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]

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]