Q1 2022 AXT Inc Earnings Call
Okay.
Good afternoon, everyone and welcome to Axt's first quarter 2022 financial call at this time.
Good afternoon, everyone and welcome to <unk> financial first quarter 2022 financial conference call, leading the call today is Dr. Morris Young Chief Executive Officer, and Gary Fischer Chief Financial Officer. My name is Kevin and I'll be your coordinator today at this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session, who asked a question. During this session. Please.
Press Star one on your telephone if you need any further assistance. Please press star Zero I would now like to turn the call over to Leslie Green Investor Relations Investor Relations for <unk>.
Thank you Kevin 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 among other things the future financial performance of the company market conditions and trends, including expected growth in the March.
So we serve emerging applications using chips or devices fabricated on our substrate our product mix, our ability to increase orders in succeeding quarter.
Costs and expenses to improve manufacturing yields and efficiencies to utilize our manufacturing capacity, 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.
Just to caution you that such statements deal with future events.
Just on management's current expectations and are subject to risks and uncertainties that could cause actual events or results carefully.
These uncertainties and risks include but are not limited to overall conditions in the markets in which the company competes global financial conditions and uncertainties.
With 19, another outbreaks of contagious disease potential tariffs and trade restrictions increased environmental Inflations in China.
Market acceptance 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 available online by link from our website and contain additional information on risk factors that could cause actual results to differ from our current expectations. This conference call will be available on our website at <unk> Dot com through April 2023.
Before we begin I want to note that shortly shortly following the close of market today, we issued a press release reporting financial results for the first quarter of 2022. This information is available on the Investor Relations portion of our website at <unk> Dot Com I would now like to turn the call over to Gary Fischer for a review of our first quarter.
2022 results Gary.
Okay. Thank you Leslie and good afternoon to everyone.
I'm hearing a little bit of background noise, So Morris and Leslie it might be good during this.
Hum this portion of the medium.
That we'd go on mute if we're not speaking so by the way to our group.
We're in different locations today that Morris is specific to the middle of the night in China. So he is in China and I'm in the Fremont office for NXT. So.
Unless we see also in the Bay area. So.
Okay.
Today, we are pleased to report that total revenue for the first quarter of 2022 was $39 7 million, that's up 5% from $37 7 million in the fourth quarter of 2021 and up 26% from $31 4 million in the first quarter of 2020.
Q1 marks our ninth consecutive quarter of growth and highlights the market expansion and increasing demand for indium phosphide and gallium arsenide substrates.
To break down our Q1 'twenty two are rare.
Revenue for you by product category, Indium phosphide was $15 5 million.
Gallium arsenide was 12.0 million germanium substrates, where $4 2 million in revenue from our two consolidated raw material joint venture companies was $7 9 million.
In the first quarter of 2022 revenue from Asia Pacific was 73% Europe was 16% North America was 11%.
The top five customers generated approximately 29% of total revenue one of which just inched over the 10% level.
Our continued revenue diversity demonstrates that our growth is not overly dependent on one large customer or application. This is another factor contributing to our confidence that we have reached a point of sustainability and can outpace market growth in 2022.
Yeah.
non-GAAP gross margin in the first quarter was 33, 8% compared with 32, 4% in Q4 of 2021.
36, 9% in Q1 of 2021.
For those who prefer to track results on a GAAP basis gross margin in the first quarter was 33, 6% compared with 32, 2% in Q4 of 2021 and 36, 8% in Q1 of 2021.
Improvement in gross margin came through growing volume a favorable product mix and a strong focus on yield improvements and manufacturing efficiencies. We continue to believe that we can get back to the 35% range later this year.
Total non-GAAP operating expense in Q1 was $8 6 million. This compares with $8 1 million in Q4 2021 and was.
$7 2 million in Q1 of 2021 on a GAAP basis total operating expense in Q1, 2022 was $9 6 million compared with $9 1 million in Q4.
For comparison total GAAP operating expense was 8.0 million in Q1 of 2021.
non-GAAP operating profit for the first quarter of 2022 was $4 8 million compared with non-GAAP operating profit in Q4 of 2021 of $4 1 million and $4 4 million in Q1 of 2021 for reference GAAP operating profit for the first quarter of 2022 was $3 7 million up from an operating profit of 3.0 mean in Q4.
Of 2021, and an operating profit of $3 6 million in Q1 2021.
Non operating other income and expense for the first quarter of 2022 was a net gain of <unk> 3 million. This includes a gain of $1 1 million from the unconsolidated raw material companies. The full breakdown is in our press release.
For Q1, 2022, we had a non-GAAP net income of $4 3 million or <unk> 10 per share compared with $4 1 million or <unk> <unk> per share in the fourth quarter of 2021 non.
non-GAAP net income in Q1 of 2021 was $4 2 million.
Or 10 cents per share.
On a GAAP basis net income in Q1 was $3 2 million or <unk> <unk> per share by comparison net income was $3.0 million or <unk> <unk> per share in the fourth quarter, 2021, and $3 4 million or <unk> <unk> per share in Q1 of 2021.
The weighted average diluted shares outstanding in Q1 was $42 7 million.
Cash cash equivalents and investments were $44 3 million as of March 31 by comparison at December 31 that was $51 8 million.
Depreciation and amortization in the first quarter was 2.0 million than capital capital investments were $6 3 million total stock comp was $1 1 million.
Net inventory at March 31 was 60.
$68 8 million.
Okay. This concludes the review of our quarterly financial results.
Turning to our plan to list our subsidiary tongue me in China on the Star market in Shanghai, Let's let me give you a quick update so the review of our application is now underway is proceeding according to our expectations. Tom They received a list of questions from the Shanghai Stock Exchange Review Board. This is similar to what we call a comment.
From the U S. SEC, our China Advisors think the list was fair and reasonable and we have provided a lengthy and detailed response.
Our advisors tell us to expect another set of questions is it is normal to have more than one round of comments and indeed.
We did earlier this week the second set of questions. So that's positive it was very fast turnaround and we're pleased with that so as we have discussed the process of going public on the star markets include several periods of review and therefore is a lengthy process Tung Le does not expect to complete the IPO until the second half of this year.
Before I turn the call over to more Morris I want to take a moment to address the COVID-19 restrictions in China, which had been in the news of course to date, we have not had any shutdowns of our operations and in Beijing, finishing or caso, we have experienced some supply chain disruption as a result of shipment delays to supplier shut.
Downs relating to products, we use in our manufacturing process.
However, so far we've been able to mitigate the impact with inventory on hand, we've also seen some pockets of softness where customers are on lockdown, but the demand for our products coupled with the diversity of customers and applications that need them have allowed us to shift our allocations to other customers or applications that remain in high demand.
Like most companies we are monitoring the situation closely and with Morris in China are managing through these issues with high level of attention.
We remain in close contact with our customers to understand any changes in their demand expectations should those changes arise.
Okay with that I'm going to turn the call over now to Dr. Morris Young for a review of our business and markets Morris.
Thank you Gary.
Q1 was another strong quarter of voyage seat.
A solid growth demonstrates.
We have reached a inflection point U haul business.
Investments in our technology business operations and customer relations.
Bearing fruit.
Market share gains expansion into new applications and tier one opportunities.
Enables us to post a 26% revenue increase in Q1.
From the prior year.
This growth is coming from a diverse set of applications and customers across telecom infrastructure datacenter industrial.
Schumer healthcare automotive and more.
This gave some strong confidence in the sustainability of our business it says throughout 'twenty.
And beyond.
Indium phosphide, we achieved record revenue in Q1 of $15 $5 million.
This represents an increase of more than 45% Q1 2021.
And puts us well on track to achieve indium phosphide revenue growth of 30% or more this year.
We believe our key market.
Have entered a new cycle of innovation.
And application development that is driving opportunity expansions.
Diversify our.
Our revenue base.
This is supported by the strong order pattern. We're currently experiencing.
Demand from shuffle.
Our fall with tier one customers is robust.
We're working hard to scale our production accordingly.
In particular.
Our new customer applications is ramping well.
As we mentioned to you in February .
Designed into a short wave.
Infrared sensor will consumer applications.
Our success as a supplier for this initial application.
It allowed us to begin ramping a second application for mobile devices.
That we believe will incrementally larger.
Larger in volume.
We're excited about these design wing.
And we believe.
He will present, the gateway to additional high value designs and applications in portable consumer devices.
Importantly, we are pleased to know that our customer product roadmap is lining up well.
Our capabilities.
To meet the new innovations.
Developing.
Datacenter applications were also strong in Q1.
Increasing.
Solid and steady level that we've seen over the past year or so we believe we are gaining shares in this market.
Our customer discussions indicate.
We should see growing demand throughout 2022.
The silicon photonics market.
<unk> is expanding rapidly.
And is creating exciting opportunities in telecom Datacom Lidar health care <unk>.
High performance compute.
AI.
Optical compute computing applications.
Suffered major players are making significant investments in the advancements and adoption of Silicon Photonics technology.
Telecom infrastructure is it category performed well in this quarter as well.
Including <unk> related applications.
We believe that infrastructure upgrade cycle.
<unk> in the United States.
Europe and other parts of the world is creating a beneficial demand environment.
Indium phosphide.
And that should continue to do so was.
Several years to come.
Turning to gallium arsenide.
The OLED market remains strong across all of our traditional end market.
Such as automotive display and high end lighting.
In fact, we achieved our highest revenue quarter since Q3 of 'twenty two.
Contributing to our growth in Q1 with continued strength in high power industrial laser applications.
With our very low.
Wafers.
Have gained significant market share, particularly in China.
This has allowed us to drive strong revenue growth.
Please.
Applications over the last six years.
High power industrial lasers are commonly used.
In tools used to cut metal sheets welding equipment.
Testing equipment.
Robot applications medical devices and others.
Revenue from our two consolidated raw material companies.
It was down this quarter.
After very strong growth throughout 2021.
With prices remaining volatile these consolidated raw material companies.
Being selective in the business they support.
In order to drive improved gross margin performance.
In our business.
We were pleased to see the increasing contribution to profit from the unconsolidated raw material companies.
We presented additional positive leverage in our model.
This is a strong benefit.
Our vertical integration strategy.
While high raw material prices.
Has a negative impact on our cost of goods sold for <unk> and its competitors.
<unk> is able to offset some of the impact of the higher prices through the revenue generated by our joint ventures.
We also had the benefit of supply guarantees and insight into the pricing side.
We believe these have proven highly valuable to our business.
Over the last two decades.
In conclusion, we have reached a turning point in our business.
Across our portfolio.
With tier one customers for new innovations, helping to redefine what is possible with technology and advancing specialty materials into areas.
The market may not have conceived.
Oh, just a few years ago.
Today, we're seeing significant growth.
Major major.
A major trend in <unk> telecommunication too.
In data center expansions and consumer devices and industrial applications.
Visible on the horizon.
Emerging applications she micro Leds.
<unk> health.
Health monitoring.
And the benefits.
We believe.
We present and other trust one may be a brief business.
Business.
Through the scaling of our operations investing our product roadmaps.
Strengthening.
Our capital structure.
Executing on a strategy that positions us.
Well for the healthy growth and profitability throughout 2022 and beyond.
I'll now turn the call back to Gary.
Our second quarter guidance.
Thank you Morris.
As Morris discussed there are a number of company specific growth drivers contributing to our performance.
We're currently expecting Q2 revenue to be between $38 million at $41 million.
We believe that our non-GAAP net profit will be in the range of eight to 10 cents and.
And GAAP net profit will be in the range of six to eight.
Share count will be approximately $42 six 6 million shares.
So this concludes our prepared comments Morris and I will be glad to answer your questions.
Kevin operator.
Sure.
Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound sheet.
Our first question comes from Richard Shannon with Craig Hallum.
Oh, great. Thanks, Morris scary for taking my questions.
So let's start looking backwards into the first quarter here on gross margins.
Coming off of I guess, it probably disappointing end of last year, you're directionally upwards and I think it's based on your qualitative commentary a bit better than I think you would've expected.
In your comments, you mentioned, a volume mix and some yields.
Can you maybe describe the mix and then maybe if you wanted to discuss Morris looking forward here how much how close are you to more of your ideal level of yields across your whole substrate portfolio.
Gary you want to take that first okay sure.
The reason, we pointed out indium phosphide. It you know as we said it was a new record for the quarter $15 5 million.
And.
That kind of mix is beneficial for us in the aggregate gross margin percent.
So.
Okay.
That's why we underline underscore for example.
One of the reasons that we think we can continue to trend in the right direction, meaning upward into the right is we think indium phosphide is going to continue to expand and so.
We'll get the benefit of that tailwind.
We are we had been going through I think.
Settling in process at the at the new sites and we've also did modifications at the Beijing site to increase capacity and things and upgraded.
And so I think theres still some some progress to be made in that arena.
At our all time ever best yet.
So.
I think we can get back to that.
And.
We are also doing some development program in the R&D category.
On recycling certain materials that.
Because the price of materials has increased so much we've crossed a tipping point where it is.
Economically preferable for us to do more recycling, it's also better for the environment and things like that and deficiencies.
So those are the things that I think.
Helping us.
<unk>.
That's it.
I guess it gives the background as to why we think that we can continue the trend in the right direction for gross margin Morris you want to add anything else.
Yeah absolutely.
I do I do want to emphasize I think.
Richard I think you see us growing so fast, especially on some of the categories when you grow.
You can hit that yield point precisely and Thats I think.
Remarkable.
I see.
We have done a good job and but nevertheless, I think when you said the lead you should have incremental gain.
The design win of the indium phosphide I believe when we start to ramp into volume.
Should give us the opportunity to not only increase yield but also.
The favorable product category as well as volume, Okay, I think that should give us increase the volume.
And on top of it I think.
Our new factory.
It's not new anymore, but still you know crystal growth.
They call it art and science of Crystal growth so.
We have more to gain in terms of yield and.
Success rate and reduce our costs increase it works as well.
Okay, and a follow up on that topic, Gary built into your guidance for the quarter then much time to try to run this through but given similar volumes here would you expect a similar gross margins within a certain range in the second quarter as well.
Yeah.
Our group here.
Drills down they haven't ticking up a little bit.
But it's.
So I would expect that's going to be the case.
Okay Yeah.
Just want to make sure we're reading that right. So that's helpful.
Next topic here on the last call you talked about the expectation of hitting top topline sales at 15%, 20%. Your first quarter is up 26, and the guide here it looks like it's implying a number.
And that probably around 18% or so.
I think also on the last call Morris you alluded to the potential of maybe even hitting a $50 million quarter. This year.
So I'm wondering if you could talk about trends in the rest of the year supporting that 15%, 20% or is there a so do you see a possibility.
That 50 50 million number popping up this year, which case you can clearly blow that away, especially since I think you've talked about some positive dynamics in the health sensing, which may be a contributor to that can you talk to those points Morris. Please.
Sure Richard.
I mean of course that $60 million.
I'm not trying to take it back.
You need a lot of good things loss last quarter to happen last quarter, we were talking about indium phosphide continues to grow in the first design win we have we also talk about.
The possible ramping up all the second and third product and we are starting to see the second product start to ramp. So we're very pleased and hopefully we're going to see that the start of the third product right.
And and datacenter, obviously is very strong.
And in fact, I think our indium phosphide is.
Sort of capacity constrained at this point.
Although we are growing very fast, but still customer demand customer demand is really strong.
So hopefully by later this quarter, we should be able to.
And catch up to the capacity for our customer demand.
Yeah.
Gallium arsenide, one particular area.
Does the power amplifier HPT market.
And we are still in talk with our customers.
Oh subtle issue such as commercial tubes.
Okay.
Quality of this strong market going forward, because we need to do investment to address that market and that market is more difficult.
Dan.
Phosphide indium phosphide is a newly developed market that market.
<unk> market is more mature, but I think we do see the demand being high but that's not resolved.
So if that were to come to fruition that obviously is going to be a very big volume.
No.
All of these coming to fruition then sure.
It's possible to reach $50 million however.
Sure.
Everybody hates however, when the CEO talks.
Hum.
We have to count.
We didn't know that the Ukrainian wall, it's happening.
I think.
Possible recession, everybody is looking at.
And.
The technology stock is going down and Covid is affecting China spin.
Specifically very strongly so I think our business specifics on that.
Not being affected I don't believe some of these new product introduction I don't think it will be affected by the recession or.
On the.
But our supply.
May be affected and eventually our consumer maybe affected.
So I think.
Looking at the law changing teams and so hopefully that.
The stock price at $6, a share taking everything into account.
Okay I appreciate that.
I'm, sorry, Gary what was that.
Please go ahead.
Oh, Okay, I thought I heard something just one more question from me I'll jump back into the queue here.
Gary You mentioned there was a 10% customer just above can you tell us whether that was a customer who's been one in the past and then of the top five customers that you have how many of these are these kind of these new tier ones that <unk> been talking about investing and are investing in behalf of for the last couple of years.
Yes.
This is a customer that is it recurring.
Winter in the 10% category.
And it's a heavy user of indium phosphide so.
It kind of lines up that way for them.
The.
The answer to your other question is it.
The top five are not new.
None of the brand new applications in the consumer market is yet in the top five.
It's getting close.
It's going to flip over.
But it hasn't yet so.
The ones that are the top five of our customers that we've mentioned before over time so.
Okay. That's great perspective, I will jump out of line guys. Thank you.
Richard.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question comes from hardware of course, some of the dws financials.
Hi, So first question I had was.
Just given the market backdrop.
Are you getting this feedback from the end users or as the customers, placing more orders, giving you. This clarity is too.
How indium phosphide is being used in gallium arsenide.
I think.
Yes give some color, but I think the answer is both.
We're getting it from.
With people the companies that we sell to in the food chain, but we're also being supervised and communicating with the end customers. So glad Morris.
Yeah.
Yeah, However, I would comment on these.
Obviously, we cannot disclose our customers off because we're there.
Very heavy NDA.
But some of the because of the nature of our business, we usually send our substrates.
<unk>.
House, who use our substrate and put it appear later and they subsequently extended to device fabrication in house, and then and finally assembling to a particular device. So although we do have visibility who that end customer is.
We very often miss.
We don't know what their specific applications or we can't gas. We know it is a mostly is it laser AC led.
A.
Detector. So I think that most often we hear about today for indium phosphide applications is detectors and lasers.
They are using.
The indium phosphide laser sensor and it did.
<unk> ticked up here.
To switch off something to detect something or two.
The electronic device to perform better.
Yes.
This is the most frequently hurdle applications lidar.
Which has applications for it.
Polymer vehicle applications, which is still not in the main stream, but you do hear lidar being taught.
In the industry.
Whats smartphone applications.
Okay, and then could you just comment on this.
Customer application that you are ramping with the second one in mobile devices is it all with the same customer or is it just different consumer applications.
With different cut.
Customers.
It's a different application.
But I think.
Customer.
A similar.
Okay.
Then my final question was.
Given the you know the.
The risk of shutdown in China with your operations.
What kind of procedures do you have in place.
To minimize any impact if it does happen.
Well well, let me answer it this way I think we have a lull of procedures to protect ourselves okay.
And China uses big data to monitor people.
Carefully so we have clear instruction to all employees.
Especially our delivery drivers so they have to take.
Covid tests very often they have to be very much aware.
Where.
Where they have been if they have caused certain points, which has.
Strong COVID-19 infection rate and then we often we setup a room for them to read.
And and now mingle with the rest of the employees. So we also have given our employees three testing kits. So we feel comfortable we ask them to take the Covid test.
Quick test and before they come to work if they don't they don't feel comfortable.
Sick stay home, Okay. So we have lot of protocols to help ourselves.
Our factory also.
Manufacturing of high purity material. So just about everybody wears a mask.
In the production floor and all our density of employees.
Highly populated.
So we have taken a lot of precautions that we have gone through a lull.
Prior pandemics such as even Sars.
Knock on wood, we're safe, but it's not to say that we can continue that tradition.
We're just being diligent as far as.
If it will happen what do we do.
That we have not thought about because I think mostly then will be government would be interfering.
What we worry that most I think is the government.
So far Beijing has yesterday I think 46 cases.
Compared to the rest of the world is peanuts.
Very low.
Right.
But in China is very serious.
I hope they can step it down in Beijing is really attractive.
So we should watch these developments very closely.
They start to reach a peak start to trend down then.
Okay.
Alright, great. Thank you.
Thanks Hamid.
Our next question comes from Richard Shannon with Craig Hallum.
Alright, well I'm back thanks for the follow on here.
I think I'll follow up on the topic of micro Leds Morris can you give us an update on the engagement tiers.
With customer or customers.
What kind of state of either material development toward negotiation understanding of market development, we ask and can you tell us about the status of the of the.
Eight inch gallium arsenide wafers that are there to support that.
Sure Yes.
We have been saying that we are spending a lot of money.
Research and development. These days on both eight inch gallium arsenide as well as six inch indium phosphide.
On both fronts I think we have equipment just success I mean, we have not made the big announcements.
We did say that we.
The eight inch where sandy sample wafer quantities.
Quantities of wafer to all customers already and.
Roughly to 300 wafer per month.
The feedback so far are.
Okay.
So we're still working with our customers to reach.
<unk> process are retooling their process it and see what.
Specifically they need yes, we are in sort of a.
More advanced negotiation with our.
Customers.
In terms of.
What kind of a specification they need in terms of what kind of pricing they can commit and what's the volume that we need to commit.
<unk> to support their manufacturing.
Right.
So far.
<unk>.
Sirius and.
Heavy negotiation, we have not reached any conclusion, yet and we do have two customers by the way.
Uh huh.
So I think.
<unk>.
From the looks of it most customers extremely.
Committed confident.
It's a goal.
In fact, one of the customers that announced that they have invested.
The $1 billion too.
To build the microbes in your factories.
So that's all good news for micro Leds.
Okay.
Richard.
Sorry, I put it on mute entre why did that.
Thanks for that Morris Gerry a quick follow up on Capex here I'm wondering if you could give us a thought process on how on higher your what's your expectations are for this year.
In past calls you've heard about when does that point, where we get to kind of more closer to maintenance levels, obviously, you're spending at a pretty hefty rate here for a couple of years. So.
Should we think about that the rest of the year.
Well.
It's a constant topic for Morris and myself and the other team members.
We're committed to investing for the future because.
There are some just beautiful opportunities.
For me and Morris.
Yeah.
Let's just say we've been around the block a few times and only only every once in a while in my career has so many bright light has been on the horizon. So.
So we are doing.
Uh huh.
Some broader development work, which I alluded to earlier today for recycling.
There are several programs like that and we're trying to balance the need to be prudent on investment.
Versus.
Falling asleep and not taking advantage of the opportunity that's there so.
We're definitely going to be in double digit dollars per capex again this year.
It's a bit fluid still.
And so far.
But we'll be we'll be investing we need to do a little facility work as well.
And we are doing more automation work with equipment.
And.
We haven't really.
Announced any details but.
We did disclose in our documents within our filings that we formed another joint venture for raw materials.
So it's we're.
We're not going to get to the maintenance level this year.
I think maybe six months ago I thought we might.
But then when we started.
What's happening in the marketplace and talking to our senior executives.
Compiling lists and choices and things.
Then.
You can see that we're not going to be let's just say $6 million to $10 million. So.
But we're comfortable with where we're at with cash and.
You know.
We're still optimistic about succeeding in the IPO process in China. So.
So anyway, that's kind of give you perspective, we watch it carefully.
Tradeoff between being prudent versus.
Taking advantage of key opportunities.
Okay.
Yes sure.
Yes.
Sorry go ahead Richard.
Yeah, I do want to emphasize the looking at the opportunities I think the demand.
We just have to invest.
That we don't have a situation of indium phosphide, our customer walks away from us and we are.
All of the capacity and so you know we we are good at increasing capacity, but we need to not only build that capacity.
But also be more.
Automated and so I think all of these investments should bear fruit later for <unk> shareholders.
Yeah.
And then in the next year or so.
Yes in the future.
Okay.
That's helpful. One last question for me I'll jump out of line again.
On your again, just talking on the topic of your 15% to 20% sales growth number for the year.
At the midpoint of your second quarter. If you were flat the rest of the year I think you'd still be at about a little bit above the low end of that number.
Which would certainly be well below your seasonally normal, but I'm not sure seasonally normal can be thought of in this environment can you win it.
Can you is there any thought process about what you'll be only at the low end of that number.
Versus what I hear about some some really good programs indium phosphide and others that could.
Drive some sequential growth.
Through the rest of the year and easily.
Get to the midpoint or well above.
Yeah.
Okay.
Absolutely I think our internal goal, obviously is higher than that but we don't want to give.
The other update.
Growth targets for the year.
And given the potential design wins, we have.
Just to name a few and on top of it could be the HPT when that goes in that should kick us into a second gear and then micro OLED micro OLED is probably a little bit further away all depends upon how fast the customer pushing.
I mean, although it's nice to know that they are building a $1 billion.
Investments in micro OLED, but.
On the other hand, they just announced it. So you would expect that it will not meet wafer until at least a year from now.
So in.
In the meantime.
High power laser market in China is very strong.
We have seen strong across the board.
I tend to think.
The opportunity for indium phosphide, we're really excited is because in the past, we only talk about pons market.
And then later on data center, a little bit now we're talking about multiple fronts, we're talking about.
Policy is still there fiber to home stay where theyre datacenter keep on growing.
Half of it is <unk>.
And then on top of it is this electronic device I think we're starting to see it start to emerge.
You asked the question.
Any of those customers in our top five they're not that being the case Wednesday, Saudi Iraq.
It can be a few of them potentially is going to be not compromised. So that you can see is significant so I am very excited about it.
And you know we're investing.
Showing up being all SG&A R&D.
SG&A R&D are.
Two years ago was 5 million balance is now almost 595.
And I said, how nice it is if we can drop that all down to profits I mean shareholders are all going to celebrate instead of.
My sense of share was going to be delivering 20, this year, but we choose to spend to build a better company in terms of infrastructure, if were bigger operation and IPO in China as well as spending money in R&D.
Dan.
Think about it if we have two new gross fund in terms of micro OLED, which is going to be maybe a year year and a half from now and that's a huge market I believe.
In the six inch indium phosphide.
Pounding on doors demanding six inch indium phosphide, we're working hard on it.
And hopefully that we can deliver that and that is now obviously in the forecast so I think.
So a lot of great futures and our visibility is better.
But less in terms of forecasting.
We wanted before conservative and deliberate what we really can deliver and.
Hey, <unk>.
15% to 20% growth is not bad after a 44% gross last year right.
No doubt about that Morris.
Certainly excellent growth and I appreciate the perspective.
That's all for me. Thank you thanks Richard.
Our next question.
Our next question comes from Jeff Scott with Scott asset management.
Good afternoon, I'd like to follow up on the.
The Capex question I think you said your Capex for the first quarter was $6 4 million is that has that been.
Directed toward the indium phosphide or the gallium business.
It.
It includes both.
In.
Especially for indium phosphide, we're adding furnaces.
As Morris alluded too weak.
We've reached a point where.
We can't quite meet that meet the demand from.
From one of our good customers.
So there are a bit nervous about us right now.
We have the solution, we're going to add more furnaces, it's going to be okay, but yes. So theres some theres some equipment for indium phosphide Theres also some wafer processing equipment.
In the gallium arsenide line and the germanium line.
So it's mixed.
Okay.
Yes.
Yeah.
Maybe a little more information on the increase in market share.
Is that driven by new customers or higher share of wallet from existing customers.
Well, let me try that.
I think.
Yeah.
Is that usually they don't tell us I mean, usually they will.
So, let's say you would only do that will give us a lower price.
And kind of give it to be a competitor. So we are only testing what kind of market share we get okay.
But yes.
You can't you can't tell some of these tale tell size places we cannot deliver.
Substantially all of some of the customer demand.
And we said well we're sorry.
Youre, telling us this increased demand too late.
Yes.
And why don't you get it from your second supplier.
The answer back is.
Silence.
I think you did two things we are the majority shareholder.
Shareholder or supplier or.
Alternatively, we think it's more true as our competitor the lead times even longer.
We are quoting somewhere around.
Eight weeks lead time on some of the indium phosphide product.
And how competitive we here.
Our customers told us some of the customer until those are.
As far out to six.
Months lead time.
Sorry, you're in somewhat.
Go ahead.
You're increasing your capacity for the indium phosphide or are the other two major.
Global suppliers also increase their capacity.
That's a good question.
The treasures.
I don't think I know, but I can give you some historical perspective.
In 2014, and 2015, we were growing 60% year over year, two we're seeing a role.
Those two years the market didn't grow.
We see some market research newer growing top at maybe 20%.
So we think we're taking market share.
And also if you look at <unk>.
Revenue on the email pass by.
I believe.
We zoomed up very quickly.
We believe we are firmly number one place now.
Okay.
So I think we are.
<unk>.
In terms of deposit quality with the Logan.
We are also very good in terms of.
Assuming our customers that commercial demand.
Very responsibly, so we're gaining market share I believe.
Okay last question.
On the last call you talked about.
Efforts to recycle scrap raw material.
How far along are you in.
Six getting success in that and.
If it is successful.
It seems like that should make a material difference in gross profit margin.
Is that correct.
Ah yes.
We get along very well on that way.
Launching that this quarter and increasing in volume next quarter.
So the good thing is is this the significant part of it.
Volume of it left because we have saved all these recyclable material.
We have a way to go.
Was saving.
In terms of helping us gross margin is concerned.
Uh huh.
I think it's significant.
I don't know, how do you quantify or significant.
As far as indium phosphide discussion.
Indium phosphide raw material is it.
Good portion of our cost of goods. So let me put it that way and if we can recycle it yes, it would help us gross margins.
I mean, I'm thinking that if it if it is successful it would be at least a couple of percentage points of gross margin improvement.
It wouldn't be tentative and it would be be multiple presents.
That could be but that it's limited to indium phosphide only so players only about.
30%, 40% of our revenue base, yes. So.
Okay. Thanks, I'll, just I'm going to be.
Okay. Thanks, very much I appreciate it.
Sure.
I'm not showing any further questions at this time I would like turn the call back over to Morris young for any closing remarks.
Okay.
Thank you everybody for participating in our conference call.
And this quarter, we will be presenting at the 19th annual Craig Hallum International Institutional Investor Conference.
We do look forward to seeing many of you there as always please feel free to contact me, Gary Fischer or Leslie Green directly if we.
We would like to set up a call I look forward to speaking with you in the near future.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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