AXT, Inc. Reports Record Second Quarter Financial Results

Revenue Up 55 Percent and EPS Up 92 Percent From Q200

Fremont, CA. AXT, Inc. (Nasdaq: AXTI) today reported record financial results for the second quarter ended June 30, 2001.

Revenue for the second quarter of 2001 was a record $41.3 million, an increase of 55 percent from $26.6 million from continuing products in the second quarter of 2000, and up 3 percent from $40.1 million in the first quarter of 2001.

Revenue from the substrate division, which represented approximately 92 percent of total revenue in the second quarter of 2001, was $38.1 million, an increase of 45 percent from $26.2 million in the second quarter of 2000, and a decrease of 2 percent from $38.8 million in the first quarter of 2001.

Revenue from the company s opto-electronics division, including VCSELs, edge-emitting laser diodes and high-brightness LEDs, was a record $3.2 million or 8 percent of total revenues. This is a 741 percent increase from $383,000 in the second quarter of 2000, adjusted for discontinued products, and a 151 percent increase from $1.3 million in the first quarter of 2001.

Net income for the second quarter of 2001 was $5.2 million, an increase of 123 percent from $2.4 million in the second quarter of 2000, and up 5 percent from $5.0 million for the first quarter of 2001.

Earnings per share on a diluted basis for the second quarter of 2001 were $0.23 per share on approximately 23.1 million shares outstanding. This compares with earnings per share of $0.12 on approximately 20.1 million shares outstanding in the second quarter of 2000 and with $0.22 per share on approximately 22.8 million shares outstanding in the first quarter of 2001.

"I am pleased with our record performance in the second quarter," said Morris Young, president and chief executive officer. "Our substrate division delivered solid results and we made great strides in our opto-electronics division, both in terms of sales and product advancements.

"Our quarterly LED revenue more than doubled sequentially, representing the positive reception our products are receiving in the marketplace. With advancements in the brightness of our LEDs, we are well positioned to penetrate a wide range of applications, including traffic signals indoor and outdoor displays and backlighting. We believe that our technology approach that combines sapphire substrates and low-pressure MOCVD epi-growth offers a path to produce among the brightest and lowest cost LEDs available.

"Revenue from VCSEL and laser diode products also doubled quarter over quarter. We recently broadened our offering in this area to include two new products: high-speed oxide VCSELs operating at 3.125 Gbps, and one- and two- dimensional VCSEL arrays. We also recently announced a 1550nm edge emitting laser diode. These new products, coupled with our previously announced VCSEL and laser diode products and our on-going development of single mode VCSELs, provide a broad set of solutions to meet the needs of the VCSEL and traditional edge-emitting telecommunications laser end markets.

"In the second quarter, indium phosphide revenue grew approximately 24 percent sequentially and now represents 25 percent of our total substrate sales. While our growth in recent quarters has been primarily fueled by growth in opto-electronic applications such as lasers and detectors, we are seeing increasing interest from electronic device manufacturers for applications such as SONET OC-768. We believe that demand will continue to increase as next generation fiber optic components currently under development require even higher power and higher frequency capabilities. Therefore, we expect continued growth in our indium phosphide sales in the third quarter, though not at the dramatic levels we have experienced in the past.

"Quarterly gallium arsenide revenues were down slightly as strong demand for five and six inch diameter substrates throughout much of the second quarter offset weakness for smaller diameter substrates. As we reported in June, we expect a meaningful decline in our gallium arsenide sales in the third quarter, reflecting the difficult macro-economic climate. We believe that our gallium arsenide revenues will begin to increase once inventory in the channel is reduced.

"As we work through a difficult economy, we continue to make preparations for our next round of growth including advancing our technology, building capacity, enhancing our supply of raw materials and reducing costs. We believe that our leadership position in large diameter gallium arsenide and indium phosphide substrates and our substantial progress in LED and VCSEL technology position us well for continued growth as conditions in the marketplace improve," he said.

Forward-Looking Guidance As previously announced, the company expects a significant decline in gallium arsenide revenue during the third quarter that will not be offset by continued growth in its other products.