Aehr Test Systems, Inc. (AEHR) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call revealed a significant decline in revenue and gross margin, with no clear timeline for improvement in AI growth opportunities. The Q&A session highlighted management's reluctance to provide specific guidance, creating uncertainty. Despite some optimism in product development and market expansion, the lack of immediate orders and declining financial metrics suggest a likely negative market reaction.

Key Financial Performance

First Quarter Revenue $11 million, a $2.1 million decrease from $13.1 million in the same period last year. The decrease was attributed to a very strong consumables revenue quarter in the previous year, making direct comparisons challenging.

Contactor Revenues $2.6 million, making up 24% of total revenue in the first quarter, significantly lower than $12.1 million or 92% of the previous year's first quarter revenue. The decline was due to lower consumable business when customers were not purchasing capital equipment for expansion.

Non-GAAP Gross Margin 37.5%, down from 54.7% year-over-year. The decline was mainly due to lower sales volume and a less favorable product mix compared to the previous year, which included a higher volume of higher-margin WaferPaks.

Non-GAAP Operating Expenses $5.9 million, an 8% increase from $5.5 million in Q1 last year. The increase was due to higher research and development expenses for ongoing projects.

Non-GAAP Net Income $0.2 million or $0.01 per diluted share, compared to $2.2 million or $0.07 per diluted share in the first quarter of fiscal 2025. The decline was due to lower revenue and gross margin.

Backlog $15.5 million at the end of the quarter, with $2 million in bookings in the first 5 weeks of the second quarter of fiscal 2026, totaling $17.5 million.

Cash, Cash Equivalents, and Restricted Cash $24.7 million at the end of the quarter, compared to $26.5 million at the end of Q4. The decrease was mainly due to a final $1.4 million payment for facility renovation.

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Operating Highlights

Sonoma ultra-high-power package part burn-in systems: Strong sales growth driven by AI processors. Multiple follow-on volume production orders from a leading hyperscaler, with plans to expand capacity and introduce new AI processors.

FOX-XP wafer-level burn-in systems: Delivered the world's first production systems for AI processors, installed at a leading OSAT. Anticipating follow-on orders and increased interest from other AI processor companies.

FOX-CP wafer-level test and burn-in systems: Shipped multiple systems for hard disk drive applications, addressing new device burn-in and stabilization needs.

WaferPak: Launched evaluation program with a top-tier AI processor supplier for production wafer-level test and burn-in. Developing a fine pitch WaferPak for flash memory and DRAM.

AI processor market: Collaborating with hyperscalers like Microsoft, Amazon, Google, and Meta. Increased interest in both package and wafer-level burn-in solutions.

Silicon photonics: Ongoing growth driven by optical chip-to-chip communication and optical network switching. Upgraded systems for higher power and parallelism.

Gallium nitride and silicon carbide semiconductors: Growing demand in automotive, data center, and renewable energy applications. Engaged with multiple new customers for high-volume manufacturing.

Hard disk drives: Increased demand due to AI-driven data storage needs. Shipped systems to a leading supplier for next-generation read/write heads.

Facility renovation: Completed $6.3 million renovation, increasing manufacturing capacity by 5x. Enhanced capabilities for high-power systems for AI configurations.

Customer engagement: Hosted open house and engaged with 10 companies to showcase new features of the Sonoma system.

Strategic partnership with OSAT: Developing advanced wafer-level test and burn-in solutions for AI processors. Joint solution marks a significant milestone for the industry.

Expansion into new applications: Exploring high-bandwidth flash memory and DRAM testing requirements, aligning with emerging market needs.

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Risk or Challenges

Tariff-related uncertainty: The company remains cautious due to ongoing tariff-related uncertainty, which has led to withholding formal guidance for the fiscal year.

Decline in gross margin: Non-GAAP gross margin for the first quarter dropped to 37.5% from 54.7% year-over-year, primarily due to lower sales volume and a less favorable product mix.

Slower-than-expected benchmark progress: The flash memory wafer-level burn-in benchmark has progressed slower than expected due to challenges with the test system bring-up.

Economic uncertainties in NAND flash market: The NAND flash market is in flux, with transitions to hybrid bonding technologies and high-bandwidth flash driving new requirements, creating uncertainty.

Dependence on third-party manufacturing: Products shipped this quarter included lower-margin probers and automated aligners manufactured by third parties, impacting profitability.

Silicon carbide market recovery: Growth in the silicon carbide market is expected to be weighted toward the second half of the year, indicating a delay in revenue realization.

Customer-specific challenges: The company is working on custom high-power WaferPaks and production programs for specific customers, which may involve risks related to customization and adoption.

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Guidance & Outlook

Revenue Growth: The company anticipates broad-based growth opportunities across AI and other markets, with nearly all served markets expected to see order growth in fiscal 2026. Silicon carbide growth is expected to strengthen further into fiscal 2027.

AI Processor Testing: Aehr Test Systems is collaborating with a leading hyperscaler to expand capacity for AI processor testing and burn-in. The company expects follow-on orders for its Sonoma systems and is working on future generations of processors for both package and wafer-level burn-in.

Wafer-Level Burn-In Systems: The company anticipates follow-on orders for its wafer-level burn-in systems for AI processors, with increased interest from other AI processor suppliers. A strategic partnership with a leading OSAT is expected to provide advanced wafer-level test and burn-in solutions for high-performance computing and AI processors.

Silicon Photonics Market: Aehr expects ongoing growth in the silicon photonics market, driven by optical chip-to-chip communication and optical network switching. Additional orders and shipments are anticipated this fiscal year to support production capacity needs.

Hard Disk Drive Market: The company expects additional purchases from a leading hard disk drive supplier as the product line grows, driven by AI-driven applications and increasing data storage demand.

Gallium Nitride and Silicon Carbide Semiconductors: Gallium nitride devices are set for significant growth in the next decade, with multiple new engagements in progress. Silicon carbide growth is expected to be weighted toward the second half of the year, with opportunities for upgrades and capacity expansion as the market recovers.

Flash Memory Testing: The company is working on new tester requirements for high-bandwidth flash (HBF) technology, which is expected to drive higher power requirements and offer significant opportunities for Aehr's FOX-XP systems.

Facility Expansion: The company has completed a facility renovation, increasing manufacturing capacity by at least 5x, specifically designed to support high-power systems for AI configuration.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:When will there be a material improvement in bookings to drive revenue in AI growth opportunities?

A:Gayn Erickson stated that the timing of material improvement in bookings is uncertain. The company anticipates additional capacity needs from their first AI wafer-level burn-in production customer, which could result in bookings and revenue this year. However, no orders have been received yet, and the timing remains unclear.

Q:What is the target number of customers to be shipping to by the end of the fiscal year?

A:Gayn Erickson mentioned that there are discrete quantity targets, including specific AI customers, but did not provide exact numbers. He emphasized caution in setting expectations regarding timelines.

Q:Will there be material orders from 1 or 2 customers this fiscal year for AI-driven products?

A:Gayn Erickson expressed confidence that material orders will come but avoided providing specific guidance on timing. He mentioned that evaluations are ongoing, and production tools would be needed for volume production by the end of next year or the second half of next year.

Q:What is the engagement and qualification cycle for AI customers?

A:Gayn Erickson explained that no new product cycle is needed for current engagements. The qualification process involves validating design-for-testability features and power delivery. Customers are engaged in a collaborative process to address specific requirements.

Q:Why are customers starting with Sonoma systems instead of moving directly to wafer-level burn-in?

A:Gayn Erickson stated that customers are more familiar with package part burn-in using Sonoma systems. Wafer-level burn-in is a newer technology, and customers are gradually transitioning as they see the benefits. The company supports both approaches.

Q:What is the timeline for AI-driven products to become 3 to 5 times bigger than silicon carbide?

A:Gayn Erickson avoided providing a specific timeline but mentioned that the opportunity is significant and evaluations are ongoing. He emphasized that the company is at the leading edge of this market.

Q:What is the cost advantage of wafer-level burn-in compared to system-level burn-in?

A:Gayn Erickson highlighted that wafer-level burn-in is significantly more cost-effective and energy-efficient than system-level burn-in. It allows for accelerated testing at higher temperatures and lower power consumption, reducing overall costs.

Q:What is the status of the optical IO opportunity?

A:Gayn Erickson mentioned that the optical IO opportunity involves both new machines and upgrades to existing machines. The forecast includes both scenarios, and the company is prepared to support customer needs.

Q:What is the company's position on silicon carbide burn-in?

A:Gayn Erickson emphasized the importance of burn-in for silicon carbide devices to ensure reliability. He highlighted the company's leadership in this area and the cost-effectiveness of their solutions.

Q:What is the company's engagement with high-bandwidth memory (HBM) and flash?

A:Gayn Erickson stated that high-bandwidth memory and flash require burn-in to ensure reliability. The company is actively engaged with customers to address these needs and sees significant opportunities in this area.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers to questions about specific timelines for material orders and the timeline for AI-driven products to become significantly larger than silicon carbide. Responses were vague and lacked detailed guidance.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AEHR Transcript

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