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4 November 2008


AXT’s revenues fall due to requalifications and post-Olympics restrictions

For third-quarter 2008, substrate maker AXT Inc of Fremont, CA, USA has reported revenue of $17.9m, up from $14.5m a year ago but down from $19.9m last quarter.

The drop was due mainly to: (a) an overall market slowdown and lower-than-expected demand from customer orders, which also resulted in lower production levels; (b) continuing efforts to resolve specific product specification issues with a few select customers from the prior quarter; and (c) the temporary transportation restrictions on raw materials in China being unexpected through the Beijing Paralympics to the ended of September. Consequently, raw materials sales were $3m (mainly 99.99%-pure gallium), down from $4.9m last quarter and $3.6m a year ago.

Indium phosphide (InP) substrate revenue was $484,000, down from $500,000 last quarter. Germanium (Ge) substrate revenue was $795,000, down from $1.4m last quarter. This was partly due to requalifying wafers with one customer that has brought a new reactor online.

In addition, AXT’s engineering team has been working to resolve product specification issues with a gallium arsenide customer to develop a product that meets its requirements.

Nevertheless, total GaAs substrate revenue has risen from $9.9m a year ago and $13.1m last quarter to $13.6m (56% semi-insulating; 44% semiconducting). While 2-3” sales fell by $600,000 and 6” sales were steady at $5.5m, 4” semi-insulating sales grew strongly by $1m. Overall GaAs sales rose less than expected due to the economy-drive downturn in consumer spending causing shifts in market share among AXT's client base. However, chairman & CEO Phil Yin says that this is creating opportunities to penetrate accounts with clients that have done little or no business with AXT for some time as they seek ways to handle the increasing capacity requirement. In particular, 4” sales rose due to an increase in shipments to customers that had represented only a small proportion of AXT's business last quarter.

AXT's overall gross margin was 25.4%, down from last quarter’s 32.3%, due partly to the lower product mix in raw materials. Loss from operations was $926,000, compared with income of $2.3m last quarter.

“Despite the continuing margin pressure, our gallium arsenide and raw materials businesses have been solid,” says Yin. “While the volatile business and financial markets are prompting us to continue to take a conservative approach to our business, we remain optimistic about our business in the quarters to come.”

For fourth-quarter 2008, AXT expects revenue to rise to $21.4-21.9m, including raw materials revenues rebounding to $6.5m due to the Olympics-induced orders delayed from Q3, a rise of $400,000 for Ge, and a modest rise of $0.5-1m for GaAs (due to returning customers for 4” semi-insulating GaAs). Full-year 2008 revenue is expected to be $79m, up 35% on 2007. Indeed, despite the lower-than-expected growth for GaAs substrates in Q3, in anticipation of rising demand AXT’s expansion of its 6” GaAs capacity in China is ahead of schedule, after capital expenditure of $2.9m in Q3 (taking forecast full-year 2008 CapEx to $7-8m, to be followed by a similar level of CapEx in 2009).

Regarding Ge, after completing qualification of substrates with a large European concentrator photovoltaic (PV) company, volume shipments should begin in first-quarter 2009 for satellite applications, while qualification is ongoing for terrestrial applications, says Yin. Meanwhile three other qualifications are ongoing with European PV manufacturers, he adds, offering prospects for long-term growth.

“Positive industry trends, coupled with our competitive manufacturing and cost advantages, give us confidence in our ability to continue to drive future businesses in 2009,” concludes Yin.

See related items:

AXT still grows despite dip in 6-inch GaAs shipments

AXT’s 57% year-on-year growth driven by SI GaAs and Ge

Search: AXT GaAs GaAs substrate Germanium InP

See: AXT Company Profile