Release Date: May 02, 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 revenue increase to $22.7 million in Q1 2024, up from $20.4 million in Q4 2023 and $19.4 million in Q1 2023.
- Indium Phosphide revenue grew significantly, reflecting strong demand from data center applications and AI, contributing to an 11% sequential growth in overall revenue.
- Non-GAAP gross margin improved to 27.3% in Q1 2024 from 23.2% in Q4 2023, indicating better operational efficiency and cost management.
- The company is seeing recovery and growth across all substrate product lines, with positive developments in large diameter gallium arsenide and indium phosphide substrates.
- AXT Inc (AXTI) is optimistic about future growth, driven by new applications such as AI, and is working towards listing its subsidiary on the STAR Market in Shanghai, which could unlock additional value.
Negative Points
- AXT Inc (AXTI) reported a non-GAAP operating loss of $2.5 million in Q1 2024, although it shows improvement from previous quarters.
- Cash and cash equivalents decreased to $41.3 million as of March 31, from $52.3 million at the end of December, due to timing issues in revenue billings and increased capital expenditures.
- The company faces ongoing challenges with global economic conditions, trade tariffs, and increased environmental regulations in China.
- Despite improvements, gross margins are still below the company's target mid-30% range, indicating there is still room for efficiency gains and cost management.
- AXT Inc (AXTI) is experiencing some pressure on inventory levels, needing to reduce inventory by approximately $10 million over the year to improve financial health.
Q & A Highlights
Q: Can you provide an update on new engagements on AI applications for indium phosphide, especially regarding high-speed laser applications for 800 gig and 1.6 tera?
A: (Morris Young, CEO) - We received orders specifically for AI applications using semi-insulating indium phosphide. The industry is also showing interest in semi-insulating substrates for high-speed detectors or lasers. We're seeing a shift from silicon-doped to semi-insulating substrates, indicating strong growth in this area.
Q: What progress have you made regarding the stock listing on the STAR Market in Shanghai?
A: (Morris Young, CEO) - We've been actively communicating with the Shanghai Stock Exchange and CSRC, addressing their concerns and providing necessary clarifications. We believe we're ready for the next review step, which could lead to approval.
Q: Can you elaborate on the expected growth dynamics for your revenue streams in Q2, particularly for gallium arsenide and germanium substrates?
A: (Morris Young, CEO) - We anticipate the strongest growth from gallium arsenide, driven by demand in Germany and robust raw material sales. Indium phosphide revenue is projected to be flat, but this could change given the short lead times required by customers.
Q: How sustainable is the growth in gallium arsenide, and are there specific applications or customers driving this growth?
A: (Morris Young, CEO) - The growth in gallium arsenide is expected to be strong, driven by applications in LEDs and automotive lasers, and potentially HBT markets. The demand from China is particularly strong, and we have visibility at least into Q3.
Q: Regarding the AI-driven demand for indium phosphide, can you quantify how much of this demand is new and how it compares to traditional uses?
A: (Morris Young, CEO) - The AI applications have significantly increased the demand for indium phosphide, potentially accounting for up to 20% of recent orders. This new demand is shifting the market dynamics, previously dominated by semiconductor wafers.
Q: What are the implications of the short report on your stock and the concerns about the STAR listing and investment repayments?
A: (Gary Fischer, CFO) - The private equity investors involved are patient and do not seek immediate repayment. They are supportive of our efforts to go public. Our assets in China are highly valuable, and alternative investment opportunities exist if the IPO does not proceed as planned.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
