Aehr Test Systems (NASDAQ:AEHR) Q4 2019 Earnings Conference Call July 18, 2019 5:00 PM ET
Jim Byers - Investor Relations
Gayn Erickson - President and Chief Executive Officer
Kenneth Spink - Chief Financial Officer
Conference Call Participants
Tyler Burmeister - Craig-Hallum Capital Group LLC
Kevin Dede - H.C. Wainwright & Co., LLC
Larry Chlebina - Chlebina Capital Management, LLC
Ben Rabizadeh - StoryTrading
Good day and welcome to the Aehr Test Systems Fiscal 2019 Fourth Quarter and Full-Year Financial Results Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Mr. Jim Byers, MKR Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon, everyone, and welcome to Aehr Test Systems fiscal 2019 fourth quarter and full-year 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 Spink.
Before I turn the call over to Gayn and Ken, I'd like to cover a few items. This afternoon, Aehr Test issued a press release announcing its fiscal 2019 fourth quarter and full-year results. That release is available on the Company's website at aehr.com. This call is being broadcast live over the Internet for all the 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 Aehr Test Systems undertakes no obligation to update the forward-looking statements.
Now, with that said, I'd like to turn the conference call over to Gayn Erickson, President and CEO. Gayn?
Thanks, Jim, and good afternoon to those joining on today's conference call and also listening in online. Ken will go over the fourth quarter and full-year financial results later in the call, but first, I'll spend a few minutes discussing our business and product highlights in particular, the continued progress with our FOX-P platform for the wafer level and singulated die/module and test and burn-in systems. We'll then open up the lines for your questions.
Let me start off with, we are pleased to have finished the fiscal year with a strong revenue in the fourth quarter and to return to profitability in that quarter. We had a really good year for our FOX product family, including our newest FOX-NP and CP solutions that we introduced earlier this year.
We've since announced three new customers that we use these solutions to perform 100% test and burn-in production on their devices. We see each of these new customers moving to production, as well as adding new customers for these solutions this fiscal year. The FOX-NP and CP are the newest editions in our FOX-P family of semiconductor and module test and burn-in systems.
Our new FOX-NP is a low-cost, small footprint entry level system, providing a configuration and price point for companies to do initial product development, product qualification and production and enables an easier transition to our FOX-XP system for high-volume production test.
Our new FOX-CP is a low-cost, single-wafer compact test and reliability verification solution that's used for logic, memory and photonic devices. These new tests and burn-in solutions complement the capabilities of our FOX-XP and FOX-1P systems and we believe they will significantly expand the market for our FOX-P products.
During the fourth quarter, we began shipments of both the FOX-NP and CP to these three new customers. One of these new customers selected the FOX-NP along with DiePak Carriers, as the first step in their commitment to utilize our FOX-P platform for qualification and production burn-in of the new family of integrated silicon photonics chips.
This customer will utilize the FOX-NP for initial product development, qualification and production and then they told us their plan to transition to high-volume production test and burn-in of a 100% of their silicon photonics chips using our FOX-XP multi-wafer and singulated die and module test solution during our fiscal year.
The other new FOX-NP customer is a leading semiconductor manufacturer, who ordered several systems to complement their existing fleet of FOX-XP systems and to provide additional test and qualification capacity, as a result of increasing variety of silicon photonics devices.
The FOX-NP system provides a configuration and price point for companies to do initial product qualification or new product introduction thereby the NP nomenclature that allows them to transition over to XP, as I said before. In the case of this lead customer, having multiple FOX-NP systems, enables them to run many wafers at several different temperatures in parallel at completely different process variations and burn-in conditions as part of their qualification process.
During the quarter, we also announced an initial $1.2 million order from a major new customer for our new FOX-CP system. This system will be used to perform 100% test and burn-in of devices as supposed to sampling, which we've talked about in the past, in a very high volume application for the enterprise and data center market, with the build-out of this production ramp over the next several years.
As we look at our new market growth opportunities, we believe the data storage market, as well as multiple devices related to the worldwide 5G build-out are great new opportunities for our test and burn-in systems, where these end markets and customers require devices to have extremely high levels of quality and long-term reliability.
We have new growth opportunities and known good die for automotive modules, heterogeneous semiconductor package devices and the emerging silicon carbide device markets.
We also remain very optimistic about the silicon photonics and the photonic sensors markets, which we've had success with and generated significant revenue for Aehr in our fiscal 2019. And we believe they will be significant growth drivers for Aehr for multiple years.
We announced a new customer order that came in right at the end of our fiscal year, which was the last day as it turns out for our FOX-P platform from Skorpios Technologies, a vertically integrated silicon photonics company.
Skorpios will use our high-power test and reliability verification solutions to perform 100% wafer level test and burn-in for infant mortality and aging of silicon photonics devices, as part of a significant production ramp to meet demand for high-speed optical transceivers.
With our FOX-P family of products, we are able to provide a seamless transition from initial production with our new NP systems in very high volume Fox-XP multi-wafer test and burn-in systems, enabling Skorpios to meet high-volume production test requirements they are building out to address their device demand.
During the quarter, we also received a follow-on order totaling $2.7 million from one of our lead FOX-XP test and burn-in system customers for an XP system and Aehr proprietary FOX WaferPaks that provide additional test capacity for this customer's increasing silicon photonics production requirements.
This customer also continues to forecast orders for additional FOX-XP systems and WaferPak contractors throughout calendar year 2019 and beyond. We are now actively engaged with over a dozen different customers with our new FOX-P family of products.
As we've talked about on past calls, as we increase our installed base of FOX systems, these new systems and their corresponding WaferPak and DiePak contractors will not only add to our systems business revenue, but will also further grow our consumables business as new customers continue to order contactors with each new device they design and ramp.
These FOX test and burn-in systems are expected to have a very long life at the customers with most expected to use these systems for at least 10 years or more. The consumable business continues long after a system is installed. We believe we can reach a point in the next few years, where our WaferPak and DiePak contactors exceed over half of our annual revenue.
We believe that both the CP and NP will significantly expand the market and number of customers for our FOX products, and we expect to increase our installed base of Fox systems substantially.
The Fox-NP, the Fox-CP and the Fox-XP, along with our legacy FOX-1 and FOX-15 systems, all use Aehr proprietary WaferPak and/or DiePak contactors that provide this consumable revenue stream for Aehr Test in the short and long term.
Aehr finished the fiscal year with strong revenue and returned to profitability in the fourth quarter. Heading into fiscal 2020, we remain very optimistic about growth in systems and consumables within our installed base of customers, as well as expanding the number of customers with our family of FOX-P solutions.
While we anticipate an overall slow market recovery of our legacy traditional markets in customers for packaged part business, based upon customer commitments to our FOX wafer level, singulated die and model test and burn-in solutions, we expect to generate significant year-over-year revenue growth in fiscal 2020.
For the fiscal year that ends May 31, 2020, we expect to generate a full-year total revenue of between $27 million and $31 million, which would represent a growth between 28% and 47% year-over-year and to be profitable for the fiscal year.
With that, let me turn it over to Ken, before we open up the line for questions.
Thank you, Gayn. As Gayn noted, we finished the fiscal year with strong revenue and a return to profitability in the fourth quarter. Net sales in the fourth quarter were $7.2 million, up more than double from $3.2 million in the preceding quarter and flat compared to $7.3 million in the fourth quarter of the previous year.
The sequential increase from Q3 includes an increase in wafer level burn-in revenues of $4.4 million, partially offset by a decrease in customer service revenues at $329,000. While Q4 2019 revenues were flat compared to prior year, wafer level burn-in revenues increased by $3.3 million, partially offset by a decrease in packaged part revenues of $2.6 million and a decrease in customer service revenues of $730,000.
Non-GAAP net income in the fourth quarter was $428,000 or $0.02 per diluted share compared to a non-GAAP net loss of $1.6 million or $0.07 per diluted share in the preceding quarter and a non-GAAP net income of $365,000 or $0.02 per diluted share in the fourth quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation expense, restructuring charges and write-down of excess and obsolete inventory.
On a GAAP basis, net income for the fourth quarter was $110,000 or $0.00 per diluted share, which includes the impact of $118,000 in restructuring charges related to our workforce reduction we announced in Q3. This compares to a GAAP net loss of $3.2 million or $0.14 per diluted share in the preceding quarter, which included the impact of approximately $1.4 million or $0.06 per share in restructuring and inventory write-down charges taken in the quarter and a GAAP net income of $191,000 or $0.01 per diluted share in the fourth quarter of the prior year.
Gross profit in the fourth quarter was $3.4 million or 47% of sales, compared to gross profit of $272,000 or 9% of sales in the preceding third quarter and gross profit of $3.2 million or 43% of sales in the fourth quarter of the prior year. Gross profit in the preceding Q3 was impacted by a $795,000 inventory write-down.
On a pro forma basis, excluding this write-down, gross margin for Q3 was 34%. Excluding the impact of the inventory write-down, the increase in gross margin from Q3 is primarily due to higher overhead costs as a percentage of sales in Q3 due to lower revenue levels. The increase in gross margin from Q4 of the prior year is due to a change in product mix.
Wafer level burn-in revenues accounted for 86% of revenues in Q4 2019, compared to 40% of revenues in Q4 2018. Packaged parts burn-in revenues accounted for 36% of revenues in Q4 2018. There were no packaged part burn-in revenues in Q4 2019.
Operating expenses in the fourth quarter were $3.3 million and included the $118,000 in restructuring charges taken in the quarter. This compares to operating expenses of $3.4 million in the preceding quarter, which included $607,000 new restructuring charges taken in the quarter and operating expenses of $2.9 million in the prior-year fourth quarter.
R&D expenses were $1.1 million for the fourth quarter compared to $931,000 in the preceding quarter and $1.1 million in the previous year fourth quarter. The increase from Q3 was primarily due to an increase of $141,000 in project material expenses related to the release of our new FOX-P products.
SG&A was $2 million for the fourth quarter compared to $1.9 million in the preceding quarter and $1.8 million in the prior-year fourth quarter. The increase from prior year is primarily related to employment-related expenses.
Turning to the results for the full fiscal year, net sales for fiscal 2019 were $21.1 million, compared to net sales of $29.6 million in fiscal 2018. Fiscal 2019 net sales included $13.6 million and wafer level burn-in revenues, $2.2 million in packaged part revenues and $5.3 million in customer service revenues. Fiscal 2019 results reflect a decrease in revenues from prior year of $8.5 million, due primarily to a decrease of $8.7 million in packaged part revenues.
Non-GAAP net loss for fiscal 2019 was $2.8 million or $0.13 per diluted share, compared to a non-GAAP net income of $1.5 million or $0.07 per diluted share in fiscal 2018. On a GAAP basis, net loss for fiscal 2019 was $5.2 million or $0.23 per diluted share, which included the impact of approximately $1.5 million or $0.07 per share in one-time restructuring and inventory write-down charges taken during the fiscal year.
This compares to a GAAP net income of $528,000 or $0.02 per diluted share in fiscal 2018. The approximately $1.5 million in one-time charges taken in fiscal 2019 consists of $725,000 in restructuring charges related to our workforce reduction announced in Q3 and a $795,000 adjustment in the third quarter for excess and obsolete inventory.
As noted in the prior quarter, the restructuring charges consisted of severance costs for individuals impacted by the reduction in force. The action was taken to reduce cost and align company resources for future growth. The headcount reduction impacted company officers, managers and staff and included sales, marketing, R&D and operations. These headcount reductions are expected to result in cost savings of over $300,000 per quarter starting in Q1 of fiscal 2020 that began June 1, 2019.
The provision for excess and obsolete inventory included $540,000 reserves related to packaged parts ABTS and MAX products and $255,000 related to wafer level burn-in legacy FOX-1 and FOX-P products. The packaged part reserve charge related primarily to reduce forecast usage for older ABTS and MAX products. The Company has taken steps to shift its product portfolio to more standard, high-value products and limit unique customer-specific low volume configurations.
Gross profit for fiscal 2019 was $7.6 million or 36% of net sales, compared to gross profit of $12.4 million or 42% of net sales in fiscal 2018. Excluding the impact of the $795,000 in inventory write-down charges taken in the third quarter, fiscal 2019 gross margin would be 40%. Excluding the impact of the inventory write-down, the decrease in gross margin from the prior year is due to lower revenue levels impacting overhead costs as a percentage of sales and a change in product mix.
Wafer level burn-in revenues accounted for 65% of revenues in FY 2019, compared to 47% of revenues in FY 2018. Packaged parts burn-in revenues accounted for 10% of revenues in FY 2019, compared to 36% of revenues in FY 2018. Customer service revenues accounted for 25% of revenues in FY 2019, compared to 17% of revenues in FY 2018.
Operating expenses for fiscal 2019 were $12.6 million and included approximately $725,000 of restructuring charges related to our workforce reduction announced in Q3. This compares to operating expenses of $11.5 million in fiscal 2018. Excluding the impact of the restructuring charges, operating expenses increased $406,000 from prior year.
R&D expenses were $4.2 million in fiscal 2019, flat compared to fiscal 2018. SG&A was $7.7 million in fiscal 2019, an increase of $434,000 from the $7.3 million reported in fiscal 2018. The increase in SG&A from prior year is primarily due to an increase in employment-related expenses, associated with the addition of the Executive VP of Sales and Marketing and the Corporate Controller.
Turning to the balance sheet for the fourth quarter. Our cash and cash equivalents were $5.4 million at May 31, 2019, compared to $12.3 million at the end of the preceding quarter. The sequential decrease in our cash position reflects repayment for the fourth quarter of our $6.1 million note at maturity and the impact of Aehr collections on Q4 2019 revenues.
As we noted in our prior call, with the repayment of the note, we expect savings in interest expense of over $100,000 per quarter. Cash receivable at quarter end was $4.9 million, compared to $1.9 million at the preceding quarter end. The sequential increase in receivables is primarily due to the increase in revenues in Q4 2019 compared to Q3 2019.
Inventories at May 31 were $9.1 million, compared to $9.2 million at the preceding quarter end. Property and equipment was $1 million, compared to $975,000 at the preceding quarter end. Customer deposits and deferred revenue, short-term and long-term was $1.7 million, compared to $1.5 million at the preceding quarter end.
Bookings in the fourth quarter totaled $7.8 million and backlog at May 31, 2019 was $7.5 million. This compares to backlog of $6.9 million at the end of the preceding quarter and $8.4 million at May 31, 2018. Included in Q4 2019 bookings were orders for FOX-XP, FOX-NP and FOX-CP systems, as well as multiple WaferPak and DiePak orders.
Now turning our outlook for fiscal 2020. For the fiscal 2020 year ending May 31, 2020, we expect full-year total revenue to be between $27 million and $31 million, which represents growth of between 28% and 47% year-over-year and to be profitable for the fiscal year.
We expect to see a slow fiscal first quarter, followed by a pickup in momentum for the following three quarters. Our forecast is based upon customer commitments to our FOX solutions for wafer level and singulated die and modular test and burn-in. We are assuming an overall slow market recovery for our packaged part burn-in market.
As such, we are not anticipating a significant amount of revenue contribution from our lower margin packaged part burn-in business for fiscal 2020 and remain focused on opportunities with key customers for our current FOX products, including our new FOX-XP and CP systems that we both introduced and sold to customers this fiscal year.
This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.
Thank you. [Operator Instructions] We will take our first question from Christian Schwab with Craig-Hallum. Your line will be open in just a moment. Mr. Schwab, please go ahead.
Hi. This is Tyler on behalf of Christian. Thanks for letting us ask a couple of questions here.
Hi, guys. So first I was hoping, as you guys look next year, if you can give us some more color, maybe specifically on what products or applications or customers where you obviously can comment that's going to be driving this expected 40% year-over-year growth?
Well, actually a good percentage of the current forecasts that we are confident in is coming from current customers and their repeat orders of their primarily FOX and wafer level burn-in systems, contactors, whether it be DiePak or WaferPaks. So we are not anticipating a significant amount of our revenue having to come from sales that we have not won yet.
Having said that, we actually have a full funnel of customers and we are engaged in multiple benchmarks physically in the building today related to some new opportunities with new customers and markets.
As I look back on my call script, if you will, you kept hearing silicon photonics and photonics and photonic sensors over and over again and it's really turned into a really hot wave for us and we're getting more calls on that, so certainly one of the big markets for us is the silicon photonics and transceiver markets. Subsystems going into transceivers including lasers, as well as modules and semiconductor-related singulated die and wafer in that area.
Other areas that we are engaged with customers on is automotive. And a couple – a handful of different areas, one of the things that's sort of a blend, but pretty acute in the automotive space is this new silicon carbide trend that's going on. Silicon carbide is a new semiconductor. Arguably, it's been around for a while, but the semiconductor process allows very high voltage and current with very low losses.
And if you look at the application space for that, some of the things that are driving it are all the electric vehicles are their public announcements of companies that are selling volumes of switches and other power subsystems that go into electric vehicles and the Teslas of the world and all of the different electric vehicles.
Standard CMOS, bipolar processes, even gallium arsenide are not really suited for this high power application, and so there's a lot of money and a lot of folks making investments in that area. We're just discussing an article actually as with so when I had lunch with today and they were referencing some market research where silicon carbide, the wafers themselves have a much higher defect density than traditional semiconductor and silicon wafers on the order of magnitude or more, so more than 10x in defect density.
What that means to a company that's in the test business like us and reliability is that for every square inch of semiconductor that they build, it might have 10x the number of defects, and in a recent conference that we were attending, one of the big players, one of the big automotive guys, stood up and talked to the audience of the Silicon Carbide companies saying, you guys need to do something because your infant mortality rate is atrocious.
But I need these products to get the automotive devices out to market. We play a part in that we're engaged with some customers right now. We think that that's going to be a really good spot for us, because we are able to do things at wafer level that could be the key differentiation for multi-wafer testing of silicon carbide type devices, there's a couple of them.
The 2D, 3D sensing market that we've historically talked a lot about, that's still an area that we play in. Unlike last year when we started out the year, we thought that that was going to be a much bigger portion of our business. This year we're counting on a lot less. But we are still actively engaged in multiple programs, and I mean, we have daily meetings talking about programs that are – this summer, this fall, next summer and things that we're engaged in. So, we know we're critically important to those customers, but that's, I think, a sample of some of the areas that we see ourselves in.
Thanks. That's great color. And then second and I apologize if I might have missed a comment on this, but would you expect next year to be roughly equally weighted? Or there's some give and take that we should be thinking about as far as first half for a second half. Any color there?
Yes, I think, Ken had actually alluded to it. We actually had a very good quarter in – we had a good quarter in Q4. The customers that we're engaged in, quite frankly, were pounding on us to get the products out to them to meet some of their customer demand, early samples and the early production ramp. So we had some customers that pulled in to shipments on the FOX-CPs and NPs in Q4. We know that they are planning to purchase additional systems for shipments as we head into the year here.
So I think relatively speaking, our Q1 is probably the softest quarter of the year and continue to pick up throughout the year. And one thing I guess I want to emphasize, I know sitting in semicon, I was talking with a lot of investors, a lot of other CEOs; the semiconductor space right now and capital equipment is actually in a bit the doldrums. I mean, we're in the middle of a downturn cycle right now.
And I'll tell you, if we don't wake up every day and think a lot about that. The engagements that we're at it with customers right now are all about these new products and all and they're moving as fast as they can to get them to market. We're not anticipating some big turnaround in the semiconductor market to meet our numbers.
If the market were to come back and we are base level business with even our installed base customers would to increase, we see that as upside. But we're not going to hear from this CEO that the market needs to turnaround in order for us to actually hit our numbers this year.
That's great. All right. That's all for me. Thanks, guys.
We'll take our next question from Kevin Dede with H.C.W. Your line will be opened in just a moment. Please go ahead, sir.
Hi. Good afternoon, Gayn. How are you doing? Hey listen, I apologies. I got kicked out of the office, so there's a lot of background noise.
Listen, Gayn, you've been talking about silicon photonics and 5G. I think if you move this all if you could just provide a little bit more color on why you see those devices meeting that extra level of test and burn-in that your equipment provides. It's more mission critical. I just thought that maybe you could dive in a little bit deeper and tell us what your customers are telling you.
Okay. Actually, that's a very good call. That's good point, because we've got to live and breathe in here. And I think it's a good to tee up, if you will, for other folks that is in. And so, what is silicon photonics, what does it mean? So in general, in the fiber optic space that people think of for communications that are driving the backbone of the Internet and are moving more deeply into the data centers. So not only within between data centers, but within the data centers and a big push to get within the rack of servers between the servers and ultimately between the servers and the disk drives
As you go down that pyramid, if you will, the market for transceivers increases 10 fold with each step. The challenge has been is that a fiber optic transceiver, in fact, one of the headwinds back in the 2000 timeline when everybody was talking up a storm about how fiber was going to change the world, a fiber optic transceiver for say a 100-gig transceiver, what might have been or a 40-gig at the time was a $700 component. The challenge is that's just too expensive. And so the infrastructure for fiber optic never could get to your house because no one's going to be putting a pair of $700 transceivers in our homes.
The vision by folks that are out there, including several of our customers has then – if you could replace all of those subsystems that make up a transceiver that create a $500 bill of materials into a silicon-based structure that have all of the RF modulators, demodulators and all the logic and [indiscernible] and everything on top of it, plus some physical structures on it that would allow it to attach a laser directly.
You could use the scale of a silicon wafer to create the entire subsystem in a single chip, and if you will, bring Moore's Law to a space that has never been able to really scale. So instead of having – building these things by hand, in factories at $500 a piece, companies that have introduced silicon photonics devices are coming in at entry points with cost of sales at $50 or $100 or $150 or so.
It is devastating to that industry if you don't happen to be in it and there's a lot of folks scrambling for it, because the market forecasters are saying it's going to be really hard for people to actually fulfill all the demand if they can get to these lower price points. You don't see that many things that are elastic like that. All right, so that tees up, why silicon photonics? Why is it a big deal?
What's interesting is when you move it to wafer, the lasers that have been sitting on these transceivers for two decades, okay, the physical structure of the gallium arsenide and gallium nitride wafers are such that the lasers themselves need what the industry refers to as aging. If you bias them at high power for a period of 12, 24, 48 hours, the power output will actually settle in and it will change. And if you do not do that, you'll never be able to bin the devices to be able to get high-speed transceivers out of it. So the entire industry does an aging process of those lasers.
Now, traditionally, those lasers are done discreetly and they're done in racks of equipment by hand that are then hand placed or picked and placed into the transceivers. When you put that laser onto the wafer, there is no other structure for you to burn-in that other than at the wafer singulated die level.
If you do put it in the system, then it's extremely expensive and you have the yield loss of other infrastructure, the mechanicals. So we've been told by customers that our ability to actually age those lasers in the form of an entire wafer, whether it be a 6-inch, 8-inch or a 12-inch wafer, is an enabling capability for the silicon photonics market.
So, our FOX products that have the ability to test up to 18 wafers in parallel make it cost effective to be able to test all of the die, all of those silicon photonics devices on a single wafer in one insertion, and that's a big deal.
And when we have introduced that to a CEO level or a CFO level at one of these companies, they immediately are interested in what we have to say, because it's a highly differentiated solution, both in the tester, the side that contested, the thermal capability to remove thousands of watts of power per wafer, and in our unique proprietary contractor that allows us to contact the small pads of these lasers across an entire wafer for up to 300 millimeter.
And so that FOX system, why we're kind of going gangbusters is as any customer hears about it, we're actually getting traction. By the way, if anyone knows someone we're not talking to, if you happen to know that, please send in my name. So we've kind of been retooling our sales and marketing folks to ensure that we can go after that. We've been attending conferences.
Just recently, we were at a conference in Germany. I think we add up to, I don't know, half a dozen or dozen different customer meetings. It's a very interesting space. So the burn-in requirement, although we call it burn-in, is really aging and it require – aging is required of lasers in those applications.
One other comment. On top of that, these devices do have infant mortality rates that are going to be completely unacceptable into the quality and expectations of the data and telecom market spaces. So while they're also doing aging, we have the ability to weed out infant mortalities associated with the physical structure of either the bonding or the laser itself or even the semiconductors in some cases to allow them to have a higher initial quality and long-term reliability. How would I do?
I thought you did great, but before I ask the same sort of top level view on 5G, I was wondering if you could size up the market. How many potential customers do you think are out there? How many if you can tell us, are you talking to? What do you think the opportunity is? How fast do you think the guys that aren't there are moving to try to get there, so that they don't miss the boat?
Yes. That's a good question, and I'll give you some, I'll hide some information too. We actually last time specifically stated, I think we're engaged with over a half a dozen photonic silicon photonics type customers. So over half of the 12 engagements are actually photonics related. There are a few different classes, not classes, types of customers that are playing into this space.
There are folks that sell just the raw semiconductors themselves. That isn't really a target for us. They're folks that sell the lasers. That is a target. And we're engaged with folks. There are the people that put the lasers on the semiconductors and sell the whole system. That's our sweet spot. And that we're engaged with at least three of those guys.
I think if you depending on who the soothsayers are of the space, there's probably a dozen people out there all buying for in the silicon photonics kind of space, maybe a little less, but in that range. And then maybe another dozen or so related sub-suppliers underneath that. So there's not hundreds of companies out there, and even the small ones are being acquired.
As you've seen, Cisco picked up a couple of folks. Intel picked up someone a couple, a few handful of years ago. So there's some – some of the little guys are turning into big guys too. For us, we're kind of watching to see what that looks like. I mean, it's reasonable for companies to own more than one, two, three of our big production systems. In some cases, it could be 10. So we're kind of watching to see.
The one thing that is holding up is that every single one of them is doing aging and every single one of them would like the test times to come down, but they haven't been able to get to successfully do it. The maturity of the laser market is pretty – it's been around for a while and nobody's figured out how to avoid that test and burn-in side of things.
So we're kind of trying to put our arms on it. Is it from a pure Vernon space? Is it that $50 million? Can it be more than that? How will it look with the contractors over space, you know, that type of number? I don't think it's a $150 million or $200 million in just the burn-in space, for example.
The 5G is another kind of a wildcard on it. Most of the folks it to begin with are really focusing on the telecom datacom side of it because if you will, the datacom, which is where all the data centers are is 10x, 100x, a 1000x more transceivers than the, if you will, the telecom backed planes from point to point out in the 5G. But these are all big numbers.
The 5G tends – infrastructure tends to be a more expensive long haul version of a silicon photonics than maybe the one between a server and a disk drive. So all of these are areas that we can very cost effectively burn-in, even with a 48-hour or longer burn-in.
Okay. Thanks, Gayn. So your point on 5G is really more silicon photonics versus maybe gallium arsenide and other chips that would fit in, I mean, everybody is talking about a lot of micro base stations and I'm wondering if you think you've got a hand in that.
I think there is a little bit going on there. I’ve been mostly lumping it into the 5G infrastructure related to those transceivers side of things. We certainly have solutions related to logic and other processor based that things. But, there's not, as we understand it, a bunch of folks out there that are trying to burn-in the RF and microwave transceivers themselves, it's in the other space. But there's a lot of money being spent on the 5G side of things, and there's a bit of a rising tide for all ships. And anything that needs more reliability and quality is good for us.
Yes, no, one or two other things, if I may. Before I go off into 5G again, the overarching question I had the start of this call. Given your narrative on consumables – I guess a flexible consumable, you'll have customers spending on your DiePak, right, to test the particular die or a wafer in a WaferPak scenario, and then change their products as their technology migrates. And I'm wondering if you have the flexibility to offer those consumables in a flexible package, so that their maybe coming to you for a service versus all new hardware?
All right. And Kevin, let me go ahead and call that maybe your last one for now, not that I don't like these questions, but get some other folks a chance and then let's we'll come back again. So how it is working right now is in many cases, these customers might have a couple a few different designs that are in process. They're trying to figure out which one's going to be the better one. They might be buying DiePaks and WaferPaks from us in a small handful of versions to do all their qualifications, determine which one's the high runner, and then they'll buy quantity of that.
One year later or one and a half years later, in many cases, if you look at 2D, 3D sensors, these silicon photonics devices, they have already obsolete their product. We're engaged with a few customers. We not only know their product now, the one that's in six months, the one that's in 18 months, the one that's in 24, 36 months. And as those come out, they would need all new DiePaks and WaferPaks from us, although the tester itself would actually continue to be useful, okay.
And so, if you were to look at the life of a system where maybe the ASP of say, an NP system might be in the $0.5 million range or a full large scale NP might be from $1.5 million to $3 million a piece, over a few year cycle or a five-year cycle, the customer might buy the equivalent number of WaferPaks and consumables as the original test system itself costs. And then they might use that for another decade. And so, over the life maybe the consumable is 3x the value of the actual initial sale.
Thanks very much, Gayn. Yes, it does. It helps tremendously. Thank you for entertaining on all my questions. Apologies for dragging the call.
We'll take our next question from Larry Chlebina. Your line will be opened in just a moment, Larry.
I was – your updated website, and you state that the FOX-P products reduce test cost by functionally testing, as well as or during the reliability verification and basically across the board. You also in the presentation said that this is achieved at a lower cost versus traditional 80 tests with a smaller footprint. I'm assuming you're referring to the XP system.
If that's correct, in this pipeline that you have, are there any semiconductor applications particularly in the high volume end involving heterogeneous packages or stacked dies that would take advantage of that cost benefit, and particularly, to get the benefit of both, the 80 test out of the way while you're doing the reliability testing for infant mortality?
Okay. And so it's a mix, Larry. There's certain devices that are probably letting themselves more to testing while they're being burnt-in or the test in order to burn them in, for example, NAND memory or flash, traditional NOR flash memory.
The burn-in, if you will is to run the device functionally for an extended period of time at elevated temperatures and voltages, and that's what stresses, the devices and creates a stress test to burn them in.
In that case, we are functionally testing them along the way good from bad and will note to the customer that upon a failure that the device failed at 1.5 hours into an 8-hour burn-in, for example. There is other devices where the functionality is pretty simple, for example, the lasers are really a laser diode.
And so the testing is a very precise – precision and power driver that is able to create high power very accurately and a controlled state. And we are monitoring throughout that cycle, the parametrics of that, whether it be the temperature, the voltage or the current for a functional failure.
Now, it's not as exciting, but you can see a functional failure on a laser diode for some of these other devices. And we will note that during the test that it had failed. You actually mixed it in there. You talked a little bit about heterogeneous. I happen to know that you know what that means and I do, but a lot of folks don't. It's a big word these days for what's going on.
Folks like Intel, TSMC, Qualcomm's, the big guys have realized that in order for them to get to these new devices, particular things that are going into mixed signal type applications like 5G, where there's an RF, subsystem, along with a logic core and a memory associated with the system in – on a chip or system in a package.
They're no longer able to get that level of integration all in one semiconductor process. They might be using gallium arsenide for their RF, a silicon-based structure for their processors, a bipolar or a silicon carbide for their power management type of ICs. So we're seeing more and more modules.
I'll call it that, where people are mixing two or three different semiconductors into the same package via – through silicon via or wire bonding, if you will to create a semiconductor. You look at the chip, it's sitting there. It's got balls on the bottom. You think its one chip. In reality, it might be three, four, five, six chips inside of it.
Well, turns out if you put a silicon carbide chip inside of that alongside of a microprocessor and you have a failure rate associated with the defect density of silicon carbide, you're going to have a problem because the silicon carbide might be failing at a couple of percent failure rate. And it take this little $2, $3 chip might take out a $10 processor.
And so the industry, if you go to the trade shows of ITC or SEMICON West or Southwest Test or BiTS or all of these different, the buzz, the whole discussions around, okay, this is great, we can integrate all those things together. The packaging technology now allows us to do it, but we're mixing different quality-level devices in a single package. And even if I went to burn it in, they all have to be burnt in at different levels.
I always use this example. The industry knows that to burn-in a microprocessor or a processor for an automotive application needs to be burnt in it at 125C to 150C. Flash memory dies at 85C. So you cannot burn-in a flash memory at the same temperature that the processor is, and if it's in the package at the same time, you have a problem.
So one of the things that we had anticipated and saw with our flash out – with our FOX products is that as people – as these devices happen, they need to move that reliability test to the only state the device exists for that, which is at either simulated die or the wafer level. And that's where our FOX-XP, 1P, CP, NP products really shine.
And so for us, the broad strokes of the industry going towards this heterogeneous IC, which is a mix, a non-uniform, not a homogenous IC, but a mix of ICs in a single package draw is a rising tide for this company. So we see a lot of that. We're engaged with several customers where they are testing one IC that is failing in a module and that is causing them a huge yield loss and it’s much cheaper for them to use our products to do wafer level burn-in of that IC before it gets put into the module.
Okay. That was good. Then I know you’re working on small animation to load WaferPaks or DiePaks in the numerous XPs. Where you stand on that? That would be for high-volume application.
We are still engaged in some programs. We have not made any public announcements with respect to anything along those lines, but we do believe that there are applications where a higher level of automation is really valuable in some very high-volume applications. And so we would encourage any customers that are listening that if they're interested to hear in a fully turnkey lights out application for multi way for burn-in to please contact us and under non-disclosures we would be happy to have a conversation about that. Sorry, Larry.
That's fine. One last quick one. I didn't hear any news on OEM chamber business? Is that anything on the horizon? Is that in your forecast at all?
Let me give a little bit more color and they actually think you put in that out. I forgot, we didn't put that in our prepared remarks. For those folks that have actually followed along, I think they've been able to interpret that, we had – some of our OEM business was with a customer who was actually acquired. I'm just not going to do names, but they've acquired during the last year.
We have had direct conversations with the management of the acquired company and the acquiring the company that acquired them. I've personally talked to them and they continue to not only assure us that as they move forward that they not only are planning to use our high-power chambers in those solutions, but we actually had to sign a document that said we would guarantee, we would keep selling it because it was important to them and to their end customer.
So it is our expectation that as they need equipment for that particular application or similar ones, that we would get orders out of that. Having said that, we're currently not anticipating materials sales in our current forecast to that business. That doesn't mean there couldn't be substantial, and that might be all upside to our current forecast.
Okay. So it's not in your forecast and certainly is getting them.
Yes, it just takes a lot longer to say that. Okay. Thanks, Larry.
We'll take our next question from [Charles Doe]. Your line will be open in just a moment. Mr. Doe, go ahead.
Yes, a couple of questions. Can you comment on the percentage of revenue you expect to be from consumables for fiscal 2020 versus 2019?
Okay. I'll tell you what, our 2019 revenue for consumables was over 30%, a third of our business, so about right there. And we expect it to be similar if not higher this year.
Okay. What percentage of FOX-CPs and NPs do you expect to result in the purchase of the FOX-XP?
I expect a high percentage of NP customers to also own XPs over time, and in some cases we had – the customers started with an XP and then filled in with NPs. I think CPs is a mix. The application for a CP with the single wafer is where test times are much shorter. So whereas the NPs and the XPs allow you to load, if you will up to 18 wafers at a time and then run them.
The typical application for that is devices that have multiple hour burn-ins, sometimes days. And it's extremely cost effective because the alignment of the WaferPak is done in our offline aligner that can be shared between what we call a blade. So a XP would have 18 wafers in that 18 blades in the machine, and an NP has 2 blades, which can handle 2 wafers.
An offline aligner could feed 30, 40 blades, if you will. If the test times are really short, like, say, under an hour, maybe under two hours, but probably in that time and maybe even in tens of minutes. And there are applications where that makes sense or even shorter than that.
Our FOX-CP comes with a fully and integrated, fully automatic wafer prober, as a turnkey solution with us, including the contractor. You come up to it, you put a full product set of 25 wafers in, you hit a button and you walk away and it will run through all of those wafers and it will step across the wafer. We have wafers that are being tested right now that have 50,000 devices on them. And even though we're testing 10,000 or 12,000 at a time, it may take five steps to step across that wafer.
And with short test times, the CP is a better application for that. That's one wafer. So, then somebody needs 10 wafers. They would buy 10 CPs with the 10 probers, if you will. And so the CP on a cost from a capital cost per wafer is more. But if the test times are lower, it can be a more cost effective solution. So we have both, and so CP customers aren't necessarily a natural fit for an XP customer and that's okay with us.
What's the outlook for new products for fiscal year 2020?
We have two, what I would call major programs for products that we'll be introducing throughout the year, and there's always a handful of enhancements and even our major programs. One of the things that we're very committed to and I think it's a differentiator for us as a company is our platforms. So we're able to take. If you look at the FOX-P family, a CP or an NP would be considered a major program, albeit an example of the NP, the entire program was about six months long.
And so we're able to create adaptation either in this case the mechanical infrastructure to support a particular point by reusing all of the electronics and software and our blades and repackaging things. By creating new channel modules, new blades, new differentiated things, we can create solutions within the FOX-P or our packaged part burn-in family that would address new market segments. And we're probably don't want to go into any more detail with respect to our – those roadmaps, but we do have some things up our sleeve.
Thanks. I have no more questions.
We have one more questioner in queue, Ben Rabizadeh with StoryTrading. Your line will be opened in just a moment, Ben.
All right. And folks just on line, the reason we made a big deal out of the star, ones and being on mute is, in each of the last two calls, we had individuals try to connect in and had difficulty. And I think the trick was, if your phone's on mute, even though it doesn't seem to make sense, just take it off mute and hit star one and then it seems to work, I believe. But Ben, go ahead.
Hi, Gayn. Great quarter. Thanks for taking my call. Just a couple quick questions. The gross margin, great improvement there at 46.6%. How's that looking for the fiscal year? About the same?
Yes, a little better.
Okay, great. And the guidance of $27 million to $31 million, is that including – are you anticipating any new customers in that or would that be upside beyond that range?
It's got a conservative number of new customers. We have the ability to add a lot more than are needed to hit that plan. So it's does have some customers in it. But I would say by contrast to we're not – there's no miracle customers out there that need to come in. We don't need some major, folks that have followed us. I mean, one-year ago, we had one of our big lead customers had a major program that they had anticipated that was driving a fairly significant $10-plus million with a business.
And no sooner had we had that call at about a month later, so that we got win or a couple of months later that they had pushed out that. That particular customer not going to get into it has been very well known, very visible, and has been quite devastating to a lot of companies that we're out there. We do not have a significant amount of revenue, although we do have some in critical programs with the installed base that are of high competence. So I'd say from a new customer perspective, this is a pretty low risk plan.
Okay, great. And just last question. This may have been covered somewhere else, but what's the market size with current products that you're offering? What's in the potential market out there that you're targeting per year annual revenue?
Yes, that's a very good point. We were trying to get our arms around because of the broader market slowdown, if you will, out there. I mean in the logic side of things on the traditional packaged part burn-in, the folks that have been – that have the estimates out there, the overall logic packaged part burn-in is probably somewhere at $70 million to $100 million annually without any consumables, okay.
On the wafer level and the – what we call, our FOX level products, in some cases, there's just not a lot of people out there to go look and figure that out. So we do a bottoms-up based upon the customers, the test times, the anticipated markets. And if you look at the markets that we talked about and kind of ran down the list before, we see it at maybe about a similar size, maybe it's a little bit smaller, but it kind of depends on how the year plays out.
And one thing that's interesting is that there's a consumable side of it. On the logic – on the packaged part burn-in side, the packaged part burn-in, what are called burn-in boards, we estimate at – I mean, there are times where it was $500 million, $600 million, $700 million annually for the BIBs on a $100 million in testers, over 5x.
We think that the consumable business because we're kind of – we're the ones pushing the industry in this pace, the consumable business will grow, and so today the consumable business is on the same order of magnitude as the testers, but if you push us out three years, four years, five years and you've got five years' worth of installed base also buying consumables, the market for the consumables will absolutely be larger than the tester business.
And that's why we kind of conservatively just state that our consumable business will exceed 50%, just simply based upon, in this case a relatively captive market share with unique products for our installed base of solutions.
All right. Thank you, guys. Good quarter.
It would appear there are no further questions at this time. I'd like to turn the call back over to management.
All right, we really appreciate it. Hey, just one more thing I wanted to bring up. We did put out a press release today and [not sure if it went out after] exactly. We did add a new member to our Board of Directors, and I believe she is listening in on this call, and we want to welcome Laura Oliphant to Aehr Test's Board of Directors.
She comes to us with a great wealth of background and experience. She is someone that is well known to us here at Aehr Test for a number of years. She has got backgrounds in test, probe cards, wafer, the probing environment. She spent many years as a process engineer management up through the Intel side of things and was at Intel Capital for many years on the M&A side of the house there.
So she has a great wealth of practical, relevant information that I think will be a great add to our Board. We're proud to have her join us and we just want to welcome her to Board to our Company.
So with that, I appreciate everybody calling in. And as always, give us a call if you happen to be anywhere near in the Silicon Valley. We'd love to have you come by and show you about our products and some technology and some of the things we're working on and will always host you here in the Valley. Thank you very much and unless, catch you next quarter.
Thank you for your participation. In that event that will conclude today's conference call. Thank you all for dialing in and participating. You may now disconnect your line.