9 May 2022
AXT Q1 revenue grows 26% year-on-year, driven by 45% growth in InP
For first-quarter 2022, AXT Inc of Fremont, CA, USA – which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials – has reported a ninth consecutive quarter of revenue growth, to $39.7m (near the top end of the guidance range of $38-40m). This is up 5% on $37.7m last quarter and 26% on $31.4m a year ago, highlighting market share gains and expansion into new applications and tier-1 opportunities.
Of total revenue, the proportion from the Asia Pacific region was 73%, Europe was 16%, and North America was 11%. The top five customers generated about 29% of total revenue, one of which just edged over 10%. “Our continued revenue diversity demonstrates that our growth is not overly dependent on one large customer or application,” notes CEO Morris Young.
“We have reached an inflection point in our business, where our investments in technology, business operations, and customer relationships are contributing to our growth,” says Young. “We are particularly pleased with the continued strong growth of our indium phosphide products.
Total substrate revenue was $31.7m, up 10.8% on $28.6m last quarter and 35.5% on $23.4m a year ago. By product category, germanium substrates was $4.2m (level with last quarter), but GaAs was $12m (up 6.2% on $11.3m) and InP was a record $15.5m (up 18.3% on $13.1m last quarter, and up more than 45% on a year ago). This “puts us well on track to achieve indium phosphide revenue growth of 30% or more this year,” says Young.
Revenue was $7.9m from AXT’s two consolidated raw material 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 is down on $9.1m last quarter, after very strong growth throughout 2021, with prices remaining volatile.
“The consolidated raw material companies are being selective in the business they support in order to drive improved gross margin performance in our business,” says Young. “We were pleased to see the increase in contribution to profit from the unconsolidated raw material companies, which represent additional positive leverage in our model. This is a strong benefit of our vertical integration strategy,” he adds. “While high raw material prices had a negative impact on our cost of goods sold (COGS) for AXT and its competitors, AXT is able to offset some of the impact of the higher prices through the revenue generated by our joint ventures. We also have the benefit of supply guarantees and insight into the pricing trend… These have proven highly valuable to our business over the last two decades.”
On a non-GAAP basis, gross margin was 33.8%, still down on 36.9% a year ago but recovering further from 32.4% last quarter, due to growing volume, a favorable product mix (due to growth in InP), and a strong focus on yield improvements and manufacturing efficiencies. “We continue to believe that we can get back to the 35% range later this year,” says chief financial officer Gary Fischer.
Operating expenses have risen further, from $7.2m a year ago and $8.1m last quarter to $8.6m.
Net income was $4.3m ($0.10 per share, above the expected $0.07-0.09), up from $4.1m ($0.09 per share) last quarter and $4.2m ($0.10 per share) a year ago.
Capital expenditure (CapEx) was $6.3m, due to adding InP furnaces (since AXT “can’t quite meet the demand from one of our good customers,” says Fischer), as well as some wafer processing equipment in the GaAs and germanium lines.
During the quarter, cash, cash equivalents and investments fell from $51.8m to $44.3m.
“Total revenue growth is coming from a diverse set of applications and customers across telecom infrastructure, data-center, industrial, consumer, healthcare, automotive, and other markets – giving us confidence in the sustainability of our business model throughout 2022 and beyond,” says Young.
For Q2/2022, AXT expects revenue of $38-41m, and net profit per share of $0.08-0.10. Gross margin should be similar to Q1.
“Our key markets have entered a new cycle of innovation and application development that is driving opportunity expansions and diversify our revenue base,” says Young. “This is supported by the strong order pattern we are currently experiencing. Demand from several of our tier-1 customers is robust, and we’re working hard to scale our production accordingly,” he adds. “Through the scaling of our operations, investing in our product roadmaps, and strengthening of our capital structure, we are executing on a strategy that positions us well for the healthy growth and profitability throughout 2022 and beyond.”
STAR Market listing update
In late December, AXT said that its 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 accepted for consideration on 10 January. Subsequently, Tongmei responded to questions received from the Shanghai Stock Exchange’s Review Board and submitted a revised application, which was accepted for review on 18 April. AXT notes that 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.