5 August 2011

Aixtron’s revenue and margins dip in Q2 after China customer delays

For first-half 2011, deposition equipment maker Aixtron SE of Herzogenrath, Germany has reported revenue of €381m (up 10% on first-half 2010’s €346.3m). Of this, 92% came from equipment sales and 8% from spare parts and services. “We used to assume that spare parts and services would contribute about 10% to total revenues, but this has changed slightly in the context of surging demand for our systems in the last two years,” notes executive VP & chief financial officer Wolfgang Breme.

However, second-quarter revenue was €175.6m, down 8% on $191.8m a year ago and 15% on Q1’s €205.4m. With more than 90% of revenue generated in US dollars, Q2 was impaired by the dollar weakening against the euro by 6%, as well as by a shift in regional product mix and selling prices influenced by larger order volumes. Additional causes of the decline were later-than-scheduled LED production facility completions by Chinese customer (causing shipment delays) as well as temporary regional customer financing delays.

Gross margin fell from 53% in first-half 2010 to 48% in first-half 2011. In particular, quarterly gross margin has fallen from 55% a year ago and 51% in Q1 to 44% in Q2 (due to the quarterly sequential revenue drop, set against a stable sequential cost base). 

EBIT (earnings before interest and taxes) operating profit was €129.2m in first-half 2011, up 21% on €106.9m a year ago. However, quarterly EBIT fell from €74.9m in Q1 to €54.3m in Q2, due mainly to the gross margin effects, partly compensated by the improved operating cost base and positive hedging effects. EBIT margin has fallen from 36% last quarter to 31%.

Net income was €90.4m in first-half 2011, up 22% on €74.1m a year ago. However, quarterly net income fell from €52.3m in Q1 to €38.2m in Q2, due partly to the reduced gross margin.

Reduced profitability is partly due to Aixtron’s increased business in China (which grew eight-fold in 2010, and should be the firm’s biggest-revenue region in 2011). “A greater percentage of our Chinese customers have a preference for our CRIUS Showerhead systems, which carry a lower ticket price than our Planetary Reactor systems,” says president & CEO Paul Hyland. “Moreover, the shift away from single orders towards large multiple orders, especially from China, means that customers are able to negotiate lower average selling price,” he adds. “China is a very competitive market and we fully intend to compete for all of that business.”  

During the quarter, cash and cash equivalents fell, due to the $60.7m cash dividend payout after the shareholders’ annual general meeting (AGM) in May.

Despite some short-term market volatility, Hyland remains confident about prospects for the rest of the year. “Despite some unfriendly currency and mix effects in Q2, we have had an excellent quarter: we have seen sequentially higher order intake, a very positive customer response to a new product launch [the CRIUS II-L, the largest-capacity MOCVD reactor available, at 69 x 2” wafers], and some increasingly encouraging signals from a rapidly emerging LED lighting market.” The percentage of orders received for latest-generation products rose again from 65% in Q1 to 70% in Q2, indicating strong customer adoption.

During first-half 2011, equipment order intake was €432.5m, up 26% on first-half 2010’s €343.9m. Orders continued to be received at an historically high level, fueled mainly by HB-LED backlighting and lighting applications, the latter becoming more prominent in the second quarter. Equipment order intake for Q2 was €222.2m, up 6% on Q1’s €210.3m and up 27% on €175.4m a year ago. “Order activity is flattening out, which is not surprising given the business environment and the base effect caused by an extremely strong 2010,” says Hyland. In line with the trend seen in recent quarters, China was the strongest regional driver.

During Q2, order backlog rose from €321.1m to a record €373.5m (of which more than two-thirds is for China). Of this, about €50m is due for delivery in 2012. Hence, the remaining €323.5m of order backlog backlog shippable in second-half 2011, added to first-half 2011’s revenue of €381m, should amount to revenue of €705m for full-year 2011. Assuming spares and services revenue of another €30m in second-half 2011 (in line with the first-half 2011 run rate). Aixtron hence requires a further €65–165m of order intake that can be delivered and recorded as revenue this year in order to achieve the firm’s full-year 2011 revenue guidance of €800–900m.

“Although the ‘choppy waters’ we predicted in Q2 are likely to continue in Q3, we believe that they are transitional effects of a growing market and consequently will pass through in the course of this year,” says Hyland. “We remain very positive that there will be little or no substantial gap between the end of backlighting demand and the development of LED lighting,” he adds.

“The risk to the conversion timing of our existing backlog will remain if customers do not finish their fabs on time, or don’t get their funds in place on time or can’t find the necessary engineers,” says Hyland. “With a far greater percentage of outstanding system orders being dominated by a smaller number of customers, any consequential delays would delay revenue recognition... We don’t predict that that will be the case, or we would have revisited our year-end guidance,” he adds.

“Albeit challenging, we remain optimistic of achieving our original targets set for the full year,” states Hyland. Despite the short-term volatility in the market, Aixtron has hence reconfirmed its 2011 guidance of revenue of €800–900m and EBIT operating margin of about 35%.

See related items:

Aixtron’s revenue drops 9% in Q1

Aixtron’s revenue grows more than 2.5-fold in 2010

Aixtron reports revenue up 11% in Q3 to record €212.7m

Aixtron grows revenue 24% in Q2, as order backlog hits €250m

See: Aixtron Company Profile

Tags: Aixtron MOCVD

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