Revenue declines 36.9% following weaker demand from its key semiconductor customer

 

SHARES of AEM : AWX -15.07% tumbled on Thursday (Aug 15), after the semiconductor test equipment maker posted a 95.4 per cent fall in net profit to S$895,000 for the first half of the fiscal year.

 

As at 10.03 am, the counter fell as much as 19.2 per cent or S$0.28 to S$1.18, with about 6.3 million securities changing hands. The last time it traded at such levels was in October 2019.

 

No married deals were recorded, ShareInvestor data showed.

 

The counter later eased to S$1.23, down 15.8 per cent or S$0.23, as at 2.53 pm on Thursday. Among the stocks on the bourse, shares of AEM were among the top 10 decliners at the time.

 

The company announced on Wednesday a 36.9 per cent year-on-year decline in revenue to S$173.6 million from S$275.2 million.

 

It attributed the fall in revenue to a 42.1 per cent decline in its test cell solutions segment revenue, due to weaker demand from the group&rsquo s key semiconductor customer.

 

AEM chief executive Amy Leong said the company was committed towards improving operational efficiency and operating expenses, and that she will share her plans for the company in November this year.

The group aims to tap the ability of local engineers to quickly customise and adapt solutions to customers&rsquo needs

 

AS SHE entered AEM Holdings&rsquo seven-storey office in Serangoon North for the first time, chief executive Amy Leong said she was impressed that it felt like that of a global company, rather than just a local outfit.

 

&ldquo We have so many engineering centres, not only in Singapore but also in the US and Europe. Being a global company really creates differentiation for us, and we&rsquo re very unique in this space,&rdquo she said.

 

Leong took over on Jul 1 this year from chief executive Chandran Nair, who left the company to &ldquo pursue other interests&rdquo . She has more than 20 years of experience in the semiconductor test equipment space.

 

The leadership change comes at a delicate time for the company as it seeks to leverage an artificial intelligence (AI) tech upgrade cycle coming out of a deep semiconductor downturn.

 

In 2023, the semiconductor testing solutions provider posted its first annual loss since 2014. It posted a loss of S$1.2 million as revenue declined 45 per cent to S$481.3 million for the year ended Dec 31, 2023.

 

The company also recognised a shortfall in inventory in the fourth quarter of FY2023 as part of its year-end stock-taking exercise, which led to an adjustment of S$18 million to S$25 million to inventory value and profit before tax.

It attributed this to human error as it migrated production to its Penang facility from Singapore.

 

These issues have dented investor confidence in AEM as its share price has more than halved year-to-date as at Aug 2.

 

Still, Leong believes that the company &ndash among the leading semiconductor players in Singapore &ndash still occupies a critical position in the global semiconductor supply chain and will benefit as the industry emerges from a cyclical slump.

 

In particular, she believes that the ability of local engineers to quickly customise and adapt solutions to customers&rsquo needs is something that AEM can leverage as it tries to broaden its client base beyond its major customer, Intel.

 

In the area of system level testing, she said that solutions need to be customised because chips could be used for Internet-of-Things applications or compute-heavy computing devices.

 

Chip testing

Semiconductor chips typically see four stages of testing: wafer sort, burn-in, functional tests and system level tests.

 

While functional tests tend to be done within seconds, system level tests take minutes to complete.

 

AEM chairman Loke Wai San, who is the managing partner of private equity firm Novo Tellus Capital Partners, said that chips are being packaged in more complicated ways for applications such as AI, with different amounts of memory, central processing or graphics processing power being added to each package.

 

As a result, he has observed that all chips now go through system level testing, whereas this was previously reserved for only a selected sample of chips. This has led to a bottleneck at the system level testing phase.

 

Offering more efficient testing solutions

To solve this, he said that the company&rsquo s Test 2.0 strategy is meant to create solutions that integrate more tests in parallel, to make the testing process more efficient.

 

Leong added that the company has done a lot of research and development into ensuring that its tests can be done under tightly-controlled conditions.

 

For instance, the company has developed its solutions to be able to test chips at anywhere from minus 40 deg C to 150 deg C, and to ensure consistency in the desired temperature.

 

&ldquo If you don&rsquo t test (chips) in the right test environment, you can potentially throw a good die away or mix a bad die into the good bin,&rdquo she said.

 

Binning is the process of sorting different silicon chip qualities to be sold at different performance levels.

 

Loke added that the company&rsquo s chief technology officer, Samer Kabbani, is based in the US, where he can engage with semiconductor companies on the technical side.

 

&ldquo You should not try to sell into something that&rsquo s been already delivered because you&rsquo ve got no chance of success. You try to intercept something two or three years from now,&rdquo he said.

 

Leveraging acquisitions to offer better solutions

Loke noted that the company made acquisitions four to five years ago to prepare itself for moving beyond simply producing system level test machines to creating solutions as well.

 

For instance, AEM announced in July 2020 that it would acquire DB Design, a supplier of automation fixtures, device kits and other test-related products.

 

At the time, Loke said that the acquisition would allow the company to provide almost 24-hour research and development services to its customers in both the US and Asia.

 

As the group integrates these acquisitions, it has also begun to reap the benefits of these investments.

 

The company announced that it received a high volume manufacturing order win for its automated burn-in test solution by a major fabless provider of high-performance compute and artificial intelligence chips.

 

In fact, Loke sees multiple tech upgrade cycles coinciding in the near term, which could lead to a supercycle that will trigger a large boom in chip demand.

 

He noted that data centres, mobile phones and computers are being &ldquo massively retooled&rdquo to update them for AI use cases.

 

&ldquo If you are a trader&hellip (and) you require the best AI solution to be competitive as part of your business, you will upgrade all your laptops so that all your people will have the best (equipment),&rdquo he said.

Semiconductor player says Amy Leong will be CEO from Jul 1

 

SHARES of AEM dropped by as much as 6.6 per cent as at the Friday (May 31) midday trading break, on the back of the resignation of its current chief executive Chandran Nair, which was announced the day before.

 

As at 12.32 pm, the counter was trading down S$0.13 at S$1.83, with 5.1 million shares having changed hands. The last time it closed at this level was April 2020.

 

The semiconductor player said after the market close on Thursday that Nair, who became CEO in 2020, had resigned to &ldquo pursue other personal interests&rdquo . His resignation takes effect on Jun 30.

 

AEM appointed Amy Leong as deputy CEO upon Nair&rsquo s resignation, ahead of her taking on the CEO role from Jul 1.

 

She was most recently senior vice-president and chief commercial officer at Nasdaq-listed semiconductor supplier FormFactor. She was also a board member of Nasdaq-listed and US-based Skywater Technology Foundry.

 

The latest earnings results of semiconductor companies show a continued distress of the sector, weighing on their stock performances.

On May 8, AEM reported a Q1 net profit of S$2.4 million, 85 per cent lower than that of the year before. The company noted then that the industry was in a prolonged cyclical downturn.

On May 20, AEM Holdings : AWX 0% independent director Andre Andonian bought 207,000 shares at S$1.87 per share. With a consideration of S$504,911, this acquisition took his direct interest in the provider of global semiconductor and electronics test solutions to 0.09 per cent. 

 

This is Andonian&rsquo s first acquisition of AEM Holdings shares since he joined the board in July 2022. He has over 30 years of experience in consulting companies across the semiconductor, industrial and electronics, automotive and assembly, and aerospace and defence industries on strategic, operational and organisational topics.

 

He also has extensive experience in transforming companies into global leaders and in the assessment and development of talent.

 

He has held multiple executive leadership roles across Europe, the US and Asia during his 34 years at McKinsey & Company, such as managing partner of McKinsey Japan, Global and Americas leader of McKinsey&rsquo s advanced industries sector, and most recently, the managing partner of McKinsey Korea. He currently supports McKinsey & Company as special adviser/senior partner emeritus in North Asia.

 

AEM Holdings maintains its revenue guidance for H1FY24 (ending Jun 30) of S$170 million to S$200 million, and will provide H2FY24 guidance in its H1FY24 earnings press release.

 

SHARES of mainboard-listed AEM : AWX +9.26% jumped as much as 13.4 per cent on Wednesday (Apr 3) after announcing a contract win for its automated burn-in (ABI) test system.

 

The counter reached a high of S$2.45 at 9.53 am, up S$0.29. By 10.52 am, shares of AEM were trading 10.7 per cent or S$0.23 higher at S$2.39, with 6.7 million shares changing hands.

 

On Wednesday, AEM, which provides advanced chip-testing solutions, announced a contract win from a &ldquo major fabless provider&rdquo of high-performance compute and artificial intelligence (AI) semiconductor chips.

 

The company&rsquo s ABI test system was selected by the customer as a plan-of-record solution to address the latter&rsquo s emerging test needs for a new device roadmap.

 

&ldquo This win further expands our industry leadership in advanced, high parallel burn-in solutions and proves that we provide value-added, full turnkey solutions to enable our customers to shift towards Test 2.0 in a cost-effective manner,&rdquo said AEM chief executive Chandran Nair.

 

The systems test products by subjecting them to extended periods of operation under stressful conditions, typically to detect potential defects or weaknesses before they reach the end consumer.

 

AEM said it will commence delivery of the system in FY2024, with further deliveries expected in the following years.

Maybank report

 

SEMICONDUCTOR test solutions provider AEM Holdings may be in for a tough year, analysts said, after major customer Intel provided guidance that fell short of expectations.

 

Chipmaker Intel said on Thursday (Jan 25) that its revenue for the first quarter of this year is likely to be between US$12.2 billion and US$13.2 billion.

 

The projection was below the US$14.15 billion estimate of data provider LSEG (formerly Refinitiv). Shares of US-listed Intel fell more than 5 per cent immediately after the announcement, and continued their descent on Friday.

 

Sales of PCs and laptops, which Intel chips are mostly used for, have slowed.

 

Intel&rsquo s weak forecast comes shortly after AEM reported an estimated S$17.9 million to S$25.1 million shortfall in its inventory on Jan 14, following an internal stocktaking exercise.

 

&ldquo The company, in consultation with its independent external auditors, has made a determination that the entirety of the S$18 million to S$25 million will be adjusted down in Q4 FY2023,&rdquo AEM said on Jan 22.

 

DBS Group Research, in a note to clients on Friday, said the overhang from the inventory shortfall incident and the lack of strong catalysts are likely to keep the stock &ldquo range bound&rdquo for now. The brokerage has a &ldquo hold&rdquo call on AEM shares with a target price of S$3.

 

Lim & Tan Securities also issued a note on Friday highlighting the potential negative impact of the Intel news.

 

Given the &ldquo uncertain earnings trajectory&rdquo , Lim & Tan said, the stock price is &ldquo not attractive enough to entice bottom-fishing yet&rdquo .

• AEM had a bizarre announcement on Sunday evening the 14th of January 2024: inventory was &ldquo lost&rdquo on the way to Penang from its Singapore factory.
• Given AEM&rsquo s stellar corporate governance reputation up until now, this raises more than a few eyebrows: how is this even possible? 
• 4Q23 results, due in a month, will feature a large restatement of FY23 results and lead to a major earnings loss. Any recovery is delayed into FY25.