Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AXT Inc (AXTI, Financial) reported a 23% sequential increase in revenue for Q2 2024, reaching $27.9 million, and a 50% increase year-over-year.
- The company saw strong growth in indium phosphide substrates, with a 67% increase over the same quarter last year, driven by demand from AI and high-speed optical connectivity.
- Gallium arsenide revenue grew 22% in Q2 and is up 50% from Q4 2023, reflecting broad-based demand across various applications.
- AXT Inc (AXTI) has made significant progress in its recycling efforts, contributing positively to revenue and gross margins.
- The company is optimistic about future growth opportunities, particularly in AI applications, and is well-positioned to support new high-value applications.
Negative Points
- AXT Inc (AXTI) reported a non-GAAP net loss of $800,000 for Q2 2024, although this was an improvement from previous quarters.
- The company expects a moderation in gallium arsenide sales in Q3 due to fluctuations in the industrial market.
- There is some uncertainty regarding the continuation of AI-related orders for indium phosphide substrates in Q3.
- The company faces challenges in reducing inventory levels, particularly for indium phosphide, which has been slower than anticipated.
- AXT Inc (AXTI) provided guidance for Q3 2024 with expected revenue between $25.0 million and $27.0 million, indicating a potential sequential decline.
Q & A Highlights
Q: Can you provide more color on the Q3 guidance, particularly regarding the expected moderation in gallium arsenide and germanium?
A: Morris Young, CEO: Raw material is expected to hold steady at Q2 levels. Indium phosphide orders from AI applications in Q1 and Q2 are not expected to continue at the same pace. Telecom and datacom markets still have inventory to digest in Q3, so no growth is expected there. Gary Fischer, CFO: Orders are fluctuating, with some expected in Q3 arriving in Q2. However, we are maintaining market share and have strong customer communication.
Q: There seems to be a new emphasis on AI opportunities for indium phosphide. Are there new data points influencing this perspective?
A: Morris Young, CEO: We are confident that indium phosphide is being used in AI, likely in transceivers, but we are not seeing continued orders yet. We expect market adoption to increase later this year. Gary Fischer, CFO: We are not fully aware of all AI applications for indium phosphide, but customer feedback confirms its use in AI.
Q: With reports of potential indium phosphide shortages, how is AXT positioned to address this?
A: Morris Young, CEO: We have the best technology and supply chain for indium phosphide, with the ability to expand production. Our revenue is currently half of its peak, and we have previously grown indium phosphide revenue by 50% year-over-year for two consecutive years. We are developing six-inch indium phosphide capability and have improved yields and cost control.
Q: Can you provide insights into the potential for growth in indium phosphide and AI applications beyond Q3?
A: Morris Young, CEO: We are in discussions with customers about commercial applications, with trial orders increasing. The PONs and telecom markets are expected to recover as inventory is digested. Gallium arsenide is seeing growth in HPTs, and satellite communication demand is strong. Gary Fischer, CFO: Our products have long-term growth trajectories, and we are targeting triple-digit revenue.
Q: What is the current capacity for indium phosphide production, and how does it compare to past peaks?
A: Gary Fischer, CFO: Our past peak for indium phosphide revenue was $17.7 million, and we have not reduced capacity since then. Morris Young, CEO: We have improved yields and recycling capabilities, allowing us to increase production without adding new equipment. We are prepared to meet increased demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
