Aehr Test Systems (AEHR) 2014 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to Aehr Test Systems first-quarter fiscal 2014 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Thursday, September 26, 2013. I would now like to turn the conference over to Scott Eckstein. Please go ahead sir.

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

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

Before turning the call over to management, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance, provided during today's call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements.

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

Thank you, Scott, and good afternoon to those joining us on the conference call and also listening in to our online link on the web. Before Gary goes over the numbers in detail, I want to discuss our business activities and talk about the markets and how we are doing on our new FOX product developments. After that we will open up the line for questions.

As noted in today's press release, we are happy to announce that we exceeded our financial expectations for the quarter. As you may recall from our last conference call, we anticipated revenue for the quarter to be similar to our fourth quarter with an improved bottom line. We ended up growing the topline by nearly $500,000, or 15%, to $3.8 million, and improved our bottom line by over $650,000. More importantly, at a net loss of $166,000, we were able to exceed cash breakeven for the quarter. As we have stated for several quarters, managing our cash continues to be a key focus for us.

The increasing demand that we are seeing for our products is reflected in our strong book-to-bill ratio for the quarter and our highest backlog in recent years. A key driver for these results included continued positive momentum with our new ABTS, or Advanced Burn-in and Test System, platform for package parts, particularly in the automotive reliability and test during burn-in segments. During the quarter, we also shipped a follow-on FOX-1 wafer test system against an order announced earlier in the year.

We are continuing to see strength in the automotive test and burn-in space. During the last few months, we announced orders for multiple ABTS systems as well as a follow-on MAX test and burn-in system. These orders included production orders for our new ABTS-P system from a leading manufacturer of advanced logic ICs for automotive, embedded processing DSP and analog applications. The shift towards ever more information and entertainment in vehicles is great for our business.

We're also seeing additional requirements from electric and hybrid vehicles driving new test and burn-in needs. The ABTS-P system offers optional high-voltage power supplies required for power control devices for these rapidly growing electric flash hybrid automotive markets. We expect to be in shipment of the new ABTS-P system during the next few months.

With the introduction of our new ABTS-P system, we see our MAX system sales dropping off as the ABTS-P system is higher performance and has more features at a lower cost of test. Like the other models in our new ABTS family, the ABTS-P system uses our proprietary high-performance thermal chamber that offers fast and programmable thermal cycle times for high throughput tests, production test and burn-in. It also provides the performance and reliability to meet the very long cycle times of customers doing 1000 hour high temp operating life, or HTOL reliability testing.

In another market I want to highlight, today we announced an order for our ABTS system from a key new foundry customer in China. We are seeing more and more interest from foundries that must develop, validate, and monitor ever-shrinking fabrication processes for reliability, which is critical to their business and their differentiation. These foundries compete with each other not only on process node technology and processed wafer pricing and delivery, but also on their claims that their process can be used for highly reliable applications such as those demanded by automotive and mobile applications. We see opportunities with both our ABTS package level test systems as well as our FOX wafer level test systems for these process development and process monitoring applications.

We continue to engage with multiple customers around the world on new opportunities for our ABTS platform and are happy with its capabilities and competitiveness. We feel the ABTS leads the industry in capability and capacity to address both HTOL and production tests and burn-in applications.

Now I actually want to talk a little bit about our new FOX product development project. As discussed previously, we've receive multiple orders for the new FOX-1P Test System which we are developing. These orders include development milestone events as well as delivery of multiple production test systems. We are heavily engaged in this development and continue to expect initial shipments of this product during the first half of calendar 2014. This new system extends our capability for full wafer testing for massively parallel applications such as flash memories, microcontrollers and logic devices, with advanced design for test and built-in self-test capabilities. The new system has thousands of power supplies and is ideal for customers using low pin count test modes in their devices that wafer sort.

Our new FOX-1P hardware and software architecture is highly differentiated from the solutions offered by the historically larger semiconductor automated test equipment companies. This product is unique in how it solves the challenges of massive parallel tests where the application can require as many or more device power supplies as pin electronic channels. Our FOX software architecture is also unique in how it addresses the complexities of special test modes, how it allocates resources to test thousands of die in parallel, and its ability to greatly simplify test program development. These are actually all features we have today with our FOX-1 Test System and we extend the hardware and software capabilities with our new system at an even lower overall cost of test.

We are also working with potential customers in the definition of a new product in our FOX product line that extends the capabilities and capacity of our FOX multi-wafer Test System. We are very excited about this new product family and its potential to address new and large market segments in the semiconductor production space. It uses our proprietary Aehr Test wafer pack which is a full wafer contactor like that we used in FOX-15 where we test 15 wafers in parallel on the same system today, but we are also substantially increasing the total resources available per wafer. We have not yet formally introduced this product, but we hope to make it available to customers in calendar 2014.

I know it's not always easy to pick it up with the phone or off a written script but I am personally really excited about these new products. We feel these products serve a real need and opportunity in the semiconductor test space in a new and highly differentiated way. These products and opportunities provide Aehr Test with a significant and sustainable growth path for many years to come.

Before I pass it over to Gary, I want to close with our expectations for next quarter. With our strong backlog and continued momentum we are seeing in our ABTS and FOX markets, we are excited about our prospects for the year. Our revenue in fiscal Q2 will continue to increase and I'm happy to announce that we now expect to be profitable for fiscal Q2 as well as for fiscal year 2014.

Gary will now cover the numbers in more detail and then we will open up the lines for questions.

Thank you Gayn. As reported in today's press release, our net sales in the first quarter were $3.8 million compared with net sales of $3.3 million in the fourth quarter of fiscal 2013. Our net loss of $166,000 in the first quarter of 2014 or $0.02 per diluted share compared with a net loss of $854,000 or $0.08 per diluted share in our previous quarter.

Gross profit was $1.9 million, or 52% of net sales. This compares to gross profit of $1.3 million in the fourth quarter of fiscal 2013, or 40% of net sales. Margin improvement was primarily related to our shipment of certain slower moving items against which we had previously taken inventory reserves.

Operating expenses of $2.1 million for the quarter were basically flat with operating expenses for the fiscal fourth quarter of 2013.

SG&A was $1.4 million compared to $1.5 million in the fourth fiscal quarter of 2013.

R&D expenses were $681,000 for the quarter compared to $634,000 in the fiscal fourth quarter of 2013. As stated previously, R&D spending can fluctuate from quarter to quarter depending on the development of our new product.

As Gayn noted earlier, we exceeded cash breakeven in the quarter, which occurs when our non-cash expenses, such as stock option expense and appreciation, exceed our net loss.

Turning to the balance sheet and changes during the first quarter, our cash and cash equivalents increased to $2.4 million at August 31, 2013, up from $2.3 million at May 31, 2013. Accounts receivable increased sequentially by $0.2 million. Our line of credit decreased by $154,000, which means that our net cash, which is cash, less our line of credit, improved by $0.3 million.

We are pleased that we have been effective in controlling operating expenses and cash. With our improved forecast, our operating expenses are expected to increase during the upcoming quarters. We noted last quarter that we expect fiscal 2014 to be a profitable year for us. As Gayn mentioned, we now expect to be profitable for the fiscal second quarter as well as fiscal year 2014.

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

(Operator Instructions). Colin Denman, Westerly Capital Management.

Hi Gayn and Gary. Thanks a lot for taking my question. So far this year, you guys have had a number of nice wins. And when I read through the press releases, you guys have been able to negotiate terms where customers have been willing to put down sometimes 30% on the orders. And just as recently as last year, it seemed like that would've been a much more difficult contract to negotiate. Can you discuss maybe if there something that's changed in your relationship with your customers where maybe they are seeing some more strategic value in your products, where you are able to negotiate more favorable terms, or kind of what has changed in the last year in your relationship with the customers?

This is Gayn. I would say actually the first thing we have done is, independent of anything else, I think it's good hygiene and it's a good business practice. And taking down payments as well as cancellation penalty terms or something I think makes sense for our business. We were not doing that in the past. We initiated it with some of our key customers and are asking customers across the board right now, but as a regular rule that we want take these down payments.

And I will say that the discussion started with each of the customers a little bit around and pushing back. But we've been able to come to favorable terms in terms of pricing, in terms of slots, as well as on their side and on our side being able to get pricing and margins and down payments. So far we've been doing that, and I do think there is something to our strategic value, certainly on some of these programs that we have been involved in, like the development of the new FOX system where the customer actually put down milestone and down payments. It is really a testament to the value of those products. And as I've said in the past, these customers are actually all asking to please pull in those new developments. And so they are aware that we are using those down payments to help us accelerate our expenses, accelerate the deployment and purchase of the material for those products. So --

Great. If then we look out a little bit further and we think about what are some of the growth drivers that could really push Aehr Test kind of above this $3 million to $5 million quarterly revenue run rate, is that a matter of selling more products to existing customers, or are there potentially some new customer opportunities that could drive that, or just what are some of the things you think could really break Aehr Test out of that revenue level?

I think there's a few different areas and we've been talking about this now for over a year. There is certainly the overall industry for testing and burn-in which we are the market leader of and have been for many many years where, if you will, a rising tide related to kind of the necessity for quality, reliability, process shrinks is a good thing for our industry. And with our competitiveness of our ABTS products, we think that we are getting more than our fair share. And that really allows us to kind of grow our base business, and we are seeing that in kind of multiple market segments around the world.

The other piece of that is I think the move, particularly in automotive but we are also seeing in the mobility, where historically the semiconductor content was fairly limited in automobile five or ten years ago, and now as we all know you go and you open up a door, and it's all about the experience and the entertainment and the information and the GPS. And if you really think about it, if you take a GPS system from Garmin and it is sitting on your dashboard, and if it happens to die a couple of years later, it's not that big a deal. But you certainly won't expect it in your three or four-year-old automobile. A lot of these devices were not necessarily designed to go into an automobile with an expectation of less than two part per million failure rate and a 10-year life. And so the whole -- the processes that you put it on, the design for test that you put into those devices and actually the test, both in reliability and production, is drastically different. And we are seeing that as a positive thing as new customers or old customers are buying more equipment and need more capacity. So, that's great for our burn-in space and our ABTS product line.

The third area is actually maybe in a little two segments. We really have differentiated technology and products in our FOX wafer level systems. And people that are close to us have an appreciation that we are known for wafer level burn-in where we actually have the ability to burn in the devices similar as you would in package, but in a chamber that can test up to 15 wafers in parallel. And there are some real advantages in doing that, and we are working with multiple customers on both current and future products in that space.

The other half of this, and this is something I talked about as I first came on board, is I have been seeing a trend in the semiconductor ATE space for many years where these design for test modes where customers historically might test a part with 60 year several hundred pins, are able to use state-of-the-art software tools of Mentor and Cadence to design in these low pin count test modes which really just means there's fewer tester resources but higher numbers of power supplies per typical tester resource -- and implement massively parallel test modes. And this is something that the automated test equipment guys are not really well-suited for. They're architecturally in software. They really don't have product along this line.

An Aehr Test with our FOX products, with our FOX-1 and our FOX-15, is a very differentiated product that allow people to implement these DFT test modes in the standard production, independent of automotive or application, as a way to significantly lower their cost of test. And these are products that we think we have a real advantage over the typical ATE players, and we are now playing in the ATE space where the world is spending a few billion dollars a year. We can open up substantially larger market opportunities while at the same time delivering a much lower cost of test to the customer. And so that's an area that we have been in.

We actually introduced a FOX-1 right before the downturn and we were able to be very successful with one flash customer. But with the new products coming out, we think they have a much wider application with multiple applications and customers, and so that's really more of a breakout opportunity for us.

Okay, great. And then just kind of following up on your discussion of how important reliability is to your customers, are you seeing your guys' tools used more in production burn-in versus engineering test versus how maybe the mix was in the past?

I think, if you go back far enough, there was more production test than engineering, and over maybe 15 or 20 year period, people were doing everything they possibly could to try and get away from the production or early failure burn-in. And so I would say that, in relative terms, in the last decade or so, there's been less production test. There's probably still -- there's definitely more money still spent in production than engineering across the board. But I would say that, in recent -- the last couple of years, we are seeing, particularly in the automotive, a shift back towards a real need to consider or implement production burn-in or production test that would -- for these automotive applications.

We are also seeing some new opportunities where people have production tools, historical production burn-in machines, that are looking to replace them. And this is a little bit subtle, but this is one of -- I guess the background a-has of the burn-in world. If you look at burn-in systems of 10, 15 years ago, customers might take a device. They would put it into these chambers. They would apply an electrical power to them. Maybe they would apply some clocks to the vice or send it signals. They wouldn't necessarily validate that the device was even working or actually talking back. That type of dynamic burn-in was interesting, but there was not -- you don't -- you're not certain you actually tested the part.

We are working with a customer now that actually has a large fleet of those, but that's not going to hold up to the scrutiny of an automotive account like your Densos and Contis, or in this case most people think about the end-user, which is the Toyotas, Lexus or Mercedes where you really need to prove that those devices have been functionally tested and you are reducing the early failure rate. And as the content of the semiconductors gets higher and higher in the automotive devices, remember that, when those devices fail, there is a direct line back to the supplier, and it's quite painful for them when they actually have failures. So they have an incentive to truly weed out those early failures before they ship them into those applications.

Thank you very much, guys.

Tom Diffely, D.A. Davidson.

Good afternoon. Maybe a couple of quick questions for Gary first, since he is real quiet there. So Gary, if you look at the gross margins in the quarter, obviously a big improvement quarter-over-quarter. Is that all just mix driven or is that some cost reduction going on as well?

No, I mentioned in the script that it is primarily related to some slow-moving material that we were able to ship, and so that material has had reserves on it so we've benefited from an improved margin as a result of that.

Okay. Was that a one-quarter phenomenon?

We continue to have reserves and oftentimes we will ship those. But I would say at the level we shipped this last quarter, that was higher than what we would normally expect.

Okay. As you look at revenue ramping up over the next couple of quarters, what do you foresee for OpEx over that period of time? I'm trying to figure out what the leverage in the model looks like.

We are as, we said in the notes, we are expecting to see operating expenses increase. We haven't really given any number, but it would be something noticeable. It wouldn't be noise level as far as the increase over the last several quarters.

Okay. Is that driven by the new product developments with an R&D impact?

It's that. It's the business is improving. We're looking at a wider forecast right now, and just overall we are seeing expenses increasing to some extent.

Okay.

If I could jump in on this as well, Tom, we are also modulating that along with our profitability. So we think it's a very good return to spend those margin dollars on these R&D efforts to try and pull those products in.

Sure, yes. Gayn, when you look at in your two main product lines, what is your view now just to build a market for both the ABTS and the FOX, and what does competition look like in those two markets?

It's actually not just two markets. It's a little bit harder than that. But if you were to look at the traditional burn-in space, it's pretty clear that the burn-in market, in particularly logic and automotive, which is really where our strength and our leadership has been, is growing. We have been trying to get our arms around how big that is. Oftentimes we use the term that both our markets are couple hundred million dollars.

But in historical terms, maybe almost half of that is in the DRAM space, which we don't play in. Right now, we don't feel people are spending a lot of money in the DRAM in general. In fact I think that carries across to the overall industry where companies that might be more focused on the microprocessors or the DRAM or the traditional desktop and laptop are just not seeing the growth, and those of us focused more on mobility and automotive applications are able to grow. Of course, we are coming from a much smaller number, but nevertheless we are actually pretty optimistic about things and there's other people kind throwing wet blankets on their forecast.

Yes, I think Advance has kind of mentioned that the other day.

A very specific example of where I think my statement will fall.

So that said, that's the burn-in. I think on the newer application and opportunities, we are trying not to signal too much information about everything we are doing against our competitors. But we are absolutely -- some of these applications are alternatives to your traditional ATE. Some have wafer level burn-in. Some of the great nice things about some of the markets we are playing in, they are re displacing really old production package burn-in systems, and so from a competitive perspective, nobody is being harmed. We are not taking away and people are spending money there right now, so that's actually pretty encouraging for us. And so, in some cases, we are enabling such a low cost to test that we believe there's opportunities for people to do some reliability type testing they wouldn't otherwise have done before and just to see yield improvements or other advantages. And we'll probably talk more about that throughout the year. But that's a particularly beautiful scenario because this is an area where the money is not coming from your traditional ATE or even burn-in space. So, we're pretty excited about the potential of bringing such massive parallel tests at such a low price point enables some new testing and new opportunities for us.

So is the driver there really just the industry moving towards multichip packages and they want to make sure the good dies as well as tested and understood before --

That is definitely one of the areas that is pretty intuitive to understand, that if you test the device in a multichip package where you might have several devices in a stack, in an encapsulated plastic or other type of package, if one of those dies dies, sorry about that, the devices inside dies, in a normal early failure rate package burn-in, you throw away not only that one but the other two. And you can imagine that as die count increases or the complexity of TSB increases, or for heaven sakes the part that you're testing has a higher failure rate in early failure rate burn-in, then another device in there might be more expensive. Imagine stacking a memory on top of an expensive -- I want to avoid customer names -- an expensive mobile device or processor or something. You sure don't want to throw away the processor because one of your $1 chips died. And so there becomes an opportunity where it makes more sense to actually implement a wafer level test, an extended tester burn-in.

Makes sense. Earlier, you mentioned some early work on the flash world. Does the move to 3-D NAND impact you at all, the vertical NAND?

I would say not necessarily. I think all of the test guys are interested to watch what the key issues are, what are the failure rates and failure modes. I mean the fact that it is three-dimensional allows you, at a given process node, to increase density on a per-wafer basis.

And for certain, what we know is that increased -- the ever increasing density of memory is great for the test industry because although, with test modes, you can try and reduce the test, we know for a fact that a part today that is four orders of magnitude larger than it was 10 years ago, the test times are substantially longer. And so I think there have been quotes in the industry that the cheaper you can make the memory, the more people will buy. I am a believer in that. You can certainly see that with digital cameras, and then USB flash, and now all of the hoopla around the solid-state drives or flash where four years ago the naysayers were saying it's never going to be substantial. And now you hear people out there forecasting very, very large sizes, and of course the biggest guys, Western Digital and Seagate, are making major investments in that, and even the likes of a SanDisk who bought I think a smart modular application. There was a lot of buzz at that at the flash symposium out in Santa Clara last month. So these are all good things, I think, for us.

Okay. Finally, earlier you talked about your largest backlog in some time. Have you quantified that at all or (multiple speakers)?

You know, we didn't. This is a historical artifact of us. We actually only state our backlog one time per year. It's at the beginning or end of our fiscal year. But that was one quarter ago, and it's up from there, so I'll let you do the math. But so far, we are trying to be conservative in our estimate so we don't give out actual bookings, which of course would be derived from a backlog. And we try not to give forward-looking forecasts either, but we definitely have been giving trends in revenue.

Understand. Thanks for your time.

William Smart, Cardinal Value.

Good afternoon. I'm wondering if you are seeing a geographic differentiation in the automotive market demand. You mentioned Mercedes and Toyota. Are the Germans and the Japanese at the forefront of this increased reliability trend, or is everybody getting into it?

Well, I don't want to say it's a tricky question. So the fact that Toyota is in Japan and BMW and Mercedes are out in Germany does not necessarily have anything to do with where they source their components. The world has become a really small place, or flat, if you will, by the guy who wrote that book about it. But components are purchased all over the world, and maybe more -- how is Mercedes doing relative to Toyota or relative to General Motors. And I actually wouldn't try and guess as to where that's coming from.

I did know that just certainly in the 27 years I've been doing this, we've really watched Europe as a semiconductor supplier really shrink down. There's only three big guys that are left over there. Certainly, even their manufacturing is more and more dominated in Asia. Of course, we tend to think more where things are built, because that's where we ship it, but people make their decisions often in their home bases. And then obviously US has been holding its own.

But one of the things that I think is important is that particularly Toyota or the Boschs of the world, who Bosch is more of an aggregator than supplies to Toyota or the German automobile, they are actually dictating sub- one part per million type failure rates. And if you understand how difficult that is to build it, there's very little, if any, digital processes in the world that can build that. That means you get very close, and then you test it and then you have special handling procedures to do it. But those type of applications, you're just not going to build a part with any level of logic on it and have it survive. And so they're very adamant about that. And so they are sourcing from the best suppliers in the world. And if you go look at the big suppliers, we've got a big chunk of them. And so if you are doing automotive microcontrollers or logic-based parts, you most [likely] you are doing production burn-in today. I think that's almost a fair statement across the board at all the customers in the world. And we are a big player in that.

I guess what I was really getting at is the end-users. Are the American companies coming along as far as demand for reliability, or can you tell from your business?

You mean is GM asking for it more than Toyota?

Yes.

I will tell you that we certainly hear of Toyota and Bosch pushing harder, but I think it's critical across the board. I even talked about this before. We certainly -- there's a company that never likes to be mentioned. But some of the leading suppliers of mobile phones are driving levels of reliability and expectation that is really unprecedented in that space. So it's not even just automotive, which sounds more intuitive, but when your cell phone is whatever, $200 worth of material costs, you buy it for $600, $700, $800 or is offset by a contract, it's not something you expect to just die. It's not funny that my iPhone 4S dies even though it's two years old. I'm not necessarily ready to go out and buy a new one. I'm not sure I could say that as GM -- I absolutely know that we talked to new customers, customers that weren't necessarily supplying into the automotive space, but they are leaders in consumer type products. If those products are going into automobiles, then all of a sudden they are thinking I need to understand what the automotive specification is for reliability and using these new terminologies, and it's driving more reliability and test requirements.

Thank you very much.

(Operator Instructions). Jeffrey Scott, Scott Asset Management.

Good afternoon. There is light at the end of the tunnel.

Isn't it nice?

It is beautiful. Beautiful. A couple of questions. Gary, because of the sale of the written down materials, it's hard to work back to what is a current breakeven. I'm coming up with something on the order of $5 million a quarter. Is that close?

I think that's the kind of number we've stated in the past. Obviously, it depends on mix from one quarter to the next, but I'd say $5 million, $5 million plus a little bit would be the right number.

Okay. The milestone events for the new FOX, how much of that was recognized in this quarter?

At risk of pushing back and not wanting to give you information and turning around and then giving it to you, I'm going to do that this time. We actually did not have one this quarter.

Okay. If and when you do receive cash as a milestone event, do you include that in revenue, or is that a reduction in R&D expense?

We include that in revenue, and then the associated costs that supported that particular milestone would be written off as cost of sales against that revenue.

Okay.

If I may, it's sort of subtle, I think we covered it last time. We actually -- there are R&D related expenses that, from an accounting perspective, we are charging against cost of sales. So as I mentioned, I didn't have a revenue event this quarter because I didn't book a milestone -- or didn't ship a milestone. So, there were R&D expenses that would've been put into inventory against that shipment. So our R&D expenses have been running lower than real because they are allocated into the bucket of cost of sales.

Okay. Excellent. Is that project basically on schedule?

Yes.

Okay. The ABTS-P, what needs to be done in order to get a shippable product?

It's a subtle spin on this thing. So the ABTS-Pi we introduced and shipped last year. We had our first shipments last October, November, to some really key customers, which was the first entry of the P that had the eye socket capability, or the individual temperature control capability. That machine had 256 channels. It could supply 400 amps to a burn-in board. For high power mobile applications, processors, it's a great product. We are still shipping it, taking orders, have a backlog.

We've introduced a version of it called the P without eye socket capability. That is really aimed at the automotive and low-power applications. So it effectively has more capacity for a higher production. It really is aimed production burn-in and has high-voltage option, which is actually pretty interesting because, in automotive, we used to historically think about maybe 60 volts or 50 volts because you go through the math of a 12 volt power supply, when you actually turn your car over, it spikes, and then it can double. And so you might guard band these devices.

But when you look at an electric automobile, or these hybrids, they can be over a couple hundred volts. And so it's a different high-voltage requirement. And so the ABTS-P not only has the high-voltage requirement of the traditional -- as we think of automobiles, but also battery-operated electric vehicles, European bus standards, and also these new electric and hybrid automobiles, which is just super-exciting for us, I think.

Ray and I sit around and talk a lot. Ray is our Chairman and founder. And one of our favorite topics is to just talk about what's going on with the electric vehicles. On one hand, we know you get this great touchscreen and it has the effect of almost an iPad on the dashboard with this Tesla automobile, and thought what a challenge it is to build that reliably. But Ray was pointing out that here in Silicon Valley, Google is developing or has developed a fully autonomous car. The car is capable of driving itself around. And right near us, it regularly is on the freeway. And if you haven't seen it before, it's kind of interesting. There is a passenger in the driver's seat, not hands on the wheel, and this car is driving it around all the time. And it's some of the early testing of this. And there's rumors around, gee, is Tesla the one that could really bring that to market. We could only imagine the reliability and quality requirements of an electric automobile or any automobile that's driving you around without a driver in attendance. So there's some really interesting things going on there.

It sounds like there's not much risk attached to shipping in 2014 for it then.

No. It's actually a very straightforward project for us. We took multiple system orders for engineering and production systems without even shipping the first one.

Okay. Reading the press release, I was intrigued by the quote "working with potential customers in the definition of a new product in our FOX product line." This would be outside of the normal customer base for FOXes?

It does include that. That's right. And we also -- let me say it includes some discussion -- let me restate it. Yes, in fact, actually all of the customers working right now are outside of that.

So these would be new FOX customers.

That's right.

In order to get to a profitable fiscal 2014, I am assuming that you do not need a substantial new FOX customer to get there. Is that correct?

That's correct.

So this would be incremental to your kind of core basic breakeven objective?

That's correct. And with the FOX customers we are currently working with.

Okay. The Chinese foundry is a new customer. Are you expecting follow-on orders from that?

We know that this is actually in an HTOL or a reliability application. Historically, customers will take maybe a few of those. Right now, we are happy to have won that. That was actually a competitive deal that other suppliers were vying for, and we were really pleased to have won that and feel that's a nice endorsement for us. If there are follow-on systems, that would be great, but I probably don't expect any in the near term.

Okay. I'll let somebody else hop in there. Congratulations. Looking forward to next quarter.

[Marty Coppens], [Chitchat].

Hello Gayn. Hello Gary. My question is it looks like a very good opportunity, and it has it on every quarterly call coming up. My question is why -- how does Aehr Test have an advantage over larger test manufacturers? Can they not see the opportunity or do they not have the skills to design these machines? Could you just tell me how Aehr Test, a relatively small company, can be very innovative in this space with what seems to be not much competition from much larger firms?

Let me try and do that. I think there's maybe two areas of it. From a production burn-in and the automotive burn-in space, we are the leader, or one of the two top guys in -- depending on what particular segment in logic and these type of applications. We've been doing it for a long time, 35 years. And we have developed an architecture of hardware and software that is very competitive. And in fact, during the downturn, we've lost a lot of competitors. There have been a lot of competitors that have gone away. So it's a relatively smaller market. We are the big dog in it, if you will. So as the industry has shifted and there is an opportunity with these new automotive devices, etc., it's coming back to us, if you will, and it's playing to our strengths.

And as people know, I came from the semiconductor ATE industry and am very familiar with all the top guys, and none of them have anything like this. They don't have a platform, an architecture, a software, a hardware to go after this application. And historically it probably wasn't that large for them to really be that distracted by it. So now the opportunity, as this grows, it's really an area where we can maintain our market share and grow with that industry, and that's a positive.

Do I think they're going to rush out and go build a tester to compete with me? They would have a heck of a time trying to build one to be cost competitive with us. We have many years had start, and I'm very comfortable with where we are at.

On the FOX area where there's a wafer level burn-in, we've been working on this for a long time. It started if you will with the DARPA contract over 10 years ago. We spent millions of dollars in the development of these really with some vision from the Department of Defense where they anticipated things like it might make sense to have highly reliable chips in satellites and other mission-critical applications, so they funded. We actually won an award to go off and build this thing. And to some extent we were ahead of our time. We had talked about KGD and talked about the ability to do DRAM and stacked DRAM, and the applications for it I'd say were not as robust.

What we're seeing now is, again, with both mobility and these process nodes and process monitors, with these new applications for KGB and stacked die, the economics are such that these products that we have invested in for so many years really have an opportunity to come to fruition. And so I for certain know that, at least in my previous companies, we had nothing like what Aehr Test has here from a hardware architecture or even a software architecture. Our software, when you do a DFT in abyss mode is actually awesome for these devices. And we can do it at price -- and our manufacturing costs are potentially substantially lower than anyone else.

Now, do I believe that if the market gets large, if we are out addressing the very large markets, I'm want to avoid numbers, do I think that there will be more competition? Certainly there's going to be more people that are going to be interested in going after it, but I like our position with our headstart in architectural and our IP. We have a wall full of patents here, and it's pretty interesting and I usually show people this and always invite people to come here. For a company that is known as a packaged burn-in company for many cases, over half of our patents on our wall are around wafer level test contacting burn-in probe cards. And that's an area that we've made a lot of investments and spent a lot of time on, and we think we are highly differentiated than the other guys.

That sounds good. And looking out, you don't like forward-looking statements, but how do you feel now, say, compared to when you started there at Aehr Test what was it, a year and half ago now?

You actually are breaking up, but that sounds like I'm making that up. But I did hear what you said. Just how do I, Gayn, feel, I came to Aehr Test a little over 18 months ago. And how do I feel about our prospects? I actually feel it feels very good about them. If you recall, and they're in the historical notes, when I got here, we kind of anticipated as an industry that the rising tide of just generally burn-in was going to rise higher than it actually did. And with that, our expectation was to make the strategic investments in this space I've talked about. That's one of the reasons I came if not the reason I came to the Company. Unfortunately that business didn't come back as strong, but we have hunkered down and made the investments and are working with key customers to still get these product out. And now as we're getting within a stone's throw of them, I'm feeling quite good about it. And it's great to actually be able to return to profitability and communicate that to our shareholders and to our employees and to our customers. Because I think we provide a very valuable -- we serve a very valuable need in this space, and our customers are rewarding us for that. So, I am pretty darn optimistic right now. Thank you.

Okay. Thank you.

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

Okay, well, I really appreciate everybody for joining us obviously on the call and online. And as always, I invite anyone who is interested to set an appointment and Gary and I would love to either sit down with you, give you a tour around here or take a call. And we appreciate it and we look forward to the next quarter call. Thank you.

Bye-bye.

Ladies and gentlemen, this concludes the Aehr Test Systems first-quarter fiscal 2014 earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 with the access code 4640889. We thank you for your participation and at this time you may now disconnect.