Aehr Test Systems (AEHR) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the second fiscal quarter 2003 conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. If anyone should disconnect and need to rejoin, please dial 1 888 413 4411. As a reminder, ladies and gentlemen, this conference call is being recorded. I would now like to introduce your host for today's conference, Miss Julie Tew (ph) from FRB Webber Stanley. Please go ahead.

Good morning, thank you for joining us to discuss Aehr Test System's results for the second fiscal quarter of 2003, as of November 30, 2002. By now you should have all received a copy of today's press release. If you do not have one, please call my office at 212 445 8300 and we will get a copy to you right away.

With us today from management are Rhea Posedel, Chairman and Chief Executive Officer, CJ Meurell, President and Chief Operating Officer, and Gary Larson, Vice President of Finance and Chief Financial Officer. They will begin with some opening remarks and then open up the call to your questions. I would like now to turn the call over to Gary Larson. Go ahead, Gary.

Thanks, Julie. Thanks to everyone for joining us. Before we begin I'd like to go over our Safe Harbor Statement. Please be advised that during the course of our discussion we may make forward-looking statements that involve risks and uncertainties pertaining to the downturn in capital spending by semiconductor manufacturers, economic conditions, world events, increased acceptance by customer of the FOX, MTX, MAX and Diepak technologies. The ability of the company to gain business in domestic and overseas markets, the company's development and manufacture of the commercially successful wafer level burn-in system, and the potential emergence of alternative technologies that could cause actual results to differ materially from those forward-looking statements. Those risks and uncertainties include those described in detail in the company's recent 10-K and 10-Q reports filed with the SEC.

Now I'd like to introduce our Chairman and CEO, Rhea Posedel. Rhea?

Thanks, Gary. Good morning and welcome to our conference call for the second quarter of fiscal 2003. Our financial results continue to be impacted by the protracted downturn in the semiconductor and global economy as a whole. We saw a number of our US customers slash or freeze their capital spending plans this quarter, in an attempt, we believe, to meet fourth quarter calendar and year-end financial targets.

Despite these difficult conditions, we recorded net sales for the second quarter of $2.9m. This represents an increase of 4% from the $2.8m in net sales recorded for the same quarter last fiscal year. Operating loss for the second quarter was $1.7m, and net loss was $2m or 28 cents per share. Gary will go into greater detail about our financial performance later in this call.

Although our industry remained in a severe downturn, we saw some positive developments that we expect will lead to increased sales of our core MTX and MAX products. In the second quarter we saw capacity expansion in the DRAM marketplace, as demand and prices for DDR chips increased. As a result we booked and shipped two MTX massively parallel test systems this past quarter. More importantly, we see this demand for DDRs to carry on, which bodes well for additional MTX orders this quarter.

Our MAX systems continue to be well received. In the second quarter we sold MAX2, logic and mixed single dynamic burn-in systems to two new customers, one in China and one in Europe. We are also seeing an increase in activity for our new MAX4 systems, designed to burn-in and test hand-held wireless and wireless communication [ICs] such as digital signal processors. The MAX4 system provides a higher power burn-in at a lower cost per device under test.

For the month of November, cell phone sales increased to a surprising 40m units. We believe this jump was driven by demand for the latest model of cell phones with digital cameras and color display features. We expect demand for these next generation phones to remain robust, and result in additional MAX orders. As we mentioned in our press release, we already booked two MAX4s in this quarter.

We continue to make significant progress on the development of our FOX product line. The FOX system is a full wafer contact burn-in and test system with a unique cartridge technology that accommodates full wafer contactors, combined with industry-proven parallel test electronics. We are optimistic about the market potential for our FOX family of products, as it will move the company into larger, faster growing markets.

We believe revenue will increase and net loss will be reduced for the third quarter, as we are forecasting additional sales for our MTX and MAX products, due to favorable demand trends. We are cautiously optimistic about our business improving in the short term, however, it is too early to say if these increases in demand for our core products will continue through calendar 2003.

Our strong balance sheet allows us to continue investing resources into research and development, such as the FOX family of products even during this lengthy industry-wide downturn. We are confident that these efforts will result in new innovative products that will drive the long-term growth of Aehr Test Systems.

Now, I would like to turn it over to CJ Meurell, our President and Chief Operating Officer, who will give us an update on the FOX BIST tester development, and discuss some new market opportunities. CJ?

Thanks, Rhea. During the second quarter we completed and delivered a low voltage version of our ATX pin driver electronics to ST Micro in France. That ATX is a 256-pin version of the MAX, which has 96 channels. Because of its higher capability and cost, the ATX is used mostly in lower volume quality and reliability applications for complex devices, such as video controllers. As the IC technology moves toward lower voltages, we would expect to sell more of these lower voltage pin driver electronics as upgrades into our install base of approximately 50 ATX systems.

We continue to see a strong interest in our innovative FOX full wafer contact test and burn-in systems. IC manufacturers are interested in our FOX BIST tester, as a solution to reduce their escalating test costs for flash and embedded memory products. This past June we announced that we received a $2+m development order from a major flash manufacturer, for a full parallel wafer BIST tester. We are on schedule to complete the first milestone this quarter, and should see a system order with the success of this milestone.

Other flash manufacturers and embedded memory product manufacturers are currently evaluating the FOX BIST system, and we hope to see new customer orders for this product within the next six months. There are many new market opportunities for our FOX family of products. One exiting prospect is to sell our FOX BIST tester as a wafer process monitoring tool, to speed up our liability qualification of new 200 mm and 300 mm fab lines. We believe our FOX process monitor can potentially shave weeks off the time required to qualify new fabrications tools and processes. Currently, IC manufacturers have to package the die before providing burn-in and test to qualify the process. However, our FOX process monitor, manufacturers can perform burn-in and test at wafer level, thereby saving the extra time needed for packaging that usually takes weeks.

Our objective is to position our FOX process monitor as one of the yield improvement tools needed in the qualification of new 300 mm FAB processes. We believe that this is a terrific opportunity for Aehr Test as capital expenditures for new 300 mm fabs are significantly higher than the back-end test and burn-in equipment. We are currently discussing this FOX product with multiple semiconductor manufacturers, who are bringing up 200 mm and 300 mm fabs.

Bolstered by positive feedback and high interest for our FOX system, we believe customers will embrace our FOX product line. We expect to see an order for our FOX BIST tester and process monitor over the next few quarters. Although the state of the semiconductor industry remains uncertain, we see signs that the bottom of the cycle is behind us. As Rhea has mentioned, we expect to see additional MTX orders this quarter from Nania's (ph) test and assembly subcontractors. Nania (ph) is gaining DDR and SDRAM market share, and this drives additional capacity requirements, which in turn should result in MTX production orders.

The wireless market is also improving, and this bodes well for TI and BSP (ph) products. We expect to see TI at burn-in capacity, thereby resulting in additional MAX4 orders to the two already booked this quarter. We are convinced that with our solid business fundamentals that focus on superior customer services, we are well positioned to capitalize on an upturn in the industry, and to emerge stronger than ever.

I would now like to turn the call over to Gary to discuss our second quarter financial performance.

Thanks, CJ. We recorded net sales of $2.9m for the quarter, a 4% increase over the $2.8m we recorded for the second quarter of fiscal 2002. As Rhea mentioned earlier, our net sales included two MTX massively parallel test systems. For the six months ended November 30, 2002, the company recorded net sales of $6.4m, compared to the $5.6m for the same period last year, representing a 14% increase.

Gross margin for the quarter was 34.8%, down from a year-ago quarter of 50.4%. Gross margin for the same quarter last year included a higher than normal proportion of higher margin upgrades and royalties. Selling, general and administrative expenses were $15m, down $48,000 from the amount recorded in the same quarter of the prior year. Research and development costs increased to $1.2m, compared to $1.0m for the second quarter of fiscal 2002. As we expected, R&D costs increased due to higher levels of spending on materials in the development of our FOX BIST tester.

Second quarter operating loss was $1.7m, compared with $1.1m for the year-ago quarter. Interest income was down primarily as a result of the lower interest rate environment. Other expense primarily consists of a $365,000 non-cash impairment to an investment, to reflect current market conditions affecting the investment valuation. This investment is in a development partner for our FOX full wafer contact products. We're not recording any tax benefits related to our losses in our US parent or Japanese subsidiary. We expect to continue that approach at least through the end of fiscal 2003.

We reported a net loss for the quarter of $2.0m, or 28 cents per share, versus a net loss of $774,000 or 11 cents per share of the year-ago quarter. The year-ago quarter, however, included an income tax benefit of $261,000, or 4 cents per share.

For the six months ended November 30, 2002 the company had a net loss of $2.9m or 40 cents per share, compared with a net loss of $1.4m or 20 cents per share for the same period last year. The net loss for the period last year included an income tax benefit of $560,000 or 8 cents per share.

We anticipate that our net sales in the third fiscal quarter of 2003 will be greater than those of the quarter just reported. We also believe that our net loss will be reduced quarter-over-quarter.

Looking at our balance sheet as of November 30, 2002, cash, short-term investments and long-term investments totaled $11.7m, or $1.64 per share. Shareholders' equity was $226.9m or $3.77 per share. We continue to buy back shares of the company's common stock. In this most recent quarter we bought back 66,000 shares at an average price of $2.33.

That concludes our prepared remarks, and we will be happy to entertain your questions.

Thank you, sir. Ladies and gentlemen, at this time, if you have a question please press the one key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. If you are using a speakerphone, please lift the handset before asking a question. Once again, if you have a question, please press the one key. One moment for our first question.

Our first question comes from Vern Essi of Adams Harkness. Please go ahead, sir.

Thank you. Just a couple of questions here. Can you guys hear me alright?

Yes, hi Vern.

How you doing, Vern.

Fine. Just to elaborate a little more CJ, can you go over the Nania (ph) situation there about the MTX production works? Put that in the context of sort of Gary's guidance and if you could give us an understanding of how that's growing, if you will, going forward? Obviously there's a lot of great news out there on the DRAM spending side of things, and how much will Aehr be a participant in that?

Well one of the great benefits for us is that Nania uses subcontractors who have chosen the MTX product line to use. Versus all of our competitors, our machine will carry them through the next three to four generations of devices. So they are willing to invest capital in that product, which will last them over the next four or five years. My last trip to Taiwan I visited probably half a dozen companies who are all in this business, this Nania back-end business, and they're all planning capacity expansion over the next six months. The first big push having to be in place by the end of March of this year -- adding additional capacity by the end of March, and then ramping up significantly from that part. So I would expect to see some production orders for additional MTXs over the next three or four months.

Does that answer your question, Vern?

Well I guess, any more granularity relative to where we are today, you know. You're seeing some production orders, are we talking about material growth here in terms of where the units are, which I understand are probably low single digits? But is this is a situation where we could see a growth rate in the range of say close to 100% over the next six months, you know, relative to where it is now?

That could happen.

Vern, let me just say, I think 100% seems a little bit high, but I think what we're seeing is, and CJ, you can back me up on this, we're seeing an increase in activity which should lead to bookings. Hopefully the question of the timing of the bookings will determine what the quarter revenues will be. So it's really more of a timing issue. But I agree with what CJ says, it looks like there are opportunities out there for multiple system orders over the next one to two quarters.

Yes. Then, Rhea, as you know the difficult part with the Taiwan opportunity is that those subcontractors tend to not place their orders for equipment until they're guaranteed business from their main vendor, ie Nania, which would typically be a 12 to 14 week lead time with any other customer. Their expectations are deliveries within two weeks of an order.

And just in terms of, Gary, just on the P&L, I wanted to just touch base. Back in 2001 you were doing revenues in the range of about $8m a quarter, your gross margin was in the mid-30s on some of those quarters. I'm wondering now that your gross margin is down in the mid-30s [inaudible], what -- you, obviously your revenue dropped, I can understand an overhead absorption issue, but can we expect gross margins to get back north of 40% if you were doing say $5m a quarter type of run?

Yes. As you know, Vern, since you've followed us for some time, we do have variations quarter-to-quarter based on product mix. We have given guidance recently when the margins were in excess of 50%, that those were really the anomalies and, you know, 40% rates, low 40% rate is really more appropriate. If you look at the last six months we've been right at 40%. So I think the previous quarter was a little bit higher, and this most recent quarter a little bit lower as far as margins, but when we get into a normal level where we're shipping out a decent number of systems rather than whole bunches of upgrades, royalties, and things like that, I think 40%, lower 40% range is probably the appropriate thing to be looking at.

Okay, thank you very much.

Thanks very much, Vern.

Thank you, sir. Once again, ladies and gentlemen, if you have a question, please press the one key on your touchtone telephone. Once again, ladies and gentlemen, if you do have a question, please press one. Gentlemen, there appear to be no further questions at this time. I would now like to turn the program back over to you.

If there are no further questions, I'd like to thank everybody for their continued support for Aehr Test. I think things hopefully have bottomed out, and we will see an improvement over 2003 as the semiconductor industry cycle starts to recover. I look forward to presenting next quarter. Thank you very much.

Thank you all, bye-bye.

Thank you, sir. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, you may now disconnect. Everyone, have a great day.