Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Aehr Test Systems (NASDAQ:AEHR)

F2Q 2014 Results Earnings Call

January 9, 2014 5:00 PM ET

Executives

Marilynn Meek - Investor Relations

Gayn Erickson - President and CEO

Gary Larson - Vice President of Finance and CFO

Analysts

Colin Denman - Westerly Capital Management

Tom Diffely - D.A. Davidson

Jeffrey Scott - Scott Asset Management

Marty Cawthon - ChipChat

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Aehr Test Systems Second Quarter Fiscal 2014 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 9, 2014.

I would now like to turn the conference over to Marilynn Meek. Please go ahead ma’am.

Marilynn Meek

Good afternoon, and thanks for joining us to discuss Aehr Test Systems second quarter fiscal 2014 results. By now, you should have all received a copy of today's press release. If not, you can call my office at 212-827-3746, and we'll get one to you right away.

With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer; and Gary Larson, Vice President of Finance and Chief Financial Officer. Management will review its operating performance for the quarter before opening the call to your questions.

Before turning the call over to management, I’d like to make a few comments about forward-looking statements.

We 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. Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our 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 statements.

Now, I'd like to introduce Gayn Erickson, Chief Executive Officer. Please go ahead, Gayn.

Gayn Erickson

Thank you Marilynn and good afternoon and Happy New Year to those joining us on the conference call and also listening in to the online link on the web. We’re pleased to report Aehr Test return to profitability even as we continue to invest heavily in our R&D programs to get the new FOX wafer level test and burn-in products to market this year.

We ended the quarter with revenue just under $5 million, up from approximately $3.8 million in the previous quarter with a profit of $137,000. Gary will cover the numbers in more detail in a few minutes but I want to discuss our business in our markets as well as bring you up-to-date on how our new products are coming along.

Let me start by talking a little about the new orders we just announced coming out of Europe. We’ve been seeing a pick-up in business out of our European customers. This includes increasing activities in automotive as well as an opportunity where we’re seeing new applications for our products for high reliability commercial devices.

We received a multi-system order for our ABTS automated burn-in and test system for IC reliability characterization and test for multiple target devices aimed at commercial, industrial and consumer application. It is great to see opportunities accelerate in Europe as this has been a very quite region for us for several years.

We continue to see the automotive market drive production burn-in capacity. We announced a key lien in the automotive production burn-in space with a leading manufacturer of logic ICs for automotive, embedded processing, DSP and analog applications in July of last year.

We shipped the first from that multisystem production order during our fiscal Q2. This system is our new ABTS-P production test and burn-in system that has up to 72 large burn-in boards that offer almost 70% more capacity than our previous generation MAX systems used in production today.

We also shipped several engineering workstations that allow for test program development and debugging using 100% compatible hardware and software and a low cost engineering single BIB workstation configuration. Additionally, in the automotive space, we received a follow-on order for our FOX-15 multi-wafer test and burn-in system as well as a number of WaferPak contactors to go along with the system.

This is a follow-on order from a production customer and is significant as this customer is now exceeding their capacity to the success of their products. They have told us that they are achieving significant savings due to testing at wafer level instead of the traditional package level and also because they can test at a much higher temperature on our system, 170 degree C compared to package level test systems that were limited to a maximum of 125 or 150 C. By increasing the temperature at which the devices are tested, they have been able to reduce that test time considerably while still achieving the sub to PPM or parts per million defect rate demanded by the automotive industry customers.

We continue to see opportunities in wafer level testing of discrete and embedded memories. We announced a multisystem order for our FOX-1 full wafer test systems from an existing customer last year and we shipped another system from that order during the quarter.

We also saw an uptick in orders for our WaferPak contactors that go along with those systems as the customers’ changing mix of products and capacity resulted in the need for additional WaferPak contactors. As we discussed in the past, we offer a unique alternative to traditional folk arts for our FOX system.

These contractors use a robust, low cost vertical probing technology that is very well suited for design for test or DFT and low-pin count test mode that are becoming common for discrete and embedded memories where test times are very long and increasing. DFT and low-pin count test applications are where the new FOX product we’re developing, are seeing the majority of interest from our customers. These new products are based upon our new per pin architecture pin electronics first introduced and shipped in our ABTS-P system in 2012.

Our new FOX-1P system we're developing is a next generation system that is aimed at single wafer testing with single or multi-touchdown test capability using wafer probers available in the market from several vendors. This system extends our current FOX-1 system adding multiple new and unique capabilities that we feel would be a significant contribution to the semiconductor ATE space, making the FOX-1P system very well suited for low-pin count DFT, BIST and MBIST test modes commonly found in the semiconductor industry today.

We expect our first shipments of this product during the next couple of quarters. We've already received orders for both engineering and multiple production systems for our new FOX-1P and we’re actively engaged with other customers for use of this product in a few different applications.

As we formally introduced this product, we will release more details on the specifications, features and why it is a great alternative to other semiconductor test systems on the market. We’re also developing our next generation FOX multi-wafer test system using the same hardware and software architecture as the FOX-1P.

This new FOX multi-wafer solution is highly leveraged from existing subsystems in our FOX-15 wafer level burn-in and test system, our ABTS burn-in and test system for package product and the new FOX-1P test system electronics. This test sale has been designed to include the contactor alignment and material handling automation required for high-volume wafer level test and burn-in applications where multiple wafers are processed in a single chamber.

We see opportunities for this product for wafer level test in cycling our memories that target high reliability applications and/or -- excuse me -- and/or where devices are stacked several devices high in a single package. The cost of finding the value in stacked package is significant and provides a meaningful financial incentive to test these devices in wafer form before stacking them together in a package.

We also see opportunities in high reliability logic applications including automotive and process monitoring. We expect to introduce this product in the second half of calendar 2014. As I have noted over this last several quarters, a key challenges achieving a balance of cost controls to maintain profitability while the same time focusing our energies and spending our new R&D programs was we see a very large opportunity for Aehr Test to contribute and gain market share.

We took significant measures to control our spending during the last -- during the past year. Recently we have been feathering in reinstatement of time and pay, expect to remove all of the DiePak expense reductions during fiscal Q3. We also have been bringing on external contractors and third parties to help us get the new FOX products out sooner.

I’m personally pleased that despite this increase in our spending, we were able to achieve our goal of our profitability that we forecasted to our shareholders. We plan to continue our R&D spending while maintaining our expectations that would be profitable for fiscal year ‘14, which ends May 31, 2014.

Doing the math for you with this quarter’s profit, we're basically breakeven for the first half of our fiscal year and we’re expecting to be profitable for the second half as well, even at our elevated R&D spending levels. We anticipate our spending to decrease during the second half of calendar 2014, following the bubble we’re experiencing now in connection with the new FOX products.

As stated in today's release, we’re optimistic about the opportunities ahead for Aehr Test and particularly those for our new FOX products.

I’ll now turn the call over to Gary who will discuss our numbers in full detail. Following this, we will open up the lines for questions.

Gary Larson

Thank you, Gayn. As reported in today’s press release, our net sales in the second quarter were approximately $5 million, up 32% compared with net sales of $3.8 million in the first quarter of fiscal 2014.

Our net profit of $137,000 in the second quarter of fiscal 2014, or $0.01 per diluted share compared with a net loss of $166,000 or $0.02 per diluted share in our previous quarter. Our non-GAAP income this quarter was $384,000 or $0.03 per diluted share, compared with non-GAAP loss of $23,000 or $0.00 per diluted share in the preceding quarter.

The only item that is different between GAAP and non-GAAP is our stock option expense here, which was little less than $250,000 this quarter. Gross profit was $2.5 million or 50% of net sales. This compares to gross profit of $1.9 million in the first quarter of fiscal 2014 or 52% of net sales.

In recent quarters, we’ve shipped systems that included previously written down material. As we complete the shipment of such systems during Q3, we expect our gross margins to decrease somewhat quarter-on-quarter.

Operating expenses of $2.3 million for the quarter were up slightly compared to operating expenses of $2.1 million for the previous quarter. SG&A was $1.5 million compared to $1.4 million in the first quarter of 2014.

R&D expenses were $798,000 for the quarter, compared to $681,000 in the fiscal first quarter of 2014. As noted in an earlier call, we are transferring some R&D expenses into cost of goods sold as we complete milestones related to our next generation FOX system development. This transfers out of R&D expenses with $301,000 in the second fiscal quarter of fiscal 2014 and a $127,000 in the preceding quarter. R&D spending is expected to increase during the next quarter.

As mentioned earlier, we’ve reduced some of the deep spending restrictions during the quarter, which included bringing back our staffed full time. We’ve even had the manufacturing team working overtime and during the Thanksgiving holiday to meet customer demand. These changes resulted increased manufacturing spending and operating expenses in this quarter and in subsequent quarters.

Turning to the balance sheet and changes during the second quarter, our cash and cash equivalents increased to $2.5 million at November 30, 2013, up from $2.4 million at August 31, 2013.

Sequentially, accounts receivable decreased by $125,000. Inventory increased by $281,000. Our line of credit decreased by $471,000, which means that our net cash, which is cash less our line of credit improved by $530,000.

The large part of that improvement in net cash was $304,000 that we received were the exercise of stock options and the purchase by our employees of shares through the employee stock purchase plan. That was essentially a mini stock offering without the formalities. As Gayn mentioned, even with our increased investment in R&D, we expect to be profitable for the second half of fiscal year 2014.

This concludes our prepared remarks and we are now ready to take your questions. Operator, please go ahead.

Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Colin Denman with Westerly Capital Management. Please go ahead.

Colin Denman - Westerly Capital Management

Hi, Gayn and Gary. Thank you very much for taking my question.

Gayn Erickson

Sure, Colin. How are you?

Colin Denman - Westerly Capital Management

I’m doing well.

Gayn Erickson

Good.

Colin Denman - Westerly Capital Management

So, I was hoping you guys could maybe go into a little bit more detail on opportunity for the new FOX products. Are these new features that your existing customers are asking for, or are these things that you were pushing to kind of address new customer opportunities? Can you just help us understand maybe the extent of the number of customers that you are in discussions with, or kind of how to think about the opportunity for the new products?

Gayn Erickson

Yeah. So, let me go ahead and take that. So, I think related to the question of existing versus new, it’s a little of both. We even stated existing FOX customers where we see opportunities for our FOX products in both our existing FOX customers as well as in our existing ABTS customers. And for those online that aren’t that familiar, the ABTS product addresses devices in a more traditional package part burn-in, which is the market that we’ve been a leader in for several decades.

On the new opportunities related to wafer level burn in, are being presented in some spaces like automotive on some discrete memories, embedded memories where for different reasons as I mentioned before such as stacking of those devices. There are cost advantages and manufacturing advantages to do the extended test and burn in at an earlier stage before they were actually packaged off.

So in this case, there are opportunities for customers that are correct customers of package part where they see reasons to move burn in of some of their types of devices to wafer level, but we also have opportunities in what I will say newer customers from a historical perspective. Why I say that is, if you actually look at Aehr Test history I think we’ve sold systems to garner every company in the world over some period of time, particularly we had -- about within a decade ago we had a large portion of our business in the memory package burn in where today our primary package burn in is not in memory but is in actually logic and automotive devices. So in terms of new customers in some cases it's relatively new customers. We are talking to customers that we've actually sold systems to in the past.

Colin Denman - Westerly Capital Management

Okay. Thanks. And then just a question on your visibility with some of those customers providing down payments and kind of extending in the Summit more of this development partnerships for some of these new products, can you talk about maybe how your visibility has changed kind of over the next -- over the last six months, kind of how far it extends and what gives you the confidence that you are going to be able to remain profitable, et cetera?

Gayn Erickson

Okay. Well, I think I hear two things here in the visibility and sort of confidence in the near term. We engage with a small handful of customers on the definitions of some of the new product. Some of them at the request of the customer coming to us and because they knew us that say, can you make these types of products and these kind of enhancement. As we are now really in the trough of the development of those new products, the definition is squared up and we are in full execution mode if you will.

So we have been going out and talking to, if you will a second wave and additional customers that we believe are great targets for this kind of application. So, for example on the FOX-1, customers that are doing low-pin count DFT/test modes, we offer a unique difference by contrast to standard ATE in our ability to do massive parallel testing at a very low cost.

So in this case, we have more visibility of those customers because we've been going out over the last couple quarters and talking to them. And obviously as the product becomes complete here in the factory and we can show it to customers, there's a wave of customers that are more interested in looking at the product once it's available versus as we've stated, we have a contract for example with customer to develop the machine where they’ve given us some specific NRE dollars to ensure that the system can be configured in their specific configuration. On relative to the visibility of moving forward, we maintain a very strong backlog and that gives us the confidence in looking at our forecast moving forward to be able to know we have the revenue and the margins to be able to maintain our spending yet still forecast the profitability for the second half and the whole year.

Colin Denman - Westerly Capital Management

Okay. That’s all the questions for me. Thank you very much.

Gayn Erickson

Thanks, Colin.

Operator

Thank you. Our next question comes from the line of Tom Diffely with D.A. Davidson. Please go ahead.

Tom Diffely - D.A. Davidson

Yeah. Good afternoon. It sounds like things are starting to heat up here, both on the burn in side as well as some of the new opportunities on FOX. So my question goes back to the competition and what do you think the competitive response is going to be from both the other ATE players and maybe some new players who are looking at this growing opportunity over time?

Gayn Erickson

I think that’s a very good question. And I think for again, people that aren’t aware, some of the opportunities that we’re addressing with our new FOX products are very unique. They are not products offerings available from competitors to be able to do the parallelism that we offer in multi-way for test and burn in and that IP and that technology has been developed here in Aehr Test really over the last decade and a little with the whole awful of patterns and domain knowledge related to the whole test cell of being able to handle and test. In this case, 15 wafers in parallel which is what we offer today and we’re extending the capability of that in our next-generation system.

So in this case, how will other people react? I can tell you that from my experience from in the ATEs industry that Aehr Test has a very unique hardware and software architecture that we are leveraging from our vast experience in burn in and applying it with the technology of contacting the wafers that today does not exist in the ATE suppliers. And so, as we address that, we think we have a real competitive advantage to offer our customers and maintain that competitive advantage for some time.

So related to the FOX-1 product, we have some examples that are similar to what I just stated. And there’s other examples where quite frankly, we’re a less expensive way of testing those devices than some of the other ATE suppliers. And so we are using again our hardware and software architecture to deliver a much lower cost effective solution for these DFT low pin count, DFT and BIST type applications that we’re seeing more and more of across-the-board in the semiconductor industry.

Tom Diffely - D.A. Davidson

Okay. So first time, are these unique applications, it sounds like the traditional ATE guys don’t have a similar solution, would it take years for them to develop one from scratch?

Gayn Erickson

I would think that that’s a fair estimate. And to be fair, I think there is some examples historically where they are not necessarily motivated to go off and build the machine that obsolete themselves. And we look at this as an enormous opportunity for us with none of the downside that they might experience.

Tom Diffely - D.A. Davidson

Yeah. It sounds good. Do you guys disclose the backlog number, if you can give any information either qualitatively or quantitatively on what the backlogs done recently?

Gayn Erickson

You know what, we’ve discussed that. As we’ve talked in the past, we've been avoiding talking about bookings. I think I just stated and I will just repeat it, we still have a strong backlog. Let’s see, how Marilynn want to refer to that.

Marilynn Meek

We publicly disclosed the backlog as of May 30th at end of our fiscal year, but generally we don’t report numbers by that term.

Tom Diffely - D.A. Davidson

Okay. And then also Gary when you look at the OpEx going forward, sounds like it’s going to creep up a bit here both in R&D. And were the changes going back to full pay that was already in effect or that is going into effect going forward, so expecting more of an increase on the next quarter?

Gayn Erickson

That’s going into effect currently, so we didn’t see any of the pay increases in Q2 but we did see the return to work in Q2.

Tom Diffely - D.A. Davidson

Okay. All right. And then, what can you give us as far as just share count going forward like your mini offering but is there someway to quantify what the diluted share counts going to do?

Gayn Erickson

I wouldn't think that the numbers would change dramatically at this point. One of the reasons, that many shares were exercised by stock options. We did have a number of options that were expiring and so that was why we saw a little burst of shares. So, I wouldn’t expect many additional shares to be added and then the diluted shares would obviously just depend on whatever the stock price is, so you might see some fluctuation there. But let say what we’re looking at right now is probably fairly consistent with what you will see in the next few quarters.

Tom Diffely - D.A. Davidson

Okay. And then finally, when you look at the testers you sold five years ago, the big slug of [Knorr] testers, is there any kind of a refresh cycle or obsolescence with the installed base or is it just on the spares and service side?

Gayn Erickson

I’m not sure I totally understood that. Let me take a stab at it. We’re not anticipating that the FOX-1s, for example or FOX-15 that we have installed would be displaced by our next-generation systems instead they would be augmented. We’re looking at core level of compatibility to allow them to sit on the same floor as each other. As much one of the byproducts of having products that last for such a long time and is liable there, they don’t tend to wear out and go away that often, a great thing for our customers and just part of our life. We do have support and service contracts on those systems and anticipate doing that for several years.

Tom Diffely - D.A. Davidson

Okay. That’s exactly the question. Thanks.

Gayn Erickson

Okay. And let me just add one more thing. As we noted and I explained in my comments, we actually have seen WaferPaks sales uptick on both the FOX and FOX-15 products in the last quarter. So let’s say, a consumable element that is great because it provides us with revenue and margin to be able to continue to support those systems so.

Tom Diffely - D.A. Davidson

All right. Sounds good. Thanks for your time today.

Gayn Erickson

Thank you.

Gary Larson

Thank you

Operator

Thank you. Our next question comes from the line of Jeffrey Scott with Scott Asset Management. Please go ahead.

Jeffrey Scott - Scott Asset Management

Good afternoon.

Gayn Erickson

Hi, Jeff.

Gary Larson

Hello, Jeff.

Jeffrey Scott - Scott Asset Management

It’s lot better to see the net income line without those for entities around them.

Gayn Erickson

I agree.

Jeffrey Scott - Scott Asset Management

Gary, quick question, equity went up by $800,000 from during the last three months and you said about $300,000 of it was the exercised options, $137,000 net income, what was the rest?

Gary Larson

The stock option compensation expense would be and I’m -- one of the contributions that we make to our retirement funds is in shares of stock. So that would have been another item, I think that’s probably the majority of the things.

Jeffrey Scott - Scott Asset Management

Okay. Thank you. Towards the backlog statement, last quarter you said that the backlog was up from year-end. Would that be the same case for November 30th over August 30th?

Gayn Erickson

You are always trying to -- I don’t know how many ways that I always said, I’m not going to answer. Now, instead of answering something for you Jeff here, so I can give that to you.

Jeffrey Scott - Scott Asset Management

I agree.

Gayn Erickson

I will tell you what we are still up from our end of year backlog.

Jeffrey Scott - Scott Asset Management

Still up from the end of year?

Gayn Erickson

Yeah.

Jeffery Scott - Scott Asset Management

Okay. In the press release today, the ABTS to Europe, I was trying to parse to sense that when you talked about a new customer order, was that a new customer or new order or both?

Gayn Erickson

Both.

Jeffery Scott - Scott Asset Management

So it was a new customer.

Gayn Erickson

Yes. That’s right.

Jeffery Scott - Scott Asset Management

Could you -- had they had some Aehr equipments from years ago or was it entirely new?

Gayn Erickson

No. They don’t use. They do not.

Jeffery Scott - Scott Asset Management

Okay.

Gayn Erickson

They are brand new.

Jeffery Scott - Scott Asset Management

Can you take us through the competitive element of that sale and what they were looking for that you had that nobody else had?

Gayn Erickson

Yeah. With the exception I was trying to tip my hand everything around at my competitors as you always know. But no actually the features of the ABTS which I think we’re seeing across the board that made it compelling are it’s -- the systems we design them to be cost effective enough for volume production but also scalable enough for being low volume reliability.

So in this particular case, the customer bought several systems that were not full. But they were pre-wired and pre-configured to be able to add what we call blades to them and test electronics going forward very easily. They like that feature. They allow them to actually get several chambers but also have them in this case partially populated but upgradeability very easily and that was totally the case.

Our ABTS system are actually very advanced for larger customers. So they have a greater flexibility with configurations up to 256 or 320 IO. We have more power supplies per BIB than anybody else. We have unlike other people, we actually are test electronics tend to be very dedicated for the burn-in boards. So we may have one or two burn-in boards per what classically is referred to as a zone, which means that if we have a system that has say 72 burn-in boards in it, you can actually be running 36 different types of devices with two BIBs per device.

That’s a big deal because you have a lot more flexibility and a lot more volume than traditional. And by contrast to our older systems that might be four or eight times more zones than we had in the past. So those are some of the features that make it very flexible and its one of the reasons I think we've been winning more than our fair share.

Jeffery Scott - Scott Asset Management

Quick follow up to that, how long was the sales cycle for this and did the order come as a surprise or were you recently counting on it?

Gary Larson

No, it wasn’t a surprise to us that -- actually the sales cycle, if you really, I think we put some quotes on, I think even more than a year ago. So -- and we've been working through the terms and conditions and negotiation and details like that through this so. No, it wasn’t Bloomberg.

Jeffery Scott - Scott Asset Management

Okay. Gary, you normally split out the FOX revenue for us?

Gary Larson

Not that I normally do. I don’t think we have normally done that. Sometimes I would give you a hint as to what the service support and accessories might be. And I’ll tell you when I do that instead. I think our services are port and WaferPaks for example were over $2 million in that quarter.

Jeffery Scott - Scott Asset Management

Including WaferPaks.

Gary Larson

Including WaferPaks and the rest was systems and accessories and we have not been breaking up FOX-1.

Jeffery Scott - Scott Asset Management

You said the FOX revenue included one machine?

Gary Larson

In terms of shipment yes that is correct.

Jeffery Scott - Scott Asset Management

Shipment and revenue right.

Gary Larson

That’s right.

Jeffery Scott - Scott Asset Management

Yeah. So one machine was FOX.

Gary Larson

Yeah. And in particular why I wouldn’t want to break up the revenue for FOX.

Jeffery Scott - Scott Asset Management

Yeah. Okay. Did you receive any milestone receipts for the FOX development product?

Gary Larson

We had one milestone during the quarter.

Jeffery Scott - Scott Asset Management

Was it any material cash amount?

Gary Larson

Most of the milestones are similar amount. So its not -- its not dramatically different from earlier milestone.

Jeffery Scott - Scott Asset Management

That we’re talking low six figure kind of thing?

Gary Larson

Low six figure, yes.

Gayn Erickson

Yeah.

Jeffery Scott - Scott Asset Management

Okay. The timing for the new FOX development machine, you're still trying to get it out by middle of calendar 2014. Are you still reasonably on schedule for that?

Gayn Erickson

Yes. And we’re trying to pull that thing in as quickly as we can. We actually had during the last quarter maybe in couple of quarters, we’ve been -- there was some enhancement and request made to the system and a couple of modifications by early customer that I think actually impacted the schedule little bit. On one hand I'm not excited about that and on the other hand we think it will be better for them and it’s more competitive for the market but we’re still on track for shipping over the next couple of quarters here.

Jeffery Scott - Scott Asset Management

And you don’t see any major engineering issues that would be difficult to overcome?

Gayn Erickson

No, no.

Jeffery Scott - Scott Asset Management

Okay. On December 19, Texas Instruments announced they have purchased some 300,000 square foot facility in Chengdu, China, which will be their seventh assembly and test facility worldwide. Do you have any idea how that might affect you since Texas Instruments is one of your over tempting customers every year? Is that going to be incremental revenue opportunity for you or will it more likely just replace machines that would've gone elsewhere in the world?

Gary Larson

I don’t know the answer to that. That’s a good question. Certainly will be asking them when I go talk to them next, tell you when I’m done but I mean TI as I read as well I mean they are a great company. I think they have been doing really well. They, like other companies in the automotive space, I think have been seeing this, what seems to be across the board uptick in, all things semiconductor. I'm actually not personally clear exactly what that facility is or if it’s a broad-based facility like the one they have done in the Philippines for all their products. But I can tell you that when my customers are doing well and adding capacity, that would seem to be good for all of us.

Jeffery Scott - Scott Asset Management

Okay. I will drop off and let some body else on. Congratulations again.

Gayn Erickson

Thanks Jeff.

Gary Larson

Thanks Jeff.

Operator

(Operator Instructions) And our next question comes from the line of Marty Cawthon with ChipChat Technology group. Please go ahead.

Marty Cawthon - ChipChat

Hello Gayn. Hello, Gary.

Gayn Erickson

How are you, Marty?

Marty Cawthon - ChipChat

Good. my question is about the technological progress that you see in the testing area and as a background often we hear about progress in CPU capacity and people refer to Moore’s Law in that a CPU will double its capacity every 18 months. So my question is, I'd like to hear some discussion about how the progress is going in the test area in general for the industry and in specifically from their test systems.

Gayn Erickson

Okay Marty. And Marty your phone was breaking up but I definitely caught it all, just as an awareness. So, oh he is dangerously throwing out these very open-ended questions to a guy as passionate about the test industry as me. But let me maybe, hum a couple of bars. If we are looking for all their broad trends or their Moore's law equivalent things that you can look at the test and see where there is. I can probably make the following, a couple of statement and be representative of the broader industry I believe. And that is -- I think that there is a couple of areas where there's a lot of change and a lot of growth and opportunities within the semiconductor test space.

One of them we are not in and that is high-end SOC, the integration of a lot of components coming together into a single integrated circuit, which is driving a lot of the revenue in the semiconductor space where the likes of Verigy’s who was acquired by Advantest, Advantest, Teradyne, LTX-Credence and they have high-end platforms that are testing one, two, three, four devices in parallel, never three maybe four or eight devices in parallel. Very complex new products are driving lot of technology and drives a lot of the revenue in the semiconductor space.

That’s not a space that we are in. What we have is really kind of two broader areas and that is we are in the reliability testing where people are using design for test, low pin count test methodologies are able to exercise the cores of the devices to be able to test them over some extended period of time to prove out the reliability and the quality during process monitoring development and early device production, or in some cases like automotive and some industrial applications. And even some new applications, we are seeing in consumer where they need to be very reliable and so they want to remove the infant mortality.

We are applying some of those same test methodologies and concepts as our customers to be able to lower their overall cost of test of many devices in an industry that have very long test times. In typical devices that have very long test times or anything that is either a discrete or embedded memory or certain types of logic devices, microprocessor types and things that are going in automotive applications where they need to have a very extended test coverage, which you can read is long test times.

So it has been discussed for couple of decades, but really starting to come to fruition over the last 10 years and even heating up more and more each year where people are being able to drop in embedded test methodology engines and these engines from the likes of Mentor or Cadence that actually allow the devices to have the assisted -- assist and actually testing themselves.

And as a result, the requirements on the tester is very different than the broad-based ATE platforms I described for example in high-end SOC test systems. Those test methodologies are actually a real challenge for the semiconductor ATE players, their architectures, their software, their interfacing, their pin count don’t lend themselves very well towards that.

Interestingly they are not -- they are closer to our burn-in test systems than they are to an ATE system. So we develop first with the FOX-1 several years ago and with the new FOX products, we’ve taken the technology of our hardware and software and applying it into new applications where these customers can take these advanced test methodologies and very cost effectively test these devices for example in a wafer level form in massive parallelism.

And so that’s an area that is also, I think as much as the industry is being stretched towards these high performance SOCs, the industry is being stretched and how do you address these low pin count test modes and that’s an area that we’re really trying to address with these new FOX products and where we think this is not an anomaly but a long-term trend that is going to be sustained and as devices shrink and processes shrink, there is more and more reason to embed these design for test methodologies and use test systems by earning FOX. So those are couple of major trends and I think we’re participating in one of the big ones.

Marty Cawthon - ChipChat

Good. Okay. Thank you for your comment.

Gayn Erickson

Thank you, Marty.

Gary Larson

All right Marty.

Operator

Thank you. There are no further questions at this time. I’d like to hand the call back to management for closing remarks.

Gayn Erickson

All right. Well, thank you very much folks. We’re happy to have been able to announce some positive earnings for our shareholders and at the same time make in the key investments we think are necessary moving forward. And we look forward to our next earnings conference call. As always, we offer any one the invitation if they like to stop by and visit us here in the Bay Area. We love to give you a tour of some of the new products that we’re working on. Thank you.

Operator

Ladies and gentlemen, this concludes the Aehr Test Systems second quarter fiscal 2014 earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1800-406-7325 with the access code of 465-6941. We thank you for your participation and at this time, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Aehr's CEO Discusses F2Q 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts