Q2 2021 AXT Inc Earnings Call
[music].
Good afternoon, everyone and welcome to Axt's second quarter, 2021 financial conference call.
Leading the call today is Dr. Morris Young Chief Executive Officer, and Gary Fischer, Chief Financial Officer, Inc. My name is Leah and I will be a car day later today at this time all participants are in.
And only mode. Later, we will conduct a question and answer session and instructions will follow at that time, Inc.
Any 1 should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the call.
In a literature Leslie Green Investor Relations of <unk>. Please go ahead ma'am.
Thank you Lee and 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.
The other things the future financial performance of the company market conditions and trends, including expected growth in the markets, we serve emerging applications using chips or devices fabricated on our substrate our product mix, our ability to increase orders in succeeding quarters to control costs and expenses.
Among from manufacturing yields and efficiencies to utilize our manufacturing capacity the schedule and timeliness regarding our relocation the growing environmental health and safety and chemical industry regulations in China, as well as global economic and political conditions, including trade tariffs and restrictions we wish to caution.
You'll note that such statements deal with future events are based on management's current expectations and are subject to risks and uncertainties that 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 competes.
And the global financial conditions and uncertainties.
COVID-19, and other outbreaks of contagious disease potential tariffs and trade restrictions increased environmental regulations in China are could acceptance and demand for the company's products the financial performance of our partially owned supply chain companies.
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 available online by link from our website and contain additional information on risk factors.
And that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at AXT, who dot com through July 2022.
Also before we begin I want to note that shortly following the close of the market today, we issued a press release reporting financial.
<unk> financial results for the second quarter of 2021. This information is available on the Investor Relations portion of our website at AXT T. Dot Com I would now like to turn the call over to Gary share.
For a review of our second quarter results Gary.
Thank you Leslie and good afternoon, everyone.
We are pleased to report.
That total revenue for the second quarter of 2021 was $33.7 million.
Up from $31.4 million in the first quarter of 2021 and up 52% from the $22.1 million in the second quarter of 2020.
Our revenue results were well ahead of our guidance.
Driven by continued growth in indium phosphide gallium arsenide for OLED applications and raw materials.
Of our total revenue substrate sales were $24.9 million in Q2, compared with $23.4 million in the first quarter of 2021 and $16.9 million in Q2 of 2020.
Revenue from our 2 consolidated raw material joint company joint venture companies was $8.8 million in Q2 up from $8.0 million in Q1 of 2021 and up from $5.3 million in Q2 of 2020.
In the second quarter of 2021 revenue from Asia Pacific was 73 per cent.
Europe was 19% and North America was 8%.
In the second quarter, no customers reached 10% of revenue and the top 5 customers generated approximately 31% of total revenue.
This is now the second consecutive quarter, where we had no 10% customer this means that revenue growth.
Breaking through the $30 million level is not overly dependent on 1 large customer and this diversity is a good thing.
Gross margin in the second quarter was 36, 3% compared with 36, 8% in Q1 and up from 36% 3.6% in Q2 of last year.
The inquiry.
<unk> was primarily driven by product mix and increasing revenue volume.
Total operating expenses in Q2 were $8.3 million up from $8.1 million in the prior quarter and $6.3 million in Q2 of 2021.
R&D is 1 of the drivers, creating the increase and as a result of 2 major R&D programs that are going on.
We also have additional expenses associated with going public in China, as well as increased employee stock compensation expense and bonuses.
Total stock compensation expense for the second quarter of 2021 was $975000.
Operating profit for the second quarter of 2021 was $3.9 million.
Compared with an operating profit of $3.6 million in Q1 of 2021 and an operating profit of 470.8-K in Q2 of last year.
Other income and below the line items, including tax provision and minority interest for the second quarter of 2021 was a net gain of $500000, especially noteworthy.
Q2 is a net profit of $1.5 million from the partially owned companies in <unk> supply chain that are accounted for under the equity method the market for raw materials has tightened up in raw material pricing has increased.
Provision was 900 K.
Our Q2 results included.
Where the income 280000 in tariffs as a result of the 25% tariff charge on importing wafers into the United States from China.
For Q2, 2021, we had a net profit of $4.4 million or profit per <unk> per diluted share.
By comparison, we had a net profit of $3.4 million or profit of <unk> <unk> per.
The profit share in the first quarter of 2021, and a net profit of 361000 or profit of <unk> <unk> per share in Q2 of last year.
The share count in Q2 was $42.700.7 million shares cash.
Cash cash equivalents and investments were $58.5 million as of June.
30th by comparison.
At March 31 was $66.9 million.
The decrease included the 1 time payment of approximately $3.7 million for shares and told me that we purchase which were previously held by minority interest.
In addition inventory increased $4.2 million accounts receivable increased $5.1.
And AEP only increased $2.7 million.
Depreciation and amortization in the second quarter was $1.7 million in capital investments were $7.4 million.
Okay. This concludes the discussion of our quarterly financial results.
But let me give you a brief update and comments about our plans.
At least our company in China on the star market in Shanghai.
We are working closely with our China investment banker and our China law firm handling the IPO transaction for us they have some experience in this as they are also helping another NASDAQ listed company.
The star market authorities in the China SEC have raised the bar for companies.
Wanted to go public.
Their focus includes semiconductor companies and material companies and we qualify and both of those categories.
We believe we are a world leader in our fields. We of course have healthy revenue and growth. We also have a strong customer list and have partial ownership of 10 raw material companies located in China.
And.
And we have over 1000 employees in China that are citizens and pay income taxes there.
We were advised that our company going public on the star market should be an attractive offering the.
Our bankers have informed us that we are on track and that our teams are responsive and professional.
The process is time consuming but our teams are taking it in stride and doing a good job.
We hope to be ready to file late this quarter or in the fourth quarter.
In conclusion, it has been a busy but very good quarter with solid customer traction and new opportunities unfolding.
I'll now turn the call over to Dr. Morris Young for a review of our business and markets Morris.
Thank you Gary.
Good afternoon everybody.
Our Q2 results demonstrate that the momentum in our business continues to build.
They renewed.
Need for cash.
From a semiconductor substrate drive market expansion.
Historically, we've had a number of.
Bruce where certain product categories were performing well, while other categories languished.
A few slides our business is firing on many cylinders.
We entered Q2 expecting our revenue to be approximately flat.
<unk> strong growth.
In Q1.
However, we continue to see increasing demand in both gallium arsenide, and indium phosphide substrate as well as healthy growth in our raw material business.
This allowed us to deliver solid gross margins Inc.
Creasing profitability.
It is clear.
From the market demand that our <unk> factory and capacity expansion will build at exactly the right time.
With them.
Now able to support current and emerging customer requirements across growing applications such as <unk>.
Telecommunications.
And its related technologies data center connectivity.
Led based <unk> sensing and display and a variety of new consumer related devices.
I am pleased to report that in Q2, we qualify.
With other tier 1 customer.
<unk> plays an important role in the supply chain.
Major end customers in many of these areas.
This was a very extensive qualification process and we believe.
It can open new.
Doors of opportunities for us in the coming quarters.
It also underscores the value of our investment in our manufacturing and business processes, Inc.
In house expertise and product development.
We believe we can we are now.
In a strong position to win market share.
Expand into key new emerging applications.
Now turning to product categories.
Indium phosphide set a new revenue record in Q2.
And once again.
Gallium arsenide is our single largest product category.
This year, we are on track to grow our indium phosphide revenues by more than 35%.
With demand being driven by a number of customers across a diversified set of applications.
So Pat was again weaker.
Believe this indicates acceleration of some big trends in the technology landscape.
In particular, we saw continued strength from <unk>.
And a related technologies.
At the subsidiary level.
It's difficult to distinguish between optical connections are specifically for <unk> equipment and those 4.
The Lady Technology path.
Assets optical networks that support <unk> and <unk> functionality.
For our perspective.
Any monetization of talent.
Telecom infrastructure that utilizes indium phosphide is positive for our business.
Demand continues to be strong and we are being able to scale up our manufacturing to keep customer delivery times.
As flexible as possible.
Data center connectivity.
It can't be day demand remains steady.
And at the positive level.
As a result.
The overall growth in adoption of silicon photonics in the data centers.
Silicon Photonics technology provide a number of advantages.
Such as lower power consumption.
Activity and increasing bandwidth and data transfer capabilities.
We completed the direct qualification of a tier 1 customer in Q1 and.
And we believe we're now selling indirectly into our other major player in this space.
I'm also very pleased to report their way beginning to ramp volume from new customer device that we believe is now moving into production.
We expect a ramp for our <unk> subsidiary.
Related to this application to be gradual over the coming quarters.
Adam.
Adding incremental growth to our business.
Our qualification into the supply chain for this customer is the result of many quarters of collaboration with both the end customer and its supply chain partners.
Turning to gallium arsenide.
We are seeing signs that market supply is tightening.
Our revenue for LTE applications grew by more than 20% in Q2.
Demand was driven by high end applications, including automotive and lighting and display.
As I expected.
Revenue from our wireless application declined modestly in Q1.
As we move into Q3, however, wireless revenue is expected to grow nicely from Q2 levels as a result of our broad based Iot application demand.
Our success.
Development of 8 inch gallium arsenide wafers for <unk> applications, such as micro OLED at lighthouse is setting the stage for a new wave of growth.
Among the money benefits.
We believe <unk> gallium arsenide will help to enable.
The scale and efficiency required for very large volume applications.
Industry news and customer interest suggest that micro OLED are likely to become the next major volume driver force.
Gallium arsenide chips.
Micro OLED can support higher brightness.
Higher dynamic range and wider color gamut, while achieving a faster uptake rate.
Wider viewing angle and lower power consumption.
The arbitration extent from wearable devices and handheld devices to very large screen like high end televisions.
Tier 1 players are driving the development of this technology and we believe that our wafers are already being used for early stage activities.
The level of customer activity and general industry excitement gives us confidence that micro Leds will come to market.
And it's also a factor in our motivation to deliver to deliver the 8 inch gallium arsenide wafers.
Now turning to the germanium substrates.
The expected revenue from germanium substrate decreased modestly in Q2.
However, the satellite solar.
Market looks to be healthy in the second half of 2021, and we expect to see growth this year.
Finally.
I wanted to touch on our raw material business, which grew another 10% sequentially in Q2 after a 45% sequential.
Growth in Q1.
As you may recall.
We recently consolidated 2 joint ventures.
Are you <unk>.
<unk>, which manufactures high temperature TVN crucibles.
TVN based tools for OLED.
Jing Mei.
<unk> is a diversified industry.
<unk> industrial high purity mature supplier.
In 2020, both companies relocating to our campus in casual.
Ably NIM to expand capacity in response to strong market demand.
To me today <unk> is processing approximately.
Industry sales of material per Boe.
Chris.
Which is more than 25% of the world yearly consumption of Gary.
It's robust growth has been made possible by the new state of the art facilities that not only allows it to handle more demand.
12, but also attract new customers and open up incremental business opportunities.
Such as material recycling recombination.
Coming into Q2.
We expected the raw material portion of our business to come down a bit from a record number in Q1. However.
Continued expansion.
With a recovery in pricing of raw materials, such as raw gallium is allow both companies to continue the growth.
The improvement in commodity pricing also in April the joint ventures, which will account for it using the equity.
Equity method to perform very well in Q2.
We saw a meaningful increase.
Their contribution during the quarter.
We believe the demand environment to remain healthy this year and that therefore performance will continue to be positive to our results.
In closing this is an exciting timing obviously.
The investment we have made over the past years in our facilities, our team and our business processes and processes are producing solid returns in our results.
We are participating in several major.
There are technology trends.
We are now in the supply chain of some of the most prestigious companies in the world.
Further.
Our growth and record rich threat.
Our results underscore the expanding number of major application for compound semiconductor.
Uh huh.
Yeah.
Infrastructure.
As well as our strong competitive position.
As we look ahead in Q3, we expect this momentum to continue I will now turn the call back to Gary for.
Our third quarter guidance Gary.
Thank you Morris as Morris discussed the demand environment remained healthy in Q3.
Indium phosphide coming off a very strong recent quarter. We believe we will see continued growth.
We also expect growth in gallium arsenide revenue.
Germanium substrates in raw materials.
They are expected to be consistent or about equal to the results of Q2.
As such we expect to see revenue in Q3 of between $34.5 million to $35.5 million.
We believe that our net profit will be in the range of 10 to 12.
With a share count of approximately 42.
8 million shares.
This concludes our prepared comments Morris and I will be glad to answer your questions now.
Yeah.
And as a reminder to ask a question. Please press Star then the number 1 key on your Touchtone telephone.
Your question has been answered or you wish to remove yourself.
From the queue. Please press the pound key.
And your first question comes from the line of Richard Shannon from Craig Hallum. Please go ahead Sir.
Well, Thanks, Morris and Gary can taking my questions on the congrats on the very nice.
It's here.
I guess my first question is on.
So your comments regarding the tier 1 qualification I was wondering if you could give us a little bit more color on who this company is are they in OEM or supplied somewhere in the supply chain can you talk about applications, and specifically, which which subsidiary.
Substrate.
Material and size that it was on.
Well, obviously, we cannot name customer names as you understand.
But this customer we've been working with for the last.
Almost 2 years.
And.
The category of material that we're working with them.
Indium phosphide material.
And.
They have an interest.
In 3 and 4 inch.
And they also have a few true interest in 6 inch indium phosphide as well.
So they are.
2 tier 1 customers in the United States and.
And supply into major concern with the Max.
Okay that is helpful. Let's see here a quick question looking back on your second quarter numbers to your gross margins at a healthy level.
In context here over the last couple of years, but down a little bit here, even though indium phosphide was strong and I think if I'm reading my numbers right here are the raw materials are also very good usually that's a positive mix shift, but it was a bit down here, maybe you can help delineate the drivers that Gary please.
Yeah, It's it's no single thing.
It's.
Hi.
From a job variances.
From within the menu.
The manufacturing unit.
It's from increased pricing for raw materials.
And.
Just 1 other thing I can think of it let's see.
Okay.
And we have some gallium arsenide orders from long term friendly customer.
That.
Didn't have that.
The company average gross margin, but we want to keep working with that customer because we've been with them for years. So.
But.
A couple of quarters ago.
You guys were asking can we get back to 35% and we said, yes, we think so.
Let's wait till we get there before.
Become overly confident we still have room to growth.
<unk>.
There is.
Hanging fruit that we can identify plus just some good hard work.
But but I still want to stay right in the mid 30% 35.36.
Until we prove that we can do better so, but we're not we're not settling for where we're at we'll see what we can do.
Okay.
Fair enough last question I will jump out of line here kind of a multi parter here. Obviously your guidance here is very strong and you're calling talking about indium phosphide first as a driver here.
If you can delineate the drivers here last quarter, you talked about <unk> and related technologies to what degree is that <unk> datacom.
<unk> tier versus some of these new applications for which last.
Last quarter, you said could drive as much as 5% to 10% of total cost side for the year can you help us understand a little bit better. Please.
Yeah.
I think.
I'm certainly watching <unk> demand.
And then you add <unk> was solid.
And I expected for the first quarter and it does it is expected to ramp up.
Ah nicely in the second half however, we are seeing.
Our solar pong related business to be very strong in the first half already.
So if it's going to grow nicely in the second quarter, then that should add more fuel to the fire so to speak.
I mean, as we said our data center business was.
Steady.
Yeah.
But we also saw our customers' announcements, saying that the second quarter is going to grow nicely. So we hope that's going to help us and we also qualify it with you or the other.
Our silicon photonics customer.
I I think you know noticeably I think we've been very excited.
Half of these new applications that we qualified and we believe is in the process of ramping into production and we would just have to wait and see how much more it will give us when they ramp into full scale production.
Going into the second half of the year and we have some other.
About iron in the fire so to speak so I think you know to distinguish indium phosphide, let's say.
Back in 2014, net 15, Oh, we have very nice growth, but that was the main growth engine was pons business and then we have the silicon photonics coming on strong.
But now we're seeing multi prong multi.
Point of growth they are not necessarily related related with each other.
But they also are connected to the benefit of using indium phosphide either for the wave price they produce.
Which can test.
Okay.
The transfer of data very quickly within a fiber optic transmission line or are there specific wavelengths came monitor.
Parameters are in a specific application. So I think those are very exciting field I think the day, we should see.
Continued growth for many years to come.
Yes, let me just link that to 1 of the comments I made in my prepared comments that we didn't have any 10% customers from the second quarter in a row. So that's that's another way to illustrate the diversity of the applications for.
See indium phosphide, it it's kind of a.
It's kind of a renaissance for any indium phosphide lots of interesting things happening.
And 1 of the benefits and things that we liked about the business model is once you get into an application. It can have a long trajectory in terms of the useful life of it it can last a long time.
4.
Yes.
Next question is great I appreciate it.
Thanks, courtesy from me. Thank you. Thank you guys I'll jump out of line.
Thanks, Tim.
Once again, if you would like to ask a question just press Star and then the number 1 key our net touchstone telephone.
And your next question comes from the line of Matt <unk>. Please go ahead.
I'm sorry from VW aspirin actual please go ahead sir.
Hi, Gary Morris and Gary could you just talk about the inventory going up so much in your accounts receivable are going up.
So much these loss this quarter is there something that you're planning as far from your customers that your inventories sorts, so much versus revenue and the same thing with receivables I guess are you providing extending out.
Terms are as revenue just coming in towards the very end.
Quarter.
Yes.
Let's stick on a for a second.
The the AAR did expanded for 2 reasons 1 is increased revenue, which that's fine of course, but the second is that the day sales outstanding.
Shifted in the wrong direction, so for the previous.
Quarters the last.
From the last previous 4 quarters.
If you average the dsos by quarter It comes to any 175 days.
Which.
No.
Which isn't like a great.
It's not a great DSO, it's never been a strength for us.
Part of that's because we have so many sales in greater Asia.
And.
The.
Just frankly in case people don't know, but there.
There is a lot longer time to pay in China.
Leah Japan.
So so.
The DSO went up by 8 days to 90 days.
It would be worth about $3 million into the accounts receivable. So if we had stayed with the previous 4 quarter average.
The AAR would've gone would not have gone up as much.
Still gone up because of sales, but that it would have been $3 million less.
As regards.
There is no extended terms, there's no special deals there is no.
We're not aware of anyone that is going to become bad debt. We don't have any of those kinds of problems generally.
It's just.
It's it's stretched.
It's probably also and I didn't have time to do the.
Analysis, but if we ship.
Sort of in the second half of the quarter, then we're not going to.
We're not going to collect in the same quarter. So in the case of <unk>.
Greater Asia.
If it.
If we ship anytime after.
The first 20 days, we probably will collect it.
In the same quarter zone.
As for inventory, there's a couple of things going on there number 1 is we're growing.
And.
Our production management people and schedulers.
Sure.
Tend to stock up.
The growth on the horizon, which they are.
We have weekly production control meeting, which Morris tens and so everyone's tied into what's happening in the company and the opportunities and the things that we're addressing.
The second thing is happening as well.
We did buy ahead on raw materials, because we have visibility.
When they see material that's 1 of the benefits of owning all these companies and we could see as the year progresses.
The average selling prices are not going to come down.
They may stay firm or maybe inch up a little bit more.
But if they can share we didn't want to.
Delay buying so we bought ahead a little bit.
So there is.
As a business person comment im okay with both of these.
I wish our AR was a faster cycle time, but it's just the nature of these customers in Asia that.
Slow pay it's not 30 days for sure so.
Morris you have any other comments.
About inventory.
Well my comment is that going to look.
The revenue grew by 62%.
Our inventory did grow 52 per se.
We do have a larger inventory than your normal silicone industry, because we deal with.
Monday different products.
With different parts.
Our product cycle is longer than normal, but if you look at Axt's history, we normally carry a larger inventories. So that's the nature of the business.
So.
I'm glad to see inventory goes up because that.
That means our growth our business revenue is growing up.
Okay and then in Q1 earnings call you talked about the tier 1 customer being qualifying you for manufacturing and substrates now you have a second tier 1 customer.
When do we start seeing this.
And the revenues if you haven't already as far as mass production goes is there quite a bit of difference between the 2 as far as their indium phosphide.
Demand in ordering would look like.
Yes.
These 2 are 2 different customers.
But I think they are both heavily into indium phosphide and they are in 2 different.
Field.
The first 1 is already in production.
We're delivering that.
Second 1 would just qualified but we think the revenue shifts.
You'd start to come in gradually.
In the next couple of quarters.
Okay, great. Thank you.
Thanks Colin.
And we have a follow up question from the line of Richard Shannon from Craig Hallum. Please.
Please go ahead Sir.
Alright.
Let's see a couple of questions guys first of all I guess, 1 for Gary on Capex here, what should we expect for the second half of the year and then how do we think about it beyond this I know at some point, we're going to see the.
Investments Sunset Sunset in the new facility here, but.
We may see some pick up here with some some tier ones coming in here. So you can just give us a sense quantitatively or qualitatively, what we should expect in capex, you're going from that'd be great.
Well I would say a year ago I expected that capex for this current year.
It would be.
Lower.
Slower than it actually is so.
But what's happened is there's so many interesting opportunities that we're addressing.
And so we've.
We've added more equipment for example, indium phosphide furnaces.
We've added.
More expensive.
<unk> testing.
Test equipment like the surface scanning equipment at the request of some of these tier 1 customers that they want us to have the very best in their opinion.
So I think it's going to stay at this level.
At least through the rest of this year.
It's going to be a mixture of equipment, but also some facilities.
The causal government.
Is.
Giving us a bargain deal on us on a site adjacent to our current site.
There's already a building there.
We will be fitting that building out as we.
We look to as micro OLED.
So.
Morris you want to add any more comments.
I do want to chime in here.
Obviously, we are in a very interest in time.
We already attracted $49 million investment from China Bus T Fund.
And we are gearing ourselves up for the star market.
With expected market cap that we do expect from them than we should have very well funded but.
Look also with.
With the demand for 8 inch gallium arsenide.
<unk> or micro OLED as well as <unk>.
Very strong demand for indium phosphide.
I don't think will account for it to slow down on the expansion of our facilities.
Does a inch gallium arsenide now I'll expect it to become a major revenue generator.
Until 'twenty.
2000 and for second half.
Good day.
The.
Addressable market by then is about at least $250 million.
So you know we've got to build to that and but of course, we got to do it gradually we gotta do it cautiously.
We've got to make sure that we win the customers' trust and Po before we commit big time, but there are things that we got to do the preparations such as R&D in terms of visibility and the yield and the crystal growth and we also need to do the preparation for the facilities.
Is that we need to build for the micro OLED expansion, so I I think.
I'd much rather see that.
The demand environment requires us to spend more money to build more capacity for our future business.
Oh Morris you kind of answered part of my answer. The next question. So I'll ask it directly from filling them based on what you just said here, but just speaking specifically to make early day here you talked about it for a while as being the potential biggest opportunity you have in front of you.
And you just mentioned a major revenues in 2020 for second half.
Half of that year, where things have to happen between now and then and you know like when would you have to start.
With a major capex spending when would when would you have to start a building.
Retrofitting, a building or whatever when would you have to have confidence that you've won this customer when in order to do those things.
Yeah.
Yes, absolutely Richard.
The business doesn't just jump up in 2020 for second half I mean, I think the customer is.
<unk> already started to deliberate sample quantities to than last quarter, and we will continue to deliver simple.
Material to them and well, it's a sample anymore, it's gonna be pilot productions.
And it's going to start to ramp.
But meaningful revenue is going to start coming probably.
Earlier in 2023, but not to the very large they call. It a pilot production.
Volume production.
And very large volume production. So the very large volume production is defined in 2020 for second half okay. So.
But.
We definitely need to do R&D for sure and we need to build some facilities to house some.
Some of the development work that we need to do such as Crystal balls as was wafer processing casual.
And that's where we would need to spend money on those okay. So you can see the the the R&D expense is going to go up and but we need to also do some design and some.
Facility improvement, we're going to need to build in college or in the next.
Yeah, I would say, but we will obviously need to.
Major.
Or control the spending until we start to see the order started coming in other words.
They are.
3 big.
Spending into micro OLED.
Is R&D that we need to we need to do the investment now okay. The second part is that facility improvement in your crystal growth, but as far as the wafer processing, but they are in Palo like kind of development. So we don't need to spend big money.
But we need to see that these processes, we're fitting to be qualified into the customers' lives and then once we got that then we should have Palo lie.
Purchase order from our customers as well and then in the next Inc.
In 2023 second half I believe we need to spend big money in terms of.
I'm buying more equipment and buying more build out the facilities are in order to fulfill the orders because don't forget these are addressable market in the hundreds of millions of dollars. So.
It is going to triple double at least double our gallium arsenide facility capacity, if not triple and quadruple.
But we need to know the demand environment.
And so so first thing first student R&D first and then we.
But some facilities as well.
Okay.
That is great perspective, more so that is all from me I appreciate the time guys. Thanks.
Thanks Richard.
Next question.
And we have a follow up question from Chris <unk> from <unk> financial. Please go ahead Sir.
So this filing that you guys are proposing $60 million shelf does this have to do with what Morris was just talking about and why do you need. This cash is the first time, you're doing a shelf from 5 years.
Well the old shelf expired.
The previous shelf was I think.
Neither the third shelf that the companies had in place.
So I view it as prudent to have a shelf in place.
It is because of the growth and it gives us an option.
To finance the growth.
We wouldn't probably do $60 million, if we did anything.
But it would be modest.
But.
It's 1 more tool in the in the fire for how we get all the step down.
And it's being driven by very strong demand for indium phosphide, good demand for gallium arsenide, and then on the horizon gallium arsenide.
Tonight, doubling or tripling in terms of the Tam So it's.
So that's why I use the word Renaissance earlier, there's just there's just a lot going on so.
So that's what that's why we put the shelf in place.
Okay. Thank you.
Yes, Youre welcome good to hear from you.
Next.
At all.
And I'm showing no further question at this time I would like to hand, the call back to your Doctor Morris Young. Please go ahead Sir.
Alright.
Participating in our conference call in August we will be participating in the <unk>.
13th and U B Ws financial growth and value summer investors series as well as the Jefferies semiconductor hardware communications and infrastructure.
Infrastructure summit.
Hope to see many of you there.
Always please feel free to contact me.
Question is share or Leslie Green directly if you would like to set up a meeting or a call with US we look forward to speak with you in any of the future.
Okay.
Thank you have a good afternoon everybody.
And this concludes today's conference. Thank you for your participant.
Everything's share and have a wonderful day you may all disconnect.
[music].
<unk>.
Yes.
Yeah.
Okay.
[music].
Yes.
[music].
Yes.
Okay.
Yes.
[music].
Okay.
[music].
Yes.
Uh huh.
Okay.
Yeah.
Uh huh.
Okay.
Good day.
[music].
Okay.
[music].
Moving on.
Okay.
[music].
Hum.
Tom.
[music].
Net income.
Okay.
[music].
Okay.
[music].
Okay.
And we're moving revenue.
Okay.
[music].