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AXT, Inc. Reports Second Quarter 2005 Results

FREMONT, Calif., July 25, 2005 /PRNewswire-FirstCall via COMTEX/ -- AXT, Inc. (Nasdaq: AXTI), a leading manufacturer of compound semiconductor substrates, today reported financial results for the second quarter ended June 30, 2005. The company's condensed consolidated financial statements have been presented to reflect the opto-electronics division as a discontinued operation for all periods presented.

Revenue for the second quarter of 2005 was $6.0 million compared with $6.6 million for the first quarter of 2005. During the second quarter of 2005, gallium arsenide (GaAs) substrate revenue decreased by 13 percent to $4.5 million from $5.2 million in the prior quarter due to longer than expected qualification periods from certain customers. Indium phosphide (InP) substrate revenue was $280,000 for the second quarter of 2005 compared with $137,000 in the prior quarter, and raw materials revenue was $1.3 million for the second quarter of 2005, same as prior quarter.

Gross margin was 2.1 percent of revenue in the second quarter of 2005 compared with 4.2 percent of revenue in the prior quarter. Gross margin in the second quarter of 2005 was negatively impacted by a $765,000 charge to cost of revenues as a result of an inventory valuation adjustment.

Operating expenses were $3.4 million in the second quarter of 2005 compared with $4.7 million in the prior quarter. Operating expenses in both quarters included charges for the decommissioning of AXT's Fremont facilities for the remainder of 2005. Those charges were $548,000 in the second quarter of 2005 and $1.3 million in the first quarter of 2005. The company reported a loss from continuing operations of $3.3 million for the second quarter of 2005 compared with a loss from continuing operations of $4.5 million for the prior quarter.

Net interest and other expense was $65,000 for the second quarter of 2005 compared with net interest and other income of $14,000 for the prior quarter.

Net loss in the second quarter of 2005 was $3.3 million or a loss of $0.14 per basic and diluted share, compared with a net loss of $4.1 million or a loss of $0.18 per basic and diluted share for the first quarter of 2005.

Management Qualitative Comments

"As we discussed last quarter, my main focus is to restore the reputation and credibility of AXT, and to move aggressively to improve our performance and enable AXT to perform at its highest potential," said Phil Yin, president and chief executive officer. "Since joining the company in March, I have spent a significant amount of time meeting with our customers and discussing one-on-one their specific needs and issues. These discussions, coupled with internal analysis, confirmed that we are making steady progress, but there is still work to be done in several key areas.

"The quality issues that we have faced continue to require our focused attention. Clearly, we have made great strides but we still have issues to resolve. As a result, the re-qualification of our products with some customers has been extended and continues to impact our revenue results. However, I firmly believe that we can resolve these issues and improve our product quality and I am very committed to achieving the highest standards in this area.

"I was extremely pleased to announce the changes to our organizational structure last month. They will enable AXT to fully maximize the expertise and skill sets of our team while placing enhanced focus on the areas of manufacturing and quality that require our immediate attention. The structure also allows us to focus more closely on two important elements of our future business, AXT's core technology development and growing our joint venture operations.

"The creation of the role of chief operating officer will allow the company to have tighter integration of our two facilities in the U.S. and China and will allow us to further enhance our focus on manufacturing, quality and quality systems improvements. Our China operation gives us a significant competitive advantage. Therefore, we must ensure that we are utilizing it to its highest potential.

"The competitive landscape has changed dramatically in the last several years and we continue to face tough competition. Our success will come from providing the highest quality products at the cost advantage that our China facility can offer. By leveraging the benefits of our core technology, lower-cost manufacturing and integrated joint ventures, we believe we will be able to position ourselves well for current and future market share growth."

Outlook for Third Quarter, Ending September 30, 2005 AXT projects the following for the third quarter:

-- Revenue is expected to be between $5.8 million and $6.2 million.
-- Consolidated net loss per diluted share is expected to be between $0.11 and $0.13.

Conference Call

A conference call will be held on July 25, 2005 at 1:30 p.m. PDT. The conference call can be accessed at 973-935-2100 (PIN 6176759). The call will also be simulcast on the Internet at Replays will be available at 973-341-3080 until August 1, 2005. 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. Management's accompanying script will be available on the company's website immediately after the call through July 25, 2006. Additional investor information can be accessed at or by calling the company's Investor Relations Department at 510-683-5900.

About AXT, Inc.

AXT is a leading producer of high-performance compound semiconductor substrates for the fiber optics and communications industries. The company's proprietary Vertical Gradient freeze (VGF) crystal growth technology produces low-defect, semi-insulating and semi-conducting gallium arsenide, indium phosphide and germanium wafers. For more information, see AXT's website at . The company can also be reached at 4281 Technology Drive, Fremont, California 94538 or by calling 510-683-5900. AXT is traded on the Nasdaq National Market under the symbol AXTI.

Safe Harbor Statement

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal Securities laws, including statements related to our future revenue and consolidated net loss, our performance, resolution of our quality issues and improvements in product quality, our technology development and benefits of our core technology, and the competitive advantages of our China facility, including our lower-cost manufacturing and integrated joint ventures. 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 that 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. Such uncertainties and factors include: our ability to increase sales and market share and maintain product quality improvements, our ability to recruit new qualified staff, overall conditions in the markets in which we compete and competitive pressures, including pricing pressures, within those markets, market acceptance and demand for our products, and other factors as set forth in the company's Form 10-K and other filings made with the Securities and Exchange Commission, all of which are difficult to predict and some of which are beyond the company's control. The company does not undertake any obligation to update publicly any forward-looking statement, either as a result of new information, future events or otherwise.

                 (Unaudited, in thousands, except per share data)

                                          Three Months Ended  Six Months Ended
                                                June 30,          June 30,
                                             2005     2004     2005     2004

    Revenue                                 $6,032   $9,524  $12,666  $19,300
    Cost of revenue                          5,905    8,695   12,260   17,938
    Gross profit                               127      829      406    1,362

    Operating expenses:
      Selling, general and administrative    2,716    3,203    6,968    5,973
      Research and development                 423      350      785      691
      Restructuring charge                     237    1,077      362    1,077
        Total operating expenses             3,376    4,630    8,115    7,741
    Loss from operations                    (3,249)  (3,801)  (7,709)  (6,379)
    Interest income, net                       131       54      250       78
    Other expense, net                        (196)    (225)    (301)    (191)
    Loss before provision for income taxes  (3,314)  (3,972)  (7,760)  (6,492)
    Provision for income taxes                  18       97       53      137
    Loss from continuing operations         (3,332)  (4,069)  (7,813)  (6,629)
    Discontinued operations:
      Gain from discontinued operations,
       net of tax                               53      222      411      222
    Net loss                               $(3,279) $(3,847) $(7,402) $(6,407)

    Basic and diluted loss per share:
      Loss from continuing operations       $(0.14)  $(0.18)  $(0.34)  $(0.29)
      Gain from discontinued operations         --     0.01     0.02     0.01
    Net loss per share                      $(0.14)  $(0.17)  $(0.32)  $(0.28)

      Shares used in computing basic and
       diluted loss per share               23,079   23,045   23,113   23,020

                                    AXT, INC.
                (Unaudited, in thousands, except per share data)

                                                June 30,        December 31,
                                                  2005               2004
    Current assets
      Cash and cash equivalents                 $15,112           $12,117
      Short-term investments                      9,881            20,062
      Accounts receivable, net                    4,955             4,034
      Inventories, net                           15,336            16,462
      Prepaid expenses and other current
       assets                                     2,438             2,523
      Assets held for sale                           --             1,250
          Total current assets                   47,722            56,448

    Property, plant and equipment, net           17,556            19,045
    Other assets                                  3,789             3,832
    Restricted deposits                           8,215             8,215

          Total assets                          $77,282           $87,540

    Liabilities and stockholders' equity:
    Current liabilities
      Accounts payable                           $1,816            $1,895
      Accrued liabilities                         7,009             7,690
      Accrued restructuring                         504               552
      Current portion of long-term debt             450               450
          Total current liabilities               9,779            10,587

    Long-term debt, net of current portion        7,300             7,600
    Other long-term liabilities                   1,362             1,336
          Total liabilities                      18,441            19,523

    Stockholders' equity:
      Preferred stock                             3,532             3,532
      Common stock                              155,319           155,454
      Accumulated deficit                       (99,963)          (92,561)
      Other comprehensive (loss) income             (47)            1,592
          Total stockholders' equity             58,841            68,017

          Total liabilities and
           stockholders' equity                 $77,282           $87,540


Wilson W. Cheung, Chief Financial Officer of AXT, Inc., +1-510-683-5900; or Leslie Green of Stapleton Communications, +1-650-470-0200, for AXT, Inc.