AXT (AXTI) Q2 Revenue Drops 36%

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]