Q2 2020 AXT Inc Earnings Call
Good afternoon, everyone and welcome to X T second quarter 2020 financial conference call.
Leading the call today is Dr. Morris Young Chief Executive Officer, and Gary Fischer Chief Financial Officer.
My name is live and I'll be your coordinator today.
At this time, all participants are in listen only mode.
The speakers presentation, there will be a question answer session.
You asked a question during the session you want me to press Star then one on your telephone keypad.
If you require operator assistance. Please press Star then zero.
I would now like to turn the call over to Leslie Green Investor Relations for XP.
Thank you listen good afternoon, everyone before we begin I would like to remind you that during the course of this conference call, including comments made in response to your questions. We will provide projections or make other forward looking statements regarding among other things to future financial performance of the company market conditions and trends, including expected growth in the market.
We serve emerging applications using chips or devices fabricated honor substrate, a product mix our ability to increase the orders in succeeding quarters to control costs and expenses to improve manufacturing yields and efficiencies to utilize our manufacturing capacity the scheduling timeliness regarding RV, though.
Occasion, the growing environmental health and safety and chemical industry regulations in China, as well as global economic and political conditions, including trade tariffs. Some restrictions we wish to caution you that such statements deal with future events are based on management's current expectations and are subject to risks and uncertain.
They could cause actual events or results to differ materially.
These uncertainties and risks include but are not limited to overall conditions in the markets in which the company compete global financial conditions, and uncertainties cobot 19, or other outbreaks of contagious disease potential terrorists and trade restrictions increased environmental regulations in China market acceptance.
Okay and demand for the company's products the financial performance of our partially owned supply chain companies and the impact of delays by our customers on the timing of sales of their products. In addition to the factors that may be discussed in this call. We refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are they.
<unk> online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at the X T Dotcom through July 22nd 2021.
Also before we begin I want to note that surely shortly following the close of market today, we issued a press release reporting financial results for the second quarter of 2020. This information is available on the Investor Relations portion of our web site at X T. Dotcom I would now like to turn the call over to Gary Fischer for a review.
Our second quarter results every.
Thank you Leslie and good afternoon to everybody.
Okay, a total revenue for the second quarter 2020.
Was 22.1 million.
By comparison revenue in the first quarter was 20.7 in revenue in the second quarter of 2019 was 24.8 million.
Oh for total revenues substrate sales were 16.9 million in Q2, compared with 16.9 million in the first quarter and 20.6 million in Q2 2019.
We do from our raw material joint ventures was 5.3 million in Q2 up from 3.8 million in Q1, and 4.2 million in Q2 2019.
In the second quarter 2020 revenue from all of the Asia Pacific was 70% Europe was 19% in North America was 11%.
In the second quarter, one customer reach 10% of revenue and the top five customers generated approximately 30% Caribbean.
Gross margin in the second quarter was 30.6% up from 26.6% in the prior quarter.
The improvement in gross margin was due to a combination of higher revenue some improvements in manufacturing as well as strong performance from one of the two consolidated raw material companies like comparison gross margin was 34% in Q2 2019.
Total operating expenses in Q2 were 6.3 million.
Up slightly from 6.2 million per quarter.
Total stock compensation expense for the second quarter of 2020 $640000.
Operating profit for the second quarter, 220 was $478000 compared with an operating loss of 634000 in the previous quarters.
That is a swing of 1.1 billion, which is a good shift.
Operating profit in Q2, 2019 was $2.3 million.
Okay.
Other income net for the second quarter of 2020 is a gain of 1.4 million.
This includes a net loss of 160 8-K from the partially owned companies in a C supply chain accounted for under the equity method.
Foreign exchange gain a 52 k. a net loss of 39 carry and net interest income.
The next in expense and a gain of 1.6 million from the provincial government agency gripped as an award for relocating to their problems.
This is of course in China.
Income tax for the second quarter 2020 was a charge of 920000 compared with the charge of 336002 one.
It is above our usual tax rate because of a onetime tax related to a rebate. We received from our purchase of land use rights. When we began the relocation in China.
In addition, our Beijing company as well as the two consolidated raw material companies at higher profitability, resulting in higher income tax.
Going forward, we expect the taxes to be between in the 550, the 650 K. range.
Per quarter.
Our Q2 results include approximately 278000 in terrorists as a result on the 25% tariff charged on importing wafers into the United States from China.
For Q2, 2020, we had a net profit of $361000 or profit of one cents per share.
By comparison, we had a net loss of 178004 loss of one cents per share in the first quarter 220.
And the net income of 1.5 million or four cents per share in Q2 2019.
The share count in Q2 was 40000 40.750 million shares.
Cash cash equivalents and investments were 32.5 million as of June Thirtyth.
By comparison at March 31st It was 28.8 million. So cash is up 3.7 billion from the March quarter.
You may recall for more comments in last quarters conference call that our accounts receivable was higher than it normally might be running.
Probably due to the Chinese new year and also the Corona virus.
We worked on it in Q2 and brought the day sales outstanding number down into a more reasonable range and as a result, the cash increased so that's good.
We currently forecast that are net cash burn and 2020 will be similar to our cash burn in 2019, which was only about $3 million depending on the anticipated growth in the second half it could initially consume additional cash as we add capacity.
Driven by growth force and increased raw materials going into it so.
So we feel we have a strong cash position, which is important in light of the uncertainties, resulting from the cobot 19.
We still have an untapped line of credit with Wells Fargo Bank in the second bank in China is a ranging in the Netherlands credit for us as we speak.
We do not anticipate tapping on this but it is prudent today in today's environment.
Depreciation and amortization in the second quarter was 976000 and capital investments were 4.3 million.
Net inventory at June Thirtyth increased modestly to 49.6 million compared to 48.3 million in the March 31st quarter.
In an inventory of approximately 44% in raw materials, 51% work in progress and only 5% in finished goods.
Fourth position portions stay fairly constant in our business model.
In conclusion, the P.L. swung into right direction, and we continue to have a strong balance sheet.
This concludes the financial review I'll now turn the call over to Dr. Morris Young for review of our business Morse.
Thank you Gary and good afternoon everybody.
I missed the backdrop.
This is in the global change you see substrate material continues to have increasingly relevant in the technologies and applications that are likely to find the next decade.
We are encouraged to see growth.
In strategic applications like Fiveg.
Which not only drives our growth.
But also functions as a catalyst for a number of related technologies.
We saw these most clearly you know you mean phosphates cells in Q2.
We had expected to take a step back following strong quarterly Q1.
He said demand for indium phosphide was again strong in Q2.
Allowing us to deliver the high end of our revenue range and outperform earnings.
We believe that any thoughts why is being used in Kenji and emerging 20, Fiveg laser interconnects well Fiveg base stations.
Gross into Fiveg network construction present, a net new opportunity for you see.
We don't yet know how big it will be.
But we know that it is beginning to drive Boes front haul and backhaul applications.
And it is also likely to continue to fuel healthy pollen mark.
As a two technologies are very closely linked.
Further.
He is well positioned to supply into all of the major supply chain for Fiveg.
And these related applications.
We believe that I'll grows to date.
Demonstrates the compelling value because as he proposition that our deep eating fonts why expertise will present for our customers.
Grossing fiveg is also driving greater bandwidth requirements in the data center.
In Q2, we also saw healthy demand for indium phosphide life with datacenter applications.
Silicon Photonics technology provides a number of advantages such as lower power consumption.
Increasing bandwidth and data transfer capabilities.
These coupled with surgeon consumer demand for high speed broadband services is driving hyper scale cloud and large enterprise data centers to deploy optical modules that can support network speeds of one hundredg.
And 400 Gi and beyond.
No growth into revenue for datacenter applications stall earlier this year.
We now seeing it return.
Expected to be meaningful contributor in Q4 and beyond.
In addition to these three major applications.
We believe we are.
We believe there are significant new applications for indium phosphide based sensors.
No visible on the Horizon health care monitoring.
Flight hours for automotive.
And more.
As always.
We believe that Rosie all you need phosphate business will fluctuate extremes quarter by quarter.
Okay result of the merger nature of money off the application we serve.
But the development work, we have been engaged in over the last two years.
Now beginning to yield tangible business opportunities.
Collectively we believe we're building a powerful portfolio.
Tied to some of the most significant.
And Chris who might be technology trends of the next decades.
We look forward to continuing to demonstrate progress.
Now turning to gallium arsenide.
Oh that's affected.
Leidy applications, particularly automotive weaker in Q2 than the prior quarter.
This was offset by the strength in wireless applications.
Which had good growth for the quarter.
We believe that demand is driven.
By a variety of.
I O T applications.
Including why five devices.
Rebound in Q2 after work stoppages in Q1.
And possibly cellphone devices in China.
At this point in time, it's difficult to predict the enduring strays of to increase demand.
But we do believe that telling us nice going through.
A resurgence development activities.
The same wide variety of new applications.
He brought to the market every year.
For example.
Micro ladies.
There are currently garnering a lot of attention in the display industry.
And could have a pad the photonic industry as well.
My quarterly displays are set to deliver a wide color gamut.
Hi, luminous is low power consumption.
Excellence that Bolivia and long life.
It is a recently innovative view that could add significantly new value to they all the D market.
2022 and beyond.
With large tier one players driving its dibella.
With so many game changing application is indium phosphide and gallium arsenide now emerging.
Tier one interest and focused on to the substrate level is increasing.
IXYS now engaged in multiple significant qualification efforts.
The first.
In the area of emphasis life with data center applications is expected to begin contributing to revenue results in Q4.
In addition, we're working through several other qualifications.
They can meaningfully impact our business opportunities in 2021.
Through these efforts, we're making a concerted investment of time and resources to elevate our business and manufacturing processes to meet the rigorous standards of some of the most prestigious companies in the world.
So two I'll work into continued rent.
Of our cultural and do seem facilities.
We are proud to be making great progress.
So since we announced the qualifications are being seen by a major customary March.
A number of additional qualification customers have completed that certification.
I have given those approval to ramp production.
These customers are also reporting improvements in quality and consistency.
Benefit.
Our new.
State of the all lines.
We're confident that by Q4.
We will have approximately 75% of all gallium arsenide revenue coming out of the new facilities.
These represent a significant increase in production volume throughout 2020.
We believe that relocation of all gone.
Fracturing facility has evolved from being a risk factor email business.
Becoming a significant competitive differentiator for 2020 and beyond.
I want to specific knowledge the work of our team in China.
I have executed the relocation process with real great success, and dedication against a very difficult backdrop of rising environment to.
Sanders.
Well have helped geographic school geopolitical conditions and a global pandemic.
We have worked tirelessly to meet the needs of our customers throughout the process, while navigating these external factors and the rigorous relocation plan.
I'm proud to say.
That will have a strong first lien senior executives and managers.
And also swung younger managers.
And contributors.
All of whom.
Sure.
In doing heavy weight lifting.
It is worth noting that the challenges presented by Coleman.
Not behind us.
I'm grateful to report that actually employees and their families have remained healthy so far.
At all.
About three China locations, where all ticking strict protective measures.
Coatings with best practice and local laws.
The safety of all employees remains our number one cancer.
We're doing the same thing hearing freemont.
Our team have adopted.
And we are collectively moving the company for.
The biggest challenge to productivity remains the limited travel.
Our.
In China, as well travelers section to and from China.
Two accent detest impeded our ability to address certain manufacturing efficiencies in the new facility.
That's aggressively as we otherwise would like to.
Hi positive note.
Not experiencing any noticeable disruption our supply chain raw materials required to manufacturing substrate.
We are able to obtain everything we do.
Finally speaking of raw material.
Two companies that would consolidate and out and our raw material revenue in Q2.
Was up meaningfully from the prior corner.
In particular.
Our joint venture bore you, which is manufacturing high temperature PBM crucibles and other products.
Continued to see healthy growth.
In closing.
We view Twentytwenty as a turning point how business.
They are clear signs in marketplace.
Strategic applications like Fiveg data center and Pong a strengthening.
In addition.
We believe new application across our portfolio, creating exciting incremental opportunities, beating beginning later this year.
And we are ready.
With the relocation of gallium arsenide manufacturing largely behind us.
And production is ramping we're now focusing on elevating our manufacturing and business processes to serve the need of increasingly sophisticated applications and customers' requirements.
In total.
We believe we are positioning ourselves for revenue expansion and improving profitability.
This concludes my prepared comments I will now turn the call back to Gary.
Our third quarter guidance, yes, Gary.
Thank you Morse.
As Morse discussed the demand environment for our products seems to be improving.
With a number of growth drivers intact as such we expect to see revenue in Q3 of between 23.5 million to 24.5 million.
We believe that are net profit will be about breakeven.
We won't have the help in Q3 of a grant in China, but that is offset by increased revenue.
Gross is good so.
We can deal with that.
Sure Count will be approximately 40 million 0.750 shares.
Okay. This concludes our prepared comments.
More snow be glad to take your questions now operator lists.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Again that is star then one if you'd like to ask a question at this time.
Please stand by what we compiled acuity roster.
Our first question comes from the line of Richard Shannon with Craig Hallum. Your line is now open.
Well hammerson, Gary Thank you for taking my questions and congrats on nice nice quarter in guide here.
I guess my first question from a financial point of view, Gary had an awfully good gross margin certainly well above what I had modeled here, how you're talking about some mix shift and I think some manufacturing efficiencies how should we think about in the third quarter number here.
And whats implied here in terms of any many mix shifts and continued manufacturing improvements.
Okay.
In the third quarter.
We're pretty confident that it's going to continue to increase go up or into the right.
I'm not going to be like.
Super High jump, but it's it's going to continue to trend upwards, a we're still we're still saying that.
Mid term, we should we hope we can get back into the mid Thirtys, we think thats reasonable and expect that we can do that just not quite sure how long that will take.
As more skid mention about some significant opportunities for indium phosphide side.
That's that's beneficial for us in terms of mix.
And that will be part of what drives the the number in the right direction. So so it will be up a little bit again next quarter.
Part of the reason probably we were ahead of the mature model said Richard is because you know the revenue was a little bit stronger than we thought at the beginning of Q2. So.
No more revenue is a big help.
Gross margin because you know, there's a fair amount of fixed costs in our cost structure. So [noise].
Okay go ahead, Richard anymore questions.
Yes, you more then thanks for that so.
I think if I heard your language correctly, but both of you talked about data center.
Picking up more in the fourth quarter. It seems like you're suggesting it was helpful. In the second and maybe in the third did you did you specifically call out growth in the fourth and is this from your if that's the cases. This from your consistence longtime large customer do you have new customers in here or if you can help us understand the dynamic here by calling out the fourth quarter.
I think he thought I will continue to grow in third quarter.
Fourth quarter would definitely be other up quarter for this data center connectivity business. So.
So let me answer it. This way. This is this is a customer that we have known but we have not sold directly to them previously.
We are in the past of.
Qualifying with them and of course, you know, we cannot especially big come out who they are and because we are Andy.
I can let you know that our view is that you know there's a huge impact.
Because of growth the Corona writers on cloud compute come computation. So this is clearly a strong ongoing growth for now and growth is going to accelerate.
This is dramatic cultural event I think is going to continue.
To facilitate future so that means it's good.
Going to grow.
Given the growth good growth for our customers.
And the result is that so silicon photonics technology has become increasingly strategically important in datacenter connectivity and this is a multi.
Your opportunity.
We will continue to grow with it.
In the qualification.
To position us to income increase our market share in the marketplace.
Which is we already growing nicely.
And all of this cloud players are going to put their foot on the pedal guest how do we believe.
On a drastic as you know that would we should be able to sell to everybody, but specifically, we do on going through a qualification waste, especially because now so we're hopeful that we can increase the market share with this particular customer, but also we can't sell more into money summation.
And we believe this rigorous qualification and mentioned.
Previously.
We will get us to other tier one players, we expect a similar level or certification and maturity.
From their supply lines.
So this is now the only good for US, but also you know with this training into serving the first tier customers will get us to be able to play into other emerging.
Applications.
Such as healthcare and other applications, which all have tier one customer demand that will increase.
The volume of any Pos flag application to a very much unprecedented volume applications for indium phosphide.
[noise], Craig very interesting comments Morrison I mean, I may jump out of line. After my last question come back to follow up on that one is very interesting topic here, but it didn't want to ask a question regarding your commentary about making your manufacturing processes more rigorous can you help us understand what this means.
What this means in terms of costs, an opex over what time period do you expect this to have an effect and is this the can you help us understand what's what's driving this because obviously quality is important in general and always has been here what is the impetus and where do you need to go with this more rigorous manufacturing process.
Sure.
As you know, though when you move up the food chain too.
Tier one customers. They are they obviously number one requirement is very high.
Quality standard, Okay, and Fortunately, we have very good quality indium phosphide inherent.
Properties, such as dislocations and.
Surface polished we have very good high quality standards.
But what we perhaps need to improve is that our manufacturing line, we need to implement a lot of Bob.
Faces SPC control.
We need to follow suit in total costs.
To serve to customer to give them had some.
If we have an improving quality and we need to communicate ahead of time and we need to also improve our ability to monitor all quality.
Okay.
On line basis. So you can perhaps imagine just say increased cost because we probably need to buy some sophisticated testing equipment, but on the other hand to tier one customers. They also.
More consistent and.
Our experience also is they don't make mistakes. So so so so we can expect you know if we do adhere to the good quality standards. We will have more returned of material because that's missed communication between customer added.
Supplier and as you know when you get problems with customers is always.
Supplier for the Bill So we do believe there we will will get ourselves more.
Engineers and trainers and managers to monitor the progress and.
Actually no communication with the and customers we have to go through fairly rigorous training.
Well I was.
Fitting to their computer ordering systems.
So that.
There will be less mistake and they are booked predictable, but once we get we got being we've got large onto.
The more automated.
Ordering system and.
Quality monitoring system, we have money part of the portfolios that we need to connect to so it's you know the it's more sophisticated but I'm glad we are.
Almost through all these requirements I do believe once we're getting that will elevate ICSI to a higher level, which we believe that most of the tier one customer required these kind of service anyway. So it could be a good.
Thing for us.
Yeah.
Let me underline a couple of things there that Morse touched on.
I would say from a big picture standpoint.
These particular customers, we're thinking of we have to be they want more transparency.
They want more data.
So you know we have to lift to figure out how to do that properly. A good example, though is is.
A change in the manufacturing process, which could be a very small change in which case, we wouldn't in the past necessarily have notified.
Some of the customers, but but it now if we make even small changes we have to step up in and be transparent about that and in less than that test workers and things like that and we do have statistical process control SBC, we've been using it for years, but now that this particular customer spin.
Typically couple of customers a civil we also want you to do this with SBC and that with your SBC and so they they they broaden the scope and the debt.
So we're very excited about it we think it's going to make us better company.
It's a fund process and as a lot of enthusiasm within the ranks of the company.
Okay excellent.
Actually I appreciate all the detail I will jump in one.
Our next question comes from Gus Richard Northland. Your line is now open.
Yes, thanks for taking my question.
In terms of some of the new applications, you highlight like try, though I'd and health miners et cetera.
Which ones do you expect to to start to see revenue from first.
Well, we're running Palo lives on that.
In all of them.
Well I think the did.
We think.
The first come online.
Revenue.
Regular.
Volume production.
It is probably from data center business.
Okay, and then just touching on the germanium business.
How is that that trending there seems to be.
Yeah, just kind of any color there.
Yes, what business you're talking about.
Germanium.
Maybe.
Oh.
This kind of flat and slightly down this quarter.
And we.
We see it's probably going to be sold them Yan during a Rob this line.
And not dropping significantly either but it all depends about whether.
Satellite launches and you know satellite launches a fairly consistent but sometimes the customer have one larger problem said that they will buy more out of course, the quarterly dome Andy.
No.
He.
Let me any.
The focus business for you XP.
Now right now anyway.
But you know if if if.
Yeah.
What's that this Scott as such.
The constellations satellite.
Covering the whole web infrastructure, if that were to build and obviously that's going to be a lot more opportunity, but you're maybe but that's about his couldn't be a $2 million to $3 million for core business.
Okay, and your friend to like Skynet, and what Spacex is still yes.
Yes, yes.
Okay.
And then on the only on the raw materials businesses do you expect that to hold in flat moving toward.
With that business seems to be pretty strong.
And is that still being driven by.
You know OLED.
Oh, Yes, I think we do see.
So from our joint ventures, the Dickinson through Q3. They think Q3 is the would be a.
Pretty good strong quarter, but.
They don't have visibility for Q4.
Okay got it alright, thanks, so much I'll jump out of line.
Thanks, guys.
Our next question comes from Quinn Bolton with Needham. Your line is now open.
Hey, guys. Thanks for taking my question weren't a follow up on Richards question about the data center application.
First is this the beginning of what you think is a sustained ramp with this customer or do you see it is kind of a shorter time Warner two quarter project that would then tail off after some period of time.
Oh.
Well in Q2 in Q2, we have not started we will start to see some revenue coming in Q3.
Our customers are telling us it could be a big ran for Q4.
Because they've got to fill some inventory so, but it's going to be a consistent performer for the rest of 2021.
You know obviously before he becomes adopted more rapidly as we expected and data center grows that would definitely kick up their business. The bad. So this is to answer the question. Let me just definitely going to be a upticking quarter in Q3, but it.
The quarter in Q4 because of.
Inventory build.
In over 2021, but we believe it's going be a more consistent.
Revenue driver for us.
And.
I think you've given us a couple of hands, but I'm just wondering it sounds like this is a silicon photonics based 400 gig optical module product the you'll be shipping lasers into were the indium phosphide.
Okay, great for the lasers.
Yes, but also well have the GE was also we're also you we believe it's mainly for one of the GM for energy.
Oh, sure, which both 140 gig yep, yeah. It kind of and then yes, I talked about the mini LNG opportunity on the call. Just wondering what do you think the timing of that go into higher volume is.
Well, what we think the opportunity probably is going to be more towards 2022.
And I think you laid leader, we got some samples in the qualification line.
But I see no customer probably still got.
A few things need to be ironed out such as.
So in the placing won't miss very tiny little bit eyes and.
Obviously, we think this is a great great opportunity, but they still sort of fairly early I mean.
As you know that we believe we have a strategic.
Advantage in tackling this business because we.
Warmed up three.
Western high quality substrate manufacturing in the world.
We are the major Lbd sixteens supplier.
Turning off the German leidy makers.
And.
These are we the micro leidy that no customer is proposing to use they need not only high quality, but also they have very high volume.
And they also need very competitive price.
I think if he wants to combine the three.
Half of it.
This the customer probably is also thinking about.
Hi, how are you going to manage the upstream supply lines, such as PD inclusive Bose.
All in an astute.
Obviously, if you combine all these things.
We are.
Ahead of the competition.
But obviously this is still early I would not declaring victory.
Working very hard trying to be a supplier that business.
Got it and then just for Gary Gary You mentioned that the Beijing JV.
Profitable and that led to us or higher taxes do you expect the profitability the JV to kind of step back down to me levels in Q3 and beyond or.
Any any further comments you can you can make about the JV profitability.
We think those two guys. Those two companies are going to continue to be profitable. We don't we see jumping around a bit from time to time and they are they're not that great at forecasting.
It's not it's not their strength, but.
And so we know person for too far out.
So yes, they will contain profitable.
I'm not sure where the tax things can settle out, but I think 550 to 60 is probably close.
The we did have an extra charge in Q2.
Because retroactively we had to pay attacks on a rebate that we got like a year and a half two years ago. So.
Sometimes that happens in China. They we forgot we want you to pay taxes on that so.
[music].
Got it okay. Thank you, yes, yes. They are looking out there looking good they're going to be they're going to be profit. So.
Great.
Next question.
Our next question comes from Hamacher Sen with Vws financial your line is now open.
Hi, So first off could you just quantify the current.
Environment are you seeing for indium phosphide.
Data center in Fiveg compared to last cycle He Shaw.
You think that you know as far as you're the man you're seeing you think that this is a towards the end of the cycle or you think it's really starting point.
Okay. The tomorrow I definitely think.
I think we're starting to see.
Fiveg applications.
Just starting as you know I think there I saw some reports and say that base station Bill.
China is 600000 for this year next year is going to jump up to one point.
6 million base stations per year in 2022 and 2023.
And so I believe this is only the beginning but this is only China, what about euro and what about United States. As you know that we are where the subsidy suppliers. So no matter, where you're going to build a base station you needing you phosphorite substrate floss you need.
Fiber optic connectivity as far as data centers concern.
I think you know I think we're getting to a new train Oh growing I believe data center would definitely keep growing.
However, we do improvement.
You can increases switching speed, so perhaps you need less devices, but I think you know the fiber optic.
Part of the Silicon Photonics.
It's going to a joy extra grew gross opportunity that is.
Well you Don too you know 40 G or below you can you deal with that kind of.
Photonics connection with.
Coaxial cable or even and maybe getting asked a big so is flush that fiber, but that you go up in speed you need to consume less power.
Yes.
Data transmission reliability and transmission distance you need so any thoughts why single mode fiber is absolutely needed.
And then you know we also know that silicon photonics, when you get to higher speed because of.
Mark vendor kind of switching mechanism enables it to compete very well at higher higher efficacy, but so although you know so there are two level of growth opportunity. We believe that we can enjoy when is that you know, which corolla buyers everybody's complaining about bandwidth is not picking up.
And then everybody wants instant.
You know connectivity and you now have a layer on top of Fiveg, which would increase the data traffic again.
And then you add onto it.
Work from home and then the speed is going to be higher and the data centers going to get a bigger so I believe their money multi layer is oh.
Benefit which will benefit.
Silicon Pic.
As well see me pause right.
So why if you have so many different endpoints that are doing so well why is revenue not anywhere close to what you were doing.
And last cycle, where you didn't have the deason many end points available to you.
Oh.
So sure have led to you're right I mean, I don't recall the revenue level, but I can tell you over the last 10 years, we grew our indium phosphide revenue by.
Factor of 20.
All right. So that's a real growth, but quarter to quarter, you may have up and downs you know for instance last year sometime we had a peak why we order and we did it get it.
For many quarters, so so quarter to quarter, it's difficult to say this particular quarter it got to be higher than last quarter, but overall the other thing I can tell you is that you know.
Again this quarter indium phosphide is equal to Boschelli ASI semiannually semi conducting combined.
And we again believed next quarter and the quarter often indium phosphide is going to continue to grow that we have the visibility off and gallium arsenide, we think it's going to be okay, but we didn't see the growth. So I, if I want to predict that indium phosphide I would definitely surpassed scanning I'll say as the.
Revenue contributor for our business in Q4.
And beyond but of course, you know next year, who knows maybe micro level start to come in a big suicide coming and Galliani has that lives. So don't kick right. So.
But it's good.
You have one.
And that line growing and the other way growing with it so.
Then compete us number one.
Yes, probably this is good.
One thing I would say to add is.
The opportunity that.
We are.
Into now.
Yes.
It really wasn't in full production in Q2.
So so as we start to ramp in real production in Q3, and then even more in Q4.
The I think the dots will get connected so.
Sets to stay tuned.
Got it okay I appreciate it thank you.
Our next question please.
Our next question comes from Dave Kang with B. Riley. Your line is now open.
Thank you good afternoon speaking of war way, so whatever happened to their follow on.
Oh, we haven't seen anything yet.
So when everything patiently.
No we don't have any other from what we had this way.
What's been the message from though I mean is it coming or is it pretty much.
Bed or what's the status.
Oh.
Yes, Oh itself was asked me in contact with them I think.
The feedback as to the like I'll probably.
They liked our quality they like our service.
But one thing there management.
Message to US is they don't like a five to U.S. company.
So.
Yes, they could be a part of a decoupling process.
I.
Hello.
And the flows you know ended the quarter long weekend supply then we would definitely treat them by customer service.
If we can violated loss.
And we don't we now.
But the other thing I think I like to.
The remind you use that youre.
Indium phosphide substrates supplier, there's not a whole tons of it.
You can I go to do the street corner order indium phosphide problem, yet another supplier that's only three.
It's us sumitomo and gaps.
And you know the soon supply not even using the good quality VGF technology. So.
So I don't know I think you know definitely it's it's a challenge and hope we can work it out and you know there's this as I said again, that's not a whole lot supply long capacity is also consideration and we are definitely either and the ready to serve web.
Sure.
He wants to use good quality phosphorescence tricks.
Got it.
And regarding our fourth quarter I know you're not.
Keeping.
Official outlook, but.
So you talked about this new terrace anchor customer be qualified and expect it to wrap in fourth quarter could they be enough to offset offset seasonality, maybe that fourth quarter be up both sequentially.
There are still going to be down.
Yes.
Dave that's all play within potentially fourth quarter, I mean, but it's still early but we think we.
And of course.
Okay in fourth quarter.
So Dave I, just think of others listening.
Traditionally we do tend to go down.
We do go down in Q4.
So so you know you guys all expect that.
And.
No no sense trying to.
You can speak between the lines and not just flat out we'll just say we think we're gonna grow before it's going to be it a change for at least this this calendar year. So.
Can you remind us why port quarterly seasonally soft is mainly because yes part or is there something else no.
Dave You know, let me, let me give you that analysis, what the first of all you know the fourth quarter have.
The Chinese national Holiday Oktoberfest right.
And second of all we lost half a month.
In December Nobody would speak December 15th.
And so it's all the fourth quarter is traditionally slow quarter and then on top of it.
A lot of this product launch happens in the fall. So we are the beginning of food chain. So who so when Q2 Q3 is supposed to be everybody ordering stuff and then.
Make it.
Building Q4, and they're selling to the market and the Q4, everybody take a breather so but.
But we do have some visibility from our customers.
Expected Glenn.
They are talking to about.
About the possible.
Capacity so we are.
Repairing ahead of time, so hopefully that we can meet that demand, but you know I think hopefully according to our calculation, we should be able to continuing growth even the core of this year.
Got it.
Derek just.
Numbers, just wanted to clarify if I heard correctly I heard depreciation as 976, and but then I didn't I didn't hear Capex what was the capex.
Yes.
I think.
4.3 million.
4.3.
Okay.
You think it's kind of remain kind of elevated because I've heard you know expansion you're in a expansion mode or how should we think about capex going forward.
I think it could be in that range for another couple of quarters, we're buying.
Yes. This is it's it's it's a little bit less than it's not so much facility stuff as.
Some equipment stuff you know order more furnaces.
We or tester that morstan alluded to that test indium phosphide stuff. So.
But you know it's it all in all the numbers look very very similar in terms of cash to 2019 in 2019. The the total net burn was 3.2 million itself. So we feel we feel comfortable with cash so yes.
Alright, great. Thank you.
Yes, Dave.
Our next question comes from Richard Shannon with Craig Hallum. Your line is now open.
All my questions about so you can take me out of the queue. Thank you.
I'm showing no further questions in queue at this time I'd like to turn the call back to Dr. young for closing remarks.
Oh.
Thank you everybody.
Participating our conference call.
And.
We are participating in several conferences.
Let me see where is the number conferences.
So, but if you need time to connect to the management, please contact Gary Fischer or Leslie Green now for.
Oh, yes, he would though.
Going to participate in the end you VW Escrows and value Summer series virtue event August all the need a virtue semi cap.
The conference August 13, Jeffrey Virtusa semiconductor IP.
Occasion infrastructure summit on September 1st and second September 2nd.
That's always please feel free to contact me.
Larry or Leslie if you need to speak to us. Thank you very much.
No.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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