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Q3 2024 Aehr Test Systems Earnings Call

Participants

Gayn Erickson; President and CEO; Aehr Test Systems

Chris Siu; CFO; Aehr Test Systems

Jim Byers; Moderator; MKR Group, Inc.

Christian Schwab; Analyst; Craig-Hallum Capital Group, LLC

Jed Dorsheimer; Analyst; William Blair & Company

Larry Sabina; Analyst; Sabina Capital

Presentation

Operator

Greetings and welcome to the Aehr Test Systems third quarter fiscal 2024 financial results call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now turn the conference over to your host, Jim Byers of MKR Investor Relations. You may begin.

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Jim Byers

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems third quarter fiscal 2024 financial results conference call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson, and Chief Financial Officer, Chris Siu. Before I turn the call over to Jane and Chris, I'd like to cover a few quick items this afternoon right after the market closed, Aehr Test issued a press release announcing its fiscal 2024 third quarter financial results. That release is available on the Company's website at Air.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website.
I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors are discussed in the Company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking state. Now, I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Gayn Erickson

Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal 2014 earnings call. Thanks for joining us today. I'll start with a quick summary of the quarter and spent some time to address what we're seeing across key markets areas addressing for our semiconductor wafer level test and burn-in systems. We've actually had a lot of questions in last couple of weeks and also feedback coming in. So our plan is to take some time to cover all of the markets that we're addressing, and then we'll open it up for questions.
As we discussed in our second quarter earnings call, we've seen several pushouts of forecasted orders by current and new customers that impacted our fiscal year revenues. We believe that this was due to two key factors. There's clearly softness in the overall semiconductor capital spending, particularly in automotive applications as related to a glut in inventory driving down near term orders to these companies that has caused them to push out capital spending and drive cost reductions. Multiple companies, including the companies we had expected orders from have publicly discussed inventory related headwinds in their public earnings calls and press releases.
In addition, we've seen specific shifts in order timing of our equipment used for wafer-level test and burn-in of silicon carbide power semiconductors used in electric vehicles in just the last two weeks of the quarter, we saw delays in orders for silicon carbide systems with customer requested ship dates within the quarter as well as a last-minute push out by a customer of a system in our backlog. The net effect of this was a significant shift in revenues out of the third and fourth quarters until this time we've been hearing from those customers that their silicon carbide-based capital investments were not being impacted. It is now clear that the recent overall softness in semiconductors and the impact of shifts in electric vehicle introductions and ramps are impacting our bookings and revenue core forecast more than we understood only two months ago at our last earnings call.
We now expect this to last for another quarter or two before their orders resume excuse me, based on the latest roll-up of direct forecast from over a dozen silicon carbide companies. Due to this last month, we revised our guidance for our fiscal 24 year end ending May 31st, 2024 to be greater than $65 million in total revenue and net income of at least $11 million, which we're reiterating today. We still expect to finish this year with annual revenues that are near or above our full year record. Our discussions with customers indicate that the key markets areas addressing for semiconductor wafer level test and burn-in have significant growth opportunities that will expand this year and throughout this decade. And we're seeing increased customer engagement in each of these markets.
We've also seen a recent strengthening in the silicon carbide market for electric vehicles outside the US and what appears to be a shift in market share of electric vehicle suppliers. This clearly includes Asia, where we recently had an extensive and very productive visit with a significant number of silicon carbide suppliers and electric vehicle suppliers. On today's call, I'll discuss each of the major market segments, areas addressing for wafer-level burn-in and semiconductors, which include silicon carbide, gallium nitride, silicon photonics and memory semiconductors, as well as tee up an opportunity we hope to discuss in the coming months. I'll also include the trends we're seeing in Asia, EV suppliers and impact on silicon carbide.
And there's opportunity to address this market according to market forecasts, including the Semiconductor Industry Association, the semiconductor industry expected to grow from $600 billion in 2022. And by the way, we apologize, someone noted that that was incorrectly noted is million in our press release. So we'll get that corrected to over $1 trillion at or around 2030. This acceleration is coming from mega market drivers, including artificial intelligence, green energy and decarbonization and IoT-based digital transformation, increased reliability concerns about semiconductors and a growing number of mission critical applications as well as more multichip modules or heterogeneous integration with multiple devices being assembled together in a single package are driving the need for wafer level burn-in at semiconductor industry conferences around the world, we've seen an increased focused on moving test and burn-in to wafer level before these devices are put into multichip packages or modules.
These favorable macro trends are driving the business that drives Aehr Test and include the following silicon carbide power devices going into high density modules for power conversion and electric vehicles, gallium nitride power semiconductors going into automotive, solve solar and other industrial applications where reliability and safety are critically important. Silicon photonics for Photonics integrated circuits are being put into transceivers for data center infrastructure and optical chip-to-chip communication of CPU, GPU and AI processors to address to address the insatiable data storage and bandwidth needs of these applications and memory devices, whether stacked die for solid state disk drives to use in enterprise and data storage or with AI processors. Again, to address the ever-increasing need for memory density and bandwidth of these applications.
Now let me touch on each of these briefly, starting with silicon carbide market, while we remain cautious, looking ahead to the next quarter or two, we are seeing signs of improvement in the silicon carbide market. Last week we announced an order from a new customer for our FOX-1P solution for engineering qualification, smaller production of their silicon carbide power devices. This customer is a multibillion dollar per year global semiconductor company with locations across Europe, Asia and the Americas, and has a wide range of automotive products and is entering the silicon carbide market to address several applications that include automotive, industrial and electrification infrastructure.
This customer sees the enormous opportunity for silicon carbide power devices and has told us they plan to transition to our FOX-XP multi-wafer test and burn-in systems as they ramp to high-volume production. This is the third straight customer in a row for silicon carbide for us that is primarily focused on our applications other than diabetes. These additional applications expand our market opportunity beyond the $4.5 million six inch equivalent silicon carbide wafers that William Blair forecast will be needed per year by 2030. Just for electric vehicles. These new applications are driving an additional $2.8 million six inch equivalent wafers annually by 2030 to address industrial solar electric trains, energy conversion and other applications. Interestingly, this is also the third customer that did not need to see their wafers tested on our system before they move forward to purchase from us.
I've mentioned this before, but the need for testing before purchase was essentially a requirement with our early customer engagements. And it's clear that many of our potential new customers have become much more comfortable moving forward with air simply on our assurances that our solution will performance committed. This allows the customers to accelerate their time to market. Of course, we're still happy to engage with customers if they want to see their wafers tested first, we still have yet to lose a prescriber of prospective customer after demonstrating our test and burn-in capabilities on their wafer and have never lost a head to head evaluation to a competitive product. Since introducing our box NP and XP configured with the silicon carbide and gallium nitride test resources.
While we are seeing the impact of a slower adoption of battery electric vehicles than most imagined a year ago, our initial wins and ongoing qualifications at multiple device manufacturers drive our optimistic optimism from a longer-term perspective. So far, we have secured a total of seven silicon carbide customers that have ordered our FOX-P family of systems and proprietary WaferPak full wafer contactors. We're engaged with well over a dozen additional silicon carbide players in evaluations of our systems and our wafer benchmarks where we build a box wafer contactor for them and test their devices at Aehr Test to demonstrate the feasibility and correlation of results to meet their reliability requirements. We're focused on the qualification process with as many new customers as possible.
As again, once we've demonstrated our FOX wafer level test and burn-in solution using their own wafers, we've not lost a potential customer yet. Our benchmarks with multiple silicon carbide suppliers continued to progress this quarter. This includes on wafer benchmark that we've been working on for multiple years, we believe and understand now that some of the market share shifts in both total market and specific end customers had an impact on and delayed new customer decision timelines. We still believe that their silicon carbide module and die sales plans will drive the need for known good die and wafer level burn-in and that we will win more than our fair share of these opportunities.
In addition to our customer related travel to Europe and across the US. We most recently had extensive physics with a cost of a significant number of Asian silicon carbide suppliers and the electric vehicle suppliers themselves the tone and demand for EVs is much stronger outside the US, particularly in China and South Korea. Clearly, we also heard that there's a real need for quality, low cost, high-volume automated solution for wafer level burn-in of silicon carbide devices, particularly in the automotive segment.
Peter, based on what we saw, the electric vehicle suppliers in China have a very strong focus on silicon carbide to the point of actively marketing silicon carbide power conversion as a differentiating feature. We personally visited several EV suppliers, sales stores and with which were basically all in malls or retail shopping areas like we see Tesla here in the US and three of them basically position their silicon carbide-based EVs as superior almost apologizing that this particular version is only IGBT, but next year's model is silicon carbide base. They have no idea who we were or that we have any skin in the game for silicon carbide.
Another notable was that we heard across the board from both the suppliers themselves and also the power semiconductor suppliers is that all the Asia electric vehicle suppliers appear to be drunk driving to build module-based silicon carbide for their power inverters in their cars rather than the discrete devices like what Tesla has done. And they also have a very high expectation for delivering quality. We've heard from multiple companies that they're driving to supply silicon carbide and wafer level burn-in to local suppliers because they believe they can get higher quality known, good die and they can from suppliers outside of Asia, driving wafer level burn-in of devices before they're put into modules is critically important to them to remove infant mortality, which bodes well for our solutions per report last year, UBS forecasted that in 23, 91% of the batteries sold in electric vehicles would be 400 volt and only 9% would be 800 volt. But by 2026, UBS expects the percentage of 800 volt batteries to be about 30%.
The report report also focused on the progression of electric vehicle batteries from 400 to 800 volt, which is generally recognized, but the industry at where the silicon carbide is mandatory to get the range and recharging speed. Consumers are demanding this is why it appears so make silicon carbide suppliers are timing their major ramps to be in 2025 and 2026 timeframe. So in the next couple of years, we expect air to benefit from both an increased number of electric vehicles being sold as well as a significant increase in silicon carbide mean our solution for those electric vehicles, the electric vehicle market in Asia, particularly China and South Korea is very robust, supported by public and consumer sentiment. And they have some really incredible cars that are being built for electric vehicles.
I now fully understand why Tesla has stated that their key comp, their key competition is from Asia and why both US and European auto suppliers in particular are so worried from the feedback we received from a significant number of potential customers in Asia. We believe that areas proprietary wafer-level burn-in systems based upon our patented proprietary WaferPak contactors, appear to have a key value proposition, and we see a high degree of interest in our solutions. We already have people in infrastructure across Asia, including China. We have shipped and supported our packaged part burn-in systems into China for many years and have also already shipped our FOX wafer level test and burn-in systems into China a few years ago, based on customer commitments, we're discussing expanding our presence in China in terms of support infrastructure and resources.
We have also put additional measures in place to ensure the protection of our IP and patents that we feel will help to secure our proprietary capabilities and allow us to grow and maintain market share over time. We look forward to providing updates on our plans for the next few months. Now let me discuss our progress with testing and burning gallium nitride power semiconductors. We continue to be encouraged by this market and believe it to be significant in terms of market size for semiconductors. In addition to its wide adoption in consumer devices such as cell phones, tablets and laptop computers.
Gallium nitride is being targeted for use in solar data centers and automobiles, whether electric or traditional gasoline, automobiles, critical reliabilities of these reliability needs of these target markets appear to be increasingly driving production burn-in requirements, and there's FOX-XP multi-wafer system can deliver both the power and high-voltage required to do massive parallel per die and multiple wafer test of gallium nitride devices for a very cost effective solution. During the quarter, we announced our first order for a FOX wafer level test and burn-in system to be used for gallium nitride devices. And we have a second potential Fox plus system customer that has been purchasing our WaferPak contactors for their on-site evaluation that we believe is progressing very well.
As I've noted before, we're working with several of the GaN suppliers, including the two market leaders which process positions us front and center in this market that we believe is another potential significant growth driver for our wafer-level solutions. The test requirements for GaN for full wafer actually quite different than silicon carbide in terms of technical implementation. However, our Box Platform has been capable has been capable of testing these devices with the functionality and flexibility of our unique like Fox blade architecture, which allows us to configure the test blade for specific applications with the same infrastructure. This has proven to be very impressive to these customers. As in fact, that even they did not understand the implications of testing an entire wafer at very high voltage and the resulting impact on the test schematic do just leakages of their devices.
We were able to address this with our channel modules, some proprietary custom wafer packs to address the test challenge. And honestly, both their and our customers were very happy with the flexibility of our systems to do this. We've we've been told now that burn-in will be required for GaN going into mission critical applications such as automotive, solar and some industrial applications. And the amount of burn-in time is still being worked on still, this is good news for us, and we feel we're well positioned to capitalize on this opportunity with our solutions in these lead customers. We're also seeing some additional new small and large players engaged with us for GaN. We've been seeing comp consolidation within the industry of smaller key gallium nitride players being acquired by the larger suppliers. So all potential customers are believed to have real potential in the future.
Turning to silicon photonics, which are silicon-based semiconductors with integrated photon are light light-based transmission of signals within and into and out of the silicon laser photonic emitters and photonic receivers. We're very excited to ship during the quarter and ahead of schedule. The first order from a major silicon photonics customer for our new high-power configuration of our FOX-XP system for volume production, wafer level burn-in and stabilization of next-generation silicon photonics integrated systems circuit sorry, this new high-power configuration expands the market opportunities of the FOX-XP system and has configured to enable cost effective volume production test of wafers of next-generation photonic integrated circuits, which are targeted for use in the new optical I/O or co-packaged optics market for chip-to-chip communication.
As we discussed before, companies such as AMD and Vidia, Intel, TSMC and global foundries have all announced plans for silicon photonics, integrated circuits and integration of these pack. These in packages with other devices such as CPUs, GPUs and AI processors, our FOX wafer level test and burn-in solution with our proprietary WaferPak, full wafer contactors are a great fit for the silicon photonics market. These next-generation silicon photonics-based integrated circuits can require up to two to four times as much power for full wafer test burn-in and stabilization. Our new FOX production system configuration, which can be used to test and burn-in. These new optical I/O devices expands the market opportunity of the FOX-XP system even further.
In addition, the power and functionality of lasers used to transmit data are critically important to the performance of the communication channel and Air Solutions, not only read out early life failures, but also peripheral improve the performance of the device through what the photonics industry refers to as stabilization during the first day or two of normal operation the laser output characteristics change in an exponentially decaying manner and must be stabilized until the train stops before the final product can be tuned to meet its performance specifications. Air can do this across an entire wafer of fully integrated photonic integrated circuits with embedded or attached laser emitters.
Air currently has six customers using our systems for production test of their silicon photonics devices, five using our NP and XP systems for wafer level test and burn-in, and one using both systems for engineering production, burn-in of individual singulated die and modules using our proprietary die packs. While the timing of these devices and volume ramps are not publicly clear, we remain very enthusiastic about the silicon photonics market and are watching this market very closely we continue to work with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application now onto memory.
According to the average of multiple market forecasters in 24, memory semiconductors will make up over 50% of the total semiconductor wafer shipped in the whole world this is a approximately half nan flash memory and half DRAM. We are making continued progress in our ongoing discussions with multiple memory suppliers. We see the memory market as a significant opportunity for us to deliver wafer-level burn-in solutions to help memory suppliers meet their reliability and quality needs, particularly with stack die applications.
During the next year, we're driving for our first on wafer benchmark in partnership with a leading NAN supplier using our proprietary wafer packs and FOX wafer level test and burn-in system with our new fully automated wafer pack aligner, we see in our initial opportunity for test demand for solid-state disk drives used in enterprise and data storage where can deliver compelling cost effectiveness and also readout infant mortality issues before multiple die or put in a single package. Longer term, we believe DRAM will be a critical target market for our systems, particularly as a percentage of DRAM going into multi-chip modules such as GPUs, CPUs and AI processors increases.
Now I want to spend a minute on the overall artificial intelligence semiconductor market. I've already discussed how we're working with silicon photonics suppliers for their plans at integrating silicon photonics as optical communication transceivers and devices, including AI processors. We also see co-packaged quote memory in AI processors as a key driver for wafer-level burn-in of DRAM. for these devices, we also see a significant opportunity for the AI processors themselves, our new high-power FOX system that we discussed for optical I/O semiconductor burn-in, the FOX-XP multi-wafer wafer production system we began shipping last month is the world's highest power per wafer system on the market, and it handles up to nine wafers at a time also unprecedented in the industry.
This system is capable of testing up to full 300 millimeter wafers of processors up to several thousand watts of power and over 2000 amps at current on each of nine wafers in parallel by moving the burden from package module or final system form. It is done today to and move it to wafer level. Our customers can achieve enormous savings related to yield loss of modules with up to hundreds of other devices or chiplets in the same module.
On the case to system level test, the cost of the whip inventory and yield loss of infrastructure. The systems around these modules or chips, wafer level burn-in challenges we're working on include putting extremely high currents onto the wafer without damaging the wafer contactor thermal management of the high-power devices with very high leakage currents associated with the high burn and temperatures we can apply and automation and handling of these very expensive wafers built on the most state-of-the-art logic process geometries in the world. Stay tuned to hear more about this exciting new application for our products over the next several months and lastly, I want to discuss our WaferPaks, which are basically the consumable that accompanies and as required with all of our weight, FOX wafer level test and burn-in systems, we continue to be very pleased with the continued stream of new designs for WaferPaks.
Our new design volume has almost doubled this year compared to last year is we're seeing more and more design spend silicon carbide, GaN, silicon photonics and other applications. As a result, our customers are buying additional WaferPak contactors for these new designs, highlighting the recurring revenue part of our business as we've noted before, our proprietary WaferPak contactors are needed with our FOX wafer-level test and burn-in systems to make contact with the individual die on the wafer and are designed specifically for a given device as our customers win new designs from their customers or eventually secures orders for new wafer packs to fulfill these new wins.
With each new design, our customers will need enough new wafer packs to meet the volume production capacity need for those new devices, our wafer packs will be greater than 50% of our total revenues this fiscal year which is fantastic and underscores the business model that allows us to grow both from added capacity from our FOX systems, but also with WaferPaks to serve an ever increasing installed base to conclude as we head toward the start of fiscal 25 on June first, we're very encouraged and optimistic about our increasing engagements and the long-term growth opportunities of all these markets and are excited to continue on our path becoming the world's standard for wafer level test and burn-in for the semiconductor industry. So with that, let me turn it over to Chris, before we open up the line for questions.

Chris Siu

Thank you, Gary, and good afternoon, everyone. The Company recognized solid bookings in the third quarter of fiscal 2020 for bookings totaled $24.5 million compared to just $2.2 million in the second quarter of fiscal 2024. Our backlog as of quarter end was $20 million we expect to recognize revenue from the majority of these orders for systems, WaferPaks aligners and services in the last quarter of fiscal 2024, which ends on May 31st 2024.
Looking at our financial results for the third quarter, total revenue was $7.6 million, down 56% from $17.2 million in Q3 last year. As we noted in our earnings preannouncement last month, the decrease in revenue was due to the timing of some significant customer orders in just the last two weeks of the third quarter, we saw delays in a couple of customer orders that had planned shipments in the quarter as well as a last-minute pushout by a customer of a system in our backlog from the fiscal third quarter to the current fiscal fourth quarter wafer pack revenues were $4.8 million and accounted for 63% of our total revenue in the third quarter, which is higher than 37% of total revenue in the prior year's Q3. Customers typically buy wafer packs from us subsequent to purchasing their new FOX systems.
Additionally, customers also buy wafer packs from us as they change their chip designed for smaller and more efficient devices for their OEM customers. We have seen continued momentum for new wafer pack designs from both our existing and new customers as they look to meet their end customer and market requirements. Gaap gross margin for the third quarter came in at 41.7%, down from 51.6% in Q3 last year. The decrease in gross margin is primarily due to lower revenue, resulting in a higher overall head absorption rate and lower manufacturing efficiencies.
Operating expenses in the third quarter were $5.2 million, up slightly from $5.1 million in Q3 last year. The year-over-year increase is primarily due to higher R&D expenses, which were partially offset by lower SG&A expenses. The increase in R&D in Q3 was from the same period last year was primarily due to costs associated with our continuing efforts to augment the features and performance of our automated wafer pack aligner and higher personnel expenses. We have hired R&D talent in both hardware and software and have invested in R&D programs to enhance our existing market-leading products and meeting our competitive advantages.
At the end of Q3, we announced we shipped the first order from a major silicon photonics photonics customer for a high power configuration of our FOX-XP system for volume production, wafer level burn-in and stabilization of next generation silicon photonics integrated circuits, non-GAAP net loss, which excludes the impact of stock-based compensation was $900,000, or $0.03 per diluted share for the third quarter. This is down from non-GAAP net income of $4.7 million or $0.16 per diluted share in the third quarter of fiscal 2023. We expect to return to profitability in our fourth quarter of fiscal 2024 Moving to the balance sheet, we continue to maintain a healthy balance sheet. Our cash and cash equivalents were $47.6 million at the end of Q3, down from $50.5 million at the end of Q2. With a solid balance sheet, we can continue to invest in scaling our business and entering into new markets and supporting new opportunities. We used $2.8 million in operating cash flows during the quarter to procure inventory components primarily to support our operations.
We have zero debt and continued investing our excess cash and money market funds. Interest income earned during this higher interest rate environment was $584,000 in the third quarter compared to $374,000 in the third quarter last year. As of the end of the third fiscal quarter of 2024, the remaining amount available under the previously announced $25 million ATM offering was $17.7 million. We did not sell any shares during the last three fiscal quarters. It remains our plan to only sell shares against this ATM offering at times and prices that are most advantageous to our shareholders and to the company.
Now turning to our outlook for the current fiscal year that ends on May 31st, 2024. As we noted in our earnings pre-announcement, our third quarter results reflect delays in wafer level burn-in system orders for silicon carbide semiconductor devices used in the LED electric vehicles. Due to this, we had revised our guidance for our fiscal full year ending May 31st, 2024 to be greater than $65 million in total revenue and net income of at least $11 million, which we are reaffirming today. As I mentioned before, we ended the third quarter with $20 million backlog, and we expect to recognize the majority of that backlog as revenue in the fourth quarter.
Lastly, looking at the investor relations calendar, Aehr Test will participate in three investor conferences over the next few months. We will be meeting with investor at the Craig-Hallum Institutional Investor Conference, again place in Minneapolis on May 29th, and we will be presenting and meeting with investors at the William Blair 44th Annual Growth Conference taking place in Chicago on June fifth. We will also be meeting with investors at a sales Summit in San Francisco on July 10th. We hope to see some of you at these conferences. This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead.

Question and Answer Session

Operator

(Operator Instructions) Christian Schwab, Craig Hallum.

Christian Schwab

Hey, guys, thank you for all the details. Gain on another target market opportunity. I just had a few questions regarding the silicon carbide electric vehicle opportunity. As you as you're looking into calendar 25 or I guess next fiscal year 25? I guess it wasn't necessarily clear to me. You know, oh, boy, do you guys have any idea, have you know, are you expecting just, you know, see material revenue again next year from here historically our largest customer? And how do you see the different customers? I know you kind of put in the press release different timeframes. So just wondering if you had if you could determine make that a little bit more clear.

Gayn Erickson

I mean, at this point, normally, we're not really talking about next year. We'll do the next call. But let me just still give you some insights because we do we certainly have visibility. A lot of it was candidly some of the same numbers just pushed out in time. And so at the same time, as I say, well, they're familiar to me, we did at least put the caveat yet but they pushed them out before. So I'm not I'm not for boating the thing I'm just way more gun shy now. I believe in everything the customers tell me if you will.
But right now, yes, we do believe that next year we'll be getting material revenues from our actually, I believe all of our customers are expected to be taking revenue next year and including our two of our largest historical one, we believe we'll be adding on some of the key customers, candidly, some that we thought we were going to be closing by now that we still have optimism and based on our current assessment of their needs, our competitiveness, the lack of a competitor for that specific application, we think we can win them. And obviously, as you win them, you can have more visibility as to really what's going on.
I think the other piece of this is that, candidly, our trip across several countries in Asia. And I believe probably the most notable would be in China was really and I guess encouraging if you spent your whole life living in the United States listening to the news on electric vehicles. I mean, candidly, it's not like you know what I think we're all reading that, you know, it's very different. And I saw segment year to date, CNBC reporter was falling around Tegal and And she was making comments about what she felt and saw it with the B's and you look around Shanghai and type is there really more than 50% of these cars or EVs. And we were taking pictures of it.
And it's just a very different tone on their end. And it's just a much more positive thing everywhere. And in the U.S. It has sort of this wet blanket over it that I think is placed more political. But I don't want to get into that Okay. But nevertheless, you know, as you look around, it's pretty encouraging. And again, we talked about these other markets too, but you are talking specifically about silicon, our AUVs, I do believe that there's a lot of fabs that are being built.

Christian Schwab

Are there people that we believe have the inside scoop? It's kind of odd.

Gayn Erickson

We have some insight through the OEMs themselves as to who their favorite vendors are. Obviously we can't share what that is, but that gives us a little bit more confidence in who we should be partnering with as well. And so I know I know that right now, candidly, nobody wants to hear about silicon carbide AVs, but it's still going to be a good business for us going forward. But certainly not going to be the only one for us.
Okay. And by the way, when I was when I say 25, I actually mean fiscal so no rationing on me in June, but I think that the a lot of that when we talk about the 25, 26 model years, those are I don't even know exactly EV.s are the same as they used to. But there's clearly people ramping up for high-volume production of a bunch of new cars by next summer.

Christian Schwab

Great. And then a follow-up on China. Would you anticipate, you know, I'm seeing no measurable revenue from that marketplace in the next fiscal year, then I think there's a very real chance of that and that would be our hope if not expectation, the lawyers always tell me to be careful about expectations at this point.

Gayn Erickson

But I guess I mean, I the way we went there and personally sat down with almost a dozen companies and kind of got a first hand feel and view and they are very <unk>. We're very aware of silicon carbide of what the quality is what the issues with there are with respect to the manufactured material defects, why you need for it and how long you need to do it for what are the burn-in requirements I candidly found them to be quite calm, knowledgeable and on this may come across a little voice stress, but that candidly, I think the smarter people are with silicon carbide, the better.
We look because they really understand what it is we're doing, and that's what I felt when I was in China, Korea, Japan and China. So to some extent, they have learned this enough. And then they are now being much more clear about why they need wafer-level burn-in and what they're looking for. And that bodes well because I believe I truly believe we have the best solution on the market.

Christian Schwab

And then my last question again, just to a follow-up on the China market. Is that something that you would address with a direct sales force? Or would you would you partner with somebody local for distribution?

Gayn Erickson

Yes, a little both. And we've already done that. I mean, I think we have a dozen customers in China, most people to remember that. But if you go back and look, we had a bunch of ABTS systems that were sold all over China with a FOX system. So we have local air employees there, both in our sales applications and infrastructure. And but in China, it's pretty typical that you also use reps that have close relationships with sort of different geographies, and we have that as well.
So they would get a specific commission on a sale. And that's I think almost everything we've sold in China has had some of that not all of it, but most of it. So it's a little of both, but we're also looking at upping our presence pretty significantly, including dropping in a demo set centers some local infrastructure and some other things to give us more girth specifically at the request of about a half a dozen companies.

Christian Schwab

Okay, great. No other questions.

Gayn Erickson

Thank you. Okay.

Operator

Jed Dorsheimer, William Blair.

Jed Dorsheimer

I think I'm sorry, guys. Just a few questions. I guess first one on the Fox MP. new customer, you described as a semiconductor global semiconductor manufacturer, is that also a Tier one, our automotive customer? I'm just wondering if by some categorize it as both.
So I'm I'm I'm going to trial throughout today and indeed, call trying get more and more vague only because we've been getting feedback from customers to be pretty give a notice for this particular customer wasn't one of those, but I'll ask that question. It's not a Tier one focus there on their entire business is semiconductors. And what would you expect the timing to be in terms of conversion from an M to an XP with that customer.

Gayn Erickson

And actually, I want to hold back on that a little bit with respect to what their timing is because my understanding is that's part of their secret sauce, et cetera. But if I told you over the next couple of years, it's pretty generic. I realize that they do we know that they have made some substantial purchases for front end equipment and other things as well and the NPs just their engineering bring-up tool and that that book has no intention of being able to address their production. So on whether it be next year or the following year, you can leave it at that for now. Maybe I'll give you more visibility next time.

Jed Dorsheimer

Okay. And then it's helpful on your excitement over the China market. I'm just curious, are you going to outline how you're how you intend to address the dilemma with Chubb?

Gayn Erickson

It is done is kind of caught most two companies off guard where local subsidies require reengineering of tooling to a local supply chain. And yes, I mean, I think what I wanted to say is we're not we're not ignoring that and we're not on I'm believing that we have all the answers on. We have some specific legal IP. We'll have security and contractual things that we're going to use. I'd love to tell you something besides to slow it down, but we've also have, you know, there's that we have reason to believe that it's not that easy to directly knock off our system without actually violating our IP or to get close enough to do it. We also have a lot of software and a lot of other things. I don't think it's that easy to just simply do it.
And then if you did, you would have some other issues. So we're conscious of it. I don't want to be, and we're specifically doing things and we're not going to publicly announce all the things that we're doing as part of the reason to keep it secure.

Jed Dorsheimer

Got it. Okay. And that non silicon carbide gain, you don't for silicon carbide, the inherent D-PA, it density of the material combined with the shift to modules kind of created this perfect opportunity for wafer-level burn-in. You look at the silicon market where you have a homogeneous material structure and chipset, is it to open up memory and at some extent, silicon photonics is this or largely memory and silicon. Is this really just a function of moving to modules or chiplets? That's the kind of triggers that could you could you help articulate what you think will be the gating factor there.

Gayn Erickson

Okay. So if you if you want to step back and just say, okay, what are the really big things driving our market? First of all, are the markets growing from $600 billion to $1 trillion semiconductors. Many of them are not actually getting more reliable things like very low geometry processes that processors that we're talking about AI processors, CPUs, they're all burnt in today. Okay. That's nothing new there, just Barton in the package form and normal.
But then people are actually putting them into and by the way. In some cases, they weren't bringing them and then they're putting them in applications where they were right. There are processor companies that ship devices to a consumer application that don't bring them in, but always Barnum into automotive. Well, there's more and more automotive and other things that matter to the reliability. And then the last thing which really drives wafer level we'll be putting in a multichip modules.

Jed Dorsheimer

Right. So specifically on memory, you're like wait a minute, which ones does it matter? Memory has long required a burn-in process. Every DRAM is burnt in and all of the devices that are going to end up going into a solid-state disk drive have a cycling and burn-in measured in fractions of days, many hours right. So that burn and if you're looking for opportunities, you look for the devices that them themselves need burn-in, okay?
Silicon photonics, every single devices burn to it doesn't matter where it is we burn 10, then you're looking for maybe discount annuities where large volumes are going to a new application where it matters. And if you look back, it's been 20 years now.

Gayn Erickson

But everything that drove my test business in the early two thousands was consumer consumer consumer consumer. I remember that was all everything that mattered was always consumer and now consumer is not what's driving the test requirements, consumers sort of left for dead. All of the applications and data, AI processing, automotive, et cetera, are driving all the test requirements and that definitely is the case for burn. And so for memories, in the data centers, correct, memories are stacking together and then they're putting them together. I definitely remember could talk to in great detail, but how many die are being stacked into an SSD?

Jed Dorsheimer

And where do you want to burden, you should Bertam and before you put them into that application and then now what we're seeing with the likes of the A. 100 B. 200 type thing is these modules, co-los packaging that actually puts a processor, a big whole stack of D-Ram chipset on their future will be an optical I/O chipset or something along those lines. Those devices often need to be burnt antigen burden. And at the module level, the answer is yes, why did a deal in place to do it?

Gayn Erickson

Well, that's ridiculously expensive. So there are some initiatives to say how do we burn those devices in at the die level. And I can tell you sort of just front and center my whole career at this thing when you start with I need to do it, there are testability DFT. and other things that you could do to implement it. And we believe we have a solution that can partner with them to actually implement wafer-level burn-in. So the applications that will be driving our business today are very different that I think they will be in a couple of years. I mean, I still think silicon carbide is going to be a really good business for us, but it won't be the only one.
So gain sorry that to multichip modules from an economic perspective is the driver. Then in terms of a catalyst that makes them relook at their test strategy and say I'm going to need to do more wafer level, correct.

Jed Dorsheimer

Got it. And the reason they're not doing that with your system today? Is there selling for a price where they can eat the yield loss or hedge through? Yes, it's a good question, but it's not crazy. Sorry that to imply you're crazy, Jed, but you know, if you're what you're able to get and here if you're able to get 97% margin and you eat, you know, 50% yield loss to carriers. I guess I mean I'm not I'm not implying I know that answer. And if I did, I'm not telling that, you know it is, but that would be logical but as things become more important or you don't have capacity or do they have money matters?

Gayn Erickson

Yes, you would drive it. And so I think that's what what makes sense. Why we're feeling these sort of tops down initiatives, four are shifting things towards wafer-level.

Jed Dorsheimer

That's helpful. I'll jump back in the queue. Thank you.

Gayn Erickson

Thanks, Jed.

Operator

(Operator Instructions) [Larry Sabina, Sabina capital].

Larry Sabina

On this last quarter from earnings report, it was really optimistic on what is called the second optical network that's going to be deployed on hooking up GPUs and AI data centers. And since you are pushed to ship your optical I/O production system to get it out as soon as possible. Do you have a sense of when this may show up in the marketplace?

Gayn Erickson

Arm? Yes, I okay. So it's one of the more I feel like it's one of the most tightly guarded secrets guide. I'm and I don't believe that we're even being told everything correctly. That sounds probably you don't want to hear that, but I think we I know more than I can say, and I know it's still though we have everything what I what I have mentioned. I think you heard me in the past and what I've sort of struggled with is if you go out and you look at someone like yourself who suite really smart and understand this optical space very well.

Larry Sabina

Okay. And they look at the optical I/O, they're like well, I'm not sure how big that market is going to be, et cetera, et cetera, cycle. What is what is in video or AMD tell you all day what they will tell me anything like you've got, you know, figure, right?

Gayn Erickson

Of course, they're not telling them. The reality in my mind is what AMD Intel in Vidia pickier other eight by our processor to sure what their what their plans are, that's what's going to drive it. And those are very closed environments. They're not they're not you know, I don't believe for a minute that Infineon and AMD are talking together about how they can get their processors to talk to each other. So you kind of have to watch on the edges. You watch where the investments are made, you watch what's going on. You see the technology watch patents, you watch technology.

Larry Sabina

But my my belief is and I kind of shared this even about a year ago, it feels like we're a couple of years out to volume production. And the question is how big is it on and could it be much sooner than that? We're enabling that with our solutions and our capabilities and there was a big pull for it. And keep in mind, we also have the second capability on our NP systems installed at customers.

Gayn Erickson

So you don't have to see all of the front edge of this simply with new systems, but we would see it with WaferPaks. So there's a lot of design activities that are going on right now. That seem pretty interesting to me, but I'm a believer paid. It makes sense. It is a critical bandwidth. It's going to be a pinch point. I think it's going to be a differentiator with all the AI guys, and it also may have the byproduct of then expanding the need for more optical, even within the data centers, it seen that you seem to think it was pretty imminent, whether it was late this year or next year. And I know from the IOP of IOPs, right, and we'll be ready for it.
If I fail over the last year, there's been tens of billions of dollars. Where's the memory fabs now by every memory manufacturer in the globe. I'm sure you may engage with them by now on if they're going to realize the benefits of your automated XP. to reduce the size of their clean rooms and equipment costs.

Larry Sabina

I mean, I know you have and they are when times are not with all of them, I'd love to be with all of them. I do think there's a little bit of a spread between the demand and the D-RAM guys timing.

Gayn Erickson

And just in terms of just where the DFT. needs to be for D-Ram to be able to actually do wafer-level burn-in. But I think within yes, I again, I'm up in our position as a CEO to be saying this, but personally I would believe that people will have implemented DFT. and low pin count test modes in D ram, similar to what we did in and 15 years ago before this and when that does you want to be there and ready for? So we have been doing in the background to do that be ready for.

Larry Sabina

It seems like you should have some Rebel tools at these guys so they can play out their fabs and realize the benefits of what you can bring to them, like you said, with significantly smaller clean rooms and less equipment causing it to a record destination as soon as possible. Great failure of the seven current silicon carbide customers that you said you have, is that that's a correct statement, right?

Gayn Erickson

You have seven cap or seven cap, but we officially call. Yes, that's correct.

Larry Sabina

Okay. How many of those have bottlenecks? The production system, while maybe half of I have to think about fast on that?

Gayn Erickson

Well, half was 3.5. Is that every year or two? Our Let me I'll have to I'll tell you what we did the background of what we've announced and one at a time or two. Yes, I think it's three X P.s and for NPV type customers of focus, I heard right among it might be a fourth pillar to go one more go ahead. But that's I mean, all of the and all the E&P customers still have given us plans and paths to the at all the NP customers all plan to do expertise. I don't know if we'll ever buy another NP-2 only do X piece next regular makes sense.
So the on the long lead item a customer that's been running around the block for a couple of years. What do you think is the holdup was and is the is it because they'll have a large demand for modules yet for modules. It's just they're big customer or the big businesses. And I'm told there's no package pipeline that's pretty early.
I think we have a pretty good idea and I can not be able to answer it directly. So I don't think if you if you look at the yes, if you look at sort of what happened just in the shift of the EV from E&O D&O, every one of their brother is going to be driving NAV. And for years to now they are, you know, oh, my gosh, is it kind of deploy as fast or whatever that shift over the last six months I think has really caught a lot of people off guard and made them sort of just look back and assess it and make sure this thing isn't going to go off a cliff in reality.

Larry Sabina

I think there's some things with the people that were strong, will ultimately be stronger. My guess is some of the smaller players that thought this will be fun to dabble in aren't going to, right?

Gayn Erickson

I mean, like you don't want it will be more fortified that gives us the larger players, which this customer would be one of them more confidence in their plans going forward. I think there has been things in the OEM space with respect to what kind of commitments needed in order to secure fab capacity that is being played out right now on it. I think there have been some market shifts in the industry that you know, can shift around seemingly in a with no particular impact, but may have impacted us I know people have And so is it.

Larry Sabina

But do you think they might buy? Or do you think it might have anything to do with them waiting for 200 millimeter then going for throttle with your fully automated systems on I mean on to offer customers, we talk to want to ensure that we can do both six inch and eight inch 200 millimeter.

Gayn Erickson

So in that sense, maybe but nobody is saying, no, your system only needs a new 200 millimeter. So I'm not going to so they want to have to rely on multiple WaferPak. Yes, with our own checks around that as well. But there may be some of that, Larry, and it may be that. Okay. Why don't we start the line on the 200 millimeter line instead of there's always there's always process things. I think I think I can take instead of customers where that's the case. But like I said, it's actually interesting where they were. I'm engaging the customer right now, I won't fully automation, $200 million return. Similar to rimonabant typically would deliver 200 or yes, the first wafer is going to be $0.06 like Okay. Well, it's an end effector on our automation. It's no big deal, but so I don't know exactly sorry, I'm thinking.
So they don't have to buy a bunch of six inch wafer packs, we'll just go with eight inch and move forward. Anyway. Getting back to memory, did you say did you give a time line on when you thought you were going to country, one of them in terms of a belt or in our prepared remarks, such as subsea effect as this year, we are hoping to have a runway for Benchmark process going through such a process? I mean, I'm I'm assuming they would want to have an evaluation tool at their disposal or you would have to supply a tech person. But isn't that the way that kind of a business would have to go?

Larry Sabina

Yes, they are doing mostly or most of them work. I don't want to share all the way we have structured the conversations with the in more than one memory customer, just for maybe obvious reasons because people have slightly different variations of what their expectations are, but candidly and publicly or end.

Gayn Erickson

I think it's a matter of partnering it partnering with those customers taking and working with them on their key testability and DFT. modes and how they go about their cycling burn-in test. You have the best low pin count test mode on all things that I spent my whole career at prior to this on those key differentiations as a vendor you want to say, yes, to how can I help the critical aspects are the low cost contactor, the full automation and alignment, high performance, high parallelism, very small footprint on wafer starts per month. So those are critical aspects that we have key differentiation on and then working with those customers on their specific and unique test requirements for their or their particular devices, it would be part of the process.

Larry Sabina

Yes, that's why you got to get in there before those fabs or fab designs are locked down so they can design the fab around your equipment, little smaller, clean rooms and whatever, right?

Gayn Erickson

Yes, I mean, yes. And no. I mean, again, I don't get so traditionally burden and is considered a pocket back end of test all of testers to turn back it in semiconductors, but burn-in is often done so you can you could ship your wafers to your back-end facility before singulation as well. So I again, I know a biopsy, a fab is built and they haven't put my tool in there. I don't I'm not saying, oh, gosh, I missed it.

Larry Sabina

That's just Dr. Ritter and I was thinking for sorting on especially flash sorting is still in about the fab, right?

Gayn Erickson

Most of the time.Yes, yes, I can say that's all I had. Thank you.

Jed Dorsheimer

Thank you.
Thank you.

Operator

(Operator Instructions) No one further in queue. I'd like to turn it back to management for any closing remarks.

Gayn Erickson

All right. Well, then we've certainly covered enough of the topics and questions. Hopefully it answered all the people that incentive has always. We appreciate your time on here, and we'll look forward to either seeing you at one of the investor conferences or on our next call, that will be our Q4 and fiscal year 24, and that will be somewhere in mid July or so. At that point. We'll also be giving guidance for our fiscal 25.
As always, if you happen to be anywhere near the Bay Area and Silicon Valley look us up, we'd be happy to do it meet and greet and give you a tour of our manufacturing floor. It's quite impressive. Thank you, everybody, and have a nice day.

Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.