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
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