AXT Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

There are 9 speakers on the call.

Operator

Good afternoon, everyone, and welcome to AXT's Fourth Quarter twenty twenty four Financial Conference Call. Leading the call today is Doctor. Maurice Yong, Chief Executive Officer and Gary Fisher, Chief Financial Officer. In addition, Tim Biddle, Vice President of Business Development will be participating in the Q and A portion of the call. My name is Frilla, and I will be your conference operator today.

Operator

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Session. Thank you. I would now like to turn the conference over to Leslie Green, Investor Relations for AXT.

Operator

AXT. You may begin.

Speaker 1

Thank you, Prilla, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward looking statements regarding, among other things, the future financial performance of the company market conditions and trends emerging applications using chips or devices fabricated on our substrates our product mix global economic and political conditions, including trade tariffs and import and export restrictions our ability to increase orders and succeed in quarters to control costs and expenses to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies, increased environmental regulations in China and COVID-nineteen and other outbreaks of contagious disease. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission.

Speaker 1

These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This call will be available on our website at axt.com through 02/20/2026. Also, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the fourth quarter and fiscal twenty twenty four. This information is available on the Investor Relations portion of our website at axt.com. I would now like to turn the call over to Gary Fisher for a review of our fourth quarter twenty twenty four results.

Speaker 1

Gary?

Speaker 2

Thank you, Leslie, and good afternoon to everyone. Revenue for the fourth quarter of twenty twenty four was $25,100,000 compared with $23,600,000 in the third quarter of twenty twenty four and $20,400,000 in the fourth quarter of twenty twenty three. To break down our Q4 'twenty four revenue for you by product category, indium phosphide was $9,100,000 reflecting continued demand from data center applications including AI as well as passive optical networks. Gallium arsenide was $5,400,000 germanium substrates were $1,600,000 and finally revenue from our consolidated raw material joint venture companies in Q4 was $9,000,000 based on continued healthy demand. In the fourth quarter of twenty twenty four, revenue from Asia Pacific was 79%, Europe was 11% and North America was 10%.

Speaker 2

The top five customers generated approximately 36% of total revenue and one customer was over the 10% level. Non GAAP gross margin in the fourth quarter was 17.9% compared with 24.3% in Q3 of twenty twenty four and twenty three point '2 percent in Q4 of twenty twenty three. For those who prefer to track results on a GAAP basis, gross margin in the fourth quarter was 17.6% compared with 24% in Q3 and 22.6% in Q4 of twenty twenty three. The decline in gross margin is primarily a result of lower benefits from our recycling program in the quarter as well as lower ingot starts and crystal growth, which resulted in under absorption of our manufacturing overhead, but which also enabled us to reduce the inventory. Moving to operating expenses.

Speaker 2

Total non GAAP operating expense in Q4 was $9,900,000 compared with $9,000,000 in Q3 of twenty twenty four and $7,500,000 in Q4 of twenty twenty three. On a GAAP basis, total operating expense in Q4 was $10,600,000 compared with $9,100,000 in Q3 and $8,200,000 in Q4 twenty twenty three. The increase in OpEx in Q4 was primarily a result of an increase in legal expenses as well as an increase in R and D expenses relating to investment in low EPD gallium arsenide crystal growth for the wireless market. We also continue to invest in the development of our six inches indium phosphide for a variety of applications. Our non GAAP operating loss for the fourth quarter of twenty twenty four was $5,400,000 compared with the non GAAP operating loss in Q3 of twenty twenty four of $2,600,000 and a non GAAP operating loss of $2,700,000 in Q4 twenty twenty three.

Speaker 2

For reference, our GAAP operating line for the fourth quarter of twenty twenty four was a loss of $6,200,000 compared with an operating loss of $3,400,000 in Q3 and an operating loss of $3,600,000 in Q4 twenty twenty three. Non operating other income and expense and other items below the operating line for the fourth quarter of twenty twenty four was a net gain of $1,100,000 The details can be seen in the P and L included in our press release today. For Q4 twenty twenty four, we had a non GAAP net loss of $4,300,000 or $0.1 per share compared with a non GAAP net loss of $2,100,000 or $0.05 per share in the third quarter of twenty twenty four. Non GAAP net loss in Q4 of twenty twenty three was $2,800,000 or $0.07 per share. On a GAAP basis, net loss in Q4 was $5,100,000 or $0.12 per share.

Speaker 2

By comparison, net loss was $2,900,000 or $0.07 per share in the third quarter of twenty twenty four and the GAAP net loss in Q4 of twenty twenty three was $3,600,000 or $0.09 per share. The weighted average basic shares outstanding in Q4 was 43,400,000. Cash, cash equivalents and investments decreased by $5,000,000 to $33,800,000 as of December 31. By comparison, at September 30, it was $38,800,000 The decrease is mostly balance sheet related as over $3,000,000 of the total loss was made up from non cash depreciation and stock comp. The biggest balance sheet item was that we reduced our loan balance by $6,800,000 Depreciation and amortization in the fourth quarter was $2,200,000 Total stock comp was $800,000 Net inventory was down a bit over $1,000,000 in the fourth quarter to $85,100,000 down from the peak by $6,600,000 and we are working to bring it down further.

Speaker 2

Finished goods make up less than $3,000,000 and that is a positive. This concludes our discussion of the quarterly financials. For the fiscal year twenty twenty four, in total, revenue was $99,400,000 up from $75,800,000 in fiscal year twenty twenty three and reflecting growth in every revenue category across our portfolio. This is a 31% increase in revenue and underscores the improvement we are seeing in our business with major market trends driving the adoption of new technologies, a recovery in the global demand environment and our own success in winning share as strategic customers. Gross margin for the fiscal year twenty twenty four on a non GAAP basis was 24.3%, up from 18.1% for fiscal twenty twenty three.

Speaker 2

GAAP gross margin for 2024 was 24% of revenue, up from 17.6% for fiscal year twenty twenty three. Net loss for the fiscal year twenty twenty four on a non GAAP basis improved to $8,500,000 or $0.2 per diluted share compared with a net loss of $14,300,000 or $0.34 per share for fiscal year twenty twenty three. GAAP net loss for the fiscal year twenty twenty four was $11,600,000 or $0.27 per diluted share, up from a net loss of $17,900,000 or $0.42 per share for fiscal year twenty twenty three. Turning to our plan to list our subsidiary Tangmei in China on the star market in Shanghai, we have continued to keep our IPO application current. Tongmei remains in process as part of a much more selective and smaller group of prospective listings than a few years ago.

Speaker 2

We continue to think that Tongmei is a good IPO candidate and we will keep you informed of any updates. With that, I'll now turn the call over to Doctor. Morris Young for a review of our business and markets. Morris?

Speaker 3

Thank you, Gary. While Q4 gross margin and net loss fell short of our expectation, our improvement in 2024 and in the previous year was significant. We delivered a 31% increase in fiscal year revenue, a 6% improvement in non GAAP gross margin and 40% improvement in non GAAP net loss. Over the last twelve months, we have aggressively advanced the technical specifications of our material to help our global customer base solve complex next generation connectivity challenges. More and more, the materials we supply are being used in highly sophisticated applications such as high speed Internet Connects, where our breakthroughs in delivering extremely low EPDs are showing tremendous value to device performance.

Speaker 3

2024 marked a very meaningful year of revenue growth into the cloud and data center infrastructure market, as well as our successful penetration of wireless handset market, particularly in China. We expanded we have also expanded our portfolio of our raw material companies, creating a unique valuable supply chain and laying the groundwork for incremental revenue opportunities in new markets such as BBN. And finally, we brought to market both eight inches gallium arsenide and six inches indium phosphide substrates, driving new innovation into our development capabilities that we can translate into better performance and higher yield across our product families. As we look ahead of 2025, while there are some new challenges, we see a number of exciting opportunities created by both industry trend and company specific opportunities. Now first two challenges.

Speaker 3

As many of you may know, on February 4, China government imposed trade restrictions on the export of indium phosphide material. Similar to the 2023 restriction on gallium arsenide substrates, these regulations explicitly seek to restrict the export of material used for military applications. Therefore, we are now undertaking an export permit process for indium phosphide similar to what we have been working through with gallium arsenide over the last two years. The good news is that it is an organized and efficient process that we're well very familiar with and we believe that we have similar success we will have similar success. We are already working with our customers outside of China to prepare applications on their behalf and expect to be able to submit our first application in early March.

Speaker 3

In our experience, we typically hear back our initial applications within forty to forty five business days and repeat applications are often processed faster. As such, we expect to see a delay in a portion of our Indian proprietary revenue in Q1 as we begin this process. For reference, in 2024, about 40% of our indium phosphide revenue came from China and with about 60% coming from the rest of the world. In Q1, we expect the impact of our revenue line of approximately $4,000,000 to $5,000,000 in delayed sales. This said, we don't believe that any of our indium phosphide sales go to military applications, so we feel we're in a good position to realize sales once we can navigate the permitting process.

Speaker 3

Now, challenges aside, let's turn to the key business opportunities and growth drivers for 2025. In cloud and data center connectivity, customers are pushing the boundary of high speed optical interconnects to support the growth of AI adoptions. Recent algorithmic improvements have shown the potential to deliver AI applications with better returns on investment for AI infrastructure providers worldwide. These innovations can enable increased adoption and broader use case for AI globally. Within this use case, we have several new and emerging opportunities.

Speaker 3

First, the industry is beginning its transition from VCSEL lasers to speed of 50 gig per lane to 100 gig per lane and higher. Not only are these high speed VCSELs opening up new opportunity for us with gallium arsenide, they have also created a greenfield market opportunity for high speed indium phosphide based photo detectors in 408 gig multimode optical interconnects. We saw indium phosphide orders relating to this application throughout 2024, which we believe will continue to grow in 2025. Our R and D investment have allowed us to deliver significant innovation on extremely low EPD ion doped indium phosphide substrates for next generation EML lasers for 800 gig and 1.6T pluggable transceivers. EPD refers to the defect density of a material and is a critical specification in device reliability.

Speaker 3

I'm extremely proud of our team for their breakthrough achievement. I believe AXT leads the industry in low EPD, iron ore material. We're currently in the qualification path of a major supplier for deployment in 2026. Initial feedback from our customers suggest that our low EPD characteristics is translating to highly valuable performance and reliability advantages over competing material. We continue to work with a number of customers worldwide and we're also seeing exciting opportunities with next generation silicon photonics devices for 800 gig and 1.6T pluggable transceivers for medium to long distance transmission.

Speaker 3

For example, we saw growth in demand with increased orders in Q3 and Q4 from one of our largest U. S. Silicon photonics customer. We also believe that China data centers are preparing for broader adoption of optical technology, which we view as an emerging opportunity. It is worthwhile to know that we are actively working with customers on their roadmap for co packaged optics and view this as a major opportunity.

Speaker 3

One of the hardest challenge for this emerging technology to overcome will be the reliability at scale, which is where low EPD wafers make a critical difference. We believe that our ability to provide extremely low EPD substrates will help customers solve this challenge when the industry move towards widespread adoption in the years to come. In addition to data center and AI applications, we see a second exciting opportunity in 2025 for our gallium arsenide substrates in HPT devices for the wireless market. Just two years ago, our market share was virtually zero. Today, with cost and performance breakthroughs, as well as strong relationship building with one of our largest Asian based IP providers, we now have about 10% of the overall market with particular strength in China.

Speaker 3

Expanding and accelerating our growth in this market is a key focus for us in 2025 with the availability of our eight inches gallium arsenide substrates as well as the process improvement we can apply to our six inches line, we feel we're confident we can be extremely competitive in this market and continue to grow our market share. As a third growth driver for 2025, we see opportunities in the continued recovery of global demand environment on applications such as passive optical networks, high power industrial lasers, particularly in China, as well as LEDs for a wide variety use case, including lighting, display, horticulture and automotive. We do see the demand environment improving incrementally and inventory relatively low. And finally, we have not talked as much in recent quarters about our raw material joint ventures. I do want to note that we have continued to invest in expanding our capability and build an enviable portfolio, which today include gallium, arsenic, PBM crucibles, quartz, indium, red phosphorus and germanium.

Speaker 3

The strategic value of these materials is not only that we can more cost effectively supply all our critical materials needed to manufacture our product, but also we benefit from additional revenue streams generated by our joint ventures through the sales of this product on the open market. In 2024, our consolidated joint venture generated almost $32,000,000 in revenue, up 12% from the prior year. We're working to expand this opportunity in 2025 through the development of new markets and to continue the valuable recycling effort that also contribute to our gross margin performance. In summary, 2024 was a year of recovery and growth for our business. One of the things that I'm most proud of is the relentless innovation spirit of our team this year in taking on highly complex material science challenges for our customers and delivering results that industry would have considered impossible just a few short time ago.

Speaker 3

These advances will enable an entirely new generation of devices capable of bringing such wonders as AI to the world. What we have built and continue to build for our customers and shareholders is an incredible valuable company that can serve most cutting edge requirements through our leading technology, unique supply chain and world class manufacturing. I want to say a special thanks to our team and their family for a productive 2024 and to our customers and shareholders, I want to thank you for your partnership. We have work to do on your behalf and we are deeply committed to deliver further improvement in 2025. With that, I will turn the call back to Gary for our first quarter guidance.

Speaker 3

Gary? Thank you, Morris.

Speaker 2

In keeping with our comments today, we expect Q1 revenue to be in the range of $18,000,000 to $20,000,000 This takes into consideration growth in gallium arsenide substrates, but that's offset by the impact from the indium phosphide trade restrictions and a modest decrease in raw material revenues. We therefore expect our non GAAP net loss will be in the range of $0.13 to $0.15 and GAAP net loss will be in the range of $0.15 to $0.17 Share count will be approximately 43,500,000.0 shares. This concludes our prepared comments. We can now answer any of your questions. Operator?

Operator

Thank you. And we will now begin the question and answer session. And your first question comes from the line of Richard Shannon with Craig Hallum. Please go ahead.

Speaker 4

Maybe a kind of a two part question looking back into the fourth quarter here and understanding the dynamics and how long they may continue here. So obviously, a little disappointed in the gross margins and OpEx here. With gross margins, I think you said some lesser benefits from recycling along with lower ingot starts here that limited absorption here. It sounds like you are trying to trim inventory lower. So to what degree are we going to see this below kind of recent trends here?

Speaker 4

When should it come up here? And then also on the OpEx here, so I think that you said you're spending a little bit more R and D for indium phosphide for wireless. Maybe you can indicate how long investments will continue there as well?

Speaker 3

Well, it's a fairly complex question. Gary, you want to take a first crack? And

Speaker 2

What was the first question in short?

Speaker 4

Gross margins, a little bit lower here, a couple of dynamics here, wondering how to what degree they're going to continue past the fourth quarter?

Speaker 2

Well, we do expect gross margins to be low again in Q1 because we're not going to have as much indium phosphide sales because of the export restrictions. Following Q1, then we think they'll get back into the at least the mid-20s, which is what we were targeting and running towards. And then, I think that we can inch them up quarter by quarter.

Speaker 3

Yes. I think to answer the question about the R and D activities, yes, we have taken quite a bit of effort in while both six inches phosphide development, also we're leveraging our eight inches crucibles knowledge we learned on eight inches and applying that technology to our six inches line, which take us quite a bit of development effort, but I think it's on the tail end of that effort. We should start to enjoy the benefit of better yield and better performance on the six inches line with the knowledge we have on H.

Speaker 4

Okay. Thanks for that. Let's follow-up on indium phosphide here. It sounds like you're getting some really good activity related to data center here. Maybe if you can just kind of dig in a little deeper and help us understand where you're seeing a little bit relatively more of the opportunity whether it's coming from lasers or from PDs or photo detectors.

Speaker 4

I think if I caught my if my notes are right here, you talked about a fairly large opportunity that could come to pass from a revenue perspective in 'twenty six. Maybe you can provide some little bit more information on that as well, Morris. Thank you.

Speaker 3

Tim, you want to take that on that question because I think, I mean, although I can answer that, but Tim is probably the front line knowing about this opportunity we should have in 2026 on the low EPD stuff for the EML, right, Tim?

Speaker 5

Yes, right. So, what we've seen in 'twenty four is we've seen growth both on the photodetector side and the laser side of it, right? So on the photodetector side, we've got this greenfield opportunity, which we've talked about in the past, where the high speed VCSELs running at 100 gig per lane now need to move over to an ingas indium phosphide based photodetector. So obviously, the world is seeing a lot of growth in the gallium arsenide VCSEL based transceivers for us. And we're enjoying that too.

Speaker 5

But this greenfield opportunity has opened up for the indium phosphide side of it. We're also seeing a really healthy increase in the data center laser side of it. And as you probably know, we're focused more on the silicon photonics side and the EML side than we are on the more traditional DML based applications. So we're not participating that heavily in the DML side of it. And you'll see more growth coming through 2025 as the industry moves to the E and L and the silicon photonics market.

Speaker 5

One of the interesting things as well that Morris mentioned was this new application on low EPD iron doped. We're definitely seeing, I think, some new opportunities coming up there with a number of different customers. It's something to keep an eye on for next generation EMLs. I think we'll see some growth through there in 'twenty five and into 'twenty six. So yes, I think we're going to see some healthy growth rate on, again both lasers and detectors in 2025.

Speaker 3

So let me chime in here a little bit perhaps. EML means you have a laser based device and you use indium phosphide modulator on the chip to regulate on and off performance of this module, right? And I think most of the lasers require slow EPD. And one of the traditional method of making laser is using sulfur dope to strengthen the lattice to reduce the defect density to as low as less than 100 per centimeter square, okay, because lasers are very sensitive to defect density, EPDs. However, if you want to use ion doped material, the ion doped doesn't have the benefit of lattice hardening.

Speaker 3

So, the EPD of this ion doped material traditionally is in the thousands of EPD. So while you want to combine and the reason why you want to use ion doped, I think has something to do with the transient time being shorter, so you can modulate this device faster, so you have a faster response. However, you also need a lower EPD to make this device more reliable. So you are caught in between wanting the device to perform better with the EML and also want a lower EPD to improve the reliability. And we believe that we have the ability to make the EPD lower than our competition.

Speaker 3

And our customers are finding out these prove out to be more desirable for the EML development.

Speaker 4

Okay. Thanks for all that detail, Maury. So, I'll ask one more question and jump out of line here. And that's related to China and the tariffs and export controls. You had some prepared remarks that were very helpful here.

Speaker 4

It sounds like you expect the experience of the permitting or licensing process to be similar to what you saw in gallium arsenide and while you're obviously seeing a bit of a dip here while the length of that process kind of unfolds here. But I guess just want to make sure that you're not expecting any issues. And maybe looking back to your experience at gallium arsenide, do you have any that you would expect to be better or worse than when we get to neophyte?

Speaker 3

Yes. Tim, again, you're the huncho on developing the export. So, can you answer that question, Tim, for me?

Speaker 5

Yes, I can. So, we certainly understand the geopolitical complexities in this. And what the indium phosphide controls, and I'll call them controls rather than restrictions, what they seek to prevent is the export of materials, indium phosphide materials for military applications. When China placed controls and they export the gallium arsenide, the same thing, right? It was military applications.

Speaker 5

In indium phosphide, we don't see any of our customers really that certainly the volume customers that use indium phosphide for military applications. It is well known Tier one customers using them predominantly for data communication, right? So we anticipate that given the true restrictions on military background, we think that we shouldn't have too many issues getting permits for nonmilitary related customers in non military applications. So we feel good that we can be successful in getting the permits that we need on this application.

Speaker 4

Okay. I appreciate all that detail, guys. I will jump on the line. Thank you.

Speaker 2

Thanks,

Operator

Richard. And your next question comes from the line of Charles Hsieh with Needham. Please go ahead.

Speaker 6

Hi. Good afternoon. The question is this. Looks like you're going to see, I think I heard you right, a $45,000,000 impact from the new licensing requirement in Q1. Given that you do seem to expect forty five days ish to get the licenses.

Speaker 6

Are those last sales in Q1, you think you can make it up in Q2? But at the same time, the originally scheduled shipment in Q2, could that be further pushed out into Q3? So I think that the absence of this question is, do you think you can get back to, let's say, dollars 25,000,000 revenue per quarter in Q2 or even run a little bit above that because I would think you do need to get back get a shipment originally scheduled in Q1 out as well? Any color on Q2 would be helpful. Thank you.

Speaker 6

Sure.

Speaker 3

Yes, Charles, my answer to that is, I think these if we can get the permit, I think delivering our product is no problem, okay? I think if I were the customer with a restriction on customer probably wants to build some buffer, so they could increase the Q2 delivery. But given that could be temporary. And I think if we have a perfectly developed none of our customers, let's say, got barred from getting a license, I would say Q2 and Q3 could be a strong quarters.

Speaker 6

Got it. Thanks, Maurice. Maybe another question. I think the opportunity in wireless, you talked about a couple of years ago, it's a zero market share, but now you are seeing that could be a very strong potential growth opportunity this year. Mind if you talk a little bit more about what's the sizing of that opportunity and what's the shape of that ramp into that opportunity?

Speaker 6

Is that do you expect us more than expect second half this year, a little bit more next year? Or give us any quantitative insights, I would really appreciate that. Thank you.

Speaker 3

Sure, Charles. I think the HVT market is very well known. I think it's roughly $80,000,000 to 100,000,000 a year. As we said before, two years ago, we virtually had zero and now we have about 10%. So, our target is to grow other 30% this year.

Speaker 3

And I think if we I think the main leverage, I think the message is that we have learned quite a bit of process improvement from our eight inches experience, the leveraging that down to the six inches line. And hopefully, our knowledge there will be able to reduce our cost, improve our yield and with a better connection and working relationship with our customers, we should be able to improve our market share. And I think the other opportunity, of course, is a longer term is you well, I'm hoping that with the AI implication that hopefully that AI smartphones is going to have increased market turnover in the next year or two. If we can catch that, then we can have HBT market grow even faster.

Speaker 6

Thanks, Maurice.

Operator

Your next question comes from the line of Tim Savageaux with Northland Capital Markets. Please go ahead.

Speaker 7

Just wanted to follow-up on that answer right there quickly. Morris, was that a 10% market share target going to 30% in 25%? Or I just want to make sure I heard you right on where the market share target is for the HBT market?

Speaker 3

I think I was talking about well, I mean 10% to 30% is too much that we're going to have to triple. I'm talking about we have 10% market, we can increase that 10% by 30% or 13% or 14%, yes.

Speaker 7

Okay. Glad I asked that one.

Speaker 2

We wish it was the other way, but this is how it is.

Speaker 7

That's all right. And you had a strong quarter in indium phosphide, I think the strongest in many quarters and a strong year. So I guess, and this is sort of independent of the export restrictions, I think you grew 44%, forty five % in phosphide in calendar 'twenty four. And given what we're seeing in the AI optical market in particular, we're hearing about shortages of EML lasers and a lot of uptick in activity on the silicon photonics side. From a market standpoint, would you have expected that growth to accelerate, ex any restrictions?

Speaker 7

Or how would you characterize your outlook for 'twenty five in indium phosphide relative to what you did in 'twenty four, again, excluding the research?

Speaker 3

Yes. I think this is a very good question. Actually, this is a topic that Tim and I my team and I have constant discussion about. We buy market reports and obviously as a CEO, I expect the market to grow very strongly, but Tim also has responsibility to deliver revenue. So he's tempered my expectation down.

Speaker 3

So maybe I should have Tim answer that question.

Speaker 5

Tim? Yes, sure. So this is a very dynamic market at the moment. So it is it's more difficult to try and place a real number on where we go. Right now, as we put our numbers together, we're looking at growth from 2024 to 2025 in the region of 20% kind of range.

Speaker 5

But of course, as I say, it is a dynamic market. And as silicon photonics and EML gain small adoption, we could very well see some increases there. I'll also make another note as we look at this market. There's a strong development trend in China for EML and silicon photonic as well. So not only are we seeing this in the normal players, but a lot of the laser detector manufacturers in China that have historically focused on the GPON market are now taking a look at the EML silicon photonics market.

Speaker 5

So they also want to enter into that market. So back to it, I've got a 20% year over year growth kind of figure in there, but it is dynamic, and we could see additional growth coming up. Yes.

Speaker 3

I agree.

Speaker 7

Got it. All right, got it. And going back to the export restrictions, at least using gallium arsenide as a model, I mean, you had a pretty modest downtick after those were announced in Q3 of 'twenty three, I think, and then bounced back pretty strongly over the next three quarters. I know the question has kind of been asked, but is that assuming you're able to, in the same fashion secure the permits, is that something we might expect here? Could you see yourself getting back to the strong Q4 levels you just reported in Q2 or Q3?

Speaker 3

I think so, Tim. So let me put some analysis cap on myself, okay? I think if you look at gallium arsenide versus indium phosphide, In gallon oxide, honestly, we are the third in the world and we are the smaller of the three, okay? And our market share is relatively small. But indium phosphide, I believe we're either number one or number two, okay?

Speaker 3

And also, I think gallium phosphide is not a material which is easily replaceable. We work with our customers sometimes two or three year I mean eighteen months to two years to qualify. We work into very details of what customer wants, how we can deliver. We have the capacity, we have the order actually in hand. So once we get the permit, I believe we can deliver quickly.

Speaker 3

And I think we can recover from what we have missed and some more as well. But of course, the dynamics is that what's the geopolitical struggle between the two. So, I think I hate to speculate there, but I think given the chance, I think our recovery for indium phosphide is probably going to be better than our recovery from indium gallium arsenide would have been.

Speaker 7

Great. Thanks very much.

Operator

Your next And your next question comes from the line of Dave Kang with B. Riley. Please go ahead.

Speaker 8

Thank you. Good afternoon. First question is regarding germanium. So what's the plan here? Are you continuing to run this business or any thought of like maybe monetizing?

Speaker 3

Well, yes, germanium, it's a good question. I think there's a lot of low orbit satellite opportunities in China. Actually, the demand is extremely strong. However, the material raw material prices went all the way to while this RMB is is almost like $3,500 per kilogram from as low as $1,600 a kilogram and the raw material was a major part of the cost of goods sold. So we view this not as a growth opportunity for us, but we obviously will start to manage or get into the market once the raw material price gets on certain level that we can start make profit at this market, Dave.

Speaker 8

Got it. And just wanted to dig in a little bit more on indium phosphide. Is it possible I'm not sure you have the answer, but since you talked about photodetectors versus silicon photonics, what's the rough mix between those two?

Speaker 3

It's hard to say the mix. I think the photodetector, Tim, what was the photodetector revenue we got from the VCSEL? It was around $5,000,000 last year, right?

Speaker 5

Yes. I want to say that it's not quite fifty-fifty. I want to say that we're seeing a little bit more on the laser side of the business. I'm talking the data center on the EML and the silicon photonics side. I'd want to say that we're looking at somewhere in the region of like a sixtyforty maybe even at a 60 fivethirty five split in favor of laser versus detector.

Speaker 3

Yes. But on the other hand, I think it's going to be difficult to say what's a detector, what's a laser, right? I mean, a lot of these substrate we sell to, they don't tell us what detector I mean, some market for the VCSEL pair, they do tell us instead of four detectors, but most of the others, they don't tell us.

Speaker 4

Right. That's what we're trying

Speaker 8

to find. Right. For example, your lead customer, I mean, are they both photo detector as well as the silicon photonics customer or mainly silicon photonics?

Speaker 5

That's mainly silicon photonics.

Speaker 3

Our lead customer?

Speaker 5

Yes.

Speaker 3

I don't think they even use indium phosphide as a detector in that device, in that transceiver. They're using silicon germanium as a detector.

Speaker 8

I see. Got it. That was it for me. Thank you.

Operator

And I'm showing no further questions at this time. I would like to turn it back to Doctor. Maurice Young for closing remarks.

Speaker 3

Thank you for participating in our conference call. As always, feel free to contact me, Gary Fisher or Leslie Green if you would like to set up a call. We look forward to speaking with you in the near future.

Operator

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
AXT Q4 2024
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