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Aehr Test Systems, Inc. (NASDAQ:AEHR)

F2Q08 Earnings Call

January 4, 2008 5:00 pm ET

Executives

Rhea J. Posedel – Chairman of the Board & Chief Executive Officer

Gary L. Larson – Chief Financial Officer & Vice President Finance

Analysts

Ramesh Misra – Collins Steward LLC

Brian Wilkinson – Lewis Asset Management

Jeffrey Scott – Scott Asset Management

Larry Brooks – Maloney Securities

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Aehr Test Systems second quarter 2008 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 January 7, 2008. I would now like to turn the conference over to Tricia Ross with the financial relations board. Please go ahead ma’am.

Tricia Ross

Good afternoon and thanks for joining us to discuss Aehr Test Systems’ results for the second quarter of fiscal 2008. By now you should have all received a copy of today’s press release. If not, you can call my office at 213-486-6540 and we will get one to you right away. With us today from Aehr Test are Rhea Posedel, Chairman and Chief Executive Officer and Gary Larson, Vice President of Finance & Chief Financial Officer. Management will review its operating performance for the quarter before opening the call to your questions. I’d now like to turn the call over to Gary Larson. Go ahead Gary.

Gary L. Larson

Thank you to everyone for joining us today. Before we begin I’d like to make a few comments about forward-looking statements. Please be advised that during the course of our discussion today we may make forward-looking statements that involve risks and uncertainties relating to projections regarding industry growth and customer demand for Aehr Test’s products as well as for projections regarding Aehr Test’s future financial performance. Actual results may differ materially from projected results and should not be considered as an indication of future performance. These risks and uncertainties include without limitation economic conditions in Asia and elsewhere, world events, acceptance by customers or our FOX, MTX, MAX and DiePak technologies, end conversion of quote activity to purchase orders and acceptance by customers of products shipped upon receipt of a purchase order, the ability of new products to meet customer needs or performance described, the company’s development and manufacture of a commercially successful wafer level test and burn-in system and the potential emergence of alternative technology each of which could adversely affect demand for Aehr Test’s products in calendar year 2008.

We refer you to our most recent 10K report and other reports filed from time-to-time with the Securities & Exchange Commission for a more detailed description of the risks facing our business and factors that could cause actual results to differ materially from projected results. The company disclaims any obligation to update information contained in any forward-looking statements reflected and for circumstances occurring after the date of this conference call. Now, I’d like to introduce you to our chairman and CEO Rhea Posedel.

Rhea J. Posedel

Welcome to our conference call for the second quarter of fiscal 2008. We are pleased to report that we had one of the best quarters we’ve had in a number of years. Net sales for the second quarter of fiscal 2008 were $9.7 million up 55% over the same quarter of the prior year and up 26% sequentially. Importantly a significant portion of our revenue increase flowed to operating income which increased by $1.7 million over the same quarter of the prior year.

We continued to be excited about the significant growth opportunities we see for our FOX-1 testers and WaferPaks. Earlier this quarter we announced a $13 million follow on order for multiple FOX-1 testers for a new 300mm fab. Our highly paralleled FOX-1 full wafer tester and its WaferPak contactors moves the company into the large growing market for wafer pro testing. This is a new market Aehr Test and it significantly expands our addressable markets. Industry experts estimate that the total available market for wafer pro testing including the consumable probe cards is in excess of $3 billion per year. With our FOX-1 product we are targeting the market segments for ICs with long test times such as flash memories.

Also orders for our WaferPak contactors were solid during the quarter providing further evidence that this can bea potential strong revenue stream and we expect additional orders as our installed based of 300mm FOX-1 testers increases. Our full Wafer contactors are custom designed for each wafer device type. It is a key technology that enables our FOX-1 system to parallel test thousands of die ina single touchdown. Designing and producing customer WaferPak contactors that can contact thousand of die over a 300mm wafer is a major technical challenge. During the quarter we continued to invest inthe development of design tools and manufacturing processes to increase our WaferPak capacity and reduce our cycle times. I’m pleased to say that we made significant progress this past quarter but we still have a ways to go.

Another major event of the quarter was shipping our first FOX-15 wafer level burn-in and test system for a leading automotive IC manufacturer. We are proud of the broad technical accomplishments of our engineering team that made this possible. The FOX-15 system is a second generation wafer level burn-in and test system. It is our first system to utilize our newly designed configurable hardware and software platform. Our major technical challenge was developing WaferPak contactors that can work reliably and repeatedly during the high temperature requirements of wafer level burn-in and test.

We believe shipping our FOX-15 systems helps validates that our technology is a cost effective solution for processing wafers for automotive and known good die applications. We are now aggressively targeting these growing markets with our FOX-15 wafer level burn-in and test system. We have installed our FOX-15 system and our customer has started to run qualification wafers. We expect the acceptance phase correlation studies to be lengthy as our customer wants to do multiple burn-in runs to ensure that the wafers processed by our FOX-15 system meets their automotive customer’s stringent quality and reliability specifications. This acceptance could take up to six months or more but we are hopefully that it could happen in our fourth quarter. Revenue for this multi million dollar system will be recorded following customer acceptance.

Our near term goal is to add one or two new customers for our FOX products and grow market share in the rapidly expanded automotive test equipment or ATE market segment for full wafer test and burn-in. We continue to see interest in both our FOX products however; it seemed to always take longer than you expect to penetrate production accounts with a new technology.

The balance of this fiscal year we will continue to invest in R&D to improve the performance of our core parallel test and burn-in systems for packaged devices. Our objective is to roll out new products over the next six to 12 months using our new configurable hardware and software platform developed for our FOX products. We believe that these new core products will increase our competitiveness in the Asian market and enable us to increase market share in the rapidly growing segments for high power logic burn-in and massively parallel test and burn-in for [D-rams].

In closing we continue to be encouraged by the bookings we potentially see from our initial FOX-1 customer and the opportunities we have to add additional customers for our FOX products over the long term. Based on our strong backlog of orders for our FOX-1 parallel testers and WaferPak contactors we expect to grow both revenue and net profit in our third fiscal quarter when compared to the quarter just reported.

Now, I’d like to turn the call over the Gary and he’ll add some color to the second quarter financials.

Gary L. Larson

Net sales were $9.7 million in the second quarter of fiscal 2008 an increase of 55% from $6.2 million in the second quarter fiscal 2007 and an increase of 26% from $7.7 million in the prior quarter. In the second quarter of fiscal 2008 FOX-1 systems and contactors represented the majority of our net sales. As Rhea had mentioned earlier we shipped the FOX-15 system this quarter. We expect to record revenue for it upon completion of customer acceptance.

Gross margin was 50% for the second quarter compared with 47% in the year ago quarter. Gross margin increased primarily because FOX products with somewhat higher margins represented a higher portion of net sales. On a going forward basis we believe that the typical gross margin will be about 50%.

SG&A was $1.8 million in the second quarter compared with $1.5 million in the prior year period. The increase in SG&A dollars is primarily attributable to an increase in headcount as we added support resources to address the expected growth in our business.

Second quarter 2008 R&D expense was $1.4 million down slightly from $1.5 million in the second quarter of last year. R&D expense varies from quarter-to-quarter depending on product development expenses and this quarter’s level was lower than is typical. We expect R&D expense to increase somewhat during the second half of this fiscal year as we add engineering resources to grow our custom WaferPak contactor business.

Income from operations for the second quarter of 2008 was $1.6 million compared to a loss from operations of $82,000 for the second quarter of 2007. Comparing this quarter to the same quarter of the prior year operating income increased by nearly $1.7 million while sales were up $3.4 million. This demonstrates the leverage available to the company when sales are growing and product mix is shifting more towards FOX products.

Our net income for the second quarter was $1.4 million or $0.16 per share compared with net income of $687,000 or $0.08 per share a year ago and compared to net income in the prior quarter of $779,000 or $0.09 per share. Excluding stock compensation expense in these periods pro forma net income in the second quarter of fiscal 2008 was $1.6 million or $0.19 per share compared with $856,000 or $0.10 per share in the same period of the prior year and compared to $968,000 or [inaudible] in the prior quarter.

Net sales were $17.3 million in the first six months of fiscal 2008 compared with $13.4 million in the first six months of fiscal 2007. Net income for the six months ended November 30, 2007 was $2.1 million or $0.26 per diluted share compared with net income of $1.2 million or $0.15 per diluted share in the same period of the prior fiscal year.

We continue to have a solid balance sheet. Our cash, cash equivalent and short term investments stood at $6.9 million at November 30, 2007. This total is $1.8 million lower than at the prior quarter end and results from the increase in accounts receivable during the second quarter. Accounts receivable was $11.6 million at the end of the second quarter a $4.8 million dollar increase from the end of the prior quarter. The increase is primarily attributable to the higher levels of sales as well as an increase in the level of receivables in Japan which typically has longer payment terms.

Our inventory was $10.7 million at November 30, 2007 essentially flat with inventories at the end of the prior quarter. Shareholders’ equity was $26.6 million or $3.30 per share outstanding at November 30, 2007 and we continue to have no outstanding debt.

We’re now ready to answer your questions. Operator please go ahead.

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions) Our first question comes from Ramesh Misra from Collins Stewart. Please go ahead.

Ramesh Misra – Collins Steward LLC

My first question Rhea was for you. Can you qualitatively talk about what the book to build or backlog number was? I know you tend to report backlog normally at the end of the fiscal year but can you at least give a directional indication?

Rhea J. Posedel

Okay. As you know we don’t report bookings per quarter but we did announce $13 million worth of FOX system orders early in the quarter.

Gary L. Larson

We announced it early in the quarter.

Rhea J. Posedel

For the prior quarter and the quarter just finished. In the second quarter we announced $13 million worth of FOX system bookings and we also talked about receiving additional WaferPak bookings for those systems. Obviously our book to build was higher than what we shipped but we don’t report bookings primarily because we have a very lumpy bookings per quarter and often times a week or so can make a significant change in whether the bookings is one and a half to one book to build or half depending on when the order comes in. And often times our customer’s know that and put pressure on us for discounts at the end of a quarter, you know, book order. So, by not reporting bookings it actually saves trying to accelerate bookings and giving additional discounts.

Ramesh Misra – Collins Steward LLC

You alluded to orders for the WaferPak for these 10 systems that you received orders for. Typically how many WaferPaks are ordered for each of the FOX-1 systems?

Rhea J. Posedel

I would say somewhere from one and half to two.

Ramesh Misra – Collins Steward LLC

Okay. So, have you received WaferPaks for all of the systems that you received orders for?

Rhea J. Posedel

They tend to delay them somewhat but, I don’t know we haven’t tried to match them up.

Ramesh Misra – Collins Steward LLC

In terms of these systems, the $13 million order that you received by when do you expect it to be shipped? So, I’m talking shipment not recognizing revenues.

Rhea J. Posedel

I think we would actually ship during this fiscal year.

Ramesh Misra – Collins Steward LLC

So, by the end of May you should have it shipped? If this is a repeat customer Rhea, would the acceptance cycle be shrunk?

Rhea J. Posedel

Yes.

Gary L. Larson

Basically, on these repeat orders when the customer has already accepted the initial system then the revenue is recorded on shipment for the follow on unit.

Ramesh Misra – Collins Steward LLC

So basically it’s reasonable to expect that the revenues for these 10 systems should be recognized also by the end of the current fiscal year?

Gary L. Larson

Yep.

Ramesh Misra – Collins Steward LLC

Now shifting again to the wafer related to the complexity of the parts or ASPs, they’re actually decline?

Rhea J. Posedel

That’s a good question. I would saythe ASPs – let’s saythe selling price can vary anywhere from $200,000 to $500,000. I think a good rule of thumb would be around $300,000 conservatively.

Ramesh Misra – Collins Steward LLC

Okay.

Rhea J. Posedel

And to answer your other question it is going up a little bit as we see wafers with more die on them. Then, we obviously have a higher number of pins and the selling price increased because the selling prices is based on the number of contacts or the number of pins we provide.

Ramesh Misra – Collins Steward LLC

Now clearly one of the issues you had previously Rhea was the ability to supply enough WaferPaks. Can you talk about how you resolved that or how far are you along in the process of resolving that?

Rhea J. Posedel

As I mentioned inthe conference call script designing and producing WaferPaks is a major challenge. I think initially when we started this project we were selling 200mm FOX-1 and 200mm WaferPaks and I think we’ve been able to overcome delivers on the 200mm at least most of them and now we’re facing the challenge of developing or designing 300mm WaferPaks. And, as I mentioned we’ve invested a lot in design tools in order to reduce our cycle times. So, it’s a lengthy process but we feel we’re making good progress on that.

Ramesh Misra – Collins Steward LLC

Related to the delivery of the FOX-1 systems. Obviously, the customer wouldn’t want the system to be sitting there without WaferPaks. Do you have the capability to supply the contactors as well by the time these systems are delivered before the end of the fiscal year?

Rhea J. Posedel

I believe so.

Ramesh Misra – Collins Steward LLC

Okay.

Rhea J. Posedel

I think historically they tend to buy more WaferPaks than they have systems for.

Ramesh Misra – Collins Steward LLC

Right.

Rhea J. Posedel

We will have enough WaferPaks we believe for our installed basis systems.

Ramesh Misra – Collins Steward LLC

And again, this entire order was for 300mm tools so clearly all of the WaferPaks are 300mm

Rhea J. Posedel

Yes. Currently the new WaferPaks are 300mm.

Ramesh Misra – Collins Steward LLC

Shifting gears a little but your R&D expense I recognize the fact that year-over-year was down actually I think the lowest level that its ever been in the last four quarters or so. Obviously, there’s a lot of variation in it but does this reflect the conclusion of any particular project you might have been working on?

Gary L. Larson

Well, there are always projects that are ongoing and projects that are coming closer to fruition. What this shows is that a number of expenses that would have more recently showed up in R&D expenses were showing up in inventory and costs of goods and that’s because a product has reached a point of maturity where we’re allowed to do that by the accounting rules. And, that was my comment about variations from quarter-to-quarter. You will see ups and downs in particularly in the R&D expense arena we’ll have substantial material expenses that will show up in R&D expense and then in another quarter just as we saw this time around those similar expenses may be counted as inventory or cost of goods based on the nature of that particular product.

Ramesh Misra – Collins Steward LLC

Okay. And just a clarification on that comment about second half R&D expense. Are you suggesting that it just goes back to the historical level that it has been? Or, do you think the second half will actually be modestly high than a rolling quarter average R&D expenditure has been?

Gary L. Larson

Well definitely higher than the quarter just ended. That was the message we were trying to send. But, as you point out since we are gearing up on the WaferPak contactors in a way we haven’t before it wouldn’t be surprising if we saw the R&D expense go higher than the recent averages.

Ramesh Misra – Collins Steward LLC

That helps. In regards to the tax rate this quarter’s tax rate was about 10% or so Gary. How should we think of tax rate going forward? I know its difficult to predict that with a fine degree of precision but all the same its been running a lot lower than previously and I believe you might – some of your NOLs might be coming to an end. So, how should we think of tax rate going forward?

Gary L. Larson

I would say that the best thing you can do at this point is to assume similar rates to what you’ve seen us booking in the first and second quarter of this fiscal year. You’re right we do have NOLs in the US and NOLS in Japan. Some of those NOLs in Japan are going to be completely consumed this year resulting in a higher effective tax rate and that’s what we’re trying to reflect. It will depend on how the business plays out between the US, Japan and our other subsidiaries what the ultimate rate may be. But, I would say looking at the rates we booked in Q1 and Q2 would be the best way to estimate it at this point.

Ramesh Misra – Collins Steward LLC

Looking at these revenues Rhea, can you give us a sense of how much of it came from the FOX systems and how much came from your legacy MAX and MTS systems?

Gary L. Larson

In the conference call I mentioned that the majority of our business did come from FOX products this quarter.

Ramesh Misra – Collins Steward LLC

Can you give us any indication of what’s happening on the legacy side further down the line? Clearly there is a slowdown in overall cap ex spending in the industry so do you anticipate that your legacy business will remain subdued on account of that?

Rhea J. Posedel

You’re correct in that we’re seeing certainly the capacity bias aren’t there for core products for burn-in and parallel test. And, this is why we’re taking a proactive approach to enhance and roll out new products that allows us to compete in some new market places for our MAX and MTX. We believe we can – certainly we talked about rolling them out the next six to 12 months and we think these new products should start having revenue again in the next fiscal year.

Ramesh Misra – Collins Steward LLC

So these are redesigned MAX and MTX systems?

Rhea J. Posedel

Right. They would be a next generation MAX or a next generation MTX using the core hardware software that we developed for our FOX products. So we will migrate that technology to our MAX and MTX.

Ramesh Misra – Collins Steward LLC

Okay. Again, kind of trying to look at it more finely do you anticipate the FOX-1 revenues to be also up in the February quarter?

Gary L. Larson

On a quarter-to-quarter basis?

Ramesh Misra – Collins Steward LLC

Yes.

Gary L. Larson

We haven’t given that guidance. But, we are expecting revenue to be up on a quarter-to-quarter basis but we’re not breaking that guidance down by product.

Ramesh Misra – Collins Steward LLC

I think that covers most of my questions for now. Thank you gentlemen.

Operator

Our next question comes from Brian Wilkinson from Lewis Asset Management. Please go ahead.

Brian Wilkinson – Lewis Asset Management

I think Ramesh covered most of what I was thinking about. I was just going to ask about the addressable market in general how much of that $3 billion probe carb market?

Rhea J. Posedel

I’d say it was a wafer probe test market.

Brian Wilkinson – Lewis Asset Management

How much do you cover currently with products that you have to market and the customers and perspective customers that you’re touching right now? What’s the addressable – your part of it?

Rhea J. Posedel

We provide in our financial picture a company estimate of what we believe our segment for FOX products is and we estimate it to be about $250 million by the year 2009.

Brian Wilkinson – Lewis Asset Management

By the year 2009?

Rhea J. Posedel

Calendar 2009.

Brian Wilkinson – Lewis Asset Management

And what are you right now for 08?

Rhea J. Posedel

Say it again?

Brian Wilkinson – Lewis Asset Management

What’s the current addressable market? How much for 08?

Rhea J. Posedel

What we’re saying for calendar 08 would be somewhere around $140 million, $120 million.

Brian Wilkinson – Lewis Asset Management

But double that by next year this time?

Rhea J. Posedel

Correct.

Operator

Our next question comes from Jeffery Scott from Scott Asset Management. Please go ahead.

Jeffrey Scott – Scott Asset Management

FOX-1 you said on the technology side you still have a way to go. Can you explain what problems need to be resolved?

Rhea J. Posedel

I meant on the WaferPak, reducing the cycle time from when we get the order until when we deliver it.

Jeffrey Scott – Scott Asset Management

So, the production technology is okay it’s just a question of the turnaround time?

Rhea J. Posedel

Correct. When we started developing WaferPaks initially it took us months and months to design it which is too long and then we had to shorten that design phase where the customers expecting deliveries in say three months. We need to get down to that level two to three months. So, our delivery lead times are too long.

Jeffrey Scott – Scott Asset Management

The FOX-15 customer is that a new customer to Aehr Test?

Rhea J. Posedel

No, it’s a customer that we had sold MAX products to. It’s a new customer for FOX but it’s a customer we had sold MAX.

Jeffrey Scott – Scott Asset Management

Everything’s a new customer for FOX.

Rhea J. Posedel

That’s correct.

Jeffrey Scott – Scott Asset Management

So, they new you via the old legacy MAX product?

Rhea J. Posedel

That’s correct. So, that’s how we had the relationship and that’s how we basically got in and were able to sell them on our FOX technology.

Jeffrey Scott – Scott Asset Management

And these have been delivered to a US domestic location?

Rhea J. Posedel

No, I didn’t say that.

Jeffrey Scott – Scott Asset Management

Okay.

Rhea J. Posedel

I would say its an international location.

Jeffrey Scott – Scott Asset Management

Okay. How many systems could this particular customer order?

Rhea J. Posedel

When we talked to them initially he was saying somewhere between five and 10 over a number of years of course.

Jeffrey Scott – Scott Asset Management

Somewhere between five and 10. You still have just the order for one, right?

Rhea J. Posedel

Correct.

Jeffrey Scott – Scott Asset Management

So five to 10 would be over some period of time?

Rhea J. Posedel

Correct.

Jeffrey Scott – Scott Asset Management

What do you think you have to do to get the customer to order more?

Rhea J. Posedel

As I highlighted in the conference call I think what he is looking for is a system that offers the reliability and the repeatability that he needs to ensure that he meets his customer’s stringent requirements for wafer level burn-in. So, he’s a very detailed customer. I mean, certainly we can do the job but he wants to see 100% of his wafers work every time and that’s the challenge that we have to get towards. We have to give him a high confidence that we can get some high yields when he processes wafers. The only way you’re going to do that is to run multiple wafers and see what the issues are and if there are any then fix them.

Jeffrey Scott – Scott Asset Management

Are you expecting significant issues?

Rhea J. Posedel

Yeah I guess you always expect there to be issues but you’re always hoping for the best. So, you have to be prepared to deal with some of these issues.

Jeffrey Scott – Scott Asset Management

Okay. The five to 10 over time those will be delivered to the same location the first one went to?

Rhea J. Posedel

Yes.

Jeffrey Scott – Scott Asset Management

Are there other locations?

Rhea J. Posedel

No, this customer just has one location.

Jeffrey Scott – Scott Asset Management

Just one location.

Rhea J. Posedel

What would have to also happen is he probably would need to – as he adds more devices. So, this is one device type so this one device type is maybe one or two systems and as he adds more device types it could be more systems. But, again I think the leverage here could be that the end customer is a leading car manufacturer and if that car manufacturer likes the wafer technology and if it provides them with reliable quality die then our hope is that they require some of their IC suppliers to use our FOX product. So, that’s where thebig leverage could be. If we can be successful in this project.

Jeffrey Scott – Scott Asset Management

That would actually play out over some number of years would it not?

Rhea J. Posedel

That’s correct. But, that would broaden our customer base instead of one customer it could be multiple customers who would be interested in our FOX product.

Jeffrey Scott – Scott Asset Management

All driven by the success.

Rhea J. Posedel

Of this one large – as you know there’s only a few large automotive companies in the world.

Jeffrey Scott – Scott Asset Management

You talked about the FOX-15 having applications for other people that were inthe known good die business. What other, other than autos would you characterize this as being in?

Rhea J. Posedel

One customer that we’re talking with is a DRAM customer and they’re looking at selling their DRAM chip into a stack package that goes into handheld communication devices. That’s a very broad application so it’s stack packages, vertical stack packages for the handheld consumer market.

Jeffrey Scott – Scott Asset Management

Is that something that would play out over a shorter period of time?

Rhea J. Posedel

If we’re successful with that customer that could happen within the next 12 months.

Jeffrey Scott – Scott Asset Management

You still have a goal of one new customer for FOX-1 and one new customer for FOX-15, right?

Rhea J. Posedel

That is correct. Or more.

Jeffrey Scott – Scott Asset Management

Have you been able to – are you more hopeful now than you were three months ago that you’ve found that particular new customer?

Rhea J. Posedel

I think shipping the FOX-15 certainly helps on the wafer level burn-in front because it really validates that our technology works and certainly reduces barriers that prevent people from buying these kinds of products. And, on the FOX-1 side I think we’ve come closer to selling a few customers. So, yeah I think we’re further than three months ago.

Operator

(Operator Instructions) Our next question is a follow up from Ramesh Misra. Please go ahead.

Ramesh Misra – Collins Steward LLC

Just a quick clarification. You previously talked about the burn in system has being FOX-14. Is the FOX-15 just a slightly modified version with one additional slot or are there some additional fundamental changes because I know you had shown the FOX-15 at the show in July last year not the FOX-14.

Rhea J. Posedel

I think initially when we sold the order to our automotive IC manufacturer it was a FOX-14 system which was our first generation wafer level burn-in and test system. And, as we got further into the project we decided to basically upgrade the technology, hardware software taking it from the FOX-1 and using that hardware software platform and at the same time we also added one additional wafer slot. But, not only is it a 15 slot system but basically it’s almost from a ground up everything is new and enhanced from our FOX-14 system. So, it truly is a next generation wafer level burn-in and test system from the ground up.

Operator

Our next question comes from Larry Brooks from Maloney Securities. Please go ahead.

Larry Brooks – Maloney Securities

I’m wondering the approximate value for a sale on a FOX-15 what that would go for?

Rhea J. Posedel

If you looked at the system and the 15 wafer pack contactors it would be in excess of $2 million.

Larry Brooks – Maloney Securities

With the current products that you are manufacturing are you having any supply issues and problems getting the components that you need to make the products?

Rhea J. Posedel

I don’t think any more than we would on the MAX or the MTX. I think we have hired a new VP of operations Joel Bustos and I think he’s certainly strengthened the supply chain. So, I think we see less issues on the material side.

Larry Brooks – Maloney Securities

You of course talked about your account receivables and it of course being a Japanese company, is this a new group that you’re dealing with or is this someone that you’ve dealt with before?

Gary L. Larson

No, we’ve dealt with this customer before.

Larry Brooks – Maloney Securities

Okay. So logically you don’t expect to see any problems?

Gary L. Larson

No.

Larry Brooks – Maloney Securities

I guess the last thing is the seasonality of your company. are you seeing any issues where one quarter is generally stronger than another?

Rhea J. Posedel

I can’t see over the 30 years that we’ve been in busy that there’s been any seasonality. It varies more I guess with the ups and downs of the semiconductor industry.

Operator

At this time we have no further questions in queue. I would like to send the conference back to management for any concluding comments. Please go ahead.

Rhea J. Posedel

I’d like to thank you for joining us this afternoon and we look forward to next quarter’s conference call. Thanks again.

Operator

Ladies and gentlemen that does conclude the Aehr Test System’s second quarter 2008 conference. We thank you again for your participation today. You may now disconnect.

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