Executive Summary / Key Takeaways

• Strategic Diversification Fuels Growth: Aehr Test Systems is undergoing a significant transformation, successfully diversifying its revenue streams beyond its historical silicon carbide concentration into high-growth markets like Artificial Intelligence (AI) processors, Gallium Nitride (GaN) power semiconductors, and advanced data storage, with AI alone contributing over 35% of fiscal 2025 revenue.
• Unrivaled Technological Leadership in AI: The company has achieved a major breakthrough by delivering the industry's first wafer-level burn-in solution for AI processors, capable of testing nine 300mm wafers simultaneously with thousands of amps of current and watts of power, offering substantial yield and cost benefits over traditional package or system-level testing.
• Comprehensive Reliability Solutions: Through the strategic acquisition of Incal Technology, Aehr now uniquely offers both wafer-level and packaged-part burn-in solutions for AI processors, positioning it as a turnkey provider for qualification and high-volume production needs, and significantly expanding its total addressable market.
• Foundational Investments for Scalability: Despite a fiscal 2025 revenue decline and gross margin compression due to market softness and integration costs, Aehr has completed critical infrastructure upgrades and consolidated operations, establishing the capacity to support significant future growth across its diversified market verticals.
• Long-Term Optimism Amidst Near-Term Uncertainty: While the company temporarily withdrew fiscal 2026 guidance due to tariff-related uncertainties impacting order timing, management remains highly optimistic about long-term growth opportunities, anticipating order growth across nearly all segments in fiscal 2026, with a strong rebound expected in silicon carbide in fiscal 2027.

The Unseen Battle for Semiconductor Reliability

Aehr Test Systems, established in 1977, has quietly positioned itself as a critical enabler in the complex world of semiconductor manufacturing. The company specializes in test solutions for burning-in and stabilizing semiconductor devices across wafer, singulated die, and package part forms. This seemingly niche function is, in fact, foundational to the performance and longevity of modern electronics, especially as mission-critical applications like Artificial Intelligence (AI) compute data centers, electric vehicles (EVs), and advanced telecommunications infrastructure demand increasingly higher levels of quality and reliability.

The semiconductor manufacturing process is inherently complex, with potential defects arising at any stage. These flaws can lead to device failures, sometimes months after deployment, incurring significant costs and safety risks. Aehr's core value proposition lies in its ability to identify and eliminate these "infant mortality" failures through rigorous burn-in and stress testing. This process involves operating devices at elevated temperatures and voltages, often up to 150 degrees Celsius, for durations ranging from minutes to days, to accelerate potential weaknesses.

Technological Edge: The FOX Platform and WaferPak Moat

At the heart of Aehr's offering is its proprietary FOX-P family of test and burn-in systems, complemented by the FOX WaferPak Contactor and FOX DiePak Carrier. The FOX-XP and FOX-NP systems are designed for full wafer contact and singulated die/module testing, capable of processing a wide array of devices including silicon carbide (SiC), gallium nitride (GaN), 2D/3D sensors, memory, and photonics. A key differentiator is the FOX WaferPak Contactor, a unique full-wafer probe card that enables integrated circuit (IC) manufacturers to perform test, burn-in, and stabilization of entire wafers up to 300mm. This capability allows for testing all devices on a wafer at once, or multiple touchdowns, providing critical information on failures during the burn-in process.

This full-wafer contact approach offers substantial benefits. It screens out defective devices before they are packaged into multi-die modules, where a single failed component can lead to the discarding of an entire, highly expensive package. For instance, in advanced AI processors, where a single package can contain multiple processor dies and high-bandwidth memory (HBM) stacks, a 0.1% increase in yield by shifting burn-in to the wafer level can translate into very significant cost savings and revenue preservation. Aehr's systems are engineered for high power and current delivery, capable of applying thousands of amps to a single wafer and testing devices with thousands of watts, while maintaining precise thermal control and uniformity. This is a complex technical feat, particularly for devices that are not uniformly powered during burn-in. The company's proprietary arc suppression technology further prevents electrical arcing at high voltages, a critical feature for high-voltage SiC testing. These technological advantages contribute directly to Aehr's competitive moat, enabling higher yields, lower overall manufacturing costs, and superior reliability for its customers.

Strategic Diversification: The AI Catalyst

A pivotal moment in Aehr's recent history was the July 2024 acquisition of Incal Technology. This strategic move immediately expanded Aehr's product portfolio to include Incal's highly regarded packaged part reliability and burn-in solutions, notably the Sonoma, Tahoe, and Echo series. The Sonoma line, with its ultra-high-power capabilities, is specifically designed for AI accelerators, GPUs, and high-performance computing (HPC) processors. This acquisition transformed Aehr into a comprehensive turnkey provider for reliability and testing, spanning from engineering qualification to high-volume production.

The impact of this diversification has been immediate and profound. In fiscal 2025, AI processor burn-in, which contributed effectively zero revenue in the prior year, surged to over 35% of Aehr's total revenue. The company secured its first AI processor customer for wafer-level burn-in with its high-power FOX-XP solution, a significant technological and commercial breakthrough. Concurrently, it won its first production AI processor customer for packaged part burn-in using the Sonoma systems, with shipments commencing to a world-leading hyperscaler. Aehr is now the only company in the world offering both wafer-level and packaged-part burn-in solutions for AI processors, providing customers with unparalleled flexibility and cost-of-test options.

Competitive Landscape and Market Positioning

The semiconductor equipment industry is intensely competitive, with established players like Teradyne , Advantest , and Cohu possessing greater financial and marketing resources. Teradyne , a market leader with approximately 25-30% global market share, focuses on diversified semiconductor test equipment and robotics, demonstrating strong revenue growth (15% in 2024) and robust margins (58% gross, 22% operating). Advantest , holding 20-25% market share, excels in memory testing, achieving 18% revenue growth and 55% gross margins in 2024. Cohu (COHU), with 10-15% market share, emphasizes test handlers and contactors, showing 12% revenue growth and 45% gross margins.

Aehr, with its niche focus, holds a smaller market share (approximately 5%). While its fiscal 2025 revenue declined by 11% to $58.97 million, its strategic pivot and technological differentiation are critical to its competitive stance. Aehr's core advantage lies in its specialized wafer-level burn-in technology, which offers qualitatively superior reliability and yield benefits for complex, high-value devices. For instance, its WaferPak technology can reduce failure rates by an estimated 15-20% in high-stakes applications like AI chips, leading to significant cost savings for customers. This specialized capability allows Aehr to command pricing power in its niche.

However, Aehr's smaller scale presents vulnerabilities. Its gross profit margin of 40.6% in fiscal 2025 trails competitors like Teradyne (TER) and Advantest (ATEYY), reflecting higher manufacturing overheads due to lower utilization during facility renovations and the integration of Incal. The company's R&D expenses, at 17.7% of revenue in fiscal 2025, are higher as a percentage of revenue compared to larger rivals, potentially straining cash flow. Despite these challenges, Aehr's first-to-market position in AI wafer-level burn-in and its comprehensive solution offering (wafer-level and packaged-part) provide a unique competitive edge that larger, more generalized players do not currently possess. The company is also actively defending its intellectual property, having filed a patent infringement lawsuit in China against a local supplier, Suzhou Semight Instruments Co., Ltd., whose products are believed to infringe on Aehr's patents related to SiC wafer burn-in systems.

Financial Performance and Operational Strength

Fiscal year 2025 was a period of both challenge and strategic investment for Aehr. Revenue decreased to $58.97 million from $66.22 million in fiscal 2024, primarily due to softness in the power semiconductor demand for electric vehicles, which impacted shipments of systems and contactors. This decline was partially offset by a significant increase in packaged part burn-in revenue from the Incal acquisition, which contributed $19.8 million (34% of total net revenues) in fiscal 2025, up from just $1.6 million (2%) in fiscal 2024.

Gross profit decreased to $23.93 million (40.6% margin) in fiscal 2025 from $32.54 million (49.1% margin) in fiscal 2024. This margin compression was attributed to several factors: amortization of acquired intangible assets from Incal, a fair value adjustment to inventory related to the acquisition, an inventory variance charge, reduced manufacturing efficiencies due to lower system shipments, and a shift in product mix towards lower-margin packaged part systems and consumables. Operating expenses rose, with R&D increasing by $1.7 million to $10.46 million and selling, general, and administrative expenses rising by $4.5 million to $18.28 million, largely due to the Incal acquisition and higher legal fees. The company also incurred $0.864 million in restructuring charges related to consolidating the Incal office into its Fremont facility. Net income for fiscal 2025 was a loss of $3.91 million, a significant shift from a profit of $33.16 million in fiscal 2024, which had benefited from a $20.7 million tax benefit due to the release of a valuation allowance on deferred tax assets.

From a liquidity perspective, cash, cash equivalents, and restricted cash stood at $26.5 million as of May 30, 2025, down from $49.3 million a year prior. This reduction was primarily due to the $11.1 million cash outlay for the Incal acquisition and a $4.2 million increase in capital expenditures for the Fremont office renovation.

Net cash used in operating activities was $7.4 million in fiscal 2025, reflecting lower adjusted net income and changes in working capital. Despite these outflows, Aehr maintains a strong balance sheet with no debt, and management believes existing cash and anticipated funds from operations will satisfy cash requirements for the next twelve months. The company has also invested significantly in its infrastructure, implementing a new ERP system and upgrading its Fremont facility to support increased manufacturing capacity and consolidate operations, which are now largely complete.

Outlook and Risks

Aehr's outlook is characterized by strong long-term optimism tempered by near-term geopolitical uncertainties. The company temporarily withdrew its fiscal 2026 financial guidance, a decision explicitly linked to the U.S. administration's tariff announcements and their potential secondary impacts on customer order timing, shipments, or supply chain deliveries. This reflects a tactical response to unpredictable external factors rather than a fundamental shift in market confidence.

Despite this, management anticipates order growth across nearly all market segments in fiscal 2026. The AI market is expected to be a primary growth driver, with the first wafer-level AI customer ramping production and an evaluation underway with another high-volume processor company. The gallium nitride market is poised for significant growth, with a forecasted CAGR exceeding 40% to over $2 billion in annual device sales by 2029, and Aehr is negotiating its first volume production orders. The hard disk drive market is also expected to ramp production, driving orders for multiple FOX-CP systems. While silicon carbide customer forecasts are back-half loaded for fiscal 2026, stronger growth is anticipated in fiscal 2027. The flash memory proof-of-concept project, targeting the over $80 billion NAND market with potential for DRAM, aims for revenue contribution as early as fiscal 2026.

Key risks to this outlook include:

• Customer Concentration: A significant portion of revenue continues to come from a small number of customers, making the company vulnerable to changes in their business requirements or purchasing behavior.
• Tariff and Geopolitical Uncertainty: Ongoing trade tensions, particularly with China, could lead to delays, cancellations, or increased costs, impacting financial results.
• Semiconductor Cyclicality: The broader semiconductor market's cyclical nature could affect capital expenditures by manufacturers.
• Intellectual Property Litigation: The ongoing patent infringement lawsuit in China, while Aehr believes its claims are valid, could incur substantial costs and diversion of resources.
• Acquisition Integration: While Incal's integration is progressing, unforeseen challenges could still arise.

Conclusion

Aehr Test Systems stands at a pivotal juncture, transforming from a specialized provider to a diversified leader in high-reliability semiconductor testing. Its strategic acquisition of Incal Technology and pioneering advancements in AI wafer-level burn-in have fundamentally reshaped its market position, offering comprehensive solutions for the most demanding applications. Despite a challenging fiscal 2025 marked by market softness and integration costs, the company has made critical investments in its infrastructure and technology, positioning it for substantial long-term growth.

The burgeoning AI market, coupled with sustained demand from EVs, GaN, silicon photonics, and flash memory, provides a robust foundation for future revenue expansion. While near-term tariff uncertainties necessitate a cautious approach to guidance, Aehr's unique technological capabilities, expanding customer engagements, and established manufacturing capacity underscore a compelling investment thesis. The company's ability to deliver precision testing solutions that enhance yield and reliability in an increasingly complex semiconductor landscape is a powerful differentiator, suggesting a trajectory towards significant market share gains and sustained profitability as these critical industries continue their rapid evolution.