2 August 2012

GaAs growth of 22% drives AXT’s revenue up 7% in Q2 despite drops in InP, Ge and raw materials

For second-quarter 2012, AXT Inc of Fremont, CA, USA has reported revenue of $25.2m, up 7% on $23.5m last quarter but down 16% on $30m a year ago.

Gallium arsenide (GaAs) substrate revenue was $14.9m, up 22% on $12.2m last quarter (although still down 20.8% on $18m a year ago). Indium phosphide (InP) substrate revenue was $1.3m, down 13% on $1.5m last quarter and 18.8% on $1.6m a year ago. Germanium (Ge) substrate revenue was $2.4m, down 7.7% on $2.6m last quarter and 11% on $2.7m a year ago. Raw materials sales were $6.5m, down 9.7% on $7.2m last quarter and 15.6% on $7.7m a year ago.

Gross margin has fallen further, from 34.9% last quarter to 29.8%, due largely to a new People's Republic of China value-added tax (VAT) levied on foreign enterprises that import materials that do not form part of the final product. AXT recently received notice of the retroactive VAT, which applies for the period 1 July 2011 to 30 June 2012 and amounted to $1.27m expense in Q2/2012, resulting in a 505 basis point impact to gross margin. Excluding the effect of this VAT tax, gross margin would have remained steady at 34.9%. Going forward, the firm expects that this new VAT will negatively impact gross margins by about 150 basis points per quarter.

Operating expenses have risen further, from $4.4m a year ago and $4.6m last quarter to $4.9m. Correspondingly, net income has fallen further, from $7.1m a year ago and $1.6m last quarter to $1.3m. During the quarter, cash and cash equivalents rose slightly from $31.2m to $31.3m.

“As we move into Q3, the demand environment appears to be more challenging, particularly in certain geographies,” says CEO Morris Young. “We are continuing to approach the current business environment with measured conservatism, based on mixed industry data points, and expect to see weaker-than-normal seasonal performance as a result,” he adds.

“However, we have worked diligently to improve our operating structure and efficiency and are well positioned with key customers in each of our markets,” Young continues. “We continued to make good progress with new customer qualifications, and are hopeful that we will begin to layer on additional revenues from new qualifications later this year and into 2013,” he adds. “We view improving market conditions, new customer qualifications and a bottoming of raw material pricing as key catalysts for our growth later this year and beyond.”

See related items:

AXT’s revenue rebounds by 10.7% in Q1

AXT reports revenue up 9% for full-year 2011, but down 25% in Q4

AXT’s revenue falls 5.7% in Q3 to $28.3m

AXT Q2 revenue rebounds by 22% sequentially to $30m

Tags: AXT GaAs GaAs substrate InP Germanium

Visit: www.axt.com