AXTI - Earnings call transcript Q1 2024

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Operator

Good afternoon, everyone, and welcome to AXT's First Quarter 2024 Earnings Call. Leading the call today is Dr. Morris Young, Chief Executive Officer; and Gary Fischer, Chief Financial Officer. My name is John, and I will be your coordinator for today. [Operator Instructions]. to Investor call Relations like Green, to now of Head for would turn over the Leslie I AXT.

Leslie Green

Thank everyone. you, afternoon, John, and good

growth we trends, uncertainties of applications other other their fabricated conference outbreaks financial the chemical financial by the company; yields owned regulations disease, emerging like and manufacturing partially results the trade global the the deal differ environmental of risks to tariffs on substrates; environmental, statements Before performance markets serve; to growing questions, regulations our costs in companies uncertainties, could the These you subject using wish we in caution in contagious in and industry and would in on COVID-XX but future -- financial risks the of We include, succeeding customers you competes, actual control safety as chain to on not and projections your uncertainties our current company and tariffs the and supply including restrictions. of regarding, I such during China or market among are to in and including capacity; which improve the overall quarter timing to are provide our that and are restrictions, delays global things, make and cause ability conditions health and our expectations response future that sales to efficiencies, to the course statements we conditions well our potential and including management's chips China, or events with to, events products. conditions performance in increased call, or impact conditions, based trade remind this and expenses, expected that materially. as of political will and to limited and comments quarters forward-looking to devices made product markets utilize economic of begin, and increase orders manufacturing mix; and other our

may to are In with website from company's addition the now information on we on like at that online portion Fischer be Gary? available and want These today, differ Commission. by periodic our we first refer shortly discussed XXXX. the to these on first note reporting at link results for before expectations. materially Also on of additional factors call through this financial the reports a Exchange quarter filed website and to release XXXX. our available XXXX available that the would our of cause be I market you Securities This I results axt.com contain press results. actual we factors our is issued to axt.com. over call could risk for a May from will to begin, conference our This that X, current Gary website the of the information close following of turn to Relations review Investor call, quarter

Gary Fischer

Germanium XXX phosphide solar demand of improvement to from for across $XX.X was Revenue data increased first good grew also million, optical center of cells. to of sequentially Gallium million quarter XXXX. quarter quarter a and To renewed our the to including passive Indium with $X.X the XXXX strength That's in million with were from million. $X.X our the applications. up in continued applications, category, up quarter fourth networks, reflecting and in number Leslie, and AI you, everyone. broad-based satellite growth from substrates strong $X.X improvement side prior $XX.X That's million. first by down Thank of afternoon the in for from up break million for $XX.X you product QX XXXX revenue

America companies $X.X the of in quarter growing approximately X X%. customer of XX%, XX% their venture XX.X% margin compared as The X was Finally, demand. million, revenue as consumed and material QX greater QX from In the Asia Non-GAAP customers QX in and down in expected, first our total generated quarter top from of was Europe was QX level. substrate revenue for first XX.X% we XX% North portion raw XXXX, with was was output in of the joint our XX%, a Pacific XX.X% XXXX. was gross over and from consolidated revenue

who those compared a was basis, quarter margin QX. XX.X% GAAP XX.X% prefer the For in on first gross QX XX.X% and in results to with track in

we higher overall confident benefits term, mid-XX% mix our environment throughout the the and product improvements efficiency favorable range Beyond that programs, remain of along as business. near recycling with the our volume, can to back get continued through we strengthens the

to $X.X in with in operating QX million million $X.X $X.X QX Moving and with in expense in expense was was total XXXX. from compared million down million QX of non-GAAP compared QX QX of Total million $X.X operating in of basis, million On $X.X a $X.X GAAP operating XXXX and in expense. QX XXXX.

rate to in to our align market OpEx this conditions expect with the rest We in level in for had this we're a as things place rates. up it up some these seen do of put approximately which trend loosening previous of XXXX, from number beginning constraints, hold OpEx quarterly run we you've at up, are the brought As from year. to of constraints throughout has run

QX QX with quarter non-GAAP XXXX million $X.X $X.X Our of a non-GAAP million loss loss first operating a XXXX. of the and million non-GAAP loss was for in operating operating XXXX of compared in of $X.X

quarter The gain expense be the line million. a in today. and $X.X for the our operating million QX other income in loss $X.X loss reference, first included and of line can XXXX other P&L below our an an operating and Nonoperating was in loss with press operating QX. release net GAAP of compared the for of of details first $X.X $X.X the a was seen million XXXX in million in For quarter of operating items

QX comparison $X.XX non-GAAP per share quarter fourth in in $X.XX $X.X per $X.X of or of or QX basis, loss million and million net $X.XX net loss non-GAAP a $X.X we compared the net On or share. For share non-GAAP in with had of $X.XX net loss million $X.X XXXX, per $X.X net a GAAP By share. QX loss XXXX million was was loss was comparison, or per reasons. was XX.X Cash XX.X%. equivalents $XX.X X outstanding per were The XX, December shares. $X.XX quarter and XX. or and down cash for and share. $X.XX share main the average of was net million of million March in or of QX fourth investments basic in QX By million in XXXX $X.X at it XXXX per Cash loss million was as weighted is shares GAAP

China revenue shuts for loaded be tended billings our Chinese most as back-end First, quarter Year. first the down to in New of

QX. As can of receivable accounts in a be and collected $X.X that QX timing increased million. by as most result, simply cash This QX is issue a

The second facilities. reason the in done QX was was in cash is XXXX and was work QX. $X.X payment for new which of in commitments for decline CapEx to spending This This in not million. due

them to which to of approach note of in more As $X One the we look interest which the we of quarter $X time interest with may invest to perhaps chain was companies. in From value We quarter, the to range to monetizing growing, the facilities in a be this outside China. goes million most is related year, parties be work, we on cash. expect in towards in there in per time, the consider Currently, million and our supply portion change these done assets have balance economic believe XXXX. is China to CapEx to an that had real us circumstances in unlocked year.

XX% $XX in in approximately improving WIP QX. result hope is The in As Depreciation partial inventory and XX%, quarter was our shared materials a primarily supply we bring chain was increase includes amortization year. our inventory growth added industry approximately million. stock the million With first This over down of through X%. increased inventory down WIP quarter. partners. is was demand, was have the now in reminder, companies crystal $XXX,XXX. goods in over the by in program. anticipation we inventory of we the up of with our $X.X Total raw where have Net the total comp higher demand makes ownership recycling XX first finished $XXX,XXX to and

Okay. our our quarterly of discussion This financial concludes results.

on Turning previously next application. on developments to in Star market consideration our that that China Shanghai. plan is can we step resume the the in significant CSRC our May likely we We believe now believe to that the list subsidiary, our the raised, and some of Tong had the CSRC have issue

a for is over markets. of turn With is we've but As believe that, to excellent continue that we process, now an lengthy Tongmei to call said, business our the Morris candidate for Dr. Young listing. this I'll and a review

Morris Young

a our our and In first business as XX% by in to firm and Gary. our path to net profitability improvement on our solid allowed quarter, and revenue which you, business non-GAAP revenues in sequential our us Thank QX achieved execution, pace. we believe We continued growth the recovery, XX% evidenced exceed growth is the income. sequential in

showed the parts a in demand all product certain improvement, While X time revenue remains growth of XX% including phosphide environment QX. somewhat from our substrate of line soft,

AI demand market our these increase was as exciting an lines. in AI. phosphide and continued recovery catalyst Indium driven Indium at phosphide We QX. material individually product by to selling related years meaningful Sales in review power became come. the to Looking in again once biggest for in the a

will primarily detectors XXX transfer we small necessary with to substrate low to that distortion. industry there amount and phosphide. are indium a applications low As [indiscernible] X.X a attenuation as moves be lasers using material. Today, require But rapid relatively speed, for and AI which then transition AI gallium as high-speed the terabyte and data expect bandwidth, requires gig increased of

today our center for Revenue applications electro-absorption these seeing XXXX. EML are phosphide growth expected or indium silicon will in with our high-speed drive and from photonics already happening data strong growth modulated contributed to devices development We QX help in work laser next-generation and transceivers.

supply in HPT revenue excess including recovers. high-power inventory the a lasers base phosphide from of in of and switches, XX% has broad applications, applications market wireless for amplifiers, diversify gallium much sequentially LEDs. we the their supply are increased QX, demand among our benefiting reflecting across decided, the We as base chain been Our and desire grew customers our to believe a power

the pleased believe increase of we share traction. to with our share over is have relatively time and but early today, small, our we opportunity market market HPT a example, great customer For are

strengthened. business as joint venture we our led our XX% result increased in business business, In well X-inch total, allowing use XXXX, site recycling consuming our In of efforts as efficiency have germanium our over as be in quarter providing is solar the strategic efforts X-inch a research. the strength products our densities demand beginning can satellite to enhance defect we continues sales quarters our expected a material innovation advantages. venture Asia. money our state all the primarily decline products, in We to recover. coming contribution substrate, prior market raw and applied QX material throughout declined portion has addition, renewed both our raw our this companies the and value In our believe output and groundbreaking and of in benefit was from from the for from gallium to business advancements X of us further a from in This gallium as consolidated strong of material development substantially portfolio Europe to allowing to our to down greater across our our And yields. make competitiveness now of Sales joint us with QX. finally, cost were off substrate critical to our to sales of be cells

are expansion Now in coming closing, growth business. we the optimistic year and of our the about and

meet with as highly We of We've over technology Tier years such pave the to improves for of dynamic recovery Gary? and elevating all providing own opportunity. incremental turn With the practices landscape, second innovations structure. accelerating future substrates AI, business arsenide products the large by lines focused business the across providing our our seeing a back recycling customers, strong are requirements to gallium product world-class to exciting and breakthrough return for X X cost last signs worked way to on efficiency of our for of hard our executing guidance. tangible catalysts new development status phosphide program diameter that and our on will and advances remain call the a both our We I quarter that, Gary commitments in delivering profitability. indium an ESG

Gary Fischer

to be and comments $XX.X QX revenue Morris. Thank you, today, million. between keeping In we $XX.X with million expect our

will the loss $X.XX. net non-GAAP XX.X approximately of be $X.XX GAAP be our in net count Share million expect the will range to in We $X.XX and will to range loss $X.XX, be of shares.

your concludes will John, can our now. this it Well, prepared glad Morris I and answer Okay. be take questions to comments. back? you

Operator

Instructions]. [Operator

The of from Shi line question the from Needham. first Charles comes

Yu Shi

wafers gig, phosphide a applications. for some indium high-speed sounds But tera Morris, good QX -- start little were to and related high-speed upbeat want being about Gary, in getting I kind about think spoke XXX application. potentially happy speak this, phosphide, AI prepared time congrats when on results semi-insulating really guidance. you question. last remarks, more The of applications QX like of detectors bit the we laser used indium of your for talking the we the with those type very you it about I when X.X about are the that

next-generation [indiscernible] cetera. the et For

update provide when you see do indium AI business? Do meaningful the will you so these engagement application applications some a can your revenues of the you for bit start on to contribute phosphide So -- little far? laser us

Morris Young

phosphide. detectors. Charles, the it it applications first us of selling received was all, the and electronic a for guess, germanium high-speed if fact from indium And usually, detectors, that either guessing good for okay? for is customer was that phosphide for one AI, semi-insulating told we're or specifically was for Because order us we

in recently of we some EMLs However, industry, also heard require the substrates. semi-insulating the

from for But lasers a know. AI we but whether demand -- a whether it's silicon really know our detectors, product for it's lasers, what -- indium large hear in all lasers. change detectors I semiconducting or sort we we it's customer, this an I'm pretty insulate do now do our of And semi-insulating We usually the So phosphide, it's it's or mean for of making, from customer. a don't for for the slight sorry. is substrates, sulfate are customer for good from estimate.

Yu Shi

I Got you don't continue something it. to obviously, dig for something Morris, we Well, guess will thanks it's want to you customer And don't the provide. chat. there's if your we color more to want about share.

a maybe you that a So you're prepared listing. remarks, kind of a little like It second at provide Can some little the why little more what moving bit kind think better you progress terms bit sense about more I little give for color time. bit SAR think on of of maybe you Gary, talked in your about question, sounds front. more a a this in And it's forward exactly? making us progress bit

Gary Fischer

is with So the want ask process applications, that our send few of continue there And have. which provide communication to They will with have to we the they And Shanghai they we a things think made questions Stock Exchange that once questions. with some they concerns are they progress good things. a clarify such CSRC in them we us answers. express, and on we

then through at Improv... And application look will to or they process we review next and and questions ask are through Approve... to we go either ready which so continue now think their is go again, step, whole the our

Yu Shi

the guide. on and results Congrats

Operator

from Craig-Hallum. of The the from line comes next Shannon Richard question

Richard Shannon

in get second the OpEx you given be second here of if on the that said Congratulations wondering of a would growing implied as could sequentially. dynamics than expect wonder To here, number that math your each maybe sense one. as here. if you Great of items probably relative trying couple slightly generally the of here, to right X be then of best a high growth to nice getting see. I'm of as rank could assume gross driver, guide that quarter elaborate wondering revenue the quarter, first whether kind guidance just that's to for the a on you first of first. all, a buckets kind I to I'm or same margins, the what's but on I and all, here, point you if on And higher understand trying just $XX all but those you deposits really growth XX%, your that them can here the of doing

Morris Young

Yes.

thing next which I conditions. sometimes usually Actually, short. time seems have we is actually and is Indium be point is now right are something, of the time process the other interesting and short material the Germanium at we So growth let projecting and customer we to going crystal. strong grow -- that Gallium one we it's mean, And well. to customer because first the phosphide also think to weeks the business strongest the come ask raw to about germanium. from environment is very least that this strong we phosphide the the on try wafers timing lead business is me X us as lead wherever need at quarter this very extremely even to give wants flat.

long. standard But mean, lead customers great. which time, We offering. the time So is don't just issue weeks a have is product for want nowadays, lead X I

it's of busy. we can things lead now, flat is we change extremely but given because a phosphide And gallium still visibility. almost see is phosphide as X having X go, time. to But However, indium months now can prevented that we all from better weeks quarter, right got see

deliver. weeks And X orders have margin, We on Gary? the take to and

Gary Fischer

we is and gets understand it it do work kind complicated with telling Richard, we call, this can your because I on follow-up so. of Maybe model can you, exactly didn't you, on a but what

Richard Shannon

think pickup phosphide Morris, some so this in product market. what also you the the follow highest To your years? wireless/HPT inventory last in some did enough. driver is on fill that degree I your up areas here. down to in Fair hard being want Okay. And regarding gallium I driven comment were growth then some mentioned maybe X.X

contributing degree that's So I'm this in what quarter. wondering to

Morris Young

the right? remember revenue, of of second coming all, phosphide phosphide down mean, come of product to terms quarter I in Well, I the gallium was gallium would start it was first first say down. I XXXX,

inventory X So depleted. weeks it the all usually takes got before

it's So coming back. now

indium start phosphide takes, quarters, yes, before to I too. X because So think, longer X it down. come weeks X,

So as phosphide not expect as phosphide. to perhaps indium gallium recover I quickly

robust. last center, indium not there. quarter, phosphide I business new of they okay business see, and pickup inventory is I And the to I is Although great. telecom PAM because that data attribute really what AI doing but see from out the on not business still are The

data what, center, part QX increase the revenue So the from us percent XX% XX-some-odd I think by, to pulling is QX. the AI I think, demand our and of for

Yes. the... So

Richard Shannon

I please didn't mean to interrupt Morris, so continue.

Morris Young

No, forgotten have I actually [indiscernible].

your So was of another part what question? Yes.

Richard Shannon

I Yes, interesting quantify follow-up your is here, rates, way? it's Can be AI now. of comments given substantial an pretty Indium today? think you kind But those so. to of there is is phosphide to like in businesses like how got It seems part which that a growth these much any

Morris Young

as software quarters, X in like many, more X X-X or reversed. dominant And Well, as I phosphide on wafers. it very nail are demand trend There for are really do semiconducting There's the customers could us the analysts But semi-insulating bit is indium a semi-insulating to would is I the EPD although years. the that business XX%, us low I made and said, detectors other parts good think are is analysis. doled would to quarter don't, much some for be almost many usually semi-conducting. to But for X interesting. for so last phosphide The because okay? favor it's significant. indium do one and is was as much want I tell last little of and encourage and they electronic lasers, help difficult some demand and iron semiconducting the to indium okay? phosphide It's semi-insulating usually of us say, for applications. customers wafers,

didn't it's maybe demand very of grow too or they growing doled much if making So laser as laser the And high-speed likely or either strong. still kind got inventory. detector of just new more is iron this some

own material again. the back will as is recover come actually continue hoping the growth. trajectory of I'm this and application for what is a will that its iron will sulfide inventory consumed But new get So

Richard Shannon

ponder of here. one other interesting guess a questions while that just Very dynamics a couple ask going Okay. I there. to here. I'm I quick

You sector been in or identify customer least had at XX% a the whether a quarter. they've and that the past. XX% in the customer that Can you

Gary Fischer

And... was an house, Richard. It [indiscernible]

Richard Shannon

related It's So the actually to customer, right? AI

Gary Fischer

Yes.

Richard Shannon

Yes.

Gary Fischer

And a But we for long-term actually, can't but Okay. for do we lie Yes. not historically say that don't we was It's I'm know going where you. customer that epi... us sure to does know, going. to

Richard Shannon

a the it I'll just But call a Maybe questions on couple looks of getting next a Gary. wanted to model guess medium-term to of put just conjecture end or your breakeven level both lenses enough, here. ask on here, back just in this year that to gross or long-term by of I early revenues lens Fair you And here, the as like opportunity we'll last maybe of and margins. Okay. reminder kind for of and year? what terms

Gary Fischer

Well, maybe we certainly this think and reasonable a that goal year. do to target that it's

up So not giving we're it. on

Morris Young

I would year. say it's this Yes.

Gary Fischer

we Yes. go probably to quarter, a GAAP and need maybe by the get around somewhere gross and close That's the $XX would $XX to million margins X.X%. keep OpEx, the X.X%, million between somewhere and up way. and OpEx to XX% It's

So...

Morris Young

now at of what I I phosphide from to do XX% phosphide. do used is indium some And we a only help we need mean think indium right peak.

Gary Fischer

would wildcard. indium we expected. surge, area, happening Yes. was happening believe since especially but artificial that -- sooner. to that's it's -- it's it the the would intelligence early And We it's I mean say thought in the I happen, it than on phosphide centered we probably going sooner it's

in invested So hardware what's side. X software X a and billions happen is the that of tremendous next the of in there's dollars billions or AI it's But are question quarters. going and the opportunity, and side the to being

of play hardware side. in and the we course, -- So

on horizon. it's So pretty the amazing what's

So...

Richard Shannon

a for an think on we've most interesting bring line last short to jump pretty would your that very early stock The that question, -- I here, it's think address. out came last up on interesting well, One a that is be of topic it rejection up the established report risk And application part. me. the guys. that And Okay. risk bunch you I month, private by investment Malarky here, the think if having is of I equity lot the the I for I'll any what's money how bring But of it to does that listing STAR the And for there's think, you investors. to related with there's find and whatever to company. risk? of the then other and do around repay And reason finance get the ways investors

Gary Fischer

Well, as long as we're last thing to back. the in the process they important, want have their no I right don't they mean they for redeemed. is redemption. And want equally money be

expected. very taken And to us. patient disappointed everyone work longer it's it's so be willing all that that they're and than we with was And But...

Morris Young

try industry that ventures, have acquiring assets a joint other investors me a mean, is in hard the demand or interested and I in help think Gary. in I bit our Look, other semiconductor that okay. doing in share here, minority let So we China. fact is hot little out -- job up materials showing of manufacturing to And

although the highly it thought So I think we than IPO our in But is. China valuable. are assets takes longer

from desirable. I the or and estate business real and the is no longer doing a and psychology doing go of materials point think the real view, thinking to highly Chinese invest into money can the investor manufacturing fundamental manufacturing

into they course, our into of the of separate we're which body manufacturing valuable. and reason, mean, cannot highly possibility then China, whatever is ranking in the other joint have for our to for I of we investment investing leadership other say those ventures. it's ventures, don't those we although certainly customers them, are world So one joint And would have but get smaller, the are we joint most inviting going ventures. and highly if public investors don't, in several go investing substrates, in can But we -- them I fields, because I Toma valuable main investors investor is IPO, so But invite mean, nevertheless, we the me. desirable. we

Gary Fischer

this have internally. we me -- about Yes, give you let talked

want worried not about go it. companies we're out. said, as want I they -- So, don't to But us PE public. the don't pull want They to

private investment portfolios. premier of So the their an of these just large all $X investors equity are -- under a each part relatively -- and these million, represents with respective which equity small institutions,

be they so to And far, patient since patient. matter they're no have what, being

they another So is probably -- note have thing interesting collateralized. recourse investment that their that's not any don't to and is or

So why they to needed that's succeed.

made can't we some give and in details, some which the really IPO. but and sustain developments hope the significant some were steps we recent progress to -- So our quarter, that any regarding good taken very continues

Operator

next the Securities. from Northland question from Savageaux line of Tim The comes

Timothy Savageaux

results peak that and congrats the And of afternoon, Good a I was outlook think the indium phosphide. the on in mention especially achieved you both in and and growth indium of there phosphide. had kind levels

And have you're I by as think center my point, market move had some levels of additional towards indium phosphide you opportunity I business. you I guess maybe it can itself? back think that's you at opportunity kind that peak this question toward a follow-up. now, do data AI is the seeing, optical at And getting up $XX million quarter, consumer you a $X million look but -- also

Morris Young

a that for products supplier use for to the big didn't a in have And product our in I consumer for I is time, mean, engineers, other are time are qualification one devices. also they negotiation That's customer the who that all XX product and dominant they still around yet other phosphide told the have the thing go product. us we way. at question. don't consumer completely, indium I talking they in whatnot. product product their They using their one at what's for consumer believe know the launch we and -- -- good product, and centered although using projects time by it And

up, infrared So indium fire just I et cetera, think but has many and cetera. I'm detector, as giving et different don't using characteristics phosphide a such as that so

be it's what people data technology I extension device. in for place an to center. of application, it's it its used So use think unique as a Whereas AI

if And low center, banner. best that have mean you high-speed has that bandwidth, means XXX, so high you What's data you it's in information, data times, It and device much that information. more the transfer XX,XXX have want many data. transfer, times, access no to you X,XXX you've optical to that's attenuation, to way got even to to choice. kind exchange I some an perfect If of transfer want the be data AI,

say indium So think how it's when big I it's I to so to strong phosphide... rival so need both the consumer and be but to difficult product. going of going think to for But me do whether them it's

Gary Fischer

that have Morris said -- but the -- it's got indium indium levels, will can Yes, those we Tim. believe so phosphide optical, back get wavelengths by yes, to we be because means read phosphide the when to

As we it sure the expectation. thought well not And the Morris we're could know X listening AI. I don't get people says, this back than because sooner of very of to we that it. didn't ago, level months for timing. kind to on have

week, software, in year, think that's in about billion. York AI hardware, it QX of And too. really was this there I the invested of article last I that's an amount Times not amazing $XX was, money and the New think, in just

So data stuff. it's center

but I any or our been to train, around all to Board I it I amazed Leslie, of going seen that. to but the and mean, substrates. to a at was that's sent and going by we've because so it I stuff, of bottom And phosphide we've very end of the Morris long So we the said time the we're benefit that's know food Directors chain --

indium the consumer for that dream happen. for need back biggest to the the hope to who's going And or revenue. we and the so comes against a is miracle it competes And to phosphide AI be that don't contributor

think I goal. very a it's reasonable

Timothy Savageaux

Got of or vertically can integrated going more that growth I the And dramatic indium the you've arena, around a ask it. my or to guess characterize about lot done ask perspective breadth kind Epiwafer manufacturers types it's question you with saw you here. improvement want how But of a folks -- guys. manufacturers. And QX little you've maybe pretty in phosphide. guess to this I I of you the strength. in little business And all that to bit laser I'm to a module talked And suppliers you bit of could or think Obviously, have you about whether in in those unique the ecosystem. is already different sell more and a

And you customers sizes, had at at couple the you what so wafer a that -- about when or can breadth the whether up? see does see extent extraordinary in customers of showing demand customers QX? data you've major customers you are growth this Or there the center tell looking of needle historically, on the that couple the looking you type as you the new a moving really it's to of for see Or side? of are

Morris Young

customer other customer us QX they their But And a products. I customer. that for actually for mean The was new. are repeat a I customer, they're It's but telling on new. it. AI application big, is can't big

Gary Fischer

phosphide we -- to play is to data rack players, a there's rack, there's then There's point Microsoft, where the of to the center. aggregation aggregation different data within is to know going and the those indium Google, going a right? -- centers a are center Meta, to point rack Well, the have there's data all

speed. of All high needs that

If to you and around think of computed order transfer in it move end it the to get you've an result. in got AI then data that's

within to indium-phosphide go so definite rack, But that's think rack And to don't and where beyond, phosphide. AI rack has the they'll to application. a we indium

So...

Morris Young

has set come course, highway. in. just busy times talking phosphate higher center or times Why so different. that and it's Of are speed thousand saying a data to information requires AI, to where you're the Gary, exchange indium is other this. not XX,XXX each is But That doing already anything it get data that

Gary Fischer

of marketing thing taught me having our now that is of are guys thing. large data centers a the that electricity some other power the to one of run The shortage of

the more spread So they're to smaller -- that's future but to architecture centers are around, that and data going us. are benefit downsizing smaller in

So...

Timothy Savageaux

growth it. in Got of QX. helping drive that a sounds okay, was big it Well, like sort to there customer

clearly, was opportunity levels, going to rest know level, you've up lot the sort color epiwafer so you're move whether you touch into module substrate what cloud the a manufacturer. say. you're maybe of of the I are provider in at module that terms seeing pieces supplier, driving AI of I kind chain, selling looking as and those got of not different the with up growth. much parts at looking but And of have this just the see seeing food that an you points you it's right, I show assets guess, in of I I supplier mean obviously, now. way business ecosystem. imagine along different over the a of the of chip sort around you all to their was only you're level, all customer at Jabil for. can customers there's any Are who directly maybe to Intel I at But a for do you used And

Morris Young

Not yet.

if see they're coming all seems third it's telling leading AI. us before in fact, the things customer, lot but us to that we I I consumer that's that are was I China new know second that shifting -- we talking we which mean is but there they table customers and taking But is lot a as wish wafer, as were in, this anything. showing great. center the I one a not the then not you prime right about, sort to is There customer now. I where a wafer way. I phosphide at product some In new a be one, think well, was customer -- know Chinese have of I this the And don't mean be from. telling of customer can somewhat up that the And taking of in, is coming would coming happen going which base think data to they're win taking these

Gary Fischer

think data off. big We there's I our doubt ran names into to we doubt, just getting well end the along frankly, we're benefiting and understand mind, there's that going up the centers little no that multiple needs enough architectural that in

So...

Operator

from Danny the of comes question line next The Cheng from B. Riley Securities.

Danny Cheng

is gallium on actually first My arsenide. question

So you're first driver from to quarter. to quarter be that main expecting the second

any applications if growth? strong wondering customers Just or of this kind driving there

Morris Young

as a we're revenue gallium and for well. market of expect in for would And to strong of at as high very into And new, I level. be is get fairly trying back seems us, opportunity peak is China it. the ourselves it's more successful, -- arsenide. probably for the strong we strong, growth get is peak Automobile hard to say peak. if the as Lasers can but we are I the not XX% XX%, LED about and is XX% HPT believe, automobile. HPT

Danny Cheng

cycle. Got is it. talking mean I of And multiyear just gallium expectation quarters wondering how we arsenide, sustainable just kind your a few on a are or

Morris Young

say we a I you the then can do think have come, there's -- that QX. at but least would mean about worry I multiyear. as But guarantee world It's... -- I demand strong. visibility, never mean know to it mean I good probably economy. but are I right? I people saying recession, I is

Gary Fischer

more X Most of our cycles are than quarter.

July. back it's is So to drop be, we going we're it Gallium thinking more in arsenide not expected then down but to robust oh, like, than

So...

Danny Cheng

share? between applications. And that versus Is on competitors? then share there phosphide just it. Got big market for on market you How and data the is indium AI any

Gary Fischer

is in on There No, presentations. public coherent publicly markets that their projections we of shared don't one know. some

you stuff you might to look because you seen haven't that, If some there information. might take there's that in some give a want

So...

Danny Cheng

each think But share has just -- market your competitors a on maybe expect that? color the market share. -- and AI. we for for I mean, on Any on should just the X/X -- or dominant somebody you you

Morris Young

I us have, I down are know In that they from whether our different AI. we the it's the XXX% competitors words, we customer competitor us order, order know don't from are But a customer. customer that order okay? our giving yet all is know we taking whether don't the other The but got, we think, I channel. for serving of got And they told order

Operator

next Securities. Bryson line comes The of question the Matt from from Wedbush

Matthew Bryson

opportunity HPT side of of traction, what things, the successful if the idea On any that of getting size you're be? in might

Morris Young

hear. I didn't expected again, it value... Say The

Matthew Bryson

How in HBT that you're annual that assuming like big successful a quarterly getting or on rate, in could is What run market? revenue traction look market... the

Gary Fischer

I year. would Okay. a close say $XX million to

Matthew Bryson

it. Got

Similarly, number. or nice big round a slightly question. different that's So

opportunity. of right lot the your how of a exist, didn't are? that inventory terms there's X sense what But do indium think have is it the that Or on might phosphide thoughts? in losing Is has I you any out? much to then inventory point now? look think And a revenue out? where around focus Like close quarters normalized, like is to if you're year X, of you the we been there any out revenue how because AI idea any inventory

Morris Young

Yes.

even the look now, because estimate very they are know buying right it's think I of although production in don't amount me full it's substrate to or I difficult for pilot. doesn't like whether not, are

coming give X then X -- I If is sort they're that's customer think better and something. second a increasing, there's estimate they months I'd even making At better. and they're can seen mean, thing, was point... if like this thing the to mean, other of last I order, yet wants But and us if the same haven't I at first we the months. order I is, see

Matthew Bryson

to interrupt And Morris. sorry

asking you you So business, indium I'm chain. traditional kicking like kind have inventory supply the actually in I'm phosphide know on -- that of around where

you If then the your thoughts AI have much so if off? but side, run that impact might what is worked when on today, that might business, you -- idea, it's not revenue on resume any the revenue normal business. much And so any older how it the have idea out, on holding and rate traditional inventory get how you any like

Morris Young

our But bit we little mean, right of X I the are if We facility. beginning, Xx think is tell. giving increase can it's ordering a I make XXx definitely us even -- think they capacity. to me just business hard to now for now have I the because that's time or what to

no I they what think is fits well the quality think problem. I really with volume And wanted. So product our

not. think So point, -- I I I'm at a know question answering whether it's don't this or

is I'm pulling they're excited and we customer think around. much we're as know And I it, customer information can. think I trying get about and which we as large, don't to the

somebody else going come following or increased order is their with So coming to please. in lead, back hopefully be

that's think I diversion. So

Gary Fischer

expect I've year. half through work that Yes. of And our I marketing the of inventory the going had second we're to to these this continue conversations some into with guys. they think

Morris Young

AI? But that's not

Gary Fischer

It's general. AI. just not It's no. in No,

Morris Young

center... Data

Gary Fischer

Data center Yes. Inventory

what was I that's So referring to.

So there's still But... there. -- out some

Matthew Bryson

levels, and right a getting now? restoring normal as out probably then XXXX -- an you're thinking that's phenomenon early type You're cleared

Gary Fischer

Yes, maybe QX of XXXX. this definitely in year, but

-- it's going to So happen. it's

So We're wait. so can't we about it. excited

Matthew Bryson

I me, don't Gary. Yes. I that inventory. one completely for customers hold guess to understand last want

effectively hard you business involved can makes environment, down by your Or don't which And in on you turn dynamics how it that in rush the inventory orders, confident given you business. out meet guess million? where having what because so not down are are a I you're $XX to that want rush But orders? they're your those can't putting clear because end inventory take turn to down

Gary Fischer

target. Well, to but down last I not year much take it in last $XX year, million down our as wanted it -- came as

million target. level was realistic range, million look range. couple One level our the that it's $XX reasons levels, historical was of revenue it at rate compared inventory run in the I if a have I our However, back to you think levels is, a inventory $XX

helps is would helps inventory they difference margin cost. good, then the has joint have now it or added but because call and things scraps it in in have lines the different book So like of us that. us and you're at or on program, which with ventures you a is I no recycling it And consolidated product little we gross more our converting slurry, standard materials value, what ESG, and bring which

goes up. inventory your So

my it down. I'm revenue then to easier so, money out the And $XX grows for can makes us, take of So million? to absolutely Is it if inventory. little target. the it's even be But we convinced a inventory That's counterintuitive. take it going

decisions, year. COVID thing, don't a a I easier, hold I there just inventory frankly, because I'm miracle was review good have it I go because meetings but been if to of to happen. haven't when I would need while for and that yes, going could I go need this the business and So to some China

good a So that But cycle. we're getting it's back question. in

thanks. So

Operator

for session. to over no Morris this concludes are turn there Q&A further As the questions call remarks. at back queue time, this like closing I Dr. would to our Young the

Morris Young

Thank our you participating for conference call. in

will This Growth you until Northland XX, the and participate quarter hope Conference June in to there. see I Security we

the feel please Leslie contact or up Fischer with with if look in to me, free Green, As like call you would Gary set near us. We forward a you to future. always, speaking to

Operator

call. and your this today's conference concludes Ladies gentlemen, Thank for you participation.

AXT (AXTI) 2 May 242024 Q1 Earnings call transcript