The two order wins announced this month is a game changer for AEM’s second act of growth.
New orders
Both orders came from the same company which is one of the top five AI chip players. It took AEM four years from their initial engagement to landing the order.
The win is significant as it is a validation of AEM’s solution. Chairman opined that for the new customer to make the switch from their incumbent, which have been with them for decades, must meant that they could see a very clear differentiation in AEM’s solution, and it’s not just mere improvement of 20-30% over their existing systems.
CEO shared after the meeting with a smaller group of shareholders that the key advantages of AEM’s Test 2.0 solution are how it is able to handle the thermal load that comes from testing and automation of mass testing. There’s another factor that he pointed out but I did not catch it.
The guidance given is the revenue from new customer/s will hit triple digit millions in FY2025.
Arbitration
With regards to the arbitration, they think that it is frivolous. The settlement was reached without any findings or admissions as to breach or liability. They decided to go for the settlement to save on ballooning legal cost and also to clarify their competition position in the market.
You could say the case impeded the progress of their engagement with new customers as they are concerned if this arbitration is linked to any related IP. And AEM could not disclose the details when the case was still opened.
With the case settled, they could move forward and this probably played a part in the new orders.
Both Chairman and CEO shared that now that they are in the global stage, they would need to be extra mindful of such tussles and hence are doubling down on their application of patents.
Key customer
“Also, Intel’s test times currently run double or triple those of competitors. As business units are charged market prices based on test time, Intel expects pre-silicon design choices to reduce these test times, eventually producing savings of approximately $500 million annually.“
– Intel Provides Update on Internal Foundry Model, 21 June 2023
On how they view their key customer’s message on reducing test times , Chairman shared that across the industry, they are seeing an increase in test times instead.
There could be reduction in test time for matured technology but with more complex chips, there will be more testings.
They will see how things pan out but for the moment, they are not seeing delays in the deliveries for the non-cancellable purchase order program.
CEO shared it’s hard to determine when Intel will ramp up but based on Intel’s roadmap, can only speculate that it would likely be in 2025. If I heard correctly, they have about 3-6 months of lead time and they definitely have the capacity to meet the demand when activated, provided that there are no unforeseen circumstances such as supply chain constraint.
Other snippets
- Growth opportunities. With the current trend of generative AI (read more computing processing power and more complex chips), and hyperscalers wanting to design their own chips, AEM has lots of opportunities to grow into. It’s tough and competitive business but exciting time.
- CEI is doing well due to life science, and oil and gas sectors. They also have new customers from biomedical sector.
- R&D expenses starting at current level this year.
- Thinking behind 1-for-100 bonus issue is that the company has a dividend policy of 25%. With the need to conserve cash, they decided to match it with bonus share and hopefully these would worth more in future.
- Interestingly, the mood at the meeting was more pleasant when compared to last year, and the questions asked are of good quality. Chairman and CEO were also very willing and patient in answering the questions. When I left the venue, an hour after the meeting, CEO was still chatting with some shareholders. Oh, when the Chairman closed the meeting by thanking the shareholders for their patience, they were greeted with a round of hearty applause.
- For more information, you can read their AGM presentation slides.
What’s next?
As I mentioned at the beginning of the post, the learning is good for me. I would not have learnt this much about the business if I did not attend the AGM.
The prospect of the business looks good but whether it will become a reality depends on the execution. While I have confidence that the team will do their best, there’s no certainty it will turn out as envisioned.
Having just bought some shares recently and I have limited ammunition, I will probably wait for current reporting season to be over before deciding on my next move.