By Chandran Nair, Chief Executive Officer
Extracted from AEM Annual Report 2023
Our revenue reduced from an all-time high of S$870.5 million in FY2022 to S$481.3 million in FY2023. The decline in revenue, together with the legal settlement resulted in a profit before tax (PBT) of S$7.6 million. Excluding oneoff charges, the Group reports a PBT of S$38.3 million.
Whilst our revenue for the past year was lower than in recent years, I want to assure you that we are proactively addressing this challenge with resilience and strategic focus. The customer engagements that we had previously announced remain strong, and with the backdrop of the explosive growth in artificial intelligence (AI), interest in AEM’s Test 2.0 solutions has never been stronger.
As such, the management team continues to invest in developing our technology and product platforms. These efforts have resulted in the strengthening of our patent portfolio, with nine new patents being awarded in 2023.
Early in this note to our stakeholders, I wish to directly address the matter of the inventory shortfall, that was disclosed in January 2024.
We worked with a “Big 4” accounting firm different from our external auditors, KPMG, as an independent, third-party consultant (Consultant) to investigate the issue further. We wanted to fully understand the root cause, whether or not fraud had been committed, and to fully review our processes, systems, policies, and controls to address any weaknesses that may exist in order to ensure this issue does not recur in the future.
The Consultant reported directly to the Audit & Risk Management Committee (ARC) Chairman of our Board, with the remit to review and reconcile the inventory differences, validate forensics-related observations, review the end-to-end process as it relates to inventory movements, identify systems and process gaps, and recommend process improvements.
After weeks of investigation and in concurrence with the Consultant, the inventory shortfall was addressed and corrected in FY2023 results and that no evidence of fraudulent activity was detected.
The internal controls did not catch this issue earlier due to a confluence of factors attributable to a major shift of the bulk of our production and inventory from Singapore to Malaysia, an Enterprise Resource Planning (ERP) migration from an old version to a new version, and the changing operating nature of the company where we transitioned from a build-to-order model at a single site to a build-to-stock model across multiple sites as a result of the long-dated noncancellable purchase order programme that we have with our key customer.
Our internal controls, processes, policies, and systems clearly needed improvement, and we should have done better. The Board and Management team are fully committed to taking all necessary steps to ensure this issue does not recur.
Driving Growth
AEM’s Test Cell Solutions (TCS) Business Unit operates within the rapidly evolving landscape of compute testing, deeply influenced by the swift emergence of AI. Specialising in high-performance compute testing, our TCS team operates at the forefront of technological advancement, covering advanced capabilities spanning from wafer probe to Package System Level Testing (SLT). In his report, our CTO, Samer Kabbani, shared in detail the milestones our team had achieved in 2023 and the critical role the TCS team plays in driving AEM’s technological innovation in the AI ecosystem
In Test Instrumentation, we have made significant investments in 2023 to bring to market test software and instrumentation to enable the deployment of our System Level Test solutions. The successful deployment of test solutions for a leading memory supplier in 2022 validated the test software and architecture of our Asynchronous, Modular Parallel and Smart, or AMPS, platform. In 2023, our team advanced this capability to offer instrumentation and test software tailored for AMPS high-power stress testing and Burn-In solutions, specifically developed for High-Performance Computing (HPC) and AI customers. We are proud to report that test instrumentation for dynamic high power and thermal management while running real-time stress test patterns has been validated by our leading customer.
In 2023, the team engaged with leading mobile and compute customers, developing test technology to realise a shift in test requirements as the semiconductor process continues to evolve. Escalating power, test coverage, and test times continue to drive the adoption of different test flows. The major AEM platforms now have the test infrastructure in place, ready for high-volume manufacturing adoption.
The team also continued to serve its existing strategic Defence and Space customers by providing improved products and solutions meeting their new requirements. The adoption of the new high-density Automated Test Equipment (ATE) platform has started to gain traction with deployments at three of our existing customers while maintaining the continuity of their installed equipment. Application-specific ATE test solutions, starting with the CMOS Image Sensor (CIS) testers, have gained traction with other leading customers for additional applications. This will continue to be a major focus for 2024.
Our business revenue from CEI Pte. Ltd. (CEI), a contract manufacturing services provider which the Group acquired in FY2021, has grown steadily since FY2021 with robust existing and new customer engagements in the life sciences, industrial, oil and gas, and aerospace segments. We have a bold strategy to drive long-term growth and competitiveness in the industry for our CEI business by elevating key specialty processes to meet the needs of our key segments, to win new customers, as well as through increased innovation between the CEI and AEM’s core businesses.
Our Precision Cable Test (PCT) business expanded its product portfolio by introducing an Optical Time Domain Reflectometer (OTDR) for troubleshooting fibre optic cables. This addition enhanced our ability to serve our customers by providing comprehensive solutions for their testing needs. Additionally, we successfully established distribution channel partners in new regions, strengthening our presence and accessibility in the key PCT markets. We also secured initial business from two automotive customers for cable harness testing and continued to receive repeat orders from existing automotive clients. Furthermore, one of Europe’s largest cable manufacturers evaluated and endorsed the Single Pair Ethernet test functionality of AEM’s cable certification tester, TestPro. This endorsement solidified TestPro’s position as the only tester in the market capable of certifying emerging Single Pair Ethernet networks. We continue to maintain the momentum and pursue meaningful engagements with existing and new distribution channels, introducing new product releases, and increasing emphasis on cable harness test opportunities.
2023, the Year of Surge in Demand for Artificial Intelligence (AI)
Much of the recent news in our industry has been dominated by AI. We anticipate this market evolving in multiple waves that will undoubtedly be transformational. The first wave of generative AI growth – data centres. In 2023, the demand for data centres graphic processing units, or GPUs, grew exponentially. Consumer internet companies and enterprises accelerated their investments in building out generative AI infrastructure. Much of these activities have been confined to the data centres, and the spending was heavily skewed towards GPUs. This investment cycle is expected to be a multi-year period.
The second wave of generative AI is the proliferation “to the edge”. AI has begun to emerge prominently with the introduction of PC processors and mobile application processors equipped with built-in AI capabilities. The new generation of central processing unit, or CPU, promises to bring a whole new level of improved user experience and productivity gains. It is equipped with a dedicated AI engine known as neural processing units (NPUs) designed to optimise and accelerate AI tasks on the device without relying on external servers or cloud. With the introduction of AI PCs, generative AI applications are poised to spread fast to the edge and become ubiquitous in our daily lives.
And finally, the third wave of generative AI is the rise of vertically integrated hyperscalers. From our engagement with customers, we observe that hyperscalers are determined to develop their in-house AI chip solutions as they seek to improve performance while lowering operational costs.
We are excited to witness several hyperscalers dedicating significant resources to designing their own chips. These new entrants, unencumbered by traditional testing approaches, are eager to efficiently build their test solutions to meet the demands of disruptive AI testing. We see clear opportunities for close collaboration with these new hyperscalers and anticipate some to become strategic customers for AEM in the coming years.
The past year has witnessed significant disruptions in high-performance semiconductor testing. Where device power has traditionally increased by a few percent from one generation to the next, the new era of AI has ushered a step function rise in power nearly every 9 to 12 months.
The recent adoption of heterogeneous packaging technology has accelerated product releases, enabling customer products that are more tailored and optimised for each target market. This chiplet optimisation presented numerous challenges in traditional testing, where one can no longer treat packages as a monolithic part but rather as multiple chiplet islands, each operating asynchronously to accomplish its respective task. The resulting packages introduce complex, highly sensitive geometries and thermal gradients that drive the need for advances in package handling and thermal control.
AEM continues to make substantial investments in research and development to sustain our leadership in three distinct verticals: Industry-leading Active Thermal Control, Advanced Factory Automation, and Application-Optimised Test Instrumentation. AEM’s Test 2.0 Solutions, using the technology developed in the verticals above, are well poised to enable our customers to meet their test challenges well into the future. As AI customers grapple with tremendous test time increases to test new complex chips, we are excited to see a clear momentum among these customers endorsing Test 2.0 test solutions as the only practical path to curb the cost of testing from spiralling out of control.
Looking ahead, the strategy to expand our footprint among existing and new customers remains a key priority. As our customers navigate through transformative phases, we are steadfast in our commitment to evolve alongside them, ensuring their continued success.
I want to convey my appreciation to all our team members across our offices worldwide who have contributed to AEM over the past fiscal year. I also thank our Board of Directors, shareholders, customers, and partners for your continuing trust in our Company.
With the strong initiatives in place and the anticipated rebound in the semiconductor industry, our Company will continue to have a competitive advantage. We are not merely weathering the storm; we are actively charting a course towards new horizons.
