Q4 2023 AXT Inc Earnings Call
[music].
Operator: Good afternoon, everyone, and welcome to AXT. 2016 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Communications. On the call today is Dr. Morris Young, to DeVos. Gary Fischer.
Good afternoon, everyone and welcome to Axt's fourth quarter and fiscal year 2023 financial conference call.
He didn't call today is Dr. Morris Young Chief Executive Officer.
And Gary Fischer Chief Financial Officer.
Eric: My name is Eric, and I will be your coordinator. After the speaker's remarks, there will be a question and answer session, would like to ask a question during this time. Followed by the number one on your television. If you would like to withdraw your questions. I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Thank you, Eric, 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 markets we serve, emerging applications using chips or devices fabricated on our substrates, our product mix, our ability to increase orders in succeeding quarters, to control 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.
My name is Eric and I will be your coordinator today.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.
If you would like to withdraw your question Press Star one again.
I would now like to turn the call over to Leslie Green Investor Relations for AXT.
Yeah.
Thank you Eric 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 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 to improve manufacturing yields and efficiencies to utilize our manufacturing capacity the growing environmental health and safety.
T and chemical industry regulations in China, as well as global economic and political conditions, including trade tariffs and 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 uncertainties that could cause actual events or results to <unk>.
Eric: We wish to caution you that such statements deal with future events and 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, global financial conditions and uncertainties, COVID-19 and other outbreaks of contagious diseases, potential tariffs and trade restrictions, increased environmental regulations in China, 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 materially from our current expectations.
For materially 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 COVID-19, another outbreak so contagious disease potential tariffs and trade restrictions increased environmental regulations in China the financial.
Performance of our partially owned supply chain companies and the impact of delays by our customers on the timing of sales and 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 materially from our current expectations. This conference call will be available on our website at AXT Com to February 22nd 2025 also before we begin I want to note that shortly following the close of market today, we issued a press release.
Leslie K. Green: This conference call will be available on our website at axt.com through February 22nd, 2025. Also, before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the fourth quarter of 2023. This information is available on the investor relations portion of our website at axt.com. I would now like to turn the call over to Gary Fisher for a review of our fourth quarter 2023 results. Gary?
Reporting financial results for the fourth quarter of 'twenty 'twenty. Three 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 Fischer for a review of our fourth quarter 2023 result, Gary.
Gary Lynn Fischer: Thank you, Leslie, and good afternoon to everyone. Revenue for the fourth quarter of 2023 was $20.4 million, up from $17.4 million in the third quarter of 2023 and down from $26.8 million in the fourth quarter of 2022. To break down our Q4'23 revenue for you by product category, indium phosphide increased sequentially to $5.4 million, reflecting a stabilizing market with continued improvement in artificial intelligence, pawns, and data center applications. Gallium arsenide also grew to $6.0 million, with excess inventory largely worked down and certain applications showing improvement. Germanium substrates were $1.1 million, down slightly from the prior quarter.
Thank you Leslie and good afternoon to everyone.
Revenue for the fourth quarter of 2023 was $20 4 million up from $17 4 million in the third quarter of 2023.
And down from $26 8 million in the fourth quarter of 2022.
To break down our Q4 'twenty three revenue for you by product category Indium phosphide increased sequentially to $5 4 million.
Reflecting a stabilizing market with a continued improvement in artificial intelligence.
The pons and datacenter applications.
Gallium arsenide also grew to 6.0.
With excess inventory largely worked down in certain applications showing improvement germanium substrates were $1 1 million down slightly from the prior quarter.
Gary Lynn Fischer: Finally, revenue from our consolidated raw material joint venture companies in Q4 was $7.9 million. In the fourth quarter of 2023, revenue from Asia Pacific was 77%, Europe was 16%, and North America was 7%. The top five customers generated approximately 28% of total revenue, and no customer was over the 10% level.
Finally revenue from our consolidated raw material joint venture companies in Q4 was $7 9 million in the fourth quarter 2023 revenue from Asia Pacific was 77% Europe was 16% in North America was 7% the top five customers generated approximately 28% of total revenue and no customer was over.
The 10% level.
Gary Lynn Fischer: Non-GAAP gross margin in the fourth quarter was 23.2%, compared with 11.3% in Q3 of 2023 and 32.5% in Q4 of 2022. For those who prefer to track results on a GAAP basis, gross margin in the fourth quarter was 22.6%, compared with 10.7% in Q3 of 2023 and 32.1% in Q4 of 2022. The primary drivers of the sequential improvement in our corporate gross margin in Q4 were higher additional volume, product mix, and improved gross margins at both Gin May and Boy U. Beyond the near term, we remain confident that we can get back to the mid-30% range as the environment strengthens through higher overall volume, more favorable product mix, and the benefits of our recycling programs, along with continued efficiency improvements throughout our business. Moving to operating expenses, the reduction in overall revenue, we have maintained spending discipline in our operating expenses to align with the current environment. Total non-GAAP operating expense in Q4 was $7.5 million, down from $7.8 million in Q3 of 2023 and down from $8.9 million in Q4 of 2022.
non-GAAP gross margin in the fourth quarter was 23, 2% compared with 11, 3% in Q3 of 2023 and 32, 5% in Q4 2022.
For those who prefer to track results on a GAAP basis gross margin in the fourth quarter was 22, 6% compared with 10, 7% in Q3 of 2023 and 32.1% in Q4 of 2022.
The primary drivers of the sequential improvement in our corporate gross margin in Q4 were higher additional volume.
Mix and improved gross margins at both Ginnie Mae and boy you.
Beyond the near term, we remain confident that we can get back to the mid 30% range as the environment strengthens through higher overall volume more favorable product mix and the benefits of our recycling programs along with continued efficiency improvements throughout our business.
Moving to operating expenses with a reduction in overall revenue we have maintain spending discipline in our operating expenses to align with the current environment.
non-GAAP operating expense in Q4 was $7 5 million down from $7 8 million in Q3 of 2023 and down from $8 9 million in Q4 of 2022.
On a GAAP basis total operating expense in Q4 of 2023 was $8 2 million down from $8 6 million in Q3 and down from $9 6 million in Q4 of 2022.
Our non-GAAP operating income for the fourth quarter of 2023 was a loss of $2 7 million compared with a non-GAAP operating loss in Q3 of 2023 of $5 8 million and a non-GAAP operating loss of 256000 in Q4 of 2022.
Gary Lynn Fischer: On a GAAP basis, total operating expense in Q4 of 2023 was $8.2 million, down from $8.6 million in Q3, and down from $9.6 million in Q4 of 2022. Our non-GAAP operating income for the fourth quarter of 2023 was a loss of $2.7 million, compared with a non-GAAP operating loss in Q3 of 2023 of $5.8 million, and a non-GAAP operating loss For reference, our gap operating line for the fourth quarter of 2023 was a loss of $3.6 million compared with an operating loss of $6.7 million in Q3 of 2023 and an operating loss of $1.0 million in Q4 of 2022. Non-operating other income and expense and other items below the operating line for the fourth quarter of 2023 were a net loss of $62,000.
For reference our GAAP operating line for the fourth quarter of 2023 was a loss of $3 6 million compared with an operating loss of $6 7 million in Q3 of 2023 and an operating loss of 1.0 million in Q4 of 2022.
Non operating other income and expense and other items below the operating line for the fourth quarter of 2023 was a net loss of 62000 and the details can be seen in the P&L included in our press release today.
For Q4 of 2023 with non-GAAP net loss of $2 8 million or <unk> <unk> per share compared with a non-GAAP net loss of $4 9 million or <unk> 12 per share in the third quarter of 2023.
non-GAAP net income in Q4, 2022 was 2.0 million or five cents per share.
On a GAAP basis net loss in Q4 was $3 6 million or <unk> <unk> per share by comparison net loss was $5 8 million or <unk> 14 per share in the third quarter of 2023.
GAAP net income in Q4 of 2022 was $1 3 million or <unk> <unk> per share.
The weighted average basic shares outstanding in Q4 of 2023 was $42 9 million.
Cash cash equivalents and investments were $52 3 million as of December 31st by comparison at September 30th It was $43 6 million.
Gary Lynn Fischer: The details can be seen in the P&L included in our press release today. For Q4 of 2023, we have a non-gap net loss of $2.8 million, or $0.07 per share, compared with a non-gap net loss of $4.9 million, or $0.12 per share, in the third quarter of 2023. Non-GAAP net income in Q4 2022 was $2.0 million, or $0.05 per share. On a GAAP basis, net loss in Q4 was $3.6 million, or $0.09 per share.
Depreciation and amortization in the fourth quarter was $2 2 million in capital investments was about $4 million total stock comp was about 800, K 800 K.
Net inventory was flat quarter to quarter, 38% of the inventory is raw materials and with this 58% finished goods makes up approximately 4%.
This concludes the discussion of our quarterly financial results turning to our plan to list our subsidiary telling me in China on the star market in Shanghai.
In regards to the tongue may IPO, we need to resolve one open item. Although it is moving slower than we expected we are making progress and are confident that Tom they remains an excellent candidate for listing.
Gary Lynn Fischer: By comparison, net loss was $5.8 million, or $0.14 per share, in the third quarter of 2023. Gap net income in Q4 of 2022 was $1.3 million, or $0.03 per share. The weighted average basic shares outstanding in Q4 of 2023 were $42.9 million. Cash, cash equivalents, and investments were $52.3 million as of December 31st.
With that I'll now turn the call over to Dr. Morris Young for a review of our businesses and markets Morris.
Thank you Gary and good afternoon everybody.
Believe that we are now beginning to see a recovering our market in Q4, we achieved 18% sequential growth in our.
Revenue and a 43% sequential improvement in our net.
non-GAAP net income.
While the overall demand environment remains soft.
Somewhat soft we are seeing increased orders for indium phosphide for both artificial intelligence and PA related applications.
Gary Lynn Fischer: By comparison, as of September 30th, it was $43.6 million. Appreciation and amortization in the fourth quarter was $2.2 million, and capital investments were about $4 million. Total stock comp was about $800K.
Further the gallium arsenide market, which was the first of our market to go into every correction appears to have largely worked through excess inventory.
Looking individually at this product lies.
Our gallium arsenide revenue grew 42% sequentially in Q4.
Reflecting increasing his phrase in both wireless and OLED applications as follows depletion of excess inventory and our continued success in attaining export permits for most of our customers.
Gary Lynn Fischer: Net inventory was flat quarter to quarter; 38% of the inventory is raw materials, and WIP is 58%; finished goods make up approximately 4%. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary, Tongmei in China, on the star market in Shanghai. In regards to the Tongmei IPO, we need to resolve one open item.
We're seeing new demand for HPT applications, where we historically have had very little market share.
We believe this is the result of both improving market conditions and their desire among customers to diversify their supply base.
Morris S. Young: Although it is moving slower than we expected, we are making progress, and we are confident that Tongmei remains an excellent candidate for listing. With that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets.
We are also seeing improving demand geographically in China across a variety of applications, including Leds wireless switches and high power lasers.
As we look forward.
Micro OLED market continues to solidify.
Several tier one companies are driving this adoption and the new product could come to market as soon as next year.
Morris S. Young: Thank you, Gary, and good afternoon, everybody. We believe that we are now beginning to see a recovery in our market. In Q4, we achieved 18% sequential growth in our revenue and a 43% sequential improvement in our non-GAAP net income. While the overall demand environment remains somewhat soft, we are seeing increased orders for Indian phosphide for both artificial intelligence and palm-related applications. Further, the gallium arsenide market, which was the first of our market to go into a recorrection, appears to have largely worked through excessive inventory. Looking individually at these product lines, our Gallium Oxide revenue grew 42% sequentially in Q4, reflecting increasing strength in both wireless and LED applications, as well as depletion of excess inventory and our continued success in attaining export permits for most of our customers.
As many of you know we're being we have been investing in all of our eight inch gallium arsenide technology in support of these applications.
We have recently made groundbreaking advancements in both our defect density and yields.
This innovation positions us strongly to gain a leading share in the market.
Well efficiently supporting growing market demand.
Now turning to indium phosphide.
<unk> grew 10% in the quarter with early signs of recovery in the power market and brand new demand related to artificial intelligence.
We view AI as a emerging new application for indium phosphide that were developed in exciting ways over the coming years.
Good day.
Applications are primarily using gallium arsenide VIX shows quickly requires a relatively small amount of substrate material.
Morris S. Young: We're seeing new demand for HPT applications, where we historically have had very little market share. We believe this is the result of both improving market conditions and the desire among customers to diversify their supply base. We also see improving demand geographically in China for a variety of applications, including LEDs, wireless switches, and high-power lasers, as we look forward. The micro LED market continues to solidify.
But as the industry moves to 800 gig and then 1.6 terabytes space, we expect that that would be a necessary transition to indium phosphide.
AI will drive up the need for massive data transfer it requirements with increased bandwidth low attenuation and low distortion.
We believe this will result in increased demand for indium phosphide as the best platform for rapid data faster.
We already are seeing development work happened.
Happening today with next generation Silicon photonics devices, and electro absorption modulated lasers.
Morris S. Young: Several Tier 1 companies are driving this adoption, and a new product could come to market as soon as next year. As many of you know, we have been investing in our 8-inch Galen Arsenault technology in support of this application. And we have recently made groundbreaking advancements in both our defect density and yield. This innovation positions us strongly to gain a leading share in the market, while efficiently supporting growing market demand. Now turning to Indian phosphide, sales grew 10% in the quarter, with early signs of recovery in the pound market and brand new demand related to artificial intelligence. We view AI as an emerging new application for Indian phosphide that will develop in exciting ways over the coming years. AI applications are primarily using gallium arsenide vixels, which require a relatively small amount of substrate material.
Oh, Yeah mail email Els.
<unk> four.
For high speed data Center Transceivers.
Early revenue from these applications contributed to our indium phosphide growth in Q4 and will help drive our expected growth in Q1.
This interest in indium phosphide for AI applications is intensifying the market demand for six inch indium phosphide.
This me signal clarity and long distance capability RV indium phosphide optimal for AI applications.
As market growth customer was the scale and cost benefit of large diameter substrates.
We're excited by the progress, we're making in our R&D effort and expect to continue to lead our industry with the best in class material.
While consumer and health care applications for indium phosphide today contribute only modestly to our revenue.
We continue to see positive development activities and believe there is a great potential on the horizon.
Morris S. Young: But as the industry moves to 800 gigabyte and then 1.6 terabyte speeds, we expect that there will be a necessary transition to Indian phosphide. AI will drive up the need for massive data transfer requirements with increased bandwidth, low attenuation, and low distortion. We believe this will result in increased demand for indium phosphide as the best platform for rapid data transfer. We're already seeing development work happening today with next-generation silicon photonics devices and electroabsorption modulated lasers.
We're very early in the adoption of this material across a multiple a way of emerging applications and our success a supporting tier one customers proves our capability for large volume high precision devices.
Finally sales from our raw material business grew 13% with continued gross margin improvement.
Overall, the pricing environment remains relatively stable and we don't expect any major changes in Q1.
In closing.
We are looking forward to.
Morris S. Young: Oh, EML, EML, EML, for high-speed data center transceivers. Early revenue from these applications contributed to our Indian phosphate growth in Q4 and will help drive our expected growth in Q1. Demand for Indian phosphide for AI applications is intensifying the market demand for 6-inch Indian phosphide. The speed, signal clarity, and long-distance capability of mini and far-sight are optimal for AI applications
The coming year with optimism.
We believe that the trend that we have driven our revenue and customer expansion remain very much intact with new catalysts, such as AI, providing a strong incremental opportunity.
In addition.
Im exceptionally proud of what <unk> accomplished in 2023 paving.
Paving the way for an exciting future.
Morris S. Young: And as the market grows, customers want the scale and cost benefit of large diameter. We're excited by the progress we're making in our R&D efforts and expect to continue to lead our industry with the best-in-class material. While consumer and healthcare applications for Indian phosphide today contribute only modestly to our revenue, we continue to see positive development activities and believe there is great potential on the horizon. We're very early in the adoption of this material across a number of ways of emerging applications.
Not only did we successfully navigate export licenses.
Export control license process on behalf, our customer we delivered breakthrough innovation in the development of large diameter, gallium arsenide and indium phosphide substrates, and we will set a new bar of excellence for our industry.
In addition, we implemented a recycling program that Bose advances, our ESG commitment and improves our efficiency.
Morris S. Young: And our success in supporting tier one customers proves our capability for large volume, high precision devices. Finally, sales from our raw material business grew 13% with continued gross margin improvement. Overall, the pricing environment remains relatively stable, and we don't expect any major changes in Q1. In closing... We are looking forward to the coming year with optimism. We believe that the trend that we have driven our revenue and customer expansion will remain very much intact, with new catalysts, such as AI, providing a strong incremental opportunity. In addition, I'm exceptionally proud of what the AXC team accomplished in 2023, paving the way for an exciting future. Not only did we successfully navigate the export control license process on behalf of our customer, but we delivered breakthrough innovation in the development of large diameter gallium arsenide and indium phosphide substrates. And we will set a new bar of excellence for our industry. In addition, we implemented a recycling program that both advances our ESG commitment and improves our efficiency.
Finally, while the progress on our IPO, maybe less visible externally.
I am very grateful for the diligence of our team and confident that we can successfully bring it to fruition.
In the meantime, we will continue to prioritize cost savings and efficiency and we are focused on accelerating our return to profitability and thank you to our customers our shareholders for.
There continue support.
I will turn the call back to Gary for our first quarter guidance Gary.
Thank you Morris and keeping with our comments today, we expect Q1 revenue to be between 20 million and $22 million.
We expect our non-GAAP net loss will be in the range of six to eight.
And GAAP net loss will be in the range of eight to 10 <unk>.
Share count will be approximately $42 6 million shares.
This concludes our prepared comments Morris and I would be glad to answer your questions now.
Eric.
Yes.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Gary Lynn Fischer: Finally, while the progress on our IPO may be less visible externally, I'm very grateful for the diligence of our team and confident that we can successfully bring it to fruition. In the meantime, we will continue to prioritize cost savings and efficiency, and we are focused on accelerating our return to profitability. And thank you to our customers, our shareholders, for their continued support. I will turn the call back to Gary for our first quarter guidance. Thank you, Morris. In keeping with our comments today, we expect Q1 revenue to be between $20 million and $22 million. We expect our non-GAAP net loss will be in the range of $0.06 to $0.08, and our GAAP net loss will be in the range of $0.08 to $0.10.
Okay.
Your first question comes from the line of Richard Shannon with Craig Hallum.
Please go ahead.
Great. Thanks, Morris and Gary for taking my questions and congratulations on a good entered the year.
I will start with a question for Gary on your fourth quarter numbers here, specifically on gross margins, while obviously volume helps here. The falter margin here was nothing short of excellent I think it's about 90%, which seems unusual maybe you can delineate more of the dynamics here, obviously the mix helps but.
I Wonder if there was some increase in utilization or unusual pricing and raw materials that helps you do this and really want to get a sense of sustainability I haven't had a chance to run your guidance for the first quarter through and see what that implies for gross margins, but I wanted to get a sense of the fourth quarter as it leads into the first.
Eric: The share count will be approximately 42.6 million shares. This concludes our prepared comments. Morris and I would be glad to answer your questions now. Eric?
Okay.
Yeah.
Well.
As usual the biggest items that contribute to these kinds of improvements are going to be product mix indium phosphide was up Q to Q.
Eric: At this time, I would like to remind everyone, in order to ask a question..., use the star than the number one on your. We'll pause for just a moment to compile. The first question comes from the line of Richard Shannon with Craig Hallam.
And volume and volume was up over $3 million.
They are.
There was a better improvement from the two raw material companies.
Richard Shannon: Great. Thanks, Morris and Gary, for taking my questions. And congratulations on a good end to the year.
And.
That also contributed I think in terms of sustainability.
Gary Lynn Fischer: I'm going to start with a question for Gary on your fourth-quarter numbers here, specifically on gross margins. While obviously volume helps here, the fall through margin here was nothing short of excellent. I think it's about 90%, which seems unusual.
You know.
We should be in about the same range in Q1.
Maybe plus or minus a little bit, but we'll see.
And.
Yeah.
Well, that's I think that's.
How I would respond.
Gary Lynn Fischer: Maybe you can delineate more of the dynamics here. Obviously, mixing helps, but I wonder if there was some increase in utilization or unusual pricing and raw materials that helped you do this. I really want to get a sense of sustainability. I haven't had a chance to run your guidance for the first quarter through and see what that implies for gross margins, but I want to get a sense of the fourth quarter as it leads into the first. Okay. Well, it it.
Yes.
I'm, not a finance guy, but nobody knows that.
We have a policy of variety of material, which we did or we don't sell for 12 months period of time.
The revenue come down again, the write off with excess inventory will start to impact us, but we pick up the volume is not only the write off becomes less but also we will have the opportunity to pick up those right off.
I didnt to be honest cell, thus improving our gross margin that could be a.
Gary Lynn Fischer: As usual, the biggest items that contribute to these kinds of improvements are going to be product mix. Indian phosphide was up Q to Q, and volume.
Yes.
Okay. So that would certainly make sense thanks for that clarification.
And maybe I'll follow up here just on the guidance for the first quarter here, obviously, a little bit of growth at the midpoint here, how do we think about the the major segments that you report on whether they're meaningfully different than that.
Gary Lynn Fischer: And volume was up over $3 million. There was better improvement from the two raw material companies, and that also contributed. I think in terms of sustainability, we should be in about the same range in Q1, maybe plus or minus a little bit, but we'll see. Well, I think that's... I'm not a finance guy, but what I know is that when we have a policy of writing off material that we don't sell for a 12-month period of time, and when revenue comes down, then the write-off for the excess inventory will start to impact us.
What kind of average growth at the midpoint.
Yes.
The significance is that indium phosphide will continue to grow.
Gallium arsenide, I think global will grow substantially again.
Dominion is actually stable or <unk>.
<unk> way to the overall revenue contribution actually raw material is going to decrease quite substantially quarter over quarter.
Not because the business is weak but.
Gary Lynn Fischer: When we pick up the volume, not only does the write-off become less, but we will also have the opportunity to pick up those write-off items on sale, thus improving our gross margin. That would certainly make sense. Thanks for that clarification.
We did just that.
Yeah.
The raw material business.
Great fourth quarter and the first quarter.
They didn't pick up the large volume opportunity in Q1.
So overall, although the revenue growth is modest but actually come mostly from the contribution of our indium phosphide gallium arsenide correct Yep.
Morris S. Young: And maybe I'll follow up here just on the guidance for the first quarter, obviously, a little bit of growth at the midpoint here. How would we think about the major segments that you report on, whether they're meaningfully different than that, you know, kind of average growth at the midpoint? I think the significance is that imidazole will continue to grow, gallium arsenide, I think, will grow substantially again, and Jumanian is actually stable or... Insignificant, in a way, to the overall revenue contribution. Actually, raw material prices are going to decrease quite substantially, quarter over quarter. Not because their business is weak, but I think it's just that. The raw material business had a great fourth quarter and the first quarter, but it didn't pick up the large-volume opportunity in Q2.
Okay perfect. Thanks for that delineation.
So let's jump into some of the product categories here in data center.
Meaning indium phosphide here sounds like it's.
Got some opportunities here clearly know this optical space, where it seems like it's very nice here, maybe you can talk about.
I think you've been a little bit limited in a kind of a narrow customer base in your past I think you have one major customer there maybe you can talk about the efforts for diversification and ultimately how do we think about.
Either the data center growth this year versus last year or maybe just the overall indium phosphide category.
Hmm.
I don't know where did you get that NDA from we have eliminated narrow customer base I don't think we have very narrow customer base. I think we have a don't you have don't you just have one larger a big contributor to datacenter and many other smaller ones or some number of smaller ones.
Morris S. Young: So overall, although the revenue growth is modest, it actually comes mostly from the contribution of Indian phosphide and gallium arsenide. Correct. Perfect, thanks for that delineation.
Morris S. Young: So let's jump into some of the product categories here in the data center, you know, meaning Indiaposite here sounds like it's got some opportunities here. Clearly, we know about this optical space, which seems like it's very nice here. Maybe we can talk about, you know? I think you've been a little bit limited in the kind of narrow customer base in your past. I think you have one major customer there. Maybe you can talk about the efforts for diversification and ultimately, how do we think about, you know, either data center growth this year versus last or maybe just the overall Indian phosphide category? Hmm. I don't know; where did you get that idea from?
Yes data center Silicon Photonics, specifically it was.
Sort of narrow date daily to grow.
And they are poised to grow they are being telling us it should grow substantially in Q in 2024, but we haven't seen that yet I think they are incrementally better in Q1 than Q4, but they are telling us their visibility is still not good but the overall theyre, telling us that Q2.
Four should be substantially better than 2023.
So I think from what we see our indium phosphide the telecom business is not right.
Morris S. Young: We have a limited, narrow customer base. I don't think we have a narrow customer base. I think we may have a- Don't you just have one larger, a big contributor to data centers, and many other smaller ones, or some number of smaller ones? Yeah, data center silica photonics specifically was sort of narrow. They didn't grow.
The data center actually still got some inventory to digest <unk>.
<unk> market in China actually is picking up a bit.
Okay, but there is still <unk>.
Not robust compared to the peak time, but it's better than Q3 for sure and has continued to be better in Q1 than Q4, and what I think is surprising to us I think is the AI applications.
Morris S. Young: They are poised to grow. They've been telling us that GDP should grow substantially in 2024, but we haven't seen that yet. I think they are incrementally better in Q1 than in Q4, but they're telling us their visibility is still not good. But overall, they're telling us that 2024 should be substantially better than 2023. So I think from what we see on Indian phosphide, the telecom business is not great. The data center actually still has some inventory to digest. Pong's market in China is actually picking up a bit.
It first started something like six months ago.
And we thought it was.
As well.
Well first the customer wouldn't tell us is AI and then they come back again and they want more in Q4 and they now give us other.
Figure order in Q1, so Q.
Cumulative deliveries related Dave it's in the millions of dollars of range.
So and this time they also admit.
To us that is AI related.
So we are cautiously optimistic although they are not giving us.
<unk>.
Good visibility I'd say will grow in Q2, and Q3, but the least I think so far it's a very good si.
Morris S. Young: Okay, but it's still not robust compared to peak times, but it's better than Q3 for sure, and it continued to be better in Q1 than Q4. And what surprised us was the AI application. You know, it first started something like six months ago, and we thought it was... Well, first, the customer wouldn't tell us it was AI. And then they come back again, and they want more in Q4.
I believe this <unk>.
Indium phosphide solution for AI World Com is a matter of time, but I think I am glad to see it's coming already through.
Yeah.
Okay Morris some interesting detail there it seems like you're splitting up I guess, what I would call datacom.
Splitting out between Silicon photonics in AI and others here that perhaps there is more detail that we can take offline there, but that sounds it sounds good to hear here.
Morris S. Young: And they now give us yet another, Hmm. Bigger order in Q1, so accumulated delay. Dave, it's in the millions of dollars range. And this time, they also admit to us that it's AI related. So we are cautiously optimistic, although they are not giving us any, you know. Good visibility, how much they will grow in Q2 and Q3. But at least, I think so far, it's a very good sign. And I believe this Indian phosphide solution for IAI will come. It's just a matter of time. But I think I'm glad to see it's already through. Okay, Morris, some interesting detail there.
Let's see here, maybe just touching on other side of indium phosphide here it sounds like you're incrementally more positive on the consumer electronics and healthcare side here, maybe just to get a sense of where that's coming from and do you see any large customers kind of impacting your year. This year.
Yeah.
Well Richard we.
We are cautiously optimistic they are requesting a fairly sizable cold and we're in qualification process falls to launch.
Later this year.
But we don't have no signal it will.
Morris S. Young: It seems like you're splitting up, I guess, what I would call data comm, that you're kind of splitting up between silicon photonics and AI and others here, that perhaps there's more detail that we can take offline there, but that sounds good to hear. Let's see here, maybe just touching the other side of Indian Phosphide here, it sounds like you're incrementally more positive on the consumer electronics and healthcare side here. Maybe just get a sense of where that's coming from, and do you see any large customers kind of impacting your year this year? We are cautiously optimistic. They are requesting a fairly sizable code, and we're in the qualification process to launch later this year. But we don't have no signal.
Become reality I mean, the volume with substantial windows come for consumers.
Yeah.
Is still into qualification process.
It will launch and we'll launch later on this year, we don't know, but we have at least.
Let me see two customers requesting for the same volume for the same.
Type of material that.
The request.
From the volume of it we know it's a consumer product.
Okay fair enough well that's good to hear last question I will jump out of line here just touching on the micro Leds topic here.
Yeah.
I want to get a sense of your visibility and confidence in this market taking off.
I think you mentioned in your prepared remarks in some time in calendar 'twenty five here.
It seems to be kind of a moving target in this space I think it's a largely due to yields in the pick and place here outside of your direct.
Morris S. Young: It will. The volume is substantial. We know it's for consumers, but it's still in the qualification process. When will it launch, and will it launch later this year? We don't know. But we have at least... two customers requesting the same volume, for the same, you know, type of material that they request. I mean, from the volume of it, we know it's a consumer product. Okay, fair enough. Well, that's good to hear. Last question. I will jump out of line here, just touching on the micro LED topic here.
Yeah.
The scope of your work here, but just wanted to get a sense of your level of confidence that it can happen next year.
Well there I think you probably know better than help you I think from our and.
Our development of the AA inch gallium arsenide progress supporting these opposing Jones of <unk>.
Capacity, our yield and quality.
Now we are.
We have made great advancements.
In the last quarter, and we're now very confident and we have customer visit.
Morris S. Young: I guess I want to get a sense of your visibility and confidence in this market taking off. I think you mentioned in your prepared remarks that sometime in calendar 25, here, seems to be kind of a moving target in the space. I think it's largely due to yields and pick and place, outside of your direct scope of your work here. But I just want to get a sense of your level of confidence that it can happen. Well, there, I think you probably know better than I do. I think from our end, our development of the AIH Gannling Asset Program is supporting this, both in terms of capacity, our yield, and our quality. Now we have it.
Twice now.
The third attempt to visit US will happen next quarter and we will see.
Qualification process, so I think.
While we can tell you is our customers are telling us they are ready to launch sometime in 2025.
<unk>.
So that's why we carefully.
Whether it's good I mean right now we're running.
Hundreds of wafers per months, Okay, and so we'll continue to deliver now, but so I guess they are in pilot line production.
And so far so good our wafer and performs very well.
No.
I'm optimistic.
Morris S. Young: We have made great progress in the last quarter, and we are now very confident. And we have a customer visit, I think. I think we have to do it twice now, and the third attempt to visit us will happen next quarter, and we will soon see the qualification process.
Okay fair enough. Thanks, a that is all the questions from guys I'll jump out of line.
Thanks Richard.
Your next question comes from the line of Charles <unk> with Needham and company.
Please go ahead.
Yes. Thanks.
Morris and Gary are congrats on the.
Quarter results I wanted to ask you a little bit more details about the new opportunity you see in datacenter side I believe you are referring to the Datacom transceiver market 800 gig.
Morris S. Young: So I think, you know, what we can tell you is our customers are telling us they are ready to launch sometime in 2025, and so that's what we do, whether it's good. I mean, right now, we're running hundreds of waivers per month. And so we continue to deliver now. But so I guess they are in pilot line production, and so far, so good.
Plus yeah MAU base.
Lasers.
Obviously coherent I believe it's a warm your end customers are we're very bullish about how much growth. This part of the market is going to be but for us its getting a little bit hard for us to think about how to translate their forecast of the 800 gig plus optical transceiver opportunity.
Morris S. Young: Our wafer performs very well, so I'm optimistic. Okay, fair enough. Thanks. That is all the questions from you guys. Thanks, Richard. This question comes from the line of Charles... Yeah, thanks. Morris and Gary, congrats on the fourth quarter results.
Charles Shi: Wanna ask you a little bit more details about the new opportunity you see on the data center side. I believe you're referring to the Datacom transceiver market 800 gig plus EML based lasers.
Our growth.
Your indium phosphide wafers.
Have you guys.
Try to quantify how much of that Tam.
Charles Shi: Obviously, coherent, I believe it's one of your end customers who were very bullish about how much growth this part of the market is going to be. But for us, it's getting a little bit tough for us to think about how to transfer their forecast 800 gigabit plus optical transceiver opportunity growth to your Indian phosphide wafer. So have you guys tried to quantify how much? I have.
Part of the applications are going to kind of drive for you guys.
The other related questions based on your knowledge today are you single sourced.
Uh huh.
In your phosphide wafer supplier or do you think the end customer may be sourcing problems will competitor as well. Thanks.
Okay.
Yes.
Morris S. Young: This part of the applications is going to drive business for you guys. And the other related questions, based on your knowledge today, are you single-sourced as an Indian phosphide wafer supplier? Or do you think the end customer may be sourcing from your competitor as well? Thanks. Charles, I think that's a little bit of a tough question, and it's a fairly long one. So let me say this.
Charles.
That said a little bit tough question, Netherlands, Australia, along with so so let me say this I think right now the data center.
Do want to clarify one thing.
There is it's very hot.
Item is called optical.
Cable <unk>.
And we're not really we're not.
Related to that project and that is mainly using VIX show using a plastic fiber.
Morris S. Young: I think right now, the data center. I do want to clarify one thing. There is a very hot item called the optical cable project, and we're not related to that project. And that is mainly using VCSO using plastic fiber. And I think there's a big company, data center, that wants to change out coaxial cable with VCSO using plastic fiber. We're not in that. Whether that optical cable will move from 400G, 100G, to 800G or not because they can use parallel paths, we're not in that at all. And when we're talking about the 800G 1.6 terabytes, I think we're talking about potentially for a little bit longer distance, perhaps, and more power data transfer.
And I think there is a big company data center was too.
Change out.
Coaxial cable with Big show with plus the fiber, we're not adding that whether that optical cable will move from 400, <unk> <unk> to <unk> because they can use parallel paths.
We're not seeing that at all.
And what we're talking about the 800 <unk> one six Giga terabytes, I think we're talking about potentially for a liberal longer distance, perhaps and more power.
And data transfer.
Morris S. Young: So whether the customer is single source or not, so to answer your question, can we quantify? And so if Coherent is going to grow X percent, are we going to grow with them? So you have to take out, I mean, I believe Coherent is also doing VCSO.
Morris S. Young: The VCSO, the problem with that market, is it doesn't use a whole lot of gallium arsenide substrate. So the opportunity for us is much less than, you know, making the plastic fiber for pixels. So as far as single source or not is concerned, I believe we are still the largest and, I believe, also the best in class in Indian Phosphate Supplier.
Morris S. Young: So we have multiple money customers, and some of them use us for the majority of their supply. And in fact, I think the artificial intelligence customer that we recently engaged, I think we're a single source. But whether they're going to develop into multiple sources or not, we don't know.
Artificial intelligence this customer that we recently engaged I think we're seeing those wars.
But what are they going to develop into multiple sauce on that we don't know add but we are also very cautiously looking for other people wanting to do participate in that development as well. So so you know we have a very good position he phosphide marketplace, but uhm.
Morris S. Young: But we are also very cautiously looking for other people wanting to participate in that development as well. So we have a very good position in the phosphorite marketplace. But you know, whether they are single-source or not, it's difficult.
You know.
Whether they are single source on that it's difficult to tell.
Charles Shi: Got it. So maybe a follow-up question. It looks like for roughly two quarters, right, December, last year, March, this year, your business level has now, I mean, returned to that 20 plus million per quarter level. Looking out a little bit beyond the March quarter, what's your best assessment right now? Are you, are you going to be maintained at a similar level? Are we going to revisit the high teens? Transcripts provided by Transcription Outsourcing, LLC.
Got it so it might be a follow up question and it looks like a for roughly two quarters right December last year March. This week, you Oh, a business level is now I mean return to that the 20 plus million per quarter level looking out a little bit beyond the March quarter <unk>.
The best assessment right. Now are you are you going to be maintained at a similar level are we going to revisit that hiking's.
Aliens per quarter that kind of level <unk> generally wanted to get a sense of how you feel about the run rate going through with the rest of the year.
Morris S. Young: Sure. I think for next quarter, as I said, although we only guided modestly higher overall revenue for next quarter, raw material is decreasing. So there's a substantial increase in substrate revenue to compensate for that. So I think substrate revenue is going to continue to grow, both in terms of phosphate and gallium oxide. All right. And for raw materials, I don't think it's going to drop off for the rest of the year. And we will have other joint ventures joining in to contribute revenue contribution as well later in the year. So I think this year it's going to be a continued growth year for 2024 compared to 2023. The question, I think, is how fast and how strong it's going to be, whether we're going to reach 90 million. But I think it's probably better than 85.
Sure I think for next quarter as I said I didn't although we only guided modestly higher Oh overall revenue for next quarter, but raw material is decreasing so there is a substantial increase the substrate revenue to compensate for that so.
I think <unk> revenue is gonna continue to grow abolishing terms of evening phosphite and <unk>.
And for raw material [noise] I.
Don't think it's gonna drop off for the rest of the year and we we will have other joint venture journey to contribute S revenue contribution as well later on of the year. So I think this year, it's gonna be a continued growth ear for for Tony.
Four compared to 2073. The question I think is how fast how strong it's gotta be whether we're gonna reach 90 million.
But I think it's probably better than 85.
Charles Shi: Got it. Thanks. That'll be all. Thanks. Thanks, Charles.
Got it thanks that that'll be all offer me for now.
Extra sauce.
Morris S. Young: We'll now turn the call back over to Dr. Morris Young for closing. Thank you for your participation in our conference call. As always, please feel free to contact me, Gary Fischer, or Leslie Green if you would like to set up a call. We look forward to speaking with you in the near future. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now, ?? ?? ?? ?? ?? ??
I will now turn the call back over to Doctor Morrisey Hamster closing remarks.
Thank you for your participation in the conference call is always police for you feel free to contact me Gary Fisher Leslie Green, If you would like to set up a call. We look forward to speaking with you in the near future.
Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect your lines.
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