AES Semigas


11 March 2022

AXT grows revenue 44% year-on-year, aided by market share gains

For fourth-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 $37.7m, exceeding both the initial guidance range of $34-36m (provided on 27 October) and the increased guidance range of $36–$37m. Despite usually being a down quarter for AXT, this is up 9% on $34.6m last quarter and up 40% on $27m a year ago, representing an eighth consecutive quarter of growth and a fourth consecutive quarter over $30m.

Fiscal Q4/2020 Q1/2021 Q2/2021 Q3/2021 Q4/2021
Revenue $27m $31.4m $33.7m $34.6m $37.7m

Full-year 2021 revenue was $137.4m, up 44% on 2020’s $95.4m (and up by more than 65% on 2019). InP substrate revenue grew by 41%, becoming the firm’s single largest revenue contributor. GaAs substrate revenue grew by 38%, driven by a wide variety of applications. Germanium substrate revenue grew by 18%.

Growth is all organic, driven by market expansion and market share gains. “We grew in every revenue category across our portfolio without the help of price increases,” notes chief financial officer Gary Fischer. “This underscores the momentum we are seeing in our business, with new applications coming to the market, major technology trends, and our own success in winning share at strategic customers.”

By product category in Q4/2021, InP was $13.1m, GaAs was $11.3m, germanium was $4.2m. Total substrate sales were therefore $28.6m, up 9.2% on $26.2m last quarter and up 33% on $21.5m a year ago.

In addition, revenue was $9.1m from AXT’s two consolidated raw materials joint venture companies: BoYu (which makes high-temperature pyrolytic boron nitride crucibles and pBN-based tools for organic light-emitting diodes) and JinMei (which supplies high-purity materials including gallium and germanium, as well as InP poly and other materials). This was up from $8.4m last quarter and $5.5m a year ago, after both BoYu and JinMei relocated their factory to AXT’s campus in Kazuo in 2020 (enabling them to expand capacity in response to continuing strong market demand), aided by a recovery in pricing of raw materials such as raw gallium.

Of total revenue in Q4, the proportion from the Asia-Pacific region was 74.9%, Europe was 16.7% and North America was 8.4%.

For the fourth consecutive quarter, no customers reached 10% of revenue (compared with two a year ago), and the top five customers generated just 29% of total revenue (down from 37%). “Our continued revenue diversity demonstrates that our growth is not overly dependent on one large customer or application,” says Fischer. “This is another factor contributing to our confidence that our growth has reached a point of sustainability and will continue throughout 2022.”

On a non-GAAP basis, full-year gross margin grew from 31.9% in 2020 to 34.8% for 2021. However, quarterly gross margin has fallen further, from 33.9% a year ago and 33.8% last quarter to 32.4%. “Contributing factors were increasing raw material costs [i.e. raw gallium that JinMei has to buy] within a constrained environment of demand, lower yields in some of our products, and the decision to accept strategic lower-margin business in order to position ourselves competitively in advantageous markets and customers,” says Fischer. “These factors offset the improvements made to gross margin at JinMei from expiring contracts [under which it had been selling materials at a pre-set price to several customers], as well as a new and promising raw material recycling program.”

Quarterly operating expenses have risen further, from $6.6m a year ago and $7.7m last quarter to $8.1m, driving full-year OpEx up from $23.8m in 2020 to $30.4m for 2021. R&D remains one of the primary drivers of the increase. “We have two major programs that are ongoing: the development of 6-inch InP and the development of 8-inch GaAs,” notes Fischer.

Net income was $4.1m, down from $5.4m ($0.13 per share) last quarter (although Q3 included two local government grants totaling $1m for facilities investments in the Kazuo region that did not repeat in Q4). Also, earnings per share of $0.09 exceeded the $0.06-0.08 guidance range. In addition, this was up on $2.8m ($0.06 per share) a year ago. Full-year net income hence more than tripled from $5.9m ($0.14 per share) in 2020 to $19.1m ($0.44 per share) for 2021.

In Q4, depreciation and amortization was $2m. Capital expenditure (CapEx) was $10.5m (up from $6.1m last quarter). Total stock compensation was $1.1m. During the quarter, cash, cash equivalents, and investments hence fell further, from $56m to $51.8m.

“2021 was a pivotal year for our business. We are hitting an inflection point in which applications that were once considered early-stage technologies are now moving to mainstream adoption,” believes CEO Dr Morris Young.

The demand environment remains strong. For Q1/2022, AXT expects revenue to rise further to $38-40m, with net profit of $0.07-0.09 per share.

STAR Market listing update

In late December, AXT’s China-based wafer manufacturing subsidiary Beijing Tongmei Xtal Technology Co Ltd submitted its application to list its shares in an initial public offering on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (STAR Market). The application was formally accepted for consideration on 10 January, and AXT has received its initial comment letter. However, the process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Tongmei expects to accomplish this goal in second-half 2022.

Outlook for 2022

“With our current market drivers, we believe we can deliver revenue growth in 2022 of 15-20% of our 2021 results,” says Young. “This is expected to come from market expansion, share gains, and customer wins,” he adds. “With clear applications and design-win success, we believe we will grow our indium phosphide revenue in 2022 by 35-40%. We also believe that significant groundwork will be laid in 2022 for new applications in gallium arsenide. We are already seeing healthy growth in high-end LEDs, solid-state industrial lasers, and Wi-Fi for IoT applications, which we expect will continue,” he adds.

“Recently, we have also seen demand for gallium arsenide substrates for power amplifiers in 5G handsets. This is a new market for us and one that is opening up to AXT as a result of both the increased demand in 5G handsets as well as the supply constraints in our competitors to meet customer needs. Though the gross margin profile of this application is lower than other areas of our business, the volume opportunity is attractive, and we believe we can drive healthy gross margin contribution in our business model in the coming years.”

“Gross margin improvement is a top priority for AXT in 2022,” says Fischer. “Like most businesses, we have seen a steady increase in costs relating to everything from wages to the materials required to manufacture our products. Those increases will likely continue to create some near-term offset in 2022. However, we think we can get back to 35% range this year,” he adds. “Improvement will come through growing volume, favorable product mix, better pricing, and a strong focus on yield improvements and manufacturing efficiencies. We will see some incremental gross margin improvements as JinMei continues to work through some of the contracts that began creating a headwind in Q3.”

“Our investments in capacity, R&D for larger-diameter substrates, and the STAR Market IPO of our Tongmei subsidiary give us significant competitive advantages in our ability to scale our business, and meet the needs of tier-1 customers and emerging high-volume applications,” says Young. “We have a strong foundation in place and believe that the stage is set for another year of meaningful achievement in 2022,” he concludes.

See related items:

AXT applies for IPO of subsidiary Tongmei on Shanghai’s STAR Market

AXT’s year-to-date InP revenue grows 46% year-on-year

AXT’s founder & CEO Morris Young returns to chairman role prior to Tongmei IPO

AXT’s Q2 revenue of $33.7m up 52% year-on-year

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

AXT supplies first 8-inch GaAs wafers

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

Tags: AXT GaAs substrate



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