AES Semigas


26 February 2024

AXT’s quarterly revenue rebounds by 18% in Q4/2023

AXT Inc of Fremont, CA, USA – which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials – says that its full-year revenue fell by 46.3% from $141.1m in 2022 to $75.8m in 2023.

However, despite being down 23.1% on $26.8m a year ago, quarterly revenue has rebounded by 18% from $17.4m third-quarter 2023 to $20.4m in fourth-quarter 2023, exceeding the $16–19m guidance.

“We are now beginning to see a recovery in our markets,” says CEO Morris Young. “While the overall demand environment remains somewhat soft, we are seeing increased orders for indium phosphide for both artificial intelligence (AI) and fiber-optic applications,” he adds.

Indium phosphide revenue was $5.4m, still well down on $14m a year ago but up by 10% on $4.9m last quarter, reflecting a stabilizing market with continued improvement in artificial intelligence, passive optical networks (PONs) and data-center applications.

Gallium arsenide revenue was $6m, rebounding by 42% from $4.2m last quarter and up on $5.5m a year ago. “The gallium arsenide market, which was the first of our markets to go into a correction, appears to have largely worked through excess inventory and is now reflecting truer demand,” says Young, citing increasing strength in both wireless and LED applications as well as continued success in attaining export permits from China for most of AXT’s customers. “We’re seeing new demand for HBT [heterojunction bipolar transistor] applications, where we historically have had very little market share. We believe this is the result of both improving market conditions and the desire among customers to diversify their supply base,” says Young. “We are also seeing improving demand geographically in China across a variety of applications, including LEDs, wireless switches and high-power lasers,” he adds.

Germanium substrates were $1.1m, down slightly from $1.2m last quarter and $1.3m a year ago.

Revenue was $7.9m 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 13% on $7m last quarter and up 31.7% on $6m a year ago, with continued gross margin improvement. Overall, the pricing environment remains relatively stable.

Of total revenue in Q4/2023, the proportion from the Asia-Pacific region fell back from 82% last quarter to 77%, while Europe rebounded from 14% to 16% and North America recovered from 4% to 7%.

The proportion of total revenue contributed by the top five customers has fallen back from 31% last quarter to 28%. Again, no customer comprised more than 10%.

On a non-GAAP basis, full-year gross margin has fallen from 2022’s 37.2% to 18.1% for 2023. Quarterly gross margin was 23.2%, down on 32.5% a year ago. However, this was a recovery from just 11.3% last quarter, driven mainly by higher volume, product mix, and the improved gross margins at both JinMei and BoYu raw material joint ventures.

Operating expenses have been cut further, from $9m a year ago and $7.8m last quarter to $7.5m in Q4/2023, reducing full-year OpEx from $35.9m in 2022 to $31.8m for 2023. “We have maintained spending discipline in our operating expenses to align with the current environment,” notes chief financial officer Gary Fischer.

Compared with net income of $19.8m ($0.46 per share) in 2022, full-year 2023 yielded a net loss of $14.3m ($0.34 per share). Likewise, compared with quarterly net income of $2.1m ($0.05 per share) a year ago, Q4/2023 yielded a net loss of $2.8m ($0.07 per share). However, this was cut from $4.9m ($0.12 per share) last quarter, and much better than the expected $0.13–0.15 per share.

Depreciation and amortization remained $2.2m in Q4. Capital expenditure (CapEx) was $4m for a second consecutive quarter. During the quarter, cash, cash equivalents and investments rose from $43.6m to $52.3m

Net inventory was flat quarter-to-quarter, at about $86.5m. Of this, 38% is raw materials (down from 41% last quarter), 58% is work-in-progress (WIP, up from 55%), and only 4% is finished goods.

“In 2023, not only did we successfully navigate the export control license process on behalf of our customer, we delivered breakthrough innovation in the development of large-diameter gallium arsenide and indium phosphide substrates,” says Young. “In addition, we implemented a recycling program that both advances our ESG commitment and improves our efficiency.”

For Q1/2024, AXT expects revenue of $20–22m. Raw materials revenue will fall back substantially (with no major changes in the pricing environment), but this will be offset by further growth in both GaAs and InP substrate revenue and stable revenue from germanium. Net loss should be steady at $0.06–0.08.

“The trends that have driven our revenue and customer expansion remain very much intact, with new catalysts such as AI providing strong incremental opportunity,” says Young.

“We view AI as an emerging new application for indium phosphide that will develop in exciting ways over the coming years. Today, AI applications are primarily using gallium arsenide VCSELs, which requires a relatively small amount of substrate material. But, as the industry moves to 800G and then 16 terabyte speeds, we expect that there will be a necessary transition to indium phosphide. AI will drive up the need for massive data-transfer requirements with increased bandwidth, low attenuation and low distortion. We believe this will result in increased demand for indium phosphide as the best platform for rapid data transfer,” Young adds.

“We are already seeing development work happening today with next-generation silicon photonics devices and electro-absorption modulated lasers (EML) for high-speed data-center transceivers. Early revenue from these applications contributed to our indium phosphide growth in Q4 and will help drive our expected growth in Q1. This interest in indium phosphide for AI applications is intensifying the market demand for 6-inch indium phosphide. As the market grows, the customer wants the scale and cost benefit of large-diameter substrates. We're excited by the progress we are making in our R&D efforts and expect to continue to lead our industry with the best-in-class material,” continues Young.

“The micro-LED market continues to solidify. Several tier-1 companies are driving this adoption and the new product could come to market as soon as next year,” says Young. “We have been investing in our 8-inch gallium arsenide technology in support of these applications. And we have recently made groundbreaking advancements in both our defect density and yields. This innovation positions us strongly to gain a leading share in the market while efficiently supporting growing market demand,” he believes.

“We will continue to prioritize cost savings and efficiency, and are focused on accelerating our return to profitability,” says Young. “Beyond the near term, we remain confident that we can get [gross margin] back to the mid-30% range as the environment strengthens through higher overall volume, more favorable product mix and the benefits of our recycling programs, along with continued efficiency improvements throughout our business,” concludes Fischer. Full-year 2024 revenue is expected to be up on 2023, to “probably better than $85m”, reckons Young.

STAR Market listing update

On 10 January 2022, AXT announced that its China-based wafer manufacturing subsidiary Beijing Tongmei Xtal Technology Co Ltd had applied to list its shares on the Sci-Tech innovAtion boaRd (STAR Market) of the Shanghai Stock Exchange (SSE) and that the application had been accepted for review. Subsequently, Tongmei responded to several rounds of questions received from the SSE. On 12 July 2022, the SSE approved the listing of Tongmei’s shares in an initial public offering (IPO) on the STAR Market. 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.

“We need to resolve one open item,” notes Fischer. “Although it is moving slower than we expected, we are making progress and are confident that Tongmei remain an excellent candidate for listing.”

See related items:

AXT’s Q3 GaAs revenue hit by China export restrictions, offset by rebound in InP

AXT’s Q2 sees InP revenue bottom out, offset by rebound in GaAs

AXT’s Tongmei receives initial export permits from China for GaAs and Ge substrates

AXT’s Q1 revenue halved year-on-year

AXT’s revenue falls 24% in Q4, as InP hit by cooling data-center market and softness in 5G telecoms in China

Tags: AXT



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