Aehr Test Systems - Earnings Call - Q1 2021
September 24, 2020
Transcript
Speaker 0
Good day, welcome to the Era Test Systems First Quarter Fiscal twenty twenty one Financial Results Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' first quarter fiscal twenty twenty one 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, Ken Spank. Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items. This afternoon, Aortest issued a press release announcing its first quarter fiscal twenty twenty one results.
That release will be available on the company's website at aehr.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 today 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 that may cause results to differ materially from those in the forward looking statements 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 Airtest Systems undertakes no obligation to update the forward looking statements.
And now with that said, I'd like to turn the conference call over to Gayn Erickson, President and Chief Executive Officer. Gayn?
Speaker 2
Thanks, Jim. Good afternoon to those joining us on today's conference call and also listening in online. Ken will go over our first quarter financial results later in the call, but first I'll spend a few minutes providing some details around the challenges we experienced during the quarter and how we responded. Then I'll turn to what we're seeing now and why we think things are moving in the right direction. And then following our remarks, we'll open up the lines for your questions.
As we anticipated on our last earnings call, our first quarter financial results were impacted by the challenging global business environment created by the COVID-nineteen pandemic and push outs of forecasted customer orders during the past six months for our FOX P systems and consumables. We saw this from customers serving data centers and some five gs end use applications with silicon photonics transceivers, but we also saw push outs of forecasted orders for devices used in automotive applications and also sensors used in mobile devices. These customers have indicated that they believe the push outs are temporary and that they will require the additional system capacity and consumables later in the current fiscal twenty twenty one year. The majority of our revenue forecast for this fiscal year comes from current customers that have already qualified our systems and consumables for production applications. This includes follow on orders from our silicon photonics customers, forecast production ramp of current devices as well as adding new devices with our initial silicon carbide customer that we won last year and follow on orders from our growing installed base of FOX wafer level and singulated die and module test systems consumables.
Consumable sales of our FOX WaferPaks and DiePaks accounted for almost 50% of our revenue last year and we anticipate that it will be a significant part of our revenue again this year. We are maintaining our full year revenue expectations and expect the majority of our orders and VAT revenues to be back end loaded this fiscal year. It's also important to note that the vast majority of this expected revenue is based on commitments from our current customers who have already planned their production and told us what they're going to buy from us. I want to ensure that our shareholders know that we're not confused that fiscal Q1 was financially a bad quarter. However, we did have some events and achievements in the quarter that set us up and provide us optimism about our business for the rest of the year and moving forward.
In Q1, we shipped and successfully installed the FOX NP full wafer test and burn in system for initial production burn in and stabilization for a new customer who is a global leader of communication transceivers for data centers, telecom, and five g infrastructure. This customer is forecasting to transition to our FOX XP wafer level test and burn in systems during this fiscal year to meet their volume production forecast and we expect them to continue to grow for the next several years. We categorize this customer as a Tier one customer, which we define as a customer with the resources in the market size to be able to purchase 6,000,000 to $10,000,000 or more per year of our systems and consumables. On our last call, we announced that we closed an initial order with the world's largest outsourced semiconductor assembly and test supplier. During the first quarter, we began an initial marketing and sales campaign with this customer for the FOX P family of products including air wafer packs and die packs for production test, burn in and reliability screening of devices at full wafer, singulated die and module level.
The initial marketing and sales campaign has already resulted in multiple new customer engagements. They have asked that we not name them publicly yet because they see their move into the silicon photonics assembly, packaging and test space as a strategic initiative. They want to gain market share from some critical target customers before going public with what they see as a competitive advantage of being able to provide a total solution, including full wafer level test and burn in before assembly of the silicon photonics engines into the transceiver modules. We expect to make this partnership public in due course. We also broadened deployment of the FOX XP for silicon carbide devices during the quarter.
We added multiple new device design wins and completed the initial production release of several new silicon carbide devices on our FOX XP system with our lead customer that is using the FOX XP system for high volume production burn in and infant mortality screening of silicon carbide devices at wafer level for electric vehicle power modules. They are forecasting additional capacity needs for our FOX XP systems as well as consumables during this fiscal year and for years into the future. A critical capability that only our solution can provide on the market today is the ability to test 100% of the die on a wafer in a single insertion while providing 100% traceability of passfail results of each device including exactly what time during the test and burn in cycle the devices failed. This is a critical feature for them to provide confidence to their customers that they're removing all early life failures prior to shipment. They have made public presentations in industry conferences touting the cost and quality assurance advantages of using our solution compared to traditional package or module level test.
Our systems are not only able to test 100% of their devices on four, six, eight and twelve inches wafers, but we can test and burn in 18 wafers at a time in a single FOX XP system. We continue to see the total available opportunity for silicon carbide and silicon photonics wafer level and singulated die test markets to be approximately $250,000,000 of needed capacity including consumables. The silicon carbide semiconductor device market is growing at a tremendous rate with unit growth of high power devices expected grow at over 50% CAGR from 2019 through 2025 per YOLO research. We remain engaged with well over a dozen potential customers and in Q1 our list of Tier one and Tier two customers that are considering using Era's products for high market growth applications including silicon photonics and silicon carbide production burn in continue to grow. In addition, we have seen incremental applications and devices in the mobile sensor segment that provide potential upside in this segment late in fiscal twenty twenty one and into 2022.
Also, I've talked about before, we started to see forecast for renewed demand for packaged part burn in applications, particularly from customers seeking high voltage capability, reflecting a move toward higher voltages and other requirements for devices and automobiles. We expect to see bookings resume from certain current air customers this fiscal year and also expect to generate additional new opportunities with our planned introduction of a new packaged part burn in product that adds very high voltage test capability. However, we're relatively conservative with our forecasted packaged part burn in as this segment seems to be heavily impacted with COVID-nineteen delays in customer evaluations. We have recently seen two customers push out their expected need for additional systems into our next fiscal year, which as it turns out actually helps us with the timing of our new system availability. Still, we do see the need for high voltage capabilities in both wafer level and packaged part as a new high growth opportunity for Air and expect to add several new customers that include both Tier one and Tier two level customers for packaged part burn in this fiscal year and next.
While COVID has created real challenges with travel restrictions and overall caution with our customers, which has resulted in delays of some production customer production ramps, we believe there is no long term negative impact to Air, the demand for our products or the attractiveness of the key markets that we serve. We maintain our belief that we will come out of this worldwide pandemic stronger than we went in with more production customers, more applications and higher value products. Our key customers are serving some of the highest growth markets including data centers, five gs infrastructure, sensors and technology for smartphones and tablets, electric and hybrid electric vehicles, and memory and data storage and computing data centers, mobile devices and hundreds of applications that are keeping the world connected. As a result, we believe our products will be in high demand this year and for years to come. As we continue into fiscal twenty twenty one, we remain optimistic about the growth opportunities for our systems and consumables within our installed base of customers as well as our ability to expand the number of customers using the FOX family of products.
We expect significant growth in both our top and bottom lines moving forward with lower fixed operating expenses and significantly higher margin products and services. Before I turn the call over to Ken to discuss the financial results in more detail, I do want to take a moment to thank John Schneider for his many contributions as a Board member since 2015. Earlier this month, we announced that John was retiring and not seeking another year with the Board and also the appointment of Jeffrey Scott to our Board of Directors to replace John. As some of you know, Jeff has been a significant investor with Eir for quite some time and is very active and engaged with the management of the company. He brings significant insight into investor relationships and also corporate banking and capital markets.
Jeff will be replacing the Audit Committee, Corporate Governance and Nominating Committee positions vacated by John. So we welcome him on board. And then with that, I'll turn it over to you, Ken, and then we'll open up the lines for questions.
Speaker 3
Thank you, Gayn, and good afternoon, everyone. As Gayn noted, our first quarter financial results reflect the impact of the challenging global business environment around the COVID pandemic and customers who pushed out forecasted orders for our FOX systems and consumables during the past six months. These customers have indicated the push outs are temporary and that they will require the additional system capacity and consumables later in our current fiscal year. As such, we expect our fiscal year orders and revenues to be back end loaded. At the same time, we discussed on our last earnings call, we have taken actions to control spending.
In our fourth quarter, we completed a restructuring to strengthen our sales capabilities and reduce our costs. These actions, including closing our Airtest Systems Japan subsidiary and moving to a sales rep distributorship model in Japan and Germany resulted in permanent savings of approximately $120,000 per quarter. We believe these enhancements will improve our efficiency and materially increase our sales activity and bookings going forward and increase our penetration of key customers in our targeted markets. As we have shifted to higher margin, highly differentiated systems and consumables, these changes also position us for success with sales of our current products as well as additional new products planned for introduction this year. We have also implemented temporary cost reduction initiatives.
These actions reflect prudent short term cost reductions in response to the decrease in order and shipment activities in Q4 twenty twenty and Q4 twenty twenty one and our commitment to managing cash expenses as we weather through these challenging times. These temporary cost saving measures resulted in savings of over $200,000 in operating expenses in Q4 and over $350,000 in savings in Q1 twenty twenty one. As we announced in our eight ks filing earlier this month, starting in the current second quarter, we expanded our cost reduction initiatives to include a 30% pay reduction in officers' salaries, an increase in mandatory shutdown days and reduction in employees. These cost reduction measures are expected to result in savings of over $550,000 per quarter. Including the permanent and temporary cost reduction measures, Air's revenue breakeven decreased by approximately $4,500,000 per year.
It is important to note that even with these cost controls in place, our operational capacity and bandwidth have not been negatively impacted, and our main focus continues to be growing our revenue base within the large market opportunities that Gain mentioned earlier. Now turning to the financial results. Net sales in the first quarter were $2,000,000 down from $3,800,000 in the preceding fourth quarter and $5,500,000 in the first quarter of the previous year. The sequential decrease from the preceding Q4 reflects a decrease of $1,600,000 in wafer level burn in revenues and $195,000 in customer service revenues. This was primarily due to a decrease in WaferPakDiPak revenues of $2,400,000 which was partially offset by an increase in Wafer Level Burn In system revenues of $801,000 The decrease from Q1 last year reflects a decrease of $3,100,000 in wafer level burn in revenues and $365,000 in customer service revenues.
This was primarily due to a decrease in wafer level burn in system revenues of $2,100,000 and a decrease in WaferPakDiPak revenues of $1,000,000 There were no packaged parts system revenues in Q1 twenty twenty one, Q4 twenty twenty or Q1 twenty twenty. Non GAAP net loss for the first quarter was 2,000,000 or $09 per diluted share compared to non GAAP net loss of $720,000 or $03 per diluted share in the preceding quarter and a non GAAP net loss of $214,000 or $01 per diluted share in the first quarter of the previous year. The non GAAP results for Q1 twenty twenty one include the impact of stock based compensation expense and a $2,400,000 adjustment related to the closure of our Japan subsidiary. This adjustment includes a $2,200,000 cumulative translation adjustment, a noncash item, representing the cumulative impact of exchange rate fluctuations held on our subsidiaries' books, which was released to income due to the dissolution and liquidation of our Japan subsidiary in Q1 and a tax benefit of $215,000 related to the closure. On a GAAP basis, net income for the first quarter was 107,000 or $00 per diluted share compared to a GAAP net loss of $2,900,000 or $0.13 per diluted share in the preceding quarter and a GAAP net loss of 413,000 or $02 per diluted share in the first quarter of the previous year.
Gross profit in the first quarter was $227,000 or 11% of sales compared to a gross loss of $93,000 or 2% of sales in the preceding fourth quarter and gross profit of $2,300,000 or 41% of sales in the first quarter of the previous year. The increase in gross margin from the preceding quarter is due to the impact of the $1,600,000 excess and obsolescence inventory provision during Q4 twenty twenty, accounting for a 44 percentage point impact in gross margin in the quarter. Gross margin was unfavorably impacted in Q1 twenty twenty one due to higher unabsorbed overhead costs due to low revenue levels in Q1 twenty twenty one compared to Q4 twenty twenty and Q1 last year and an increase in direct material costs as a percentage of sales due to a change in mix from wafer level excuse me, WaferPakDiePak revenues to system revenues in Q1 twenty twenty one. Operating expenses in the first quarter were $2,400,000 down $334,000 from $2,700,000 in the preceding fourth quarter and down $286,000 from the first quarter last year. The decrease in operating expenses from the preceding Q4 quarter is primarily due to restructuring charges of $220,000 in Q4 twenty twenty and a decrease in employment related expenses from cost reduction initiatives implemented during the middle of Q4 twenty twenty.
The decrease from Q1 last year is primarily due to a decrease in employment related expenses from cost reduction initiatives implemented starting in the middle of Q4 twenty twenty. SG and A was $1,500,000 for the first quarter and a decrease of $160,000 from $1,700,000 in the preceding fourth quarter and down $294,000 from $1,800,000 in the prior year first quarter. The decrease from Q4 and Q1 of last year is due primarily to a decrease in employment related expenses from the cost reduction initiatives previously mentioned. R and D expenses were $900,000 in the first quarter, up slightly compared to $854,000 in the preceding fourth quarter and flat compared to $892,000 in the prior year first quarter. Turning to the balance sheet for the first quarter.
Our cash and cash equivalents were $6,300,000 at August 31, up $880,000 compared to $5,400,000 at the end of the preceding quarter. Accounts receivable at quarter end was $1,100,000 down from $3,700,000 at the preceding quarter end due to the impact of lower revenue levels in the quarter. Inventories at August 31 were $8,100,000 up slightly compared to $8,000,000 at the preceding quarter end. Property and equipment was $622,000 compared to $663,000 at the preceding quarter end. Customer deposits and deferred revenue, short term and long term, were $406,000 an increase of $214,000 compared to $192,000 at the preceding quarter end.
Our current and long term debt of $1,700,000 is related to funds received during the fourth quarter under the Paycheck Protection Program, or PPP, which we announced in an eight ks filing in late April. The PPP loan is intended to be forgiven, subject to any provisions of the CARES Act, and we've just been notified that our bank is now accepting applications for loan forgiveness under the PPP program. We expect to complete the application process shortly. Bookings in the first quarter totaled $672,000 Backlog at August 31 was $1,200,000 compared to $2,500,000 at the end of the preceding fourth quarter and $3,600,000 at the end of the first quarter of the previous year. Now turning to outlook for fiscal twenty twenty one.
For the fiscal twenty twenty one year ended 05/31/2021, we are reiterating our guidance for full year total revenue of between $25,000,000 and 28,000,000 which would represent growth between 1226% year over year and to be profitable for the year. Lastly, a couple of updates on the Investor Relations front. Our Annual Shareholders Meeting will be held on Tuesday, October 20, and we will and will be available to join via webcast for all interested parties. Then in November, we will be participating in the Craig Hallum Alpha Select Virtual Investor Conference on November 17. We hope to see some of you virtually at the conference.
This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.
Speaker 0
Thank you, sir. At this time, we'll open the floor for questions. We'll take our first question in queue. This comes from Christian Schwab, Craig Hallum Capital Group. Please go ahead.
Speaker 4
Guys. Good afternoon. Gane, can you help us understand the applications or the specifics? I guess, kind of missed it in the prepared comments about the customer commitments for the meaningful revenue over the next two to three quarters to get to our target revenue range for the year. Can you walk us through some of the commitments that you feel very confident about?
Speaker 2
Sure. I want to be I haven't thought through exactly being able to say it because in some cases, the customers are are unique and people have a pretty good idea what they are. So I'll try and water it down a little only in intent to trying to, you know, protect the the the nondisclosures with the specific customers. But let me just so let me just talk first about a few of the markets. So in silicon in silicon photonics, we I would say most of those customers all have, clearly indicated that they will be increasing their production capacity.
As I think through this, all of them are saying they're increasing their production capacity throughout the year. And that would be consistent with the market growing, the silicon photonics market, like, 40% or something CAGR, in terms of revenue, maybe a little higher than unit growth, for the silicon photonics transceivers. And just as a reminder, as I've gone into it in detail before, these are basic fiber optic, transceivers that are, heavily used in data centers and in long haul telecommunications applications and are a big part of the five g infrastructure. So in reality, all of those are growing. And and, candidly, you know, everyone has said, boy, with this downturn or or or with this COVID and everyone being home, everyone's using data centers and on Zoom and everything else, it's isn't data exploding?
The answer, I think, across the board is yes. But if you go and you look at companies, there have been companies in the space like Sienna and some others have actually specifically talked about, you know, slowdowns in the data centers. And we know specifically there's been slowdowns in five g infrastructure build and, you know, as a result of, you know, people not having vendors on their floors or doing the upgrade. So we've had our customers and pretty specifically describe their end customers having delays in orders and therefore saying, you know, you know, game I know you, you know, prebuilt the system or we we were anticipating taking it. You know?
I we're not gonna give you the order until we have that order in hand from our customers. And and just for clarity, because there's a high concentration of the data center guys, and it feels like you're name dropping, but, you know, a good chunk of the dollars are spent by Amazon, Google, Facebook, you know, Apple, and and the likes, and Microsoft. And so, you know, within those names, I specifically am aware of some delays in those data centers and upgrades and stuff that are impacting my customers. But they are restating, yes, they expect to renew that or reengage it. And, you know, it's a it's a it's a short term delay, and it's not a long term delay.
And it's not until COVID clears. It's like, hey. We just right now, we have to get our act together, figure out how we're gonna get vendors in here and do some things like that. That's how it's been communicated. On the silicon carbide side of things, I would say it's less about that.
I I doesn't feel the same way. It feels like people are going forward pretty aggressively with those. Certainly, on the customer evaluation side of things, we've seen some slowing or difficulty of travel restrictions. But, candidly, and we shared with you before, the bulk of our revenue forecast that we guided at the beginning and we're reinstating now is actually not with new customer wins. And so, you know, while those are impacted, you know, that's not what would be impacting our revenue for this year.
So we do anticipate, you know, current customers ramping, and they're being pretty specific about what their expectations are. And we see facility upgrades going on and and, you know, hooking up water and electrical for where the tools are gonna go. So there's, you know, reasonable visibility. And then I'll I'll share one more market, and that is, you you know, people know that we're in in the mobile side of things. And, you know, our end customers and their, you know, customers, there have been some pretty publicly visible delays.
Things that would normally be introduced this time of year have been pushed out. And, of course, they didn't give us much heads up of that. That's obviously very secretive. And so as soon as the orders don't come, then, you know, there's a push out. So we've seen some of that, and we see some of that kind of flowing into the year.
But they too are forecasting in, capacity requirements plus some upside new opportunities, that could so forecasted specific requirements for this fiscal year plus some upside opportunities that could happen for revenues early at the end of this year or into next fiscal year 2022. I hope that gives you some clarity.
Speaker 4
Yes, just a little bit potential further clarity. So you would expect the majority of the revenue to come from silicon photonics. Is that correct, or am I thinking about that wrong?
Speaker 2
No. I mean, it I would say the majority of it is silicon photonics, silicon carbide, the mobile sensors. And, actually, we do anticipate the we haven't talked about them. I didn't in fact, I didn't put in the the conference call bullets as I think about it. We had won a big customer a couple of years ago that we referred to kind of very generically and hazy as significant data center high volume application, or data storage, I think we described it.
There's reasons why we're being elusive. It'll eventually come out. But it that program was was delayed for reasons that we know include specific things related to COVID in terms of when they were going to roll this thing out. But we currently have forecasts that are at the end of this fiscal year for systems to be taken. So, you know, it's a it's a balance of all of those.
And and in fact, it's, probably in that order of of dollars, but all of those are, you know, material. I'd say each of those could be, you know, 10% or more of our, you know, even the smallest market segment would be over 10% of our forecast.
Speaker 4
Okay. Fabulous. And then lastly, what happens if COVID related travel restrictions, you know, remain in place through
Speaker 2
Yeah. Yeah.
Speaker 4
You know, a few more quarters with you know, any way for us to figure out how that would impact your business, or or do you believe that most of those negative impacts, you know, are behind you and that's why you're confident in reiterating previous guidance for the year.
Speaker 2
Thanks, Christian. And actually, we had a couple of other folks ping us on this question. So I just I actually just quickly, right before the call, jotted down some notes. So I just you know, so people don't wanna accuse me of anything. I'm gonna actually read a little bit from my notes here on this one.
But because I as I wrote it down, I I just wanna be thorough, I guess, and as clear as I can on it. And it might repeat some things, but anyhow, first of all, not all customers are impacted by the travel restrictions, either because we have resources locally, so we can put people on it, or we've worked around them. I mean, for example, we've had a couple of specific examples where we sent ahead, applications and service people to those locations, and they had fourteen day quarantines locally. One of those was international, and one of those was in The States. K?
And it wasn't flying from California into the state, which is kind of interesting. But the customer themselves had a quarantine put in place. So we planted the the guys in hotels and waited it out. It turns out working remotely doesn't always make that much difference when you're supporting cost customers over the phone and over the computers, which is how we normally are doing it. So it doesn't make that much difference whether you're in your home or a hotel setting aside, you know, the burden on the on the employees, right, who we have these very committed employees.
As such, the impact of the fourteen day quarantine has been basically manageable or effective. Right? So the guys go. They're working every single day kinda like they would be doing from home, and then they're released, and they can get on the customer site and do something. And then in many cases, we've actually just physically have local support resources, and so the customers have figured it out.
We're important. You know, when you get on the floor, we get on the floor. So we've been able to ship and install systems without any impact. And then in general, we've always supported customer systems over the phone and remotely, this doesn't change. We have the ability to log in to customers.
I mean, we don't jump on a plane to go to South Korea for something that's urgent if it's something that needs to be responded to by the factory. We just do that immediately. K? The customers that told us that they've delayed their ramps, they're specifically telling us now that they expect the ramp to happen later this year. K?
Obviously, it's fair to say this too could change. I do see customers adapting to kind of a new normal, if you wanna call it that, of planning for ramps and equipment installations given the restrictions. And they seem to be getting used to it or put in place processes to deal with it. I mean, by contrast, you know, in the first few months of this, it was felt totally different, and it was just complete lockdown. Nobody had any idea.
They didn't know, you know, can they ask people to come on? What would that be? What are the protocols? And so we have protocols for customers to come on-site, and have done that. We have ability for vendors to come on-site and have done that, and we now have protocols and a good handshake with customers that people seem to be getting business done.
But that's very different than it was even two months ago. I'm more concerned about new customer evaluations. This feels more impacted. However, like our current fiscal year, as we said, is majority made up of current customers. So we're less dependent upon our new customers, and so that also gives us a little bit of a cushion from this impact.
Having said that, we're actually doing some novel things in in maybe I shouldn't use the phrase novel these days, but we're doing some novel things in presales. K? Last year, before COVID nineteen, we began putting in place a new demo center that we had talked about in our headquarters here in Fremont that was able to demonstrate all of our tools in real applications. K? We did this because we were getting, quite frankly, swamped with customer requests.
And we were like, how do we optimize this thing? Because, honestly, traveling around and trying to do them on customer sites is gonna be very efficient. K? And it basically allows us to do actual customer benchmarks of our wafer level burn and simulated die module stuff for them and evaluate the systems and see the results. K?
So they can come to our site or they can send their wafers or devices, and we will do it for them. K? So we actually specific experiences with our initial silicon carbide customer last year. So we've demonstrated to them the effectiveness of wave level burning on their wafers. They were totally unclear whether this was gonna work.
After the benchmark and at the completion of it, they actually turned around and asked us, would you be okay if we sent you wafers that you could test for us for production use for our customers until we deliver a system that they immediately ordered from us? We actually said yes. And we while we were building the system over the next couple few months, we were shipping wafers. They were shipping us wafers. We were testing.
We were shipping them back, and they went to customers. K? In this example, they never set foot on our test floor. So we were able to actually do that. And so we were like, well, that seems like a good example.
So now we're actually doing the same thing, and we're offering to do this with other customers. And in fact, we added three more stations since the COVID outbreak that we can do more benchmarks in parallel. These are all in in clean rooms, and they're manned by air personnel. And we're actually pushing out a new program. We haven't really named it exactly, but to entice customers to make this leap of faith and do the benchmark entirely remotely.
You know, of course, we can do video conferencing and live demos and things like that, but this is this is actually interesting. This is probably an example how things are going to change permanently in the world as, honestly, this is more cost effective and efficient not only for us, but our customers. It's probably a best in class example of what we'll do even after the pandemic's behind us. So, it's really our expectation that now as companies are realizing restrictions are expected in place until next year, You know, we're not confused. I don't think anybody in the company, I don't think our shareholders, no one no one's, you know, assuming that, you know, COVID's completely released, we're back to normal, quite frankly, in our fiscal year.
The customer's looking at ways to continue with their business plans as well, and, they're not just gonna delay all their plans and growth until after the pandemic. So we've specifically heard this from certain customers, and I personally expect that most will be able to will be taking on this plan. So, you know, again, we're not assuming that, you know, COVID dries up and goes away November 3, not to be, to pull that into this for things to get better. We're kind of assuming it's going to stay the same for a while. Okay?
Speaker 4
Great. Thank you. No other questions. Thank you.
Speaker 2
Okay.
Speaker 0
Our next question in queue comes from Larry Klabina with Klabina Capital. Please go ahead.
Speaker 5
Hey, Larry.
Speaker 6
Good afternoon. Gain, you mentioned that there's two process methods for testing silicon carbide wafers. The first one is the was the easiest, and that was the lead customer for that application that you have in production currently. Are you are you trialing anyone with the other method to to debug it and prove your system will work for the second method of testing silicon carbon carbide wafers?
Speaker 2
Okay. So, Larry, let me just sort of repeat back for everyone else that doesn't follow that as much. And just as a reminder, silicon carbide is a new complex semiconductor device that's claimed to fame is you can run it to thousands of volts, and it operates very efficiently, whereas normal semiconductors can only run to tens of volts. And the big and the kind of most notable one is when Tesla integrated a silicon carbide discrete, you know, fats into their model three and end up getting, like, I don't know, 30% longer range on their car. It's turned the electric vehicle, hybrid electric vehicle industry completely on edge, and every every single one of them is shifting towards us as fast as they can.
And so they're all going to the silicon carbide, and there's just not that many people and not much capacity that's out there. The beauty of it, and it's a little odd, but as a tester guy, the beauty of it for us is while silicon carbide is extremely reliable long term, it actually has a very high infant mortality rate, which means that a higher percentage of the devices fail early in the first so many hours of use. But after that, they don't fail anymore, and they're much lower or much higher reliability or lower failure rates than other components, and they're much more efficient. That's the perfect dream for us because that means you need our equipment to go in and weed out the infant mortalities by testing them for hours, days at a time to remove the infant mortality, and then, they're more reliable. Okay.
First of all. Now these devices, the hot ones, field effect transistors or FETs, they're actually a very simple device, and there's two known methods that are published out there for achieving the reliability. One of them is done with what we would call a medium high voltage on the gate source, which applies a voltage and grounds the other two channels, excuse me, and can achieve a very high reliability and weed out all of the failures. There's another type where you actually bring it to a very high voltage measured in, say, over a thousand volts, and you isolate it so that it doesn't conduct and ensure that it doesn't fail over so many hours. And what we understand within the customer base is there's literally two camps.
Customers do one or the other and in production, not both. And so we've actually our first customers, and we've talked to people about it, are out heralding the one with the gate bias. And, there are more than one. There's multiple out there that have talked about that, and they have white papers and talk about why that's the greatest. And that's actually our first customer applications.
We are engaged with other customers on the reverse bias as referred to, which is a high voltage, at both in both wafer, singulated die oh, I should say, wafer, singulated die, and standard package part applications. And interestingly, there there's a discussion with them. Like, most people are doing some sort of package part today and really struggling with it or have lower voltage and home brewed, they're looking for new solutions. But then mentally walk up and say, well, I need a package part burn in system, which is a different kind of machine with air cool resources and things like that. But it actually has real trade offs to it even though we sell them.
By contrast, most customers are saying, but if I can, I need to get to wafer level or singulated die because the devices are put into modules in die form? They're never packaged up until they're packaged with eight or 10 devices. So we have customers that are saying, you know, give me a quote for a high power, high voltage packet by burning system. And another group in the same company saying, but try and solve this at wafer level. There are some challenges at wafer level that we have some unique, ideas and concepts in both hardware methodologies as well as design for tests that we have been communicating to customers.
And I would encourage any customer who possibly listens to this to give us a call. We would be happy to, under nondisclosure, talk about those test methods on how you can actually achieve high voltage testing at wafer level, which most customers understand the real technical trade offs of what is needed to be done, and, we'd like to talk to you about our solutions for doing it. It's our expectations that we will have those solutions available for production customers in time as soon as this year. K? So right now, we're not counting on that for our forecast either by the way, Larry.
But we're working on that.
Speaker 6
So Gain, did I hear you say that another approach, a possible approach for that higher voltage application could be, to simulate the dies first and run them in a die pack configuration. Is that
Speaker 2
Yes. One of
Speaker 6
the options?
Speaker 2
In a really in a really cool opt option. At high voltage up to 2,000 volts. Yes. On a box system. That's right.
Speaker 6
So so why don't you make a deal with one of these guys and, build a DiePak for them and prove it to them?
Speaker 5
We're we're working on it.
Speaker 2
Remember that little thing I had earlier, just like we've got a program we're working on? That's part of it. We are specifically approaching certain customers about engaging that in sort of a partnership way. So of
Speaker 6
the known silicon carbide targeted customers, what how many do the reverse bias, the high voltage approach, and how many do the low voltage?
Speaker 2
So so far, candidly, let's say there are ten ten obvious top guys. There's there's even smaller ones than that. We are aware of about half of them what they do. We actually there are certain ones, particularly down the list in terms of size, that have not yet shared with us what their preference is. Not totally sure why.
And by the way, again, some of this is normally I would jump on a plane and go visit them and we I'm unable to do that. We're definitely that it's definitely something I feel, but we are getting to some of the big guys.
Speaker 6
So so you didn't answer the question, though. Of the known approaches you
Speaker 2
said Of the ones I know, are of the ones I know, I know three that are gait and two that are reverse so far.
Speaker 6
So possibly, it could be half and half or maybe even more of the low voltage or less of the high voltage.
Speaker 2
Correct. And I know specifically on one of the big guys that does reverse, which is the high voltage one, they have specifically asked us about gate and would and have discussed implementing that or benchmarking it because it has some other advantages, by the way. But they had qualified with their automotive customers reversed, and it's actually kinda hard to to change your qualification process. So one thing we're also trying to do is I mean, the reality is this is, like, you know, five big automotive guys. Right?
So, you know, our lead customer is engaged in, you know, several of them. And so just getting qualified with this and wafer level burn in, which has already been done, I think will help. And, you know, one of the thoughts is how do we get the industry message out there that this is a viable qualification process.
Speaker 6
So, I mean, you proved that one, you know, with with your current customer, it just seems like it's such an an incredible benefit in terms of not only efficiency and throughput, but also savings from having to throw away modules that have a defect in them. And you're screening them out before So Totally agree. Putting on a diamond in system.
Speaker 2
So I mean Yep. I completely agree.
Speaker 6
Well, I'm really really struck. You know, you you you landed your current customer a year ago, And here we are a year later, and you still don't have any additional customers in that area, which is which is I don't know. I I just find that hard to hard to understand when there's such a clear benefit.
Speaker 2
I think some of that is very fair, Larry. And we've been in discussions with some of the things we've done, for example, as we it's a byproduct of it. If you look at silicon carbide, there's really three main areas that it's being built. Right? First, it was in The US customers, Cree being the most notable one.
It's up and down the East Coast. Then it's in Europe between Italy and Germany. That's very big hotspots for silicon carbide we know specifically, and Japan. And what you'll note is that we made the decision to shut down those sales offices entirely in Japan, and we have the sales management team and there have retired, and we have replaced them with reps. Right.
It's actually one of those specific things we're trying to do as well as and we have a really great rep often running in Germany that takes Northern Europe, and we've had some recent traction with our rep in Italy and France in this area as well. So in your LD conference in
Speaker 6
your LD presentation, you indicated I thought that you were running trials with other silicon carbide customers. Is that I
Speaker 2
think it would be more I want to be a little careful on all the competitive stuff, but I think it would be more fair that we have discussions with those customers related to trials and not on wafer.
Speaker 6
Ken, on your balance sheet, you show a split of short term and long term debt. That's the PPP loan. Why is it why does some show up on short term and other and the rest of it on long term?
Speaker 3
Well, the PPP loan actually has the two components. It's not due for two years with the actual first payment not being due within six months from the loan origination. So that's the requirement why it's broken out from a GAAP standpoint into short term and long term. However, as I mentioned, we the plan is is we expect to have loan forgiveness of the entire $1,700,000. The portal at our bank that will allow us to apply for the forgiveness actually just opened up to us yesterday.
So the plan is as we expect to have that forgiven and hopefully that will be removed from our balance sheet somewhere near our next reporting.
Speaker 6
Good. That was my next question. Lastly, has the CP status gain has that slipped appreciably? I think you said last quarter that it would be in the second half. It hasn't slipped anymore since then, has it?
Or
Speaker 2
are the dates that are coming? It has not. It have found some things from that customer. We actually had some that'd be an example where we we had a, what I would call, a fairly simple upgrade that we were planning to do. We shipped all the equipment ahead, and at the last second, the customer called and said, listen.
We've we've gotta shut down. Vendors can't get in the building right now. It's not critical. Like, you know, it's not keeping them from production or anything like that. So I don't know if it were critical, they would've let us in.
But there's an example where we haven't flown in and done it. But we based on what we know right now from them, you know, they're gonna need additional tools in, you know, late in our year and into you know, and then the ramp sort of starts for about a two year ramp.
Speaker 6
Okay. Then one one last real quick question on silicon carbide. You know, everybody that's involved in it is really excited about the potential. But where does it really stand right now in terms of wafer starts? Do have a sense of where it is today versus I know the projections are something like a half a million wafer starts in four years per year, which would imply that if you could get all of that business, it would require something like a 160 XPs to handle it all if it's a forty eight hour burn in.
But where does it stand today?
Speaker 2
Is it So still relatively small or I wanna be careful of exactly your numbers because we don't have them in front of me, but your math generically is correct. The forecasted wafers over the next few years is significant, and it requires a lot of XPs. So related to right now, I don't have in front of me, and I would know, I think the old development's probably one of the people that have their finger on the best estimates of it. It you know, for certain, there are released products. We know for a fact that, you know, products off our system are going and they're going into, you know, I don't wanna name the big customer, but, you know, well known EV and electric vehicles.
Right? Mhmm. We know that we're engaged with customers on other applications that are also released, and then we have a number of applications for new cars. There's so many electric vehicle and electric and hybrid electric vehicles that are in place. So there's, you know, there's tons and tons of evaluations going on and qualifications going on.
So I don't know. I have a really good feel. You know, our certainly, our customer and the customers we're talking to, you know, have capacity and will be ramping this year. And, some of those are, many of them are bigger than ours to begin with. The one thing that is subtle about this market that's interesting.
So if you look at silicon carbide and you look at the players and you say by their revenue, they stack up, you know, just publicly, you know, top to bottom, s two, Cree, and, you know, you go down a few Rome, and, you know, down a little ways to, like, an on semiconductor or something. However, the application the application, which is power modules, silicon carbide is displacing other power modules. K? And they're more efficient. In fact, they're so much more efficient that nobody can even imagine selling an IGBT into that application in two or three years.
So the real opportunity is to look at the power module companies, and then you realize that companies on the list that are pretty far down the line in silicon carbide have 1 or $2,000,000,000 businesses in that space. So those companies that are rushing into silicon carbide are have the ability to swap customers from a billion dollars worth of power of silicon or or IGBT modules over to silicon carbide. So I think that the folks like the the market guys are trying to figure out how fast is that transition. And, obviously, the customers or the our customers, but those vendors have an ability to negotiate with their suppliers. You know, do you want an IGBT for this price or do you want a silicon carbide for that?
And they are supplying the market today on all those electric vehicles. So I think that's where it gets interesting.
Speaker 6
The real driver though for your equipment, for your process is the module. Discrete isn't a big driver. But if they go wafer level burn in with your system, they'll use it for the discrete parts also. Right?
Speaker 2
I I believe that's fair. And I think I think that's the right way of looking at it. The module is so overwhelmingly advantageous to do it at wafer level, but we've heard from other customers that there's advantages to doing it anyhow once you get there. Right? So, you know, like our customer, we believe, are shipping products that are going into discrete components having done wafer level burning.
Speaker 6
Right. And why why I'm on that point, the the application for silicon carbide in modules is fairly new, isn't it, in terms of certainly automotive. In other words, the first application that you cited with Tesla on a Model three, that was with discrete products. Right?
Speaker 2
It was. That's a good observation. They put, I think, eight of them in the module. It
Speaker 6
is it isn't wasn't as obvious or as advantageous to go away for level burning until you start ramping on modules. And that's a fairly recent event. Is that correct?
Speaker 2
It is. I think you're in the early stages of an overwhelming ramp. Yep. Exactly.
Speaker 6
And that's what I'm getting at. So how you go at this and you knock these down, you have to knock them down, start knocking them down now. It isn't you know, the model three's been out for years, but it's the modules that's that's the driver, and that's a recent event. And that's why you should you know, burn should be knocking these down left and right, I would think. I don't know what So anyway, that's all I have.
Speaker 2
I will several of our investors and Larry, acknowledge you're one of the folks that has a deep understanding of silicon carbide and we have customers that have portfolios in that space that we're a part of. I I've done this personally, and this is an odd thing to do publicly. If you bring me a silicon carbide customer, we will do we will make it very cost effective, you know, if not free to do a benchmark.
Speaker 0
Right.
Speaker 2
And one of the challenges is to get some of those attention. We had planned I think we were in four or five shows this year that have all been canceled. They're not even virtual. And it would actually really caught us at an odd time. So, you know and I'll and I'll and I'll buy you a dinner when we're when we're when we're able to do it.
But
Speaker 6
I wonder I wonder if they start losing business with somebody that is taking an approach like this that finds it and can offer a much more economic price because they're not throwing away, you know, maybe half their 40% of their modules or something because they have a
Speaker 2
think about that. And as the news gets out there by the way, I've mentioned this. If you go back to the notes from last last quarter or maybe some one of the other ones, so I always allude to, you know, silicon carbide customer, and I don't go into a lot of the detail. But out on, I think, the Yahoo message boards, they were pointing to it. That paper has been removed.
So it's not publicly available, but if you give us you know, there a number of our shareholders actually have their fingers on it. Larry, I think you're one of them. So, folks, it's just it's interesting because, you know, they were out touting how great it was, and now they've kinda pulled back. It is an odd scenario because customers see the value of it, and they're out they're they're selling it as a differentiation to their customers. Well, if everybody goes to it, then it kind of normalizes and we're the only game in town.
Speaker 6
Okay. Hey, I took enough time. Thanks you guys.
Speaker 2
Thanks, Larry.
Speaker 0
Our next question in queue comes from John Thickorn, Dialectic Capital. Your line is open. Please go ahead.
Speaker 7
Yes, hi. Thanks for hey, Gain, how are you? So a few questions. I'll try and be quick. First of all, it sounded like you reduced your breakeven quarterly to around $4,500,000 Is that right?
And if so, is there some kind of EBITDA guidance for if you guys hit your targets for the year?
Speaker 2
I'll let Ken mean the first one is easy, which is yes, but I don't know we've given
Speaker 3
Hey, Gane, I'd like to jump in here. We've reduced our breakeven by 4,500,000.0 Our breakeven is not $4,500,000 And just kind of walk through where
Speaker 7
keep breakevens around $4.5 a quarter is what I said, not yet you reduced it 4,500,000.0 annually. But however you want Absolutely. Express that would be
Speaker 3
So kind of talk about it quarterly. I think I've said before that our breakeven historically based upon our fixed run rate structure and our average margin is a little over $6,500,000 a quarter or a little bit over $26,000,000 a year. And that's what we've said in the past. With these cost reduction initiatives, reducing that $26,500,000 or $6,500,000 a quarter, down our $700,000 a quarter in spending, that gets our breakeven per quarter down about $5,500,000 a quarter or about $22,000,000 a year.
Speaker 7
And that's a GAAP number?
Speaker 3
That is a GAAP number, correct.
Speaker 7
Fine. I was thinking more of an adjusted EBITDA number, but that's fine. So if you guys come in at $28,000,000 then that should all the excess should drop to the bottom, right?
Speaker 3
Yes. And again, so you talked the EBITDA. We actually did a cash breakeven. If you take a look at what our stock comp is, you could pull out our depreciation expenses, which are right off of our SEC filings and our reporting. You can see that if you look at cash breakeven, that brings us significantly under $19,000,000 a year or right about $4,900,000 per quarter revenue for a cash breakeven.
Speaker 7
Perfect. Thank you. So I thought somewhere you guys had said you had two dozen new kind of customers in the pipeline before and the press release said one dozen. I'm just wondering if I don't know if I'm just misremembering or whether you lost a dozen people in your pipeline.
Speaker 2
We haven't lost a dozen people, and I I I realized that we I don't know if we've ever actually stitched together the words two dozen before, but you'll see there's some conflicting. We talked about well over a dozen, and then we specifically say well over a dozen in just silicon photonics and silicon carbide. The number, I'll just go out there. I mean, I was doing a review with our our our sales team last week, and it is over two dozen. I mean, it's a long list.
And, you know, some of those are you know? But there's a there's a significant funnel of activities. And one thing in particular when when in preparation for it, you know, some of those customers, you know, are just have told us they're just on hold. And so I we've tried not to get into because then you have to start qualifying all of it. But, you know, we're we're, you know, clearly directly engaged continuously, you know, kind of regular cadence with well over a dozen of those, but there's more.
And I think had, the COVID stuff that kicked in, we would be struggling right now with just all of the activities. We would be, you know, we'd be adding some ops engineers and some other things, and, you know, I wanna give Vernon credit because he was kind of out in front, not anticipating COVID, but putting this apps center in place and a number of other processes to allow us to do a lot more benchmarks in parallel. And and we are. We we we are working with customers right now on benchmarks despite all the COVID stuff, but it does feel like it's no doubt.
Speaker 7
Well, I can't wait to complain about you being too swamped with business and not being able
Speaker 2
to keep that. That will be fantastic. That would be nice.
Speaker 7
So you announced a couple of new wins commitments, the OSAT business, some other things. Were those already in your AOP for this year? Or is that additional pipe? Or should I assume that your year kind of has further upside? How is that how do I think about that?
Speaker 2
So certainly, the OSAT and that wind that we installed was already in our plan. I mean, that was anticipated. It's just it was more positiveness about it. You know, there are some new customers in the list already, just from last quarter that, you know, I and I'm not counting on. I was I wanna be careful of saying they're not in our plan because, you know, if one drops out and it comes in, I don't wanna feel like I we, you know, failed on it.
You know? Obviously, we
Speaker 7
We don't know what your plan is anyway. We just have your guidance, so I'm just I'm curious.
Speaker 2
But the the only thing the only thing I have specifically called out is that, you know, on the mobile side of things, we we still get consumables every single year on that. It's been a couple of years since we actually added a lot of any any significant capacity, capacity, but we always get new consumables every year with different design terms and things like that, and we're still planning on that. We do have some new opportunities that have come up that have an opportunity to add capacity. There's some some new applications and all that would be upside that aren't in the plan. Again, they could also offset any other risk, but that's the only one I've specifically talked about.
And for those that have followed, I'm really hesitant to get too ahead of myself on this on my skis there because we've had some scenarios in the past where, you know, we got all excited about how big it was, and then it didn't it didn't play out. And so I'll I'll I'd rather just shock you guys when when an order comes in and and, you know, say we we knew it was gonna happen all along. But for now, I'm just going to, say there is there's there's some opportunities. It looks like it's delayed in our fiscal year and into next year, but still, it looks I'm pretty excited about it.
Speaker 7
Great. And consumables this year, I don't know if you guys broke it out, but roughly I don't care how wide a range you give me consumables will be roughly what of revenues?
Speaker 2
I don't think we have. I'm gonna have Ken correct me, but my guess is it's closer to like a third or something like that this year, although that could shift. Last year was higher than we, you know, than what we thought our run rate was gonna be when it hit 50%, and that's actually because the the systems dropped out in the last. So systems that we are anticipating to be shipping in q four, we didn't ship any systems at all. And so that's part of the reason it was a higher percentage.
We also had a scenario where our one of our lead customers had been buying systems without WaferPaks, and we've been talking about that, and then they finally caught up. So, normally, they're you know, if you just look at the hardware to consumable mix, they're gonna be closer to, like, you know, a third of the business. But over time, as the installed base buys, you know, just uniquely, like we've seen in some of, you know, our our Fox some of our older Fox products. They haven't bought a system in a while, but they keep buying consumables. That will grow and we do believe that there's a point where even in a normalized steady state year that consumables would be over 50% of our business.
Speaker 7
Great. So this is my last question and it's not a question, it's a comment. Actually no, I have a question then a comment. When does the window open for insider buying after you guys have released earnings? Is it kind of the standard forty eight or seventy two hours?
Have not when
Speaker 3
our window is open for insiders and we're not going to do it at this point in time.
Speaker 2
So
Speaker 7
My comment after the non answer to the first question is I appreciate John's service to your Board and I wish Jeff the best of luck at representing shareholders. I know he represents a substantial amount of shares. It's listed in your proxy at $660,000 And whether that's him or his clients, I don't know. But I appreciate having a shareholder on your Board. And I would like to say that Ray and Mario who've been on the Board for forty years and have overseen a $30,000,000 consumption in cash and a 90% drop in the stock price since the IPO or greater, I don't see them buying stock in the open market.
And I've lost money and every one of your shareholders has lost money because your share price is at its lows. And it's very frustrating. We lose money that we put at risk for ourselves, for our clients. They don't. They get money.
They get Ray gets $100 plus grand a year. He gets his health insurance paid. He gets 30,000 options struck at the market. And if I'd when I'm on a Board and I'm I've been on three public Boards over the last year, I'm on two currently. I believe that every public company board member should be risking their own capital by buying stock in the public market of the boards that they're on.
And if they don't believe in the story enough to put their own money on the line, then get off the board. You're telling me the story that's amazing. I love it. I've put my friends, my family, my investors capital at risk because I think it's a great story. I love the future and the upside.
And yet your board doesn't seem like it's worth their time to reach into their pocket and buy the stock too with us. And I am offended as a shareholder. And if I don't see them start buying stock and you don't deliver, I promise you, I will become a different type of filing shareholder. So that's my comment, not my question. And thank you very much for your efforts and I hope you guys succeed going forward.
Speaker 2
Thank you, John. Thank you.
Speaker 0
We'll take our last question from Marty Cotton, Chip Chat. Please go ahead.
Speaker 5
Yes. Hello, Dane. Hello, Ken. Hi, My question is hi. My question I've got three questions.
One of them is regarding the closure of the Japan office. And there's some savings associated with that which we see pretty easy to see, pretty clear on that. It's replaced by a sales representative and there are costs to sales representatives. My question is do we see the cost of the sales representatives somewhere? Or is that something that gets we discover later on?
So in other words, are we only seeing the gross costs of closing the Japan office but not the net cost because you do have to pay money, I think typically commissions for sales reps?
Speaker 2
Yes. And that's true. That is true. And that is true of other regions that we have sales reps today. And that's true in the European region as well as in in Japan going forward.
So we do have arrangements with those sales representatives. I don't think we have any distribute distribution networks where they buy and resell. So it is paid as a commission. It will show up in in, s g and a slash, or cost of sales. And so, yes, it's not free, but at least it is tied directly to revenue shipments as opposed to, the opposite.
And we think that, within a normal revenue range and including some significant growth, we're gonna be thrilled to death to pay on those commissions.
Speaker 5
Yeah. Yeah. I'm all for paying commissions. I'm just it's more curiosity that as we see the savings done, the one action. And the question was, is it possible or do we see the cost of the representative?
Which you've got to pay them and they do earn their money. But it sounds like
Speaker 2
you do have any fixed we do not have any fixed cost relationships with them. So they are only paid upon success. The other thing I just wanna be clear on, although we do save money, and as I said at some point, obviously, you know, if if things go wildly successful, there is a real scenario we would pay them more than we would have done direct. I'll be thrilled with that. But number two, that's not why we did it.
The the reality is is that the customers that are in silicon carbide, the wafer level customers, the front end, there's more tests, is a different type of customer. And we think that we needed to do some things to be able to get at those customers by doing something different. And so it's less about saving money. It's actually putting a a better strategy and and higher expectations for actually getting sales. Because we in reality, we've had little to no sales in those regions, and, we have been working on this to take action.
By the way, it is not very easy at all to shut down things in Germany and Japan. This has taken us well over a year to do.
Speaker 5
Okay. Second question is, again, earlier in your presentation you iterated a list of applications or, you know, like data centers, mobile communications, automobiles. And then you also talked about new prospects, companies that are not regular customers yet but they are considering the Fox system. Could you make a comment as say separating the prospects? What percentage might represent 100 production test, which if you're going to sell a lot of machines, and what percentage might represent sampling tests for engineering applications?
And the reason for that actually easy.
Speaker 2
Yeah. That's actually easy compared to historically.
Speaker 5
If you just have one customer that does a 100% production test, he might be worth many times, many customers that use it for sampling and many more that use it for engineering development.
Speaker 2
So Marty, I would say I I believe of that entire list of customers, you know, the two dozen, let's say, all of them are production. I'm not sure I know one that's engineering for in the wafer level side of things. On the package part, I know that a couple of them are absolutely qualifications, and they're just qualms, which means they do it early on in the life of the product, and then they do monitors. So you can have one product and sit on it for a while. In production, if they grow, we grow.
K? Or if they grow, we they buy from us. And if they grow exponentially, then we grow. It's technically if you wanna be specific. So the production makes way more sense.
It's actually reasonably rare to have a sampling done at Wafer, and there's not a lot of applications where that makes sense or qualifications. We do have customers that do monitoring. One of our big customers has an installed base of systems that are used to monitor and sample with our simulated die flash module systems. So it does exist, but today I think everyone we're talking to is production.
Speaker 5
100%
Speaker 2
of their devices will be going to their customers. After they test them, they ship them to their customers.
Speaker 5
And they're testing 100% of their dye on 100% of their wafers?
Speaker 2
Yes. That's right.
Speaker 5
And then the final question is, are you how much of your business is with the People's Republic Of China?
Speaker 2
So it's interesting. We had, I think, 10 packaged part burning customers on our ABTS in China, since I've been here. We, today, have no wafer level systems in China. And I believe we only have one customer who is not Chinese who plans to install systems in China.
Speaker 5
But I thought I remember you had sold a FOX machine to to a Chinese entity four or five years ago.
Speaker 2
No. No?
Speaker 5
Okay. I missed number. Yeah.
Speaker 2
Yeah. I think just talked about that. Because one of the discussions was, you know, with all the trade stuff going on, how would it impact us? And and people, I think I shared in in the past, we used to buy chambers out of China. We also buy them out of Singapore.
Those are two vendors today. And today, we're not taking chambers out of China. So we have we don't actually have any supply chain. I think we buy some printed circuit boards from a US manufacturer that builds them in China, But almost nothing is exposed to China right now.
Speaker 5
Okay, good. All right, those are my three questions and thank you very much. Thanks Marty.
Speaker 2
Thanks Marty.
Speaker 0
There are no more questions at this time. I will now turn it back over to management for any closing remarks.
Speaker 2
All right. Thank you. A lot of questions this time. We appreciate all of them. And as always, we do invite you to, set up a call if we can have a follow on with you.
I often say, invite you to come over and see what we're doing, but we're not doing that right now unless it's really urgent unless you happen to be a buying customer. But other than that, we'll be happy to set something up and talk to you. And we do hope everyone stays safe and healthy, and we'll talk to you next quarter.
Speaker 0
Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.