By Loke Wai San, Non-Executive Chairman

Extracted from AEM Annual Report 2023

The past 12 months have been difficult for AEM, especially after delivering all-time high revenue and profits in the previous year. In 2022 and for the initial part of 2023, we delivered many new systems to our key customer in anticipation of an upturn in data centre spend in the second half of 2023. However, that turned out to be true for artificial intelligence (AI)-related GPU chips, this was less so for the general-purpose CPUs.

Furthermore, there were operational errors in 2023 as we upgraded our Enterprise Resource Planning (ERP) system, migrated selected production capacity from Singapore to Penang, and changed our operating model from a build-to-order model at a single site to a build-to-stock model across multiple sites. This resulted in the misstatement of inventory levels during the year and the need to register a one-time accounting write-off as we closed our books for the financial year ended 2023 (FY2023). Along with an independent third-party consultant and our external auditor, the Board undertook a detailed review of our operations and accounting and has since implemented a firm set of corrective and preventive actions to prevent the recurrence of similar errors. Recently, we have announced several changes in our leadership team while the senior management has volunteered to forgo discretionary bonuses in FY2023. We do need to own up to our mistakes but also assure all stakeholders that we emerge ready to lead in the fast-changing world of semiconductor testing.

It is important not to lose sight of the bigger picture. As we sit here in the first quarter of 2024, there is no doubt that the world will be changed by generative AI and that there is a multi-year need for our entire IT cloud and edge infrastructures to be re-tooled for generative AI. At the core of this re-tooling is the new generation semiconductor chips based on the most advanced nodes and packaging methods, changes that we had highlighted in prior years, which favour the move to AEM’s approach to semiconductor testing – Test 2.0. Undeniably, our Test 2.0 is the standard going forward.

Capturing Opportunities Through Innovation

At AEM, we have always approached back-end semiconductor testing differently. The genesis of our pioneering test solutions dates to 2002. We reached a major milestone in 2016 when we onboarded several new programmes with our key customer. Over the years, we have continuously been working on next-generation test solutions that go beyond the current structural and functional testing of semiconductor chips and addresses the test challenges facing the next-generation devices that will power the advancement of AI and the proliferation of cloud and edge computing.

With service revenue for AI increasing, capital expenditure requirements to establish AI Infrastructure have also surged. Powering these next-generation AI chips is the advanced packaging technology that is redefining the previously set benchmarks of functionality and performance for devices and products.

There is a clear need for more complex testing solutions and with our Test 2.0 and beyond, AEM is ready. We are already engaging our new and existing customers to provide them with solutions that are tightly integrated with their advanced chips meant for new levels of mission-critical applications. As a leader in the semiconductor testing space, it is imperative that we evolve with the paradigm shift to maintain our competitive edge.

The Diversification Roadmap

Going forward, the mutual commitment between AEM and our key customer remains strong. With a proven case for our Test 2.0, we have also caught the attention of players across the industry. Our diversification journey has yielded strong results with several new customers onboard. These engagements have been positive and continue to gain traction. We are currently working with them to develop new platforms with advanced thermal capabilities to address the test challenges in the integration of high-performance computing and complex application processors. At the same time, we strive to contain testing costs by developing parallel platforms through effectively integrating Burn-In, Final Test, and System Level Test (SLT) into one platform. We are excited to journey with our customers in this next phase of testing and support their new device releases.

While the semiconductor industry may continue to face challenges in the short term, we believe that the long-term fundamentals of the industry remain strong, driven by increasing demand for semiconductor-enabled technologies such as AI, edge computing, and 5G connectivity.

Building Resilience Amidst Uncertainty

In FY2024, through disciplined cost management and process optimisation initiatives, we aim to better manage the impact of the industry downturn on our financial performance. Having said that, we do not expect a complete turnaround before FY2025.

In order to preserve our robust portfolio of intellectual property, we successfully obtained awards of several patents in FY2023 and we are focused on growing our intellectual property portfolio further through consistent R&D spend. These steps are necessary conditions to protect our superior technological leadership.

Appreciation

We understand that the past one and a half years have been challenging in the face of external and internal obstacles. Throughout this period, AEM’s stakeholders have been extremely supportive, with eyes fixed on the longer term. To our shareholders, customers, and business partners, I want to express my gratitude for keeping your faith with us. To our employees and management team, my appreciation and admiration for your hunger and determination to take up this challenge of building something special at AEM.

By now, some of you would have witnessed us in multiple cycles. Each trough has been followed by a stronger peak, and this one shall be no different. With advanced packaging adoption being considered the inflexion point for the semiconductor market, our pioneering Test 2.0 solutions will be the game changer.