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Aehr Test Systems

Aehr is a stock that I have been waiting on for (literally) years. I’ve owned the stock maybe a half dozen times. Whether I have made money on it as a whole, at least before yesterday, is questionable.

Aehr is has always been a stock of big promises. The promise has been the big order, that new vertical application, a customer, or customers, that is going to buy their test systems by the 10s or 100s.

That is not just me speculating. If you go back to my original post on the company (here) I noted that management itself was speculating on this way back in 2017.

The company doesn’t give a lot of guidance, and there isn’t much of an analyst following to prod information out of them, but on the third quarter conference call management said that if successful with their lead customer (probably TI?) they could ship 10 systems a program and that they are currently working on 2 programs.  So the lead customer alone could amount to a $40 million to $60 million opportunity per program.

But I had pretty much given up hope on this ever happening. Year after year of small piecemeal orders created skepticism. It did not help that Aehr has some directors that sell shares incessantly, which does not boost one’s confidence.

Recently, one thing that I had noticed about Aehr was that the stock price seemed stronger than I would think it should be. The stock had been trending in the $2-$3 range through the first 6 months of the year. This was a little unusual, because Aehr’s results had not been very good at all, and while management talked a good talk on calls that was really nothing new.

When a stock is stronger than it should be, especially when its a micro-cap, it is often telling you something.

So I took particular interest to the company’s fiscal fourth quarter call last Thursday to see what might be going on.

The numbers in the fourth quarter were ok. The revenue number, $5.5 million, was nothing to write home about, but they had $5.4 million in bookings and a backlog of $7 million.

A $7 million backlog has been kinda a magic number for Aehr. When things are good, the backlog gets to above $7 million. When they are bad it can go as low as the $2’s. I believe that $7 million of revenue a quarter was the breakeven level that the company stated years ago. On the call they guided this coming fiscal year at above $7 million per quarter, which is pretty, pretty good – for Aehr.

On the call Gayn Erickson, who has been Aehr’s CEO since I started following the company, gave color about a few new opportunities that have shown themself to Aehr.

One of these opportunities is in silicon carbide devices.

This past fiscal year, we made significant inroads into the emerging silicon carbide device market, which continues to be a very promising key growth driver for Aehr and will be a major focus in the coming fiscal year. Silicon carbide power semiconductors have emerged as the preferred technology for battery electric vehicle power conversion in onboard and off-board electric vehicle battery chargers and the electric power conversion and control of the electric engine. Our FOX-P family of products are very cost-effective solutions for ensuring the critical quality and reliability of devices in this market, where performance and reliability cannot only mean increased battery life but also whether you have to walk home from a vehicle whose power semiconductor fails in the powertrain.

Failures of the SiC device is particularly bad in a vehicle because it usually means the vehicle just stops. It reminds me of an alternator in an ICE.

SiC chips are more expensive than silicon, which is why they are not used across all applications. Where they shine is in high voltage applications and in applications where the chip is going to be under a lot of stress. Renewable applications like EVs, solar and wind fit the bill.

Aehr has had a customer that has been looking at their test systems for silicon carbide chips for a while now. I believe the first mention of this was the October 2019 call.

What was news on Thursdays call was that the customer had qualified the Aehr test system and was expected to order a number of them this year.

During this past fiscal year, our lead silicon carbide customer qualified Aehr’s FOX-XP system for high-volume production burn-in and infant mortality screening of silicon carbide power devices at wafer level for electric vehicles. This customer is a leading Fortune 500 supplier of semiconductor devices with a significant customer base in the automotive semiconductor market. They have now qualified several devices for automotive applications on our solution, ordered multiple FOX-XP systems and have purchased multiple new WaferPak contactor designs that are expected to be qualified and moved to production during this new fiscal year.

Also on the call, Erickson talked about a ramp from the other major developing vertical, silicon photonics:

We’re excited to mention that our lead customer in silicon photonics has forecasted a ramp that we believe will drive new orders for additional FOX-XP systems and a significant number of WaferPaks this quarter. This customer one of the world’s largest semiconductor manufacturers, continues to look to Aehr to support their high-volume production ramp and wafer level burn-in capacity, and is forecasting significant growth in shipments for silicon photonics devices that we expect to drive the need for additional production test and capacity for multiple years in the future.

Erickson went on to describe why Aehr’s Fox system is ideal for the new evolving designs in silicon photonics:

It turns out that the photonics part of the silicon photonics, which is the laser needs a thing called aging or stabilization. We actually test the devices and it takes a number of hours to stabilize the laser to be able to get it to a point where it is useful in that application. Historically, that stabilization was done in a discreet package at somewhere else. But when you put it into a silicon photonics, when you integrate it together, that laser exists on a wafer. Well in order to actually enable that, you would actually need to be able to do a wafer level burn-in to make — to take advantage of all of the scaling that’s going on, and that’s where we come in. The FOX-XP system is capable of not only having all the power supplies and the capability to 100% discreetly determine and test every single laser that are measured in thousands per wafer in one short, but also can deal with the amount of power to the devices and removal. And then we can do that with up to 18 wafers at a time. So now all of a sudden, it is a cost-effective enabler for silicon photonics.

They also announced that 2 new silicon photonics customers had accepted the Aehr system after completing testing.

The thing about Aehr is that they have always held out the possibility of a big home run. While they piddled along with these pissy little $1 million or $2 million orders, the opportunity was that one day they would announce the big score.

Again going back to those old 2017 conference calls with Erickson. At the time he was saying that he thought that Aehr’s FOX-XP system “increases their TAM from $100mm to $400mm annually” and that they could take a significant portion of that.

It is that “carrot” that has kept me watching the stock through all the years while it did nothing.

I took a position on Friday after reviewing the call but honestly, I thought I still had lots of time to add to it before something would happen. After all, this is Aehr and Aehr is all about over-promising and under-delivering.

I was wrong.

Yesterday Aehr announced a $10.8 million purchase order from the SiC customer that they mentioned in the call. They will be used for testing SiC devices in the automotive market.

In the press release Aehr said there is more to come: “This customer continues to forecast orders for multiple additional FOX systems and WaferPak Contactors this fiscal year and a significant number of systems and WaferPaks over the next several years due to electric vehicle semiconductor test and burn-in demand. “

Aehr has never had an order like this. Like I said, its always these $3 million, one-off orders. A $10 million order is a whole new ball game.

It suggests to me that this time around Aehr is actually gaining traction in commercial applications. Not just selling systems piecemeal for a niche application or a verification by some large OEM. But real commercial applications.

Of course, the stock popped yesterday. I am sorry about always being late to the game with these posts but when the news comes out first thing in the morning I just don’t have time to write up a post in real time explaining what it means.

Nevertheless, even at $6 Aehr has a market cap of $140 million. This really is not a lot in the grand scheme of things. Way back in 2018 I made some projections of what EPS might look like if Aehr got to a magical $10 million revenue per quarter number. I estimated they could do 35c for the full year.

Flash forward to today and really, not much has changed. If anything their cost structure appears to be lower.

Aehr is a lot like Vicor. Remember that Vicor was a stock I held on and off for years and they were forever promising the big order and it never happened and then one day it happened and the stock took off.

My mistake with Vicor was not realizing just how far things could go. With Vicor I sold the stock at around $35 per share. It was a triple or so, so I did fine. But Vicor kept climbing, it got above $100 at one point!

I never completely understood how that happened but the lesson is that once the new market materializes (and interestingly with Vicor it is actually the same market – EVs – as Aehr is benefiting from), and if that new market is the hot new thing, the valuation can get rather silly.

With Aehr, even though it has moved, the valuation is far from silly.

The caveat is that Aehr probably raises capital here. They have a little under $5 million of cash, which is really not much. I would not be at all surprised if they raise more here or at least very soon.

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