12 months ago, AEM stock was trading around $3.30. It's down about $1 since.

That's because a perfect storm hit AEM in 2023 -- a legal suit, an inventory boo-boo, and a downturn in the semicon cycle. 


• This morning, a material piece of news was issued by AEM. The stock market took a shine to it but will there be further positive newsflow to build on today's 9% recovery of the stock?

• AEM did not name the client that it had just secured but described it as "a major fabless provider of high-performance computing (HPC) and artificial intelligence (AI) semiconductor chips."  

• Nvidia, AMD, and Qualcomm are among the leaders in this space, outsourcing the production and testing of the high-performance chips they have designed. Something's puzzling -- is the AEM client ordering AEM equipment for placement in the client's outsourced foundry where its chips are made and tested?


• Read below CGS-CIMB's quick take (conservative) on the AEM news on its Automated Burn-In test system.

This "burn-in test" is a critical process used in the semiconductor industry to identify potential defects or weaknesses in integrated circuits (ICs) before they are shipped to customers. The ICs are subjected to high temperatures and voltages to accelerate the failure rate of any potential defects. This helps to reduce the risk of premature failures when the ICs are integrated into larger systems, which can be costly and time-consuming to address. 


Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

AEM Holdings 

Gaining traction with new customers

■ On 3 Apr 2024, AEM announced that its ABI test system has been selected as the Plan-of-Record solution by a major fabless chip company. 

AEM 

Share price: 
$2.36

Target: 
$2.32

■ According to the press release, the systems are intended for HVM and AEM will commence delivery from FY24F onwards. No order value was disclosed.

■ This is a positive development for AEM. We reiterate Hold as we await better revenue visibility from late-FY24F into FY25F.


overview1.21"A key factor in what AEM's ABI offers is the lower cost-of-test for HVM Burn-In. The fully automated operation and high parallelism allow efficient testing and stressing of high-power semiconductor devices such as AI processors, or other integrated circuits, which can significantly increase the throughput and efficiency of the testing process," says AEM.

Announces HVM (high-volume manufacturing) order win


● AEM announced that its next-generation Automated Burn-In (ABI) test system has been selected as the Plan-of-Record solution by a major fabless provider of high-performance computing (HPC) and artificial intelligence (AI) semiconductor chips.

● According to AEM’s press release, the systems are intended for high-volume manufacturing (HVM) to address the emerging test needs for the customer's new device roadmap and will commence delivery in FY24F, with further deliveries expected in the following years.

 

 Likely revenue impact from 2H24F onwards

 

2H24 impact

As AEM did not issue any amendment to its 1H24F revenue guidance of S$170m-200m issued at the time of its FY23 results, we think these orders could be recorded from 2H24F onwards.
-- CGS-CIMB

● As AEM did not issue any amendment to its 1H24F revenue guidance of S$170m-200m issued at the time of its FY23 results, we think these orders could be recorded from 2H24F onwards.

● AEM did not disclose the order value.

● We think this announcement is a positive as AEM is making progress with its customer diversification.

This announcement fits into AEM’s FY23 results presentation (Figure 1) where the company guided that for xPU, it could see “production intercept” in 2024F.

● If customers are agreeable, AEM could disclose another three order wins from “production intercept” as indicated in its presentation slide.

 Reiterate Hold

 
williamtng4.14William Tng, CFA.● We reiterate our Hold rating (TP S$2.32) on AEM as we await better revenue visibility from late-FY24F into FY25F.

● Downside risks include a further pushback in delivery timeline for customers’ equipment, weaker-than-expected recovery for the semiconductor industry and slower global economic growth, reducing customer demand for AEM’s contract manufacturing subsidiary.

● Potential upside risks include its key customer taking earlier delivery of its equipment orders and new customers accelerating their equipment purchase orders from AEM.


Full report here

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