Should AEM investors panick? The latest business update caused plenty of concerns among investors as revenue for its Test & Automation Equipment unit collapsed to an alarming low of $6.4 million in 3QFY2023 (during the 1HFY2023, the Test & Automation Equipment unit recorded revenue of $45.1 million while revenue for 9MFY2023 amounted to $51.1 million). Against this backdrop, investors should expect plenty of volatility for AEM share price in the coming weeks, or even months.
Frankly speaking, most AEM investors, including myself, had expected revenue for the whole of FY2023 to be dismal in view of the current slump in the semiconductor industry. However, I had not expected the business performance to be that bad. We are talking about $6.4 million of revenue for its Test & Automation Equipment unit. This means that from June to September 2023, the Test & Automation Equipment unit had produced just 2 to 3 test equipment only? If this is really so, the 365,000- square-foot manufacturing plant in Penang (which was just opened in January 2023) must be really empty and quiet.
The plunge in revenue could be attributed to the lack of volume ramp from Intel, which is traditionally the largest revenue source for AEM. And this is the mind-boggling part for me. AEM claimed that most customers are pushing out their expenditure related to test to 2024 “due to lower end demand across the industry”. Yet, I thought Intel had announcement shipment of the 4th generation Xeon processors, Sapphire Rapids for both laptops and servers in April 2023? Wouldn’t Intel need to test its Sapphire Rapids? The narrative just didn’t gel.
To rub salt into wound, net profit plummeted 97% year-on-year to $3.5 million due to exceptional items, presumably the US$20 million settlement with Advantest. As if this is not enough, the management also guided that ramps from its new customers would arrive only in 2HFY2024. By then, I am not sure the state of AEM share price. Looking at how things had unfolded, I guess existing shareholders of AEM must embrace a long-term mentality for this counter.
Short-sellers wasted no time punishing AEM for its latest poor business performance. Short selling volume on AEM rose to a high of 980,000 and 1.9 million on 10 and 14 November respectively. However, the short selling activities seemed to have subsided by 15 November as the volume eased to 850,000. There was also support for AEM share price as Malaysia’s EPF and Aberdeen upped their stakes in the past two weeks.
To put things into perspective, the latest result extinguished any flickering of hopes that recovery for AEM’ semiconductor test solutions business will occur in 2023. The result also banished investors’ hope of a U-shape recovery for AEM share price. Obviously, most investors can’t wait for 2024 to arrive as the winter has been nearly two years. Surely, the light at end of tunnel should come soon?Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am vested in this counter, so my views on AEM share price (SGX: AWX) may be biased.
AEM share price so bad its good?
Notwithstanding the chaotic mess, AEM share price has been pretty resilient so far. The counter had not suffered a meltdown like what it did in September 2022 when Intel announced cost cutting measures after incurring US$500 million losses. In fact, AEM share price had been pretty robust in the first half of 2023, surging to almost $4.00 on 19 June 2023. Back then, the bullish form of AEM share price was due to the release of Sapphire Rapids. Subsequently, the loss of form of AEM share price should be due to [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Lifetime Membership
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