-99% yield on manufacturing SiC at the wafer (or “substrate”) level is nowhere close to the yield of 99.99%+ for memory chips.

To the uninitiated, a failure rate of 1% on a single die may not sound bad. A standard traction inverter has 48 SiC devices on one computer board or “package.” For the traction inverter to properly function, not one of those dies can go bad. Additionally, the failure of the die can happen 6 months down the road because of the tremendous stresses of operating in high temps & voltages. This failure means the car stops working (perhaps in a dangerous situation) and expensive repairs.

So, this is why the burn-in testing of SiC is so important.

Now, I’ve seen a couple of sites claim that Tesla is using SiC chips from STMicroelectronics, and then that STMicroelectronics is a customer of AEHR. What I don’t know is whether STMicro is the exclusive supplier of SiC chips to Tesla or whether AEHR is the exclusive tester of SiC chips by STMicro.

But, it seems fair to say that with many EV OEMs and Tier1s going to SiC for their inverters, that AEHR is in a fast growing market. And if not exclusive to Tesla, just the growth in other EVs should lead to more demand for AEHR’s testing systems.

Note, there was some concern about a recent Tesla presentation that claimed their next-gen vehicle would reduce SiC use by 75%. Here’s a Twitter thread on that:

AEHR’s stock (and STMicro and other SiC vendors stock) dropped on this presentation, but recovered. It appears from that Twitter thread and this article that this is a natural evolution of chips getting better and more capable. My take is that the number of EVs with SiC inverters is growing faster than optimization is reducing SiC use per inverter, but that’s just an uneducated guess.

The Gallium Nitrite (GAN) new business is, I think, something that is mostly future oriented right now. This very technical article concludes:

Silicon carbide may be a more effective product in the short term, as it is easier to manufacture larger, more uniform wafers of SiC than gallium nitride. Over time, given its higher electron mobility, gallium nitride will find its place in small, high-frequency products. Silicon carbide will be preferable in larger power products, given its power capabilities and higher thermal conductivity than gallium nitride.

So, GAN might not be for future EVs, but for other power products, and I don’t understand the market potential for GAN at all.

Similarly, for Silicon Photonics, I don’t understand the need and ROI for AEHR testing. I do understand EV inverters, and between the relatively high failure rate of SiC chips during use (in other words, they work fine at first, but the high power and temps lead to some failures in the first 6-12 months) and the cost of replacing inverters (these aren’t chips that can be easily swapped in and out), and the issue of potentially having EVs die on the road, something like AEHR sounds very important to me. I’m sure companies using Silicon Photonics want the chips to not fail, but there has to be an ROI on the testing costs versus addressing failures in the field for it to gain traction. I just don’t understand enough of that, yet.

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Here’s a news note, shortened and paraphrased by me.:

Toyota to market next-gen battery EVs from 2026 built by new EV unit

Toyota Motor said it will introduce battery electric vehicles (EVs) employing next-generation batteries globally from 2026, developed and manufactured by its new EV-focused unit BEV Factory.

Toyota targets a driving range of 1,000 km (621 miles) for the EVs…

"What we want to achieve is to change the future with BEVs…

Toyota seeks to sell 1.5 million EVs annually by 2026 and 3.5 million, or about one-third of its global volume, by 2030.

In April, the automaker sold 8,584 EVs worldwide, including its Lexus brand, accounting for more than 1% of its global sales in a single month for the first time."

8,534 in a month is roughly 100,000 a yr so their goal of 1.5 million EVs annually by 2026 is 15 times their current rate, and their goal of 3.5 million by 2030 is 35 times their current rate. You can see how Aehr’s business has the potential to explosively expand, considering that probably almost all auto makers will be doing something like that… Talking about tail winds !!!

Saul

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