Q4 2024 Earnings Summary
- Diversification into New High-Growth Markets: Aehr is expanding beyond silicon carbide into high-growth markets such as AI processors, flash memory, hard disk drive semiconductors, and gallium nitride (GaN) power semiconductors. This diversification is expected to contribute significant revenue in the current fiscal year, with each new market potentially becoming a 10% customer.
- Significant Opportunity in the AI Processor Market: The company sees substantial potential in the AI processor market, working with an AI accelerator company to evaluate their FOX solution for production level test and burn-in of high-power processors. Upon successful evaluation, this could result in production needs that make the AI processor market a significant contributor to revenue. The acquisition of Incal Technology further strengthens Aehr's position to capitalize on this opportunity.
- Expansion of Silicon Carbide Customer Base: Aehr expects to qualify several new customers in the silicon carbide market by the end of the fiscal year, including multiple Chinese suppliers. This expansion indicates strong future growth potential in its core market as the adoption of silicon carbide in electric vehicles and other applications continues to grow.
- Dependence on the silicon carbide market with delays affecting revenue growth: The company's revenue growth is heavily dependent on the silicon carbide market, which is experiencing significant delays and customer push-outs. These delays have led to flat or decreased revenue projections excluding acquisitions. The CEO mentioned that major customers have pushed out their fab capacities by about 1 to 1.5 years, impacting the timing of revenue. The fiscal 2025 revenue guidance of at least $70 million includes $12 million from the acquisition of Incal Technology, suggesting minimal growth from the core business.
- Increased operating expenses impacting profitability: The company is facing increased operating expenses due to investments in sales infrastructure, legal costs, research and development, commissions, and compliance efforts. These expenses are putting pressure on operating margins, which are expected to decrease despite flat revenue. The CEO noted that operating expenses have risen due to these investments, and they expect a net profit before taxes of at least 10% of revenue for fiscal 2025, down from previous years. This could impact profitability if revenue growth does not accelerate.
- Uncertain returns from new market entries requiring significant investment: The company's entry into new markets such as flash memory and AI processors requires significant operational expenditure with uncertain timing of revenue generation. The CEO acknowledged that they might not make any revenue from the flash memory opportunity this year while incurring increased costs for development, prototyping, and manpower. This significant investment without guaranteed near-term revenue could impact profitability and relies on future growth that may not materialize as expected.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Down about 40%: from $22.269 million in Q4 2023 to $13.453 million in Q4 2024 | Revenue declined sharply largely due to lower shipments and delays in customer orders, echoing similar order timing issues noted in Q3 2024. This decline, compounded by softness in semiconductor capital spending, has a direct negative impact on the top line. |
Operating Income | Shifted from $5.639 million profit in Q4 2023 to a $1.513 million loss in Q4 2024 | Operating income deteriorated significantly as the revenue drop eroded gross margins and highlighted the impact of increased operating costs (including R&D and SG&A). This mirrors earlier periods where order delays and lower manufacturing efficiencies negatively affected profitability. |
Net Income | Dropped from a $6.111 million profit in Q4 2023 to a $1.028 million loss in Q4 2024 | Net income collapsed as the combination of lower revenue, reduced gross profit margins, and higher fixed expenses drove overall profitability into negative territory. The severe decline reflects both the operational challenges (e.g., delayed orders) and cost increases seen in previous quarters and now exacerbated. |
Earnings per Share (EPS) | Fell from $0.21 to -$0.03 YoY | EPS turned negative as a result of the net loss, despite only modest increases in diluted shares. The erosion in EPS directly follows from the major drop in net income and further underscores the impact of slowed revenue growth and rising costs experienced in the recent period. |
Gross Profit | Dropped by over 50%, from $11.479 million in Q4 2023 to $5.400 million in Q4 2024 | Gross profit declined drastically due to reduced revenue volumes that led to lower manufacturing efficiencies. Higher overhead absorption, design changes, and increased warranty expenses further compressed margins, a trend consistent with earlier quarter challenges. |
SG&A Expenses | Increased roughly 29%, from $3.587 million in Q4 2023 to $4.637 million in Q4 2024 | SG&A expenses rose significantly driven by acquisition-related costs of $0.5 million and additional expenses from integrating a newly acquired business amounting to $0.4 million, adding to existing employment and operational expenditures. These added costs further strained margins during a period of declining revenue. |
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Revenue Guidance and Silicon Carbide Delays
Q: Why is there no revenue growth excluding the acquisition?
A: Gayn explained that revenue growth was impacted by push-outs in silicon carbide ramps. Orders they expected from several big customers were delayed as these customers pushed out their fab capacities. The top four silicon carbide customers all guided down this year, leading to a softer forecast. However, these programs are mostly delayed by about 1 to 1.5 years, not canceled, and they expect them to return. If strength returns in the second half, they will update guidance accordingly. -
Incal Acquisition Revenue Contribution
Q: How much revenue of the $70 million is from Incal?
A: Incal did about $12 million over the last 12 months. They're estimating around $1 million per month contribution from Incal after closing the acquisition, which is included conservatively in the $70 million guidance. They expect this to grow as they engage more customers. -
Future Growth Drivers Beyond Silicon Carbide
Q: Is next year's growth largely driven by silicon carbide and other markets?
A: Gayn stated they could achieve over 30% revenue from new customers in new markets within the $70 million guidance. Potential 10% contributions could come from hard disk drive applications, AI production forecasts, and GaN customers. The flash memory opportunity is not included in this year's revenue but may contribute next year. Silicon carbide remains strong, and they expect more diverse customers as fabs come online in late 2025 and 2026. -
Operating Expenses and Margins Outlook
Q: Are significant OpEx investments causing EBIT margin decline?
A: Yes, they've made incremental expense investments in anticipation of higher revenue, including infrastructure in sales and support, resulting in higher OpEx. They also incurred higher commissions due to new customer engagements and legal costs related to the acquisition. While OpEx increased by about $3 million to $3.5 million, they expect to leverage these investments as revenue grows, aiming to return to over 25% net profit pre-tax with incremental revenue. -
China Customer Engagements
Q: How many customers in China do you hope to engage with?
A: They are engaged with multiple Chinese silicon carbide suppliers and hope to add one or more as customers within the next 1.5 years. There are well over a dozen qualified silicon carbide players globally, possibly close to two dozen. Timing of capacity coming online in China affects when tools can be installed. -
AI Accelerator Opportunity
Q: If successful with the new AI customer, how big could it be?
A: Gayn is optimistic about the AI accelerator opportunity, though they're still assessing its potential. The customer is not Nvidia but is a revenue-generating company doing well. They are working on a novel approach to handle 2,000 to 3,500 watts on a wafer using their FOX-XP system, which could significantly benefit the customer by moving from system-level burn-in to wafer-level burn-in. -
Silicon Carbide Adoption in EVs
Q: Are car makers still committed to silicon carbide?
A: Car makers are more towards silicon carbide than a year ago. OEMs prefer silicon carbide due to cost reductions and improved availability. Chinese OEMs, in particular, show a strong preference for silicon carbide in all modules. Overall, there is more conviction towards silicon carbide adoption in EVs than before. -
Incal's Product Lines and Growth
Q: Can you provide more color on Incal's Sonoma growth rate?
A: Incal's Sonoma system addresses high-power burn-in for AI devices, and it's where much of their growth is. They have customers across their low, mid, and high-power systems, with revenue expected in all segments this fiscal year. While specific growth rates aren't disclosed, they are committed to meeting customer needs and hope to accelerate growth in these areas. -
Potential in Heterogeneous Integration
Q: Could your AI processor work lead to high-volume PC chips?
A: Perhaps. The dynamics in the test space with system-level and application-specific methodologies have changed semiconductor testing. As devices integrate more components like compute processors, high-bandwidth memory, and optical I/O interfaces, each requiring 100% burn-in, there's an opportunity to move testing to wafer level. Incal's capabilities in package-level burn-in complement this, providing opportunities in both wafer and package levels. -
Flash Memory Opportunity
Q: Is the flash memory opportunity in new fabs or existing ones?
A: It could be both. While new fabs offer a chance to make big changes, existing fabs may also need to replace equipment due to technical needs in their roadmaps, making older tools obsolete. They believe their platforms can address these needs, and any deal in this space would be significant.