AES Semigas


14 May 2021

AXT’s revenue surpasses $30m per quarter in Q1

For first-quarter 2021, AXT Inc of Fremont, CA, USA – which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials – has reported revenue of $31.4m, up 16% on $27m last quarter and 51% on $20.7m a year ago.

Fiscal Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021
Revenue $20.7m $22.1m $25.5m $27m $31.4m

“We expected that the convergence of expanding markets such as 5G, moving past the relocation program, and overall growth in indium phosphide would push us past the $30m mark, but we could not predict the exact quarter for this event,” notes chief financial officer Gary Fischer.

“Our performance surpassed our expectations, with growth in nearly all of our strategic products,” says CEO Morris Young.

Revenue from AXT’s two consolidated raw materials joint ventures – BoYu (which makes high-temperature pyrolytic boron nitride crucibles and pBN-based tools for organic light-emitting diodes) and JinMei (a diversified industrial high-purity material supplier) – has grown further, from $3.8m a year ago and $5.5m last quarter to $8m (up 45% sequentially), as the market for raw materials has tightened up and pricing has hence increased. “In 2020, both companies relocated to our campus in Kazuo, enabling them to expand capacity in response to strong market demand,” says Young. “This, coupled with a recovery in pricing of raw materials such as raw gallium [which more than doubled from about $150 per kg last year to $350-400 per kg], has allowed both companies to grow meaningfully in recent quarters.”

Substrate revenue was $23.4m, up 8.8% on $21.5m last quarter and 38.5% on $16.9m a year ago.

Of this, germanium revenue fell modestly in Q1, following a very strong Q4/2020.

GaAs revenue was the highest since Q1/2018, growing in both wireless and LED applications, driven by high-end applications including automotive, lighting and display and Internet of Things (IoT).

InP revenue was the second largest ever (after only Q2/2019, which included a very large order from a single customer buying for future demand). Sales were driven by a number of customers across a diversified set of applications, indicating that demand is broad based and building momentum. “Ten years ago, InP revenue was barely $1m and was the lowest revenue generator out of all product lines, lower even than germanium or raw materials. It was classically a product waiting for the market to arrive,” notes Young. “Today, we have demand from a number of different applications, and we are seeing additional applications on the horizon. In particular, we saw continued strength from 5G and its related technologies.”

“In data-center connectivity, demand remains steady and at a positive level,” says Young. “During Q1, we were pleased to become fully qualified at our tier-1 customer. This was a multi-quarter process that touched nearly every aspect of our business and elevated our operations for our benefit of all our customers.”

Of total revenue in Q1/2021, the proportion from the Asia-Pacific region rose further, from 71% last quarter to 73%, and Europe rebounded slightly from 16% to 17%, while North America fell from 13% to 10%.

No customers reached 10% of revenue, and the top five generated just 26% (compared with 37% last quarter). “Usually, we do have at least one 10% customer. And usually the top five customers contribute approximately 35-40% of total revenue,” notes Fischer. “This quarter, when we achieved over $31m in revenue, it was not because of one big order from one big customer. Further, on this point, the top five customers made up a smaller percentage of our total revenue than normal. Together, these factors vividly portray an increasingly broad-based, diversified set of customers and applications. From a business perspective, it is significant in demonstrating the growing adoption of the materials we manufacture, as well as the repeatability of this quarter’s success,” he adds.

“We drove significant improvement in our gross margin and achieved strong growth in profitability,” notes Young. Gross margin rose further, from 26.6% a year ago and 33.9% last quarter to 36.8%, driven primarily by product mix and increasing revenue volume, and some tailwind from one of the consolidated raw material companies.

Operating expenses have risen further, from $6.2m a year ago and $7.2m last quarter to $8m (25.4% of revenue, lower than the 2020 quarterly average of 27.6%), with 55% of the year-on-year increase due to R&D expenses, including development costs for GaAs wafers.

Operating income was $3.6m, almost doubling from $1.9m last quarter and an improvement from an operating loss of $0.63m a year ago.

After turning profitable the quarter before last, unconsolidated partially owned joint ventures in AXT’s supply chain grew their net profit further, to $1.1m (due to a 214% increase in revenue in Q1, driven by the improvement in commodity pricing).

However, these gains were offset by a foreign exchange loss of $173,000 and a tax provision of $746,000. Q1 results also included about $275,000 in tariffs as a result of the 25% tariff charge on importing wafers into the USA from China.

Despite this, net income was $3.4m ($0.08 per share), up from $2.1m ($0.05 per share) last quarter and a net loss of $0.18m ($0.01 per share) a year ago.

Q1/2021 saw a slight rise in both depreciation & amortization to $1.6m and capital expenditure (CapEx) to $5.6m.

During the quarter, cash, cash equivalents and investments fell from $78.6m to $66.9m, due mainly to an increase in working capital for accounts receivable (which rose by $3.9m), for inventory and prepaids of $9.8m, modestly offset by an increase in accounts payable of $730,000 plus CapEx payments.

During Q1/2021, AXT’s net inventory rose by $3.2m to $54.7m, consisting of 46% in raw materials, 48% for work in progress (WiP) and 6% in finished goods. Inventory rose for two reasons: (1) the order rate is strong, so AXT needs more inventory; and (2) raw material prices are rising, so AXT is buying a little bit ahead of the market to keep COGS (cost of goods sold) low.

“The early months of Q1 had the Chinese New Year – a week-long break – and, as a result, our shipments were back-end loaded for the quarter,” notes Fischer. “Collections from these shipments will move into Q2, benefiting cash this quarter.”

“The demand environment remains healthy in Q2/2021,” says Fischer. “Indium phosphide coming off a very strong quarter, we believe we will see continued growth. We also expect growth in gallium arsenide revenues for LED and a modest increase in germanium [driven by the satellite solar cell market],” he adds. “We expect a pullback in GaAs for wireless, and flat to slightly down [from the strong Q1 level] for raw materials.”

For second-quarter 2021, AXT therefore expects revenue of $30.5-31.5m. Gross margin will probably be at or above 35%, believes Fischer. Net profit should be $0.06-0.08 per share.

In late April, AXT announced that it had developed and shipped its first 8-inch diameter GaAs substrates (silicon-doped n-type) to a major customer. “Although we still have development work to undertake on this project, our new world-class manufacturing facilities in Dingxing and Kazuo can enable commercial viability of 8-inch GaAs wafers,” Young says. “Both of AXT’s new facilities have been purposefully designed and built for high-volume manufacturing of compound semiconductor substrate wafers, utilizing advanced equipment and improved automation. Further, manufacturing volume expansion was taken into account when designing the new facilities, and we believe we have a short path to develop and launch a high-volume manufacturing line for 8-inch GaAs substrates,” he adds. “Our investment in this program could lead to sizable new opportunities,” believes Fischer.

“We are currently in development of 6-inch indium phosphide wafers. This is another R&D project that is expected to position us to participate in some exciting new applications for indium phosphide,” says Fischer.

“We continue to see a convergence of major technology trends across our portfolio, and these are beginning to have a meaningful impact on the demand for our products. These include applications in 5G telecommunications and its related technologies, data-center connectivities, LED-based sensing and display, healthcare monitoring (also referred to as biometrics), consumer devices and others,” says Young. “With our new facilities ramping and our successful development of 8-inch GaAs substrates, we believe we are in a strong position to enable some of the most exciting new and emerging applications for specialty materials today.”

Update on STAR Market listing

On 16 November, AXT announced a strategic plan to access China’s capital markets and progress to an initial public offering by its China-based wafer manufacturing company Beijing Tongmei Xtal Technology Co Ltd on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the STAR Market). The first major step in this process is engaging reputable private equity firms in China to invest funds in Tongmei.

The process of going public on the STAR Market includes several periods of review. “The process is more complicated than an IPO in the USA and it takes longer to accomplish,” notes Fischer. “A prospective IPO company in China is required to have mandatory training in what it actually means to be a public company, what are the requirements and expectations placed upon a public company,” he explains.

In January, a number of private equity firms invested about $49m in exchange for an approximately 7.28% minority interest in Tongmei. “The rest of Q1 efforts included aligning our hidden assets in China beneath our main company in Beijing in Tongmei,” says Fischer. “Tongmei is also undergoing an audit conducted by Ernst & Young China. We’re hoping to submit our SEC application around 30 June or in Q3.” Tongmei expects to achieve listing on the STAR Market in mid-2022. “Our overall timing is good in terms of market opportunities on the horizon and accessing favorable capital markets in China,” reckons Fischer.

See related items:

AXT supplies first 8-inch GaAs wafers

AXT’s Q4 revenue grows 47% year-on-year, driven by InP for 5G

AXT’s second-tranche private equity investment in China largely complete

AXT to merge raw material companies BoYu and JinMei into Tongmei

AXT grows revenue 15% in Q3

AXT’s Q2 sees stronger-than-expected growth in InP

AXT’s revenue grows 12.5% in Q1

AXT GaAs substrate customer qualifies new wafer processing facilities

Tags: AXT GaAs substrate



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