AXT, Inc. Reports Third Quarter Financial Results

Octopber 24, 2001

FREMONT, Calif. AXT, Inc. (Nasdaq: AXTI) today reported financial results for the third quarter ended Sept. 30, 2001.

Revenue for the third quarter of 2001 was $22.8 million, compared with $33.1 million from continuing operations in the third quarter of 2000, and with $41.3 million in the second quarter of 2001.

Revenue from the substrate division, which represented approximately 90 percent of total consolidated revenue in the third quarter of 2001, was $20.5 million, compared with $31.7 million in the third quarter of 2000, and with $38.1 million in the second quarter of 2001.

Revenue from the company s opto-electronics division, including VCSELs, edge-emitting laser diodes and high brightness LEDs, was $2.3 million in the third quarter of 2001, compared with $1.4 million in the third quarter of 2000, and with $3.2 million in the second quarter of 2001.

Net loss for the third quarter of 2001 was $1.4 million, compared with net earnings from continuing operations of $3.4 million in the third quarter of 2000, and with net earnings of $5.2 million in the second quarter of 2001.
Loss per share for the third quarter of 2001 was $0.06 per share on approximately 22.3 million shares outstanding. This compares with earnings per share from continuing operations of $0.16 on approximately 21.2 million diluted shares outstanding in the third quarter of 2000 and with $0.23 per share on approximately 23.1 million diluted shares outstanding in the second quarter of 2001.

"While business conditions remain challenging, strategic research and development investments are positioning AXT well for continued leadership as our markets recover," said Morris Young, president and chief executive officer. "We believe that our VGF gallium arsenide and indium phosphide substrates continue to offer superior features for manufacturers of high quality electronic and opto-electronic devices. We believe that we remain the world leader in providing both products.

"With our high brightness LED products, we are well positioned to penetrate a wide range of applications including traffic signals, indoor and outdoor displays, and backlighting. At the same time, we believe our sapphire substrates and low-pressure MOCVD epi-growth strategy will make us a leader in low cost, high volume production of LEDs.

"Production and sales of our four-inch indium phosphide wafers were up sequentially and increased as a percentage of total indium phosphide sales relative to an average of the last four quarters. Our four-inch indium phosphide production now represents more than 18 percent of total indium phosphide sales. We believe this indicates an increasing activity in high-performance indium phosphide electronic devices for such applications as SONET OC-768. We welcome this trend, as we believe AXT is the world leader in four-inch production of indium phosphide wafers. We believe the advantages of our VGF technology will enable us to supply wafers for this growing market and expand our market share lead.

"We are pleased to see the early indications of a wireless market recovery and we are receiving new gallium arsenide orders from some of our wireless customers. We believe, however, that many wireless customers continue to carry and work through substantial inventory levels, and, as a result, we are not seeing a broad based recovery yet. Thus, quarterly gallium arsenide revenues were down sequentially as expected, and we continue to expect a meaningful decline in our gallium arsenide sales in the fourth quarter. As inventory in the channel is reduced and as end-market sales rebound, we believe that our gallium arsenide revenues will increase.
"As we work through a difficult economy, we continue to make preparations for our next round of growth including advancing our technology, 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 positions us well for continued growth as conditions in the marketplace improve," he said.

Outlook for the Fourth Quarter 2001

As previously announced, the company expects a significant decline in demand for substrate products during the fourth quarter that will not likely be offset by continued growth in its other products.

-- Revenue is expected to be between $13 and $15 million. -- Pre-tax loss is expected to be between $4.7 and $6.3 million. -- Loss per share is expected to be between $0.14 and $0.18.

About AXT, Inc.

AXT designs, develops, manufactures and markets high-performance compound 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. AXT is also a leading producer of light-emitting diodes (LEDs), such as blue, cyan and green LEDs, for the display and lighting industries, and vertical cavity surface emitting lasers (VCSELs) for the fiber optics industry and laser diodes for telecommunications applications. For more information, see AXT s website at http://www.axt.com. 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

This press release may contain forward-looking statements regarding the future financial performance of the company, market conditions and trends, market acceptance and demand for our products, growth in emerging technologies and our competitive position.
Forward-looking statements address matters that are subject to a number of risks and uncertainties, including but not limited to: unpredictable fluctuations in our operating results due, among other factors, to a difficult economic climate, a downturn in the markets for our products, the expansion of our China operations which may be costlier or take more time than expected; the limited availability and increased cost of critical raw materials, particularly gallium and arsenic, where we depend on a limited number of suppliers; the timing, volume, and pricing of orders from customers; an inability to expand our manufacturing capacity to meet demand for our products; failure to achieve anticipated sales of our new HB LED and VCSEL products; potential slowdowns in the wireless handset and fiber optics markets which may cause our customers to reduce or delay orders of our products; war or terrorist activity that disrupt our manufacturing capabilities or interrupt the sale of our products; if we do not comply with environmental and other regulations we may incur large fines and delays in manufacturing our products; and if we experience frequent electrical power outages our production could be reduced and we may incur costs related to interrupted productions runs. Reference is made to AXT s filings with the Securities and Exchange Commission, including AXT s Form 10-K for the year ended December 31, 2000 and its Form 10-Qs filed for each of the subsequent quarters, and to AXT s Form S-3, for further discussion of risks and uncertainties regarding AXT s business.

AXT, INC. CONSOLIDATED INCOME STATEMENTS (Amounts in thousands, except per share data)

Three Months Ended Nine Months Ended September 30,September 30, 2001 2000 2001 2000

Revenue $22,783 $33,132 $104,159 $83,336 Cost of revenue17,423 18,435 66,300 48,612 Gross profit 5,360 14,697 37,859 34,724

Operating expenses: Selling, general and administrative 5,826 5,134 17,105 12,627 Research and development 1,701 3,267 6,834 6,976 Total operating expenses7,527 8,401 23,939 19,603 Income (loss) from operations (2,167) 6,296 13,920 15,121 Interest expense 493762 1,637 2,680 Other (income) and expense (488)16 (1,542) (468) Income (loss) from continuing operations before provision for income taxes (2,172) 5,518 13,825 12,909 Provision for income taxes (782) 2,097 4,977 4,916 Income (loss) from continuing operations (1,390) 3,421 8,848 7,993 Discontinued operations: Loss from discontinued operations, net of income tax benefit -- (519) -- (766) Loss on disposal, net of income tax benefit -- -- -- -- Net income (loss) $(1,390) $2,902 $8,848 $7,227

Basic income (loss) per share: Income from continuing operations $(0.06) $0.17 $0.40 $0.41 Loss from discontinued operations -- (0.03) -- (0.04) Net income (0.06) 0.140.40 0.37

Diluted income (loss) per share: Income from continuing operations $(0.06) $0.16 $0.39 $0.38 Loss from discontinued operations -- (0.03) -- (0.04) Net income (0.06) 0.130.39 0.34

Shares used in per share calculations: Basic 22,333 19,832 22,246 19,595 Diluted22,333 21,226 22,931 21,062

AXT, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands)

September 30, December 31, 2001 2000 Assets: Current assets Cash and cash equivalents $38,823 $68,585 Short term investments 8,78530,852 Accounts receivable, net 22,99927,773 Inventories 58,53851,846 Prepaid expenses and other current assets 5,045 3,603 Deferred income taxes 6,020 -- Total current assets140,210 182,659

Property, plant and equipment, net 83,64063,401 Investments 16,071 -- Other assets 4,165 3,312 Goodwill 1,195 848

Total assets $245,281 $250,220

Liabilities and stockholders equity: Current liabilities Short-term bank borrowing $386$1,353 Accounts payable 8,42410,009 Accrued liabilities 19,89616,651 Deferred income taxes -- 3,847 Current portion of long-term debt 2,487 4,355 Current portion of capital lease obligation4,290 6,057 Total current liabilities 35,48342,272

Long-term debt, net of current portion 14,82015,123 Long-term capital lease, net of current portion 11,126 7,278 Other long-term liabilities 1,356 200 Total liabilities62,78564,873

Stockholders equity: Preferred stock 3,532 3,532 Common stock 150,360 145,748 Deferred Compensation (24) (107) Retained earnings 42,82833,980 Other comprehensive income (14,200)2,194 Total Stockholders equity 182,496 185,347

Total Liabilities and stockholders equity$245,281 $250,220

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SOURCE AXT, In Web site: http://www.axt.com

Contact: Don Tatzin, Chief Financial Officer, +1-510-683-5900, or Christopher Bunn, Director, Investor Relations, +1-510-438-4782, both of AXT, Inc.