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2 August 2007


AXT's second-quarter growth fuelled by strong demand for GaAs substrates and raw gallium

For second-quarter 2007, substrate and raw materials supplier AXT Inc of Fremont, CA, USA has reported revenue of $13.6m, up by around 9% on the $12.5m in Q1/2007 and around 20% on the $10.4m a year ago.

Revenue from gallium arsenide (GaAs) substrate sales increased to $9.3m, from Q1’s $8.8m. But 6-inch diameter wafer sales were down at $2.8m, from $3.3m in Q1 and $3.0m a year ago. AXT said that the decrease was mainly due to a delay in BiFET qualifications, of which 70-80% had now been completed. The company added that in late June it received some large orders for 6-inch wafers for delivery in Q3/2007.

Second-quarter indium phosphide (InP) revenue was $660,000, up on the $518,000 in Q1/2007 and the $613,000 in Q2/2006.

Germanium (Ge) substrate revenue was $402,000, down on the $541,000 recorded in Q1/2007 due to slightly lower demand from a major Chinese customer, but a substantial increase on the $169,000 achieved in Q2/2006.

Q2/2007 sales of raw materials, primarily 99.99% pure gallium, were $3.3m, compared with $2.6m in Q1/2007, and more than double the $1.4m for the same period in 2006. According to AXT, this increase in revenue was the result of sales in the quarter to two new European customers. AXT added that at least one of the new European customers for raw materials was also a competitor to its substrates business, but declined to disclose further details. As well as the new customers, an increase in raw materials pricing (particularly the average sales price for raw gallium) contributed to the results.

The Asia/Pacific region generated 61% of revenue, followed by 20% from North America and 19% from Europe. AXT said that the percentages represent an upward trend in the Asia/Pacific region in the last few quarters, but adds that it expects to see the percentage for North America to increase relative to other regions due to increasing revenue from photovoltaics manufacturers.

Gross margin for Q2/2007 was 36.9%, compared with a Q1/2007 gross margin of 43.2%, and a Q2/2006 gross margin of 26.6%.

Operating expenses were $3.6m in Q2/2007, compared with operating expenses of $4.2m in Q1/2007, and $4.4m in Q2/2006. The latest figures included a bad debt expense of $574,000, due to slow paying customers, mainly in Asia. Also, during Q2, AXT entered into an agreement to sell its manufacturing facility in Fremont, USA for $5.35m, and accordingly the company recognized a recovery of an impairment on assets held for sale of $481,000.

Q2/2007 income from operations was $1.4m, compared with $1.2m in Q1/2007, and a loss of $1.7m in Q2/2006. Net income in Q2/2007 was $1.2m ($0.04 per diluted share), compared with $1.3m in Q1/2007. Net loss in the Q2/2006 was $(876,000).

Commenting on the results, AXT’s CEO Phil Yin said: "Shortages in gallium raw material and increasing interest in emerging applications such as photovoltaics are illuminating the unique competitive positioning that AXT is likely to benefit from over the next several years. After an industry wide pause to complete BiFET qualifications and digest some excess inventory, we are poised for renewed growth in our 6-inch products. Demand is returning across all areas of our core GaAs business and we are completing several strategically important qualifications that will begin to generate revenue in the second half of the fiscal year. Further, we are very pleased to report that our strategy to vertically integrate our raw material needs has not only proven to be very effective in regards to raw materials pricing and volume, it has clearly become a major differentiator in our industry . . .”.

Moving forward, AXT says it is looking to increase its ownership in joint ventures with suppliers of raw materials, particularly those that produce arsenic and germanium. AXT adds that it is also investigating silicon carbide (SiC), gallium nitride (GaN), and diamond materials, for possible future production.

AXT estimates an increase in Q3/2007 revenue to between $14.0m and $14.6m.

See related items:

AXT’s sales dip due to 6” GaAs, but rebound expected in Q2

AXT’s fourth quarter drove return to profitability in 2006

See company profile