AXT INC Q3 FY2024 earnings call

Product Segments - Indium phosphide: $6.8 million, driven by data center applications (AI, passive optical networks) and new product development for silicon photonics and EMLs. - Gallium arsenide: $6.6 million, pulled back after strong Q2 growth, with market recovery lumpy but potential from new fiscal stimulus in China. - Germanium substrates: $1.6 million, down due to avoiding low-margin opportunities, with expectations of bottoming in Q4. - Raw material joint venture: $8.6 million, grew on healthy demand. ### Business Initiatives - IPO progress: Tongmei's IPO application remains in-process, with positive momentum from China's stimulus package. - HPT applications: Traction in gallium arsenide HPT applications, leveraging 8-inch development for 6-inch production to improve cost structure.

Revenue for the third quarter of 2024 was $23.6 million. By product category: Indium phosphide was $6.8 million, Gallium arsenide was $6.6 million, Germanium substrates were $1.6 million, and revenue from consolidated raw material joint venture companies was $8.6 million. Regional revenue breakdown: Asia Pacific 77%, Europe 12%, North America 11%. Non-GAAP gross margin was 24.3%, GAAP gross margin was 24.0%. Total non-GAAP operating expense in Q3 was $9.0 million, non-GAAP operating loss was $2.6 million.

Q4 Revenue - Expected to be slightly improved, between $23.0 million and $25.0 million, with growth in indium phosphide and raw materials offsetting germanium decline. ### Net Loss - Non-GAAP net loss expected in the range of $0.03 to $0.05 per share. - GAAP net loss expected in the range of $0.05 to $0.07 per share.

Risks - Financial performance of partially owned supply chain companies. - Increased environmental regulations in China. - COVID or other contagious disease outbreaks. - Germanium raw material pricing negatively affecting gross margins.

Q: How big of a surprise was the germanium business dynamics?

A: The germanium raw material price more than doubled, leading to declining germanium revenue in Q4, but the business is expected to return as the market settles.

Q: What are the drivers for indium phosphide growth?

A: Demand in data centers (AI, passive optical networks), new product development for silicon photonics and EMLs, and growth in orders from silicon photonics customers.

Q: What's the visibility on HPT applications in gallium arsenide?

A: Market size is $80 million to $100 million, with 10% current market share and opportunity to increase share by leveraging development learnings for 6-inch production.

Q: Impact of China stimulus on AXT?

A: Stimulus could positively impact consumer, industrial activities, cell phones, and aid in the STAR listing of Tongmei.

Q: Progress on China's STAR listing?

A: Tongmei's application remains in-process, with positive momentum from China's stimulus package and ongoing diligence by regulators.