News: Suppliers
12 August 2024
AXT’s Q2 revenue up 50% year-on-year
For second-quarter 2024, 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 $27.9m, up 23% on $22.7m last quarter and 50% on $18.6m a year ago, and exceeding the guidance of $25.5–27.5m. This reflects strong demand in various sectors, including data-center applications and satellite solar cells.
By product category, AXT saw good performance in indium phosphide substrates and healthy growth in gallium arsenide and germanium substrates.
Indium phosphide revenue was $7.7m, down slightly from $8.1m last quarter but up 67% on $4.6m a year ago, reflecting continued strong demand from data-center applications including high-speed optics for artificial intelligence (AI), as well as passive optical networks (PONs).
Gallium arsenide revenue was $9.1m, up 22% on $7.5m last quarter and up 50% on $5.4m a year ago, with broad-based improvement across applications including HBT power amplifiers, wireless switches, high-power industrial lasers, and LEDs.
Germanium substrate revenue was $2.9m, more than doubling from $1.4m last quarter and up on just $1m a year ago. Demand for satellite solar cells, which was down substantially throughout 2023, is now showing recovery.
In addition, revenue was $8.2m from the 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 was up more than 40% on $5.8m last quarter and above the $7.6m a year ago, driven by growing demand and recycling. “Gallium arsenide recycling effort has been highly successful,” notes co-founder, CEO & chairman Dr Morris Young. “We are now fully licensed and are processing materials that we collected over time but did not have the capability to recycle. This is visible in both our revenue and [above-normal] gross margin at JinMei,” he adds. “These efforts also advance our ESG commitments and drive meaningful efficiencies in our manufacturing… Our portfolio of joint venture raw materials companies are contributing positively to our results.”
Of total revenue in Q2/2024, the proportion from the Asia-Pacific region was 78%, while Europe was 17%, and North America was 5%.
Despite the proportion of total revenue contributed by the top five customers being up from 24% a year ago to 31.8%, again no customer comprised more than 10%.
“We are encouraged by the signs of adoption in new applications, such as AI where we expect that indium phosphide will be required in optical transceivers for high-speed data transmission. These applications span longer distances, such as from rack to rack, rack to aggregation point and between cloud and edge data centers,” says Young.
“Today, AI applications are primarily using gallium arsenide vertical-cavity surface-emitting lasers (VCSELs) for shorter-range transmissions, which require a relatively small amount of substrate material. But as the industry moves to 800G for medium- to long-distance transmission beginning in 2025, and then to 1.6 Terabit speed, we expect that indium phosphide will be a necessary material,” says Young. “We’re already seeing development work happening today with next-generation silicon photonics devices and electro-absorption modulated lasers (EMLs) for high-speed data-center receivers. Those technologies use significantly more material than a gallium arsenide VCSELs. We have strong contribution in Q1 and Q2 from these applications,” he adds. “Across the rest of our portfolio of products, the signs of market recovery are tangible.”
On a non-GAAP basis, gross margin rose further in Q2/2024, from 9.8% a year ago and 27.3% last quarter to 27.6%, aided by the GaAs recycling program.
Operating expenses have increased further, from $7.8m a year ago and $8.7m last quarter to $8.9m.
Net loss was $0.8m ($0.02 per share), cut from $1.3m ($0.03 per share) last quarter and $4.2m ($0.10 per share) a year ago, and better than the guidance of $0.03–0.05 per share.
During the quarter, cash, cash equivalents and investments rose by $2m, from $41.3m to $43.3m.
Net inventory was reduced, but only slightly to $85.8m (64% work-in-process, just 2% finished goods, and as much as 34% in raw materials) due to inventory added through the successful recycling program. With improving demand, AXT hopes to continue to reduce total inventory in 2024.
For third-quarter 2024, AXT expects revenue to fall slightly to $25–27m, due to the timing of orders. Gross margin is expected to see a slight dip. With operating expenses remaining steady, net loss per share should rise to $0.06–0.08.
“Coming off two quarters of strong growth and some fluctuation in the industrial market, we're expecting a moderation of our gallium arsenide sales in Q3,” notes Young. “But we don't believe there is much excess inventory in the supply chain. We expect to continue to benefit from strengthening global demand as it occurs.”
In InP, AXT is not counting on the strong growth from AI applications in Q1 and Q2 to continue into Q3. “But because it’s a sort of a start-up business, an order can come in anytime,” notes Young. “If that were to come in, then we can probably maintain our same level as Q2,” he adds. Regarding telecom and regular datacom business, there is still some inventory to be digested in Q3. “Our largest target for inventory reduction is indium phosphide,” adds chief financial officer Gary Fischer. “As our revenue grows, we expect to be in a good position to bring the inventory down. But it's taking longer than I thought.”
Regarding germanium substrates: “With renewed strains in Europe and Asia, a portion of the strains was due to the timing of orders, which fell into Q2 rather than Q3,” says Young. “We don't expect to see quite as strong results in Q3 of this year, but still a significant improvement from this time last year.”
“Raw material is probably going to hold up… the same level as Q2,” says Young.
“The first-half run rate is just over $50m. So we're now targeting to be in triple digits once again [for full-year 2024, after a dip from $141m in 2022 to $75.8m in 2023],” says Fischer.
STAR Market listing update
On 10 January 2022, 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) and the application was accepted for review.
Subsequently, Tongmei responded to several rounds of questions received from the Shanghai Stock Exchange (SSE). On 12 July, the SSE approved the listing of Tongmei’s shares. On 1 August 2022, the China Securities Regulatory Commission (CSRC) accepted Tongmei’s IPO application for review. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities.
AXT notes that the process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Nevertheless, Tongmei hopes to accomplish this goal in the coming months.
AXT expects Q1/2024 revenue of $22.4–22.7m, exceeding $20–22m guidance
AXT’s quarterly revenue rebounds by 18% in Q4/2023
AXT’s Q2 sees InP revenue bottom out, offset by rebound in GaAs
