Q4 2024 AXT Inc Earnings Call
Good afternoon, everyone and welcome to Axt's fourth quarter 2024 financial conference call.
Leading the call today is Dr. Morris Young Chief Executive Officer, and Gary Fischer Chief Financial Officer. In addition, Kim <unk>, Vice President of business development, who will be participating in the Q&A portion optical my.
Villa: My name is Villa and I'll be your conference operator today all.
Villa: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time can be a fresh start followed by the number one on your telephone keypad and if you would like to withdraw. Your question you may do so by pressing star one again.
Speaker Change: Thank you I would now like to turn the conference over to Leslie Green Investor Relations for HP you may begin.
Speaker Change: Thank you Priscilla 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 emerging.
Speaker Change: Since using chips or devices fabricated on our substrate, our product mix global economic and political conditions and true to including trade tariffs and import export restrictions our ability to increase orders in succeeding quarters to control costs and expenses to improve manufacturing yields and efficiencies.
Speaker Change: Or to utilize our manufacturing capacity, 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 differ materially. In addition to the matters just listed these uncertainties.
Speaker Change: The risks include but are not limited to the financial performance of our partially owned supply chain companies increased environmental regulations in China, and COVID-19, and other outbreaks of contagious disease. In addition to the factors just mentioned or that may be discussed in this call. We refer you to the company's periodic reports filed with the.
Speaker Change: 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 call will be available on our website at X T Dot com through February 20th 2026.
Speaker Change: Also I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the fourth quarter and fiscal 'twenty 'twenty. Four 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 fourth quarter 2024.
Speaker Change: Gary.
Gary Fischer: Thank you Leslie and good afternoon to everyone.
Gary Fischer: Revenue for the fourth quarter of 2024 was $25 1 million compared with $23 6 million in the third quarter of 2024 and.
Gary Fischer: And $20.4 million in the fourth quarter of 2023 to break down our Q4 'twenty four revenue for you by product category Indium Phosphide was $9 1 million, reflecting continued demand from data center applications, including AI as well as passive optical networks gallium arsenide was $5 4 million.
Gary Fischer: Germanium substrates were $1 6 billion and finally revenue from our consolidated raw material joint venture companies. In Q4 was 9.0 million based on a continued healthy demand.
Gary Fischer: In the fourth quarter of 2020 for revenue from Asia Pacific was 79% Europe was 11% and North America was 10%.
Gary Fischer: Top five customers generated approximately 36% of total revenue and one customer was over the 10% level.
Gary Fischer: non-GAAP gross margin in the fourth quarter was 17, 9% compared with 24, 3% in Q3 of 'twenty 'twenty four and.
Gary Fischer: 23, 2% in Q4 of 2023.
Gary Fischer: For those who prefer to track results on a GAAP basis gross margin in the fourth quarter was 17, 6%.
Gary Fischer: Compared with 24.0% in Q3 and 22, 6% in Q4 of 2023.
The decline in gross margin is primarily the result of lower benefits from our recycling program in the quarter as well as lower ingot starts in crystal growth, which resulted in under absorption of our manufacturing overhead, but which also enabled us to reduce the inventory.
Gary Fischer: Moving to operating expenses total non-GAAP operating expense in Q4 was $9 9 million compared with 9.0 million in Q3 of 2024 and seven five in Q4 of 2023.
Gary Fischer: On a GAAP basis total operating expense in Q4 was $10 6 million compared with $9 1 million in Q3, and $8 2 million in Q4 of 2023.
Gary Fischer: The increase in Opex in Q4 was primarily the result of an increase in legal expenses as well as an increase in R&D expenses relating to investment and low E. P. D. Gallium arsenide crystal growth for the wireless market. We also continued to invest in the development of our six inch indium phosphide for a variety of applications.
Gary Fischer: Our non-GAAP operating loss for the fourth quarter of 2024 was $5 4 million compared with a non-GAAP operating loss of two point.
Gary Fischer: In Q3 of 'twenty 'twenty, four up $2 6 million and a non-GAAP operating loss of $2 7 million in Q4 2023.
Gary Fischer: For reference our GAAP operating line for the fourth quarter of 2024 was a loss of $6 2 million compared with an operating loss of $3 4 million in Q3, and an operating loss of $3 6 million in Q4 of 2023.
Gary Fischer: Non operating other income and expense and other items below the operating line for the fourth quarter of 2024 was a net gain of 1.1 million. The details can be seen in the P&L included in our press release today.
Gary Fischer: Yeah.
Gary Fischer: For Q4, 'twenty 'twenty four we had a non-GAAP net loss of $4 3 million or 10 cents per share compared with a non-GAAP net loss of $2 1 million or five cents per share in the third quarter of 2024.
Gary Fischer: non-GAAP net loss in Q4 of 2023 was $2 8 million or seven cents per share.
Gary Fischer: On a GAAP basis net loss in Q4 was $5 1 million or 12 cents per share by comparison net loss was $2 9 million or seven cents per share in the third quarter of 2024.
Speaker Change: And the GAAP net loss in Q4 of 2023 was $3 6 million or nine cents per share.
Speaker Change: The weighted average basic shares outstanding in Q4 was $43 4 million.
Speaker Change: Cash cash equivalents and investments decreased by 5.0 million to $33 8 million as of December 31st by.
Speaker Change: By comparison at September 30th it was $38 8 million.
Speaker Change: The decrease is mostly balance sheet related.
Speaker Change: Over $3 million of the total loss was made up from noncash depreciation and stock club.
Speaker Change: The biggest balance sheet item was that we reduced our loan balance by $6 8 million.
Speaker Change: Depreciation and amortization in the fourth quarter was $2 2 million total stock comp was 0.8 million.
Speaker Change: Net inventory was down a bit over $1 million in the fourth quarter to $85 1 million down from the peak by $6 6 million and we are working to bring it down further.
Speaker Change: Finished goods make up less than $3 million and that is a positive.
Speaker Change: This concludes our discussion of the quarterly financials for the fiscal year 2024 are in total revenue was $99 4 million up from $75 8 million in physical year, 2023, and reflecting growth in every revenue revenue category across our portfolio.
Speaker Change: This is a 31% increase in revenue and underscores the improvements we're seeing in our business with major market trends driving the adoption of new technologies, a recovery in the global demand environment and our own success in winning share of strategic customers.
Speaker Change: Gross margin for the physical year 2024 on a non-GAAP basis was 24, 3% up from $18 one for fiscal 2023.
Speaker Change: GAAP gross margin for 2024 was 24% of revenue up from $17 six for fiscal year 2023.
Speaker Change: Net loss for the fiscal year 2024 on a non-GAAP basis improved to $8 5 million or 20 cents per diluted share compared with a net loss of $14 3 million or 34 cents per share for fiscal year 2023.
Speaker Change: GAAP net loss for the physical year, 2024 was $11 6 million or 27 cents per diluted share from a net loss of $17 9 million or <unk> 42 cents per share for fiscal year 2023.
Speaker Change: Turning to our plan to list our subsidiary Tong May in China on the Star market in Shanghai, We have continued to keep our IPO application current Tong may remains in process as part of a much more selective in smaller group of prospective listings than a few years ago. We continue to think that tongue may is a good IPO candidate.
Speaker Change: And we will keep you informed of any updates.
Gary Fischer: With that I'll now turn the call over to Dr. Morris Young for a review of our business and markets Morris.
Speaker Change: Gary.
Speaker Change: While Q4 gross margin and net loss fell short.
Speaker Change: Our expectation.
Speaker Change: The improvement.
Speaker Change: Over the previous year was significant.
Speaker Change: We delivered a 31% increase in fiscal year revenue, a 6% improvement in non-GAAP gross margin.
Speaker Change: A 40% improvement in non-GAAP net loss.
Speaker Change: Over the last 12 months, we have aggressively addressed the technical specifications of our materials to help our global customers solve complex next generation connectivity challenges.
Speaker Change: More and more the <unk>.
Speaker Change: We supply are being using highly sophisticated applications such as high speed to get that connects with our breakthroughs in delivering extremely low <unk> are showing tremendous value to device performance.
Tony: Tony the only four marked a very meaningful year of revenue growth into the cloud and data center infrastructure market.
Tony: Well I was how our successful penetration of wireless handset market, particularly in China.
Tony: We expanded we have also expanded our portfolio of all raw material companies, creating a unique valuable supply chain and laying the groundwork for incremental revenue opportunities in new markets such as P. B N.
Tony: And finally, we brought to market both eight inch gallium arsenide and fixing G. Indium phosphide substrates driving new innovation into our development capabilities that we can translate into better performance.
Tony: High yield across all products.
Tony: Please.
Tony: As we look ahead of 2025.
Tony: Well there are some new challenges, we see a number of exciting opportunities created by both industry trends and company specific opportunities.
Now first two challenges.
Tony: As many of you may know on February 4th.
Tony: China government imposed trade restrictions on the export of indium phosphide material.
Tony: Similar to the 20 talk me through your description of <unk>.
Tony: Gallium arsenide substrates. These regulation is explicitly seek to restrict their ex Florida material used for military applications.
Tony: Therefore, we're now undertaking an export permit process for indium phosphide similar to what we have been working through with gallium arsenide over the last two years.
Tony: The good news is that it is organized and efficient process, there with well very familiar with.
Tony: And we believe that we have similar success, we will have similar success.
Tony: We're already working with our customers outside of China to prepare applications on their behalf and expect to be able to submit our first application in early March.
Tony: In our experience, we typically hear back in Nishu obligations within 40, 40 to 45 days business days and repeat applications often process faster.
Tony: As such we expect to see a delay in a portion of our indium phosphide revenue in Q1 as we begin this process.
Tony: For reference.
Tony: In 2024 about 40% of our indium phosphide revenue came from China.
Tony: And with about 60% coming from the rest of the world.
Tony: In Q1, we expect the impact of our revenue lie of approximately $4 million to $5 million in delayed sales.
Tony: They said, we don't believe that any of our indium phosphide sales go to military applications. So we feel we're in a good position to realize sales once we can navigate.
Tony: The permitting process.
Tony: Now challenges outside.
Speaker Change: Let's turn to Eric's, the key business opportunities and growth drivers for 2025.
Speaker Change: Inc. In cloud and data center connectivity customers are pushing the boundary of high speed optical connect interconnects to support the growth of AI adoptions.
Speaker Change: Recent algorithmic improvements have shown the potential to deliver AI applications with better return on investment for AI infrastructure providers worldwide.
Speaker Change: These innovations.
Speaker Change: Enable increased adoption and broader use case for AI globally.
Speaker Change: We named is use case.
Speaker Change: Several new and emerging opportunities.
Speaker Change: First the industry is beginning a transition from brick show lasers to speed of 50 gig per Lang 200 gig per lane and higher.
Not only.
Speaker Change: These high speed VIX, who is opening up new opportunities for us with gallium arsenide.
Speaker Change: They have also created a greenfield market opportunity for high speed indium phosphide based photo detectors in 408 hundred gig multimode optical interconnects.
Speaker Change: We saw indium phosphide orders relating to this application throughout 'twenty 'twenty, four which we believe will continue to grow in 2025.
Speaker Change: Our R&D investment.
Speaker Change: All of us to deliver significant innovation are extremely low U P. D. I M doped indium phosphide substrates for next generation email lasers for 800 gig and windfall 60 plug about transceivers.
Speaker Change: E. P. D refers to the defect density of a material and is a critical specification and device reliability.
Speaker Change: I'm extremely proud of our team for their breakthrough achievement I believe <unk> leads the industry in low E B D iron dome material.
Speaker Change: We're currently in the qualification path of a major supplier for deployment in 2026.
Speaker Change: Initial feedback from our customers suggest that our lower U P. D characteristics is translating through highly valuable performance and reliability advantages over competing materials.
Speaker Change: We continue to work with a number of customers worldwide and we're also seeing exciting opportunities with next generation Silicon Photonics devices for 800 gig and one six T plug about transceivers for medium to long distance transmission.
For example, we saw growth in demand with increased orders in Q3, and Q4 for one of our largest U S silicon photonics customer.
Speaker Change: We also believe that China data centers are preparing for broader adoption.
Speaker Change: Of optical technology, which we view as a emerging opportunity.
Speaker Change: It is worthwhile to do that.
Speaker Change: We are actively working with customers on their roadmap for co package optics and view this as a major opportunity.
Speaker Change: Well the hardest challenge for this emerging technology to overcome will be the reliability at scale.
Speaker Change: Which is where low abd wafers make a critical difference.
Speaker Change: We believe that our ability to provide the extremely low <unk> substrates will help customers solve this challenge when the industry moved towards widespread adoption in the years to come.
Speaker Change: In addition to data center and AI applications, we see a second exciting opportunity in 2025 for our gallium arsenide substrates HPT devices.
For the wireless market.
Speaker Change: Just two years ago.
Speaker Change: Our market share was virtually zero.
Speaker Change: Today with cost and performance breakthroughs as well as strong relationship building with one of our largest Asian based ERP providers. We now have about 10% of the overall market with particular strength in China.
Speaker Change: Expanding accelerating our growth in this market is a key focus for us in 2025.
Speaker Change: With the availability of our eight inch gallium arsenide substrate as.
Speaker Change: As well as the process improvement, we can apply to our 16 inch line.
Speaker Change: We feel we're confident we can be extremely competitive in this market and continue to grow our market share.
Speaker Change: As the third growth driver for 2025, we.
Speaker Change: We see opportunities in the continued recovery of global demand environment, our applications, such as passive optical networks hi.
Speaker Change: High power industrial lasers, particularly in China.
Speaker Change: As well as Leds for a wide variety of use case, including lighting display horticulture and automotive.
Speaker Change: We do see the demand environment improving incrementally in.
Speaker Change: Inventory relatively low.
Speaker Change: And finally, we have not talk as much in recent quarters about our raw material joint ventures, I do want to note.
Speaker Change: We have continued to invest in expanding our capability and build a.
Speaker Change: Enviable portfolio.
Speaker Change: Which today include the gallium <unk> PV and Crucibles Court indeed.
Indian Red phosphorus and germanium.
Speaker Change: The strategic value of this material is not only that we can more cost effectively supply of critical materials needed to manufacture our products, but also we benefited from additional revenue streams generated by our joint ventures through the sales of this product.
Speaker Change: The open market.
Speaker Change: In total is only for our consolidated joint venture generated almost $32 million in revenue.
Speaker Change: Up 12% from the prior year, we are working to expand this opportunity in 2025 through the development of new markets and to continue the valuable recycling effort.
Speaker Change: That also contribute to our gross margin performance.
Speaker Change: In summary, Tony Tony for was a year of recovery and growth for our business.
Speaker Change: All of the things that I'm. Most proud of is the relentless innovation spirit of our team this year in taking a highly complex material science challenges.
Speaker Change: Our customers and deliver a result that industry would have considered impossible just a few short time ago.
Speaker Change: These advances will enable an entirely new generation of devices.
Speaker Change: Capable of bringing such wonders.
Speaker Change: I to the world.
Speaker Change: What we have build.
Speaker Change: And continue to build for our customers and shareholders.
Speaker Change: It's an incredible valuable company that can serve most cutting edge requirement.
Through our leading technology.
Speaker Change: Unique supply chain and world class manufacturing.
Speaker Change: I want to say a special thanks to our team and their family for a productive 2024 and to our customers and shareholders.
Speaker Change: While the thank you for your partnership.
We have work to do Youll behalf, and we're deeply committed to deliver further improvement in 2035.
With that I will turn the call back to Gary for our first quarter guidance, Gary. Thank you Morris and keeping with our comments today.
Speaker Change: We expect Q1 revenue to be in the range of 18.0 million and 20.0 million.
Speaker Change: This takes into consideration growth in gallium arsenide substrates, but that's offset by the impact from the indium phosphide trade restrictions and a modest decrease in raw material revenues.
Speaker Change: We therefore expect our non-GAAP net loss will be in the range of 13% to 15.
Speaker Change: And GAAP net loss will be in the range of 15% to 17.
Speaker Change: Share count will be approximately 43 5 million shares.
Speaker Change: This concludes our prepared comments.
Speaker Change: We can now answer any of your questions operator.
Speaker Change: Thank you and we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one.
Speaker Change: And the phone keypad can raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Thank you first question comes from the line of Lee.
Speaker Change: Chad Shannon with Craig Hallum. Please go ahead.
Speaker Change: Okay guys. Thanks for taking.
Speaker Change: Taking my questions.
Speaker Change: Maybe a kind of a two part question looking back into the fourth quarter here and understanding the dynamics and how long that may continue here. So obviously, a little disappointing in the gross margins and Opex year with gross margins I think you said some lesser benefits from recycling along with lower lower ingot starts here that limited absorption here and it sounds like you are.
Speaker Change: Or trying to trim inventory are lower so to what degree are we going to see this below kind of recent trends you are when should it come up here and then also on the on the Opex here. So I think that you said you are spending a little bit more R&D for indium phosphide for wireless maybe you can.
Speaker Change: Indicate how long.
Speaker Change: Investments will continue there as well.
Speaker Change: Well, it's a fairly complex question there Gary you want to take a first crack and out.
Speaker Change: Yes.
Speaker Change: What was the first question in short.
Speaker Change: Gross margins a little bit lower here a couple of dynamics here wondering how to what degree are they going to continue past the fourth quarter.
Speaker Change: Well, we do expect gross margins to be lower again in Q1, because we're not going to have as much indium phosphide sales because of the <unk>.
Speaker Change: Export restrictions.
Speaker Change: Following Q1 than we think they will get back into the <unk>.
Speaker Change: At least the mid Twenty's, which is what we were targeting and running towards and then I think that we can inch them up in a quarter by quarter. So.
Speaker Change: Yeah, I think to answer the question about the R&D.
Speaker Change: Activities.
Speaker Change: Yes, we have taken quite a bit of a.
Speaker Change: Effort, a while both six inch indium phosphide development and also leveraging our age.
Speaker Change: Crystal growth knowledge, we learned on age and.
Speaker Change: Applying that technology to our six inch line, which take us quite a bit of development effort, but I think is on the tail end of that effort. We should start with July enjoy the benefit of better yield and better performance on the six inch lie with the knowledge, we have all age.
Speaker Change: Okay. Thanks for that follow upon on indium phosphide here it sounds like Youre getting some some really good activity related to data center here, maybe if you can just kind of.
Speaker Change: Digging a little deeper and help us understand where you're seeing a little bit you know relatively more of the opportunity whether it's coming from lasers or from from Pds or photo detectors I think if I caught my if my notes are right and you talked about a fairly large opportunity that could come to pass from a revenue perspective in 2006, maybe you can provide some a little bit more info.
That is walmart's. Thank you.
Speaker Change:
Speaker Change: Jim you want to take that on that question because I think.
Speaker Change: Although I can't answer that but <unk> is probably the front line knowing about this opportunity we should have in 2026.
Speaker Change: On the Iron Dome, low Apd staff for the email right Tim.
Tim: Yes, right so.
Tim: What we've seen in 2004 as we've seen growth both on the photo detector side and the laser side of it.
Tim: So.
Tim: On the photo detector side, we've got this greenfield opportunity, which we've talked about in the past.
Tim: Yeah.
Tim: The high speed vessels running.
Tim: Our line now.
Speaker Change: Now needs to move over to an in gas indium phosphide nice potent detector.
Obviously, the world is seeing a lot of growth in the gallium arsenide pixel.
Speaker Change: Transceivers for us.
Speaker Change: We're enjoying that too.
Speaker Change: But this greenfield opportunity has opened up for.
Speaker Change: The indium phosphide side of it.
Speaker Change: We also see in a really healthy increase.
Speaker Change: In the data center laser how are you doing.
Speaker Change: As you probably know we focus more on the silicon photonics side on the email side than we are.
Speaker Change: Hum.
Speaker Change: The more traditional DSL based applications.
Speaker Change: We're not anticipating that heavily in the GMO items there.
Speaker Change: And you'll see more growth coming through 2025.
Speaker Change: As the industry moves to the ml.
Speaker Change: Silicon Photonics market.
Speaker Change: One of the interesting things as well, but Morris mentioned was this new application on <unk>.
Speaker Change:
Speaker Change: We're definitely seeing I think some new opportunities coming up that with a number of different customers.
Speaker Change: Something to keep an eye on.
Speaker Change: For next generation <unk>.
Speaker Change: We'll see some growth in.
Speaker Change: <unk> 25 and into 'twenty six.
Speaker Change: So yeah, I think we're going to see some healthy growth rate on on again pulse lasers and detectors.
Speaker Change: 2025.
Speaker Change: So let me chime in here a little bit perhaps.
Merle: Yeah Merle.
Speaker Change: It means you have a laser based device and you use indium phosphide modulator on the chip to regulate online off performance of this module right.
Speaker Change: And I think most of the lasers.
Speaker Change: Requires low ABV.
Speaker Change: The traditional method of making laser is using sulfur don to strengthen the lattice to reduce the defect density to a slower less than $100 per centimetre square, okay. Because lasers are very sensitive to defect density <unk>.
Speaker Change: However, if.
Speaker Change: If you want to use iron dome material iron, though doesn't have the benefit of that is hardening. So the EP D of these iron dome material traditionally is in the thousands of NPD. So while you want to combine and the reason why you want to use <unk>.
Speaker Change: Don I think it has something to do with.
Speaker Change: The transit time being.
Speaker Change: Shorter so you can modulate this device faster. So you have a fast response. However, you also need a lower <unk> to make this device more reliable. So you are caught in between wanting the device to perform better with the email and also want a lower <unk>.
Speaker Change: To improve the reliability and we believe that we have the ability to.
Speaker Change: Make the <unk> lower than our competitor our competition and our customers are finding out these prove out to be more desirable.
Speaker Change: For the email development.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks for all that detail Morris I'll ask one more question and jump out of line here.
Speaker Change: It's related to China, and the tariffs and export controls.
Speaker Change: You had some prepared remarks, we were very helpful. Here.
Speaker Change: It sounds like you expect the experience of the permitting or licensing process to be similar to what you saw in gallium arsenide and while Youre, obviously seeing a bit of a dip here while the.
The length of that process kind of unfolds here.
Speaker Change: But I guess just want to make sure that youre not expecting any any issues.
Speaker Change: And maybe looking back to your experience in gallium arsenide is you have any that you would expect to to be better or worse than when we get to indium phosphide.
Speaker Change: Yeah, Tim again Youre the Hangzhou.
Speaker Change: Developing.
Speaker Change: So can you answer that question for me, yes, I can so.
Speaker Change: We certainly understand the geopolitical complexities vendors.
Speaker Change: And what the indium phosphide.
Speaker Change: Controls in all colon controls roslyn restrictions, what they seek to prevent as the export of materials indium phosphide material for military applications.
Speaker Change: When the China price controls in the explorer to gallium arsenide.
Speaker Change: Timeframe right it was military applications.
Speaker Change: Yeah.
Speaker Change: And indium phosphide, we don't see any of our customers really certainly volume customers use indium phosphide for military applications.
Speaker Change: He is well known.
Speaker Change: Well known tier one customers using them predominantly for data communications.
Speaker Change: Alright, so we anticipate.
Speaker Change: Okay.
Speaker Change: Given the true restrictions on military background.
Speaker Change: We think that.
Speaker Change: We shouldnt have too many issues getting permits for non military related customers in non military apt.
Speaker Change: Applications.
Speaker Change: So we feel good that we can be successful in getting the permits that we need on on this application.
Speaker Change: Okay I appreciate all the detail guys I'll jump the line. Thank you.
Speaker Change: Thanks Richard.
Speaker Change: And your next question comes from the line of Charles <unk> with <unk>. Please go ahead.
Charles: Hi, good afternoon.
Speaker Change: Is this looks.
Speaker Change: It looks like Youre going to see.
Speaker Change: If I heard you right $4 million to $5 million impact from the new licensing requirement.
Speaker Change: In Q1.
Speaker Change: Given that <unk>.
Speaker Change: You seem to expect.
Speaker Change: 45 days is to get our licenses.
Speaker Change: Are those lost sales in Q1 do you think it can make it up in Q2, but at the same time.
Speaker Change: The original scheduled for shipment in Q2 could that be further pushed out into Q3, so I think that.
Speaker Change: The absence of this question is do you think you can get back to let's say $25 million revenue per quarter in Q2, or even run a little above that because I think you do need to get back.
Speaker Change: Shipment originally scheduled in Q1 out absolutely.
Speaker Change: Any color on Q2 would be helpful. Thank you.
Speaker Change: Sure.
Charles: Yeah Charles.
Charles: My answer to that is I think you know the.
Charles: If we can get the permit I think.
Charles: Levering our product is no problem okay.
Charles: I think if I would a customer with a restriction on customer probably was to build some buffer so they could increase to the Q2 delivery.
Charles: Given that could be temporary and and I think you know I think if if if.
Charles: If we if we have a perfect developed in the name of our customer let's say got.
Charles: Barge from getting our licenses I would say Q2, and Q3 could be a strong quarters.
Morris Young: Got it thanks Morris.
Charles: <unk>.
Charles: Maybe another question I think.
Charles: The opportunity in wireless is talking about a couple of years ago to zero market share in <unk>.
Charles: Could it be a very strong potential growth opportunity this year.
Charles: Martin can talk a little bit more about what's the sizing of that opportunity and what's the shape.
Charles: Of that.
Charles: <unk> into that opportunity is.
Charles: Do you expect that it's more in the second half of this year, a little bit more next year or.
Charles: Or give us any quantitative insights I would really appreciate that thank you sure Charles I.
Speaker Change: I think the you know HPT market is very well no I think it's roughly $80 million to $100 million a year and as we said before two years ago, we virtually zero and now we have about 10%. So our target is to grow other 30% this year and I think if we I E.
Speaker Change: The main leverage I think the message is that we have learned quite a bit of process improvement from our <unk> experience the leveraging that down to the 60 inch line and hopefully our all our knowledge there, we'll be able to reduce our costs improve our yield.
Speaker Change: Yield and with a better connection.
Speaker Change: And.
Speaker Change: Our working relationship with our customers, we should be able to improve our market share and I think the other opportunity of course is a longer term issue.
Speaker Change: Well I'm, hoping that with the AI.
Speaker Change: Implication that hopefully that AI smartphones is going to have.
Speaker Change: Increased market turnover in the next year or two if we can catch that down we can't have HPT market grow even faster.
Speaker Change: Yes.
Morris Young: Thanks Morris.
Speaker Change: Okay.
The next question comes from the line of Tim <unk> Northland Capital markets. Please go ahead.
Speaker Change: Hey, good afternoon.
Tim: Just wanted to follow up on that answer right. There quickly Morris was that a 10% market share target going to 30, and 25 or I just want to make sure I heard you right on where the market share targeted.
Speaker Change: For the.
Speaker Change: HPT market.
Speaker Change: I think I was talking about.
Speaker Change: Well I mean, 10% to 30% is too much that we're going to have to triple.
Speaker Change: I'm talking about we have 10% market, we can increase that 10% by 30 by 30% there will be 13%, 14% yes.
Speaker Change: Okay.
Speaker Change: That one.
Speaker Change: We wish it was the other way, but that's their decision.
Speaker Change: [laughter].
Speaker Change: Alright.
Speaker Change: And you had a strong quarter in indium phosphide I think the strongest for many quarters.
Speaker Change: And a strong year.
Speaker Change: So I guess and this is sort of independent of the export restrictions I think we grew 44, 45% in indium phosphide in calendar 'twenty four.
Speaker Change: And given what we're seeing.
Speaker Change: In the optical market in particular, we are hearing about shortages of email lasers.
Speaker Change: A lot of uptake.
Speaker Change: Activity on the Silicon Photonics side.
Speaker Change: From a market standpoint.
Speaker Change: Would you have expected that growth to accelerate zoning restrictions.
Speaker Change: Or how would you characterize.
Speaker Change: Your outlook for 'twenty, five and indium phosphide relative to what you did in 'twenty four.
Speaker Change: Again, excluding excluding the research.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: This is a very good question actually this is a topic that team and my team.
Speaker Change: And I have constant discussion about we buy.
Speaker Change: Market.
Speaker Change: Reports and obviously as the CEO I expect the market to grow very strongly but team also has responsibility to deliver revenue. So temper my expectation down so maybe I should have team answered that question Tim.
Speaker Change: Yes sure.
Speaker Change: This is a very dynamic market.
Speaker Change: At the moment. So it is it's more difficult to time.
Speaker Change: A real number on where we go right now as we put our numbers together, we were looking at growth from 'twenty 2024 to 2025 and the in the region of 20% kind of range.
Speaker Change: But of course, as we say is a dynamic market.
Speaker Change: Silicon Photonics and <unk>.
Speaker Change: All things mobile adoption.
Speaker Change: We could very well see some <unk>.
Speaker Change: Increases there.
Speaker Change: Also making another note as we look at this market.
Theres a strong development trend.
Speaker Change: In China for <unk>.
Speaker Change: Silicon photonics as well.
Speaker Change: Not only we see and this is the normal players.
Speaker Change: What is the.
Speaker Change: Laser manufacturers.
Speaker Change: Manufacturers in China.
Speaker Change: We focused on the Japan market.
Speaker Change: Now taking a look at the ml silicon photonics market.
Speaker Change: Also I want to enter into that market.
Speaker Change: So got to.
Speaker Change: Stuart.
Speaker Change: 20%.
Speaker Change: Year over year growth kind of figure in the.
Speaker Change: But it is dynamic.
Speaker Change: And we could see we could see additional growth coming out.
Speaker Change: Yes.
Yes, I agree.
Speaker Change: Alright got it.
Speaker Change: Going back to the export restrictions at least.
Speaker Change: Using gallium arsenide as a model.
Speaker Change: Pretty modest downtick.
Speaker Change: After those were announced.
Speaker Change: Q3 of 23, I think and bounce back pretty strongly over the next three quarters I know for some time had been asked but is that assuming you're able to in the same fashion.
Speaker Change: Sure the permits is that.
Speaker Change: Something we might expect here could you see yourself getting back to.
Speaker Change: These strong Q4 levels you just reported.
Speaker Change: So in Q2 or Q3.
Tim: I think so Tim So let me let me put some analysis cap on myself, Okay I think.
Tim: If you look at gallium arsenide versus indium phosphide.
Tim: Yeah.
Tim: In gallium arsenide.
Tim: Honestly, we're the third in the World and we are the smaller of the three okay.
Tim: Our market shares.
Tim: Relatively small, but indium phosphide I believe we're either number one number two.
Tim: Okay. So and also I think gallium indium phosphide is not a material which is easily replaceable.
Tim: Well, we work with our customers, sometimes two or three year to 18 months to two years to qualify.
We work.
Tim: Into very details of what customer wants our can deliver we have the capacity we have.
Tim: The order actually in hand, so once we get the permit I believe we can deliver quickly and I think we can recover from what we have missed.
Tim: And some more as well but of course, you know the dynamics is that.
Speaker Change: What's the geopolitical struggles between you two.
Speaker Change: So I I think I hate to speculate there, but I think you know given the chance I think in our recovery for indium phosphide is probably going to be better than our recovery from in the gallium arsenide would have been.
Speaker Change: Great. Thanks very much.
Speaker Change: And then once again, if you would like to ask a question simply press star one on your telephone keypad.
Your next one.
Speaker Change: Please.
Speaker Change: And your next question comes from the line of deep can be finally, please go ahead.
Thank you. Good afternoon first question is regarding your germanium. So whats our plan here are you continue to run this business or.
Speaker Change: He thought of like maybe monetizing.
Speaker Change: Well, yes Dominion.
Speaker Change: A good question I think there is a lot of.
Speaker Change: The low orbit.
Speaker Change: Satellite opportunities in China.
Speaker Change: Actually the demand is extremely strong.
Speaker Change: However, the material raw material price has swelled all the way.
Two.
Speaker Change: While these renminbi.
Speaker Change: It's almost like $3500 per kilograms from a slower six to $800 a kilogram and the raw material was a major part of the cost of goods sold.
Speaker Change: So you know.
Speaker Change: We view this not as a growth opportunity for us, but we obviously will start to manage or getting to the market was.
The raw material price gets.
So the level that we can start making profit at this market Dave.
Speaker Change: Got it and just wanted to dig in a little bit more on indium phosphide is it possible.
Speaker Change: Sure you have the answer but.
Speaker Change: Since you talked about photo detectors versus silicon photonics.
Speaker Change: What's the rough mix between those two.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Oh, it's hard to say the mix I think the photo detector. So team are always the photo detector revenue, we got from the VIX.
Speaker Change: Yeah.
Speaker Change: He was around.
Speaker Change: Yeah.
Speaker Change: $5 million of last year right.
Speaker Change: Yes, I want to say that it's not quite 50, 50, I want to say that we're seeing.
Speaker Change: A little bit more on the laser side of the business I'm talking to data center.
Speaker Change: On the email.
Speaker Change: The silicon Photonics side.
Speaker Change: At want to say that we're looking at somewhere in the region of about a 60 40, maybe even the 65 35 split in favor of laser versus detector.
Speaker Change: But on the audience.
Speaker Change: It's going to be difficult to say, what's the detector, what's at laser right I mean, a lot of this right.
Speaker Change: Subsidiary, we sell to they don't tell us what detector.
Speaker Change: I mean some market.
Speaker Change: The <unk> per day to tell us for detectors, but most of the other state and tell us.
Speaker Change: Alright, that's right for example, your lead customer I mean, our depots photo detector as well as some who photonics customer or mainly silicon photonics.
Speaker Change: Mainly silicon photonics.
Speaker Change: Our lead customer.
Speaker Change: Yes, yes.
Speaker Change: I don't think.
Speaker Change: Yes, I don't think they even use indium phosphide as a detector in that device in their tracks here they are using silicon germanium detectors.
Speaker Change: I see got it.
Speaker Change: That was it for me thank you.
Speaker Change: And I'm showing no further questions at this time I would like to turn it back to Dr. Morris Young for closing remarks.
Speaker Change: Thank you for participating in our conference call as always feel free to contact me, Gary Fischer or Leslie Green. If you will like to set up a call. We look forward to speaking with you in the near future.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.