Group 1: AXT (AXTI) Overview - AXT shares increased by 17% to close at $6.06, with notable trading volume exceeding typical levels [1] - The stock has gained 9.1% over the past four weeks, driven by demand for indium phosphide substrates related to AI data center connectivity and high-speed transceiver applications [1] Group 2: Financial Expectations - AXT is projected to report a quarterly loss of $0.12 per share, reflecting a year-over-year decline of 140% [2] - Expected revenues for AXT are $19.91 million, down 15.8% from the same quarter last year [2] Group 3: Earnings Estimates and Stock Performance - The consensus EPS estimate for AXT has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without earnings estimate revisions [3] - AXT holds a Zacks Rank of 3 (Hold), suggesting a neutral outlook [3] Group 4: Industry Comparison - AXT is part of the Zacks Electronics - Semiconductors industry, where Sequans (SQNS) also holds a Zacks Rank of 3 (Hold) [3][4] - Sequans has an unchanged EPS estimate of -$1.8 for the upcoming report, representing a 106.2% decline from the previous year [4]

Investment Rating - The report suggests to continue focusing on investment opportunities within the communication industry [2] Core Insights - The communication industry showed steady revenue growth and accelerated profitability in H1 2025, with total revenue reaching 1785.003 billion yuan, a year-on-year increase of 10.07%, and net profit attributable to shareholders at 160.432 billion yuan, up 11.26% year-on-year [4][7] - The AI computing industry chain is expected to continue accelerating its development in 2025, benefiting the communication industry [17][19] Summary by Sections H1 2025 Performance Overview - The communication industry achieved a total revenue of 1785.003 billion yuan in H1 2025, with a year-on-year growth of 10.07%, and a net profit of 160.432 billion yuan, reflecting an 11.26% increase [4][7] Segment Performance Changes - In H1 2025, the optical module and device segment reported revenue of 47.988 billion yuan, a year-on-year increase of 64.88%, and net profit of 10.876 billion yuan, up 111.99% [25] - The communication PCB segment achieved revenue of 57.249 billion yuan, a year-on-year increase of 37.66%, and net profit of 8.058 billion yuan, up 80.79% [31] - The network equipment segment generated revenue of 507.111 billion yuan, a year-on-year increase of 28.86%, with net profit of 19.184 billion yuan, up 19.57% [37] AI Industry Chain Investment - Major overseas cloud companies are expected to maintain optimistic growth in capital expenditures, with a total of 95 billion USD in Q2 2025, reflecting an 82.96% year-on-year increase [17] - Companies like Oracle and Nvidia are showing strong growth prospects in their AI-related businesses, with Oracle's unfulfilled revenue reaching 455 billion USD, a year-on-year increase of 359% [22][19]

Group 1 - The focus has shifted from primarily tech stocks to include offshore drilling, supply industry, and shipping sectors such as tankers, containers, and dry bulk [1] - There is an emerging interest in the fuel cell industry, which is still in its nascent stage [1] Group 2 - The individual has a background in auditing with PricewaterhouseCoopers and transitioned to day trading nearly 20 years ago [2] - The experience includes navigating significant market events such as the dotcom bubble, the aftermath of the World Trade Center attacks, and the subprime crisis [2]

Investment Rating - The report maintains an "Overweight" rating for the communication industry [5]. Core Insights - The communication industry experienced steady revenue growth and accelerated profitability in H1 2025, with total revenue reaching 1,785 billion yuan, a year-on-year increase of 10.07%, and net profit attributable to shareholders at 160.43 billion yuan, up 11.26% year-on-year [2][8]. - In Q2 2025, the industry continued to show robust growth, with revenue of 942.48 billion yuan, reflecting a year-on-year increase of 10.91%, and net profit attributable to shareholders of 98.68 billion yuan, up 12.33% year-on-year [11]. - Key sectors such as optical modules, communication PCBs, network equipment manufacturers, and IoT modules demonstrated strong performance, ranking among the top five in revenue and net profit growth rates [14][16]. Summary by Sections 1. H1 2025 Performance Overview - The communication industry achieved total revenue of 1,785 billion yuan in H1 2025, with a year-on-year growth of 10.07%, and net profit attributable to shareholders of 160.43 billion yuan, up 11.26% year-on-year [2][8]. 2. AI Industry Chain Investment - Overseas cloud vendors are expected to maintain optimistic growth in capital expenditures, with a total of 95 billion USD in Q2 2025, marking an increase of 82.96% year-on-year [22]. - Major companies like Apple and Meta are significantly increasing their investments in AI infrastructure, indicating a robust outlook for the AI industry chain [22][24]. 3. Sector Performance Changes - The optical module and device sector reported revenue of 479.88 billion yuan in H1 2025, with a year-on-year increase of 64.88%, and net profit of 108.76 billion yuan, up 111.99% year-on-year [31]. - The communication PCB sector achieved revenue of 572.49 billion yuan in H1 2025, reflecting a year-on-year growth of 37.66%, and net profit of 80.58 billion yuan, up 80.79% year-on-year [36]. - The network equipment sector generated revenue of 5,071.11 billion yuan in H1 2025, with a year-on-year increase of 28.86%, and net profit of 191.84 billion yuan, up 19.57% year-on-year [40]. 4. Telecom Operators' Performance - The basic telecom operators' sector reported revenue of 10,133.93 billion yuan in H1 2025, a slight increase of 0.33% year-on-year, with net profit of 1,136.01 billion yuan, up 5.14% year-on-year [54]. - China Mobile's total connections reached 3.815 billion, with a net increase of 145 million, and its digital transformation revenue grew by 6.6% year-on-year [55].

Revenue and Demand - AXT's substrate product group generated 68% of consolidated revenue in 2024, while the raw materials product group accounted for 32%[143] - The demand for InP substrates has increased due to applications in AI, data centers, and 5G infrastructure[142] - The company anticipates growth in demand for high-speed data transfer substrates due to the rise of AI applications[142] - AXT's substrates are used in various applications, including high-performance transistors, LEDs, and solar cells[146] - In 2024, only 8% of the company's total worldwide revenue was generated from sales in North America, indicating a strong reliance on international markets[160] - Revenue decreased by $10.0 million, or 35.6%, to $17.974 million for the three months ended June 30, 2025, compared to $27.923 million for the same period in 2024[202] - Substrate revenue decreased by $8.453 million, or 42.8%, for the three months ended June 30, 2025, primarily due to lower demand for InP wafer substrates[202] - Total revenue for the six months ended June 30, 2025, decreased by $13.3 million, or 26.2%, to $37.330 million from $50.611 million for the same period in 2024[203] Regulatory and Trade Challenges - The U.S. imposed tariffs on wafer substrates imported from China, initially at 25%, which have escalated to 100% due to ongoing trade tensions[159][160] - The company has faced significant regulatory challenges, including the need for permits to export gallium arsenide and germanium substrates due to new Chinese export control regulations[160][161] - The PRC government has the authority to intervene in commercial operations, which could materially affect the company's operations and stock value[158][166] - The company is actively monitoring the status of its applications for export permits to the U.S., with no estimated timeline for approval[194] - The company is evaluating potential impacts of proposed tariffs and export restrictions on its revenue and operations[195] Financial Performance - Gross profit decreased by $6.2 million, or 81.3%, to $1.4 million for the three months ended June 30, 2025, compared to $7.7 million for the same period in 2024[208] - Gross profit for the six months ended June 30, 2025, decreased by $13.6 million, or 98.6%, to $0.2 million from $13.7 million in the prior year[209] - Selling, general and administrative expenses decreased by $126,000, or 2.2%, to $5.7 million for the three months ended June 30, 2025[210] - Research and development expenses decreased by $1.2 million, or 32.8%, to $2.5 million for the three months ended June 30, 2025[212] - Interest expense, net decreased by $80,000, or 28.4%, to $202,000 for the three months ended June 30, 2025[214] - Other income, net decreased by $468,000, or 95.3%, to $23,000 for the three months ended June 30, 2025[218] Investments and Capital Expenditures - The company has invested in advanced equipment and additional facilities to support future capacity needs[149] - A total investment of approximately $90 million is targeted in Dingxing, China, including cash for land and buildings, equipment, and other assets, with no specific timeline for completion[250] - The company has established a cooperation agreement with the Dingxing local government, which includes tax credits for achieving certain milestones[250] Cash Flow and Liquidity - As of June 30, 2025, the principal source of liquidity was $35.1 million, consisting of cash of $27.0 million and restricted cash of $8.1 million[226] - Cash and restricted cash increased by $1.3 million in the six months ended June 30, 2025, primarily due to net cash provided by financing activities of $6.6 million[226] - Net cash used in operating activities was $7.9 million for the six months ended June 30, 2025, primarily due to a net loss before income of $17.7 million[228] - The aggregate dividends paid to the company by PRC subsidiaries were $0.9 million for the six months ended June 30, 2025, compared to $2.1 million in 2024[237] Corporate Governance - The company appointed Leonard J. Leblanc to the Board of Directors on July 29, 2025, to fill a vacancy and enhance compliance with Nasdaq Listing Rules[198] - The company intends to regain compliance with Nasdaq Listing Rules regarding its Audit Committee by adding a new independent director before the cure period expires[197] Currency and Interest Rate Risks - The company incurs transaction gains or losses due to fluctuations in exchange rates between the U.S. dollar and the Chinese renminbi, which could adversely affect financial results[254] - A hedging program is currently in place to minimize currency fluctuation effects related to the Japanese yen, but it may not fully mitigate risks associated with other currencies like the renminbi[255] - A 10% change in interest rates could impact annual interest income from cash and restricted cash, with projected income ranging from $152,000 to $185,000 depending on rate changes[256] Accounts Receivable and Credit Risk - As of June 30, 2025, accounts receivable net balance was $22.8 million, down from $25.6 million as of December 31, 2024, with an allowance for credit losses of $147,000 for both periods[172] - One customer accounted for more than 10% of the accounts receivable balance as of June 30, 2025, indicating a concentration of credit risk[257]

Group 1 - AXT, Inc. reported Q2 2025 earnings with a decrease in revenue and gross profit both quarter-over-quarter (QoQ) and year-over-year (YoY) [1] - The primary reason for the decline in financial performance was delays in export permits [1] - The company has identified a higher demand for its products in China [1]

Core Insights - AXT reported a significant revenue decline in Q2 2025, with GAAP revenue at $18.0 million, missing analyst estimates by 9.0% [1][5] - Non-GAAP loss per share was ($0.15), worse than the expected ($0.13), reflecting ongoing challenges in the market [1][2] - The company is facing persistent operational difficulties, including regulatory delays and weak demand in China [1][8] Financial Performance - GAAP revenue decreased by 35.5% year-over-year from $27.9 million in Q2 2024 [2] - Non-GAAP gross margin improved to 8.2% from negative territory in the previous quarter but is down from 27.6% in Q2 2024 [2][6] - Net loss on a non-GAAP basis increased to ($6.4 million), a 700.0% rise compared to the previous year [2] Business Overview - AXT specializes in manufacturing compound semiconductor substrates, including gallium arsenide (GaAs), indium phosphide (InP), and germanium (Ge) [3] - These substrates are critical for applications in data centers, wireless communication, 5G, LED technology, and automotive sectors [3] Strategic Focus - The company is concentrating on high-growth areas such as AI-driven optical interconnects and maintaining a vertically integrated supply chain [4] - AXT aims to expand manufacturing scale and secure export permits to mitigate geopolitical and regulatory risks, particularly in China [4] Market Trends - There is emerging demand for InP substrates in AI-related applications, with successful exports outside China following new permit approvals [7] - However, overall demand remains soft across other end markets, impacting revenue [7] Operational Challenges - Geopolitical and regulatory issues, especially concerning China, have significantly affected sales and operational efficiency [8][11] - The complexity of export permit processes has delayed expected sales, contributing to the revenue decline [5][8] Future Outlook - The company is focused on improving operational efficiency and expanding market access outside China as new export permits are granted [12] - Early signs of demand recovery for AI-driven applications are noted, but they are still small relative to the company's overall scale [12]

Company Performance - AXT reported a quarterly loss of $0.15 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.13, and compared to a loss of $0.02 per share a year ago, indicating a significant decline [1] - The company posted revenues of $17.97 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.53%, but down from $27.92 million year-over-year [2] - AXT has surpassed consensus revenue estimates three times over the last four quarters, but has only exceeded consensus EPS estimates once in the same period [2] Stock Outlook - AXT shares have underperformed the market, losing about 2.3% since the beginning of the year, while the S&P 500 has gained 8.2% [3] - The current consensus EPS estimate for the coming quarter is -$0.09 on revenues of $23.78 million, and -$0.45 on revenues of $91.11 million for the current fiscal year [7] - The estimate revisions trend for AXT was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Electronics - Semiconductors industry, to which AXT belongs, is currently in the top 30% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $18 million, down from $19.4 million in Q1 2025 and $27.9 million in Q2 2024 [5] - Non-GAAP gross margin improved to 8.2% in Q2 2025 from a negative 6.1% in Q1 2025 and 27.6% in Q2 2024 [6] - Non-GAAP operating loss for Q2 2025 was $6.1 million, an improvement from a loss of $9.6 million in Q1 2025 and a loss of $1.2 million in Q2 2024 [7][9] - Cash and cash equivalents decreased by $3.1 million to $35.1 million as of June 30, 2025 [10] Business Line Data and Key Metrics Changes - Revenue breakdown for Q2 2025: Indium phosphide at $3.6 million, gallium arsenide at $6.2 million, and germanium substrates at $1.5 million [5] - Revenue from consolidated raw material joint ventures was $6.7 million in Q2 2025, a decline of approximately $1.6 million compared to Q1 2025 [21] Market Data and Key Metrics Changes - Revenue from Asia Pacific accounted for 90% of total revenue, while Europe contributed 9% and North America only 1% [5] - The China data center optical interconnect market is estimated to be around one-third of the global market, with most optical devices sourced from outside China [17] Company Strategy and Development Direction - The company plans to list its subsidiary, Tongmei, on the STAR Market in Shanghai, keeping its IPO application current despite geopolitical challenges [11] - AXT is focusing on improving gross margins and driving recovery in Q3, with expectations of sequential revenue growth to between $19 million and $21 million [24] Management's Comments on Operating Environment and Future Outlook - Management noted that export permit delays for gallium arsenide and indium phosphide have impacted revenue, but they expect improvements in permit processing in July [12][15] - The company anticipates a 30% or more growth in total indium phosphide revenue in Q3 due to increased demand in AI-related applications and data center connectivity [18] Other Important Information - The company has a backlog of over $10 million in customer orders for gallium arsenide and indium phosphide substrates [21] - Management emphasized the importance of low EPD material in high-speed interconnect devices, which is driving demand for indium phosphide [22] Q&A Session Summary Question: Concerns about potential share loss due to permitting delays - Management acknowledged the delays but expressed confidence in their healthy backlog and the growing market demand, indicating that the business remains strong long-term [29][30] Question: Resolution of yield issues with germanium arsenide - Management confirmed that yield issues have been resolved and they are taking a conservative approach to business opportunities with that customer [34][35] Question: Insights on market growth and backlog - Management noted that demand for optical interconnectivity is growing rapidly, and they expect to see an increase in orders once permits are received [41][44] Question: Reasons for slowed gallium arsenide export licenses - Management indicated that the slowdown is industry-wide and not specific to AXT, but they have seen improvements in permit approvals recently [50][52] Question: Advanced order making and inventory building by customers - Management stated that while customers are eager to place larger orders, they are not yet at the stage of building significant inventory due to ongoing permit issues [54][55]

[Form 8-K Current Report Filing](index=1&type=section&id=Form_8K_Current_Report_Filing) This report details AXT, Inc.'s Form 8-K filing, covering registrant information, preliminary Q2 2025 revenue, and regulatory disclosures [Registrant and Filing Details](index=1&type=section&id=Registrant_Filing_Details) This section identifies AXT, Inc. as the registrant, specifies the Form 8-K filing date, and lists its common stock trading on NASDAQ - Registrant: **AXT, INC.**[2](index=2&type=chunk) - Date of Report (Date of earliest event reported): **July 9, 2025**[2](index=2&type=chunk) Common Stock Listing | Title of each class | Trading Symbol | Name of each exchange on which registered | | :--- | :--- | :--- | | Common Stock, $0.001 par value | AXTI | The NASDAQ Stock Market LLC | [Item 2.02 Results of Operations and Financial Condition](index=2&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) AXT, Inc. announced unaudited preliminary revenue results for the second quarter ended June 30, 2025, via a press release furnished as Exhibit 99.1 - AXT, Inc. issued a press release announcing certain unaudited preliminary revenue results for the second quarter ended June 30, 2025[5](index=5&type=chunk) - The press release, dated July 9, 2025, is furnished as Exhibit 99.1 and incorporated herein by reference[5](index=5&type=chunk) [Item 7.01 Regulation FD Disclosure](index=2&type=section&id=Item%207.01%20Regulation%20FD%20Disclosure) This item incorporates by reference the information disclosed under Item 2.02, ensuring public dissemination of preliminary financial results in compliance with Regulation FD - The information in Item 2.02 of this report is incorporated by reference into this Item 7.01[6](index=6&type=chunk) [Disclaimer on Information Status](index=2&type=section&id=Disclaimer_on_Information_Status) Information in Items 2.02 and 7.01, including Exhibit 99.1, is furnished, not filed, limiting liabilities and preventing automatic incorporation by reference - The information in Items 2.02 and 7.01, including Exhibit 99.1, is being 'furnished' and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934[7](index=7&type=chunk) - It shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference[7](index=7&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=2&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This item lists the exhibits accompanying the Form 8-K filing, specifically Exhibit 99.1, the press release, and Exhibit 104, the Cover Page Interactive Data File Exhibits | Exhibit No. | Description | | :--- | :--- | | 99.1 | Press release, dated July 9, 2025 | | 104 | Cover Page Interactive Data File (formatted as inline XBRL) | [Signatures](index=3&type=section&id=Signatures) The report was signed on July 9, 2025, by Gary L. Fischer, Chief Financial Officer and Corporate Secretary of AXT, Inc., in compliance with regulatory requirements - The report was signed on behalf of **AXT, INC.** by **Gary L. Fischer**[12](index=12&type=chunk)[13](index=13&type=chunk) - **Gary L. Fischer** holds the titles of Chief Financial Officer and Corporate Secretary[13](index=13&type=chunk) - Date of signature: **July 9, 2025**[13](index=13&type=chunk)