News Releases

Print version

AXT, Inc. Announces Fourth Quarter and Fiscal 2008 Financial Results

FREMONT, CA, Feb 25, 2009 (MARKET WIRE via COMTEX) -- AXT, Inc. (NASDAQ: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the fourth quarter and fiscal year ended December 31, 2008.

Fourth Quarter 2008 Results

Revenue for the fourth quarter of 2008 was $15.6 million, compared with $17.9 million in the third quarter of 2008, and $17.6 million in the fourth quarter of 2007. Total gallium arsenide (GaAs) substrate revenue was $9.1 million for the fourth quarter of 2008, compared with $13.6 million in the third quarter of 2008, and $12.2 million in the fourth quarter of 2007. The decline in revenue in the fourth quarter of 2008 was primarily due to an overall market slowdown with lower than expected demand from customers and some push-out of scheduled shipments to the first and second quarters of 2009, which also resulted in lower production levels.

Indium phosphide (InP) substrate revenue was $473,000 for the fourth quarter of 2008, compared with $484,000 in the third quarter of 2008, and $330,000 in the fourth quarter of 2007. Germanium (Ge) substrate revenue was $684,000 compared with $795,000 in the third quarter of 2008 and $746,000 in the fourth quarter of 2007. Raw materials sales were $5.3 million for the fourth quarter of 2008, compared with $3.0 million in the third quarter of 2008 and $4.3 million in the fourth quarter of 2007.

Gross margin was 4.8 percent of revenue for the fourth quarter of 2008. This included a benefit from the sale of approximately $703,000 in fully reserved wafers, which positively affected the quarterly gross margin by 4.5 percentage points. By comparison, gross margin in the third quarter of 2008 was 25.4 percent. This included a benefit from the sales of approximately $769,000 in fully reserved wafers, which positively affected third quarter gross margin by 4.3 percentage points. Gross margin in the fourth quarter of 2007 was 30.1 percent, including a benefit from the sale of approximately $466,000 in fully reserved wafers, which positively affected the quarterly gross margins by 2.7 percentage points.

The deterioration in gross margin in the fourth quarter of 2008 from the previous quarter was primarily due to the following:

-- our gallium joint venture in China is housed in and receives services from an affiliated aluminum plant. Our joint venture ceased production for five weeks during the fourth quarter as a result of a supply shortage of raw materials from the aluminum plant, which had reduced production and halted operations due to falling aluminum prices in the second half of 2008. Accordingly, in order to meet customer supply obligations, our joint venture had to source finished products from another independent third party supplier, resulting in low gross margin for the quarter. Our joint venture has also sourced finished products from this independent third party supplier when demand has exceeded the joint venture's capacity, and will continue to source finished products from this independent third party supplier, despite lower gross margins, if it again experiences power and supply shortages or if customer demand again exceeds its capacity; and

-- gross margin was negatively impacted as a result of lower production volume (less overhead recoveries), higher warranty expense as a result of warranty reserves from certain customers resulting from our failure to meet specification requirements, and higher unfavorable variances due to lower yields from our GaAs production line.

Operating expenses were $4.1 million in the fourth quarter of 2008, compared with $5.5 million in the third quarter of 2008, and $3.7 million in the fourth quarter of 2007.

Loss from operations for the fourth quarter of 2008 was $(3.4) million compared with loss from operations of $(926,000) in the third quarter of 2008, and income from operations of $1.6 million in the fourth quarter of 2007.

Net interest and other income for the fourth quarter of 2008 was $656,000, compared with net interest and other income of $89,000 in the third quarter of 2008, and net interest and other income of $608,000 in the fourth quarter of 2007.

Net loss in the fourth quarter of 2008 was $(2.4) million or $(0.08) per diluted share, compared with net loss of $(1.0) million or $(0.03) per diluted share in the third quarter of 2008, and net income of $1.9 million, or $0.06 per diluted share in the fourth quarter of 2007.

Fiscal Year 2008 Results

Revenue for fiscal year 2008 was $73.1 million, compared with $58.2 million in fiscal year 2007. Gross margin for fiscal year 2008 was 24.6 percent of revenue compared with 34.8 percent of revenue for fiscal year 2007.

Net loss for fiscal year 2008 was $(689,000) or $(0.03) per diluted share compared with net income of $5.3 million or $0.16 per diluted share for fiscal year 2007.

Management Qualitative Comments

"2008 was a challenging but productive year for AXT," said Phil Yin, chairman and CEO. "We recorded more than a 25% increase in revenue from 2007, successfully negotiated a new 2009 contract worth nearly $15 million with one of our largest customers, concluded a major qualification with a leading germanium substrate customer, expanded our customer base to include several top tier companies and laid important groundwork for growth when the macro environment strengthens. Still, the economic downturn in 2008, coupled with the inventory overhang in our industry and customer-specific issues that we continue to work through, put pressure on our financial performance and will have a significant impact on our first quarter 2009 results. As we look beyond the first quarter, we believe that the business will begin to improve as a result of pockets of strength in our gallium arsenide business, new qualifications of customers in the LED and photovoltaics market and our improved cost structure as a result of efforts to streamline our business in relation to the current demand environment. We remain encouraged by the overall trends in our industry and believe that we will successfully leverage our competitive advantages for growth and market share gains as the economy improves."

Outlook for First Quarter, Ending March 31, 2009

AXT estimates revenue for the first quarter will decrease to between $7.0 million and $8.0 million. The company estimates that net loss per diluted share will be between $(0.05) and $(0.08), which takes into account our weighted average share count of approximately 30.5 million shares.

Conference Call

The company will also host a conference call today to discuss these results at 1:30 p.m. Pacific Time. The conference call can be accessed at (719) 325-4806 (passcode 3616784). The call will also be simulcast on the Internet at www.axt.com. Replays will be available at (719) 457-0820 (passcode 3616784) until March 4, 2009. Financial and statistical information to be discussed in the call will be available on the company's website immediately prior to commencement of the call. Additional investor information can be accessed at http://www.axt.com or by calling the company's Investor Relations Department at (510) 683-5900.

About AXT, Inc.

AXT designs, develops, manufactures and distributes high-performance compound and single element semiconductor substrates comprising gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) through its manufacturing facilities in Beijing, China. In addition, AXT maintains its sales, administration and customer service functions at its headquarters in Fremont, California. The company's substrate products are used primarily in lighting display applications, wireless communications, and fiber optic communications. Its vertical gradient freeze (VGF) technique for manufacturing semiconductor substrates provides significant benefits over other methods and enabled AXT to become a leading manufacturer of such substrates, particularly in optoelectronics applications. AXT has manufacturing facilities in China and invests in five joint ventures producing raw materials. For more information, see AXT's website at http://www.axt.com.

Safe Harbor Statement

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal Securities laws, including statements regarding our outlook for the first quarter of 2009, success in qualifying additional opportunities, and our ability to continue to drive future businesses in 2009. These forward-looking statements are based upon specific assumptions that are subject to uncertainties and factors relating to the company's operations and business environment, which could cause actual results of the company to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. These uncertainties and factors include but are not limited to overall conditions in the markets in which the company competes; global financial conditions and uncertainties, market acceptance and demand for the company's products; the impact of the factory closures or other delays by our customers on the timing of sales of products; and other factors as set forth in the company's annual report on Form 10-K and other filings made with the Securities and Exchange Commission. Each of these factors is difficult to predict and many are beyond the company's control. The company does not undertake any obligation to update publicly any forward-looking statement, as a result of new information, future events or otherwise.

                                AXT, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (Unaudited, in thousands, except per share data)
                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2008       2007       2008       2007
                                =========  =========  =========  =========
Revenue                         $  15,646  $  17,564  $  73,075  $  58,203
Cost of revenue                    14,888     12,270     55,115     37,942
                                ---------  ---------  ---------  ---------
Gross profit                          758      5,294     17,960     20,261
                                ---------  ---------  ---------  ---------
Operating expenses:
  Selling, general and
   administrative                   3,605      3,218     15,751     13,746
  Research and development            529        508      2,164      1,699
  Impairment (recovery) on
   assets held for sale                 -          -         83       (481)
                                ---------  ---------  ---------  ---------
    Total operating expenses        4,134      3,726     17,998     14,964
                                ---------  ---------  ---------  ---------
Income (loss) from operations      (3,376)     1,568        (38)     5,297
Interest income, net                   80        153        513        704
Minority interests                     (7)      (606)    (1,431)    (1,896)
Other income, net                     583      1,061      1,290      1,912
                                ---------  ---------  ---------  ---------
Income (loss) before provision
 (benefit) for income taxes        (2,720)     2,176        334      6,017
Provision (benefit) for income
 taxes                               (349)       302      1,023        728
                                ---------  ---------  ---------  ---------
Net income (loss)               $  (2,371) $   1,874  $    (689) $   5,289
                                =========  =========  =========  =========
Net income (loss) per share:
  Basic                         $   (0.08) $    0.06  $   (0.03) $    0.17
                                =========  =========  =========  =========
  Diluted                       $   (0.08) $    0.06  $   (0.03) $    0.16
                                =========  =========  =========  =========
Shares used in computing net
 income (loss) per share:
  Basic                            30,434     30,337     30,400     30,035
                                =========  =========  =========  =========
  Diluted                          30,434     31,550     30,400     31,348
                                =========  =========  =========  =========
                                AXT, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                        (Unaudited, in thousands)
                                                December 31,  December 31,
                                                    2008          2007
                                                ============  ============
Assets:
Current assets
  Cash and cash equivalents                     $     13,566  $     18,380
  Short-term investments                              17,756        20,825
  Accounts receivable, net                            11,497        12,149
  Inventories, net                                    35,082        24,781
  Prepaid expenses and other current assets            3,131         3,569
  Assets held for sale                                     -         5,140
                                                ------------  ------------
        Total current assets                          81,032        84,844
Property, plant and equipment, net                    22,184        15,986
Restricted deposits                                    3,013         6,700
Other assets                                           5,433         5,242
                                                ------------  ------------
        Total assets                            $    111,662  $    112,772
                                                ============  ============
Liabilities and stockholders' equity:
Current liabilities
  Accounts payable                              $      6,657  $      4,328
  Accrued liabilities                                  4,453         4,716
  Line of credit                                       3,013             -
  Current portion of long-term debt                       73           450
                                                ------------  ------------
       Total current liabilities                      14,196         9,494
Long-term debt, net of current portion                   591         6,250
Other long-term liabilities                            3,211         3,778
                                                ------------  ------------
       Total liabilities                              17,998        19,522
                                                ------------  ------------
Stockholders' equity:
  Preferred stock                                      3,532         3,532
  Common stock                                       186,784       185,979
  Accumulated deficit                                (99,232)      (98,543)
  Other comprehensive income                           2,580         2,282
                                                ------------  ------------
       Total stockholders' equity                     93,664        93,250
                                                ------------  ------------
       Total liabilities and stockholders'
        equity                                  $    111,662  $    112,772
                                                ============  ============

Contacts:
Wilson W. Cheung
Chief Financial Officer
(510) 683-5900

Leslie Green
Green Communications Consulting, LLC
(650) 312-9060

SOURCE: AXT, Inc.