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AXT reports results, files patent counterclaim

AXT has reported a net loss of $17.7 million for the June 2003 quarter, and has also filed a counterclaim in its patent dispute with Cree Lighting and Boston University.
AXT s revenue from its ongoing substrate operations was $8.5 million in the second quarter of 2003, which was the same figure reported in the previous quarter.

However, the company reported a net loss of $17.7 million, or $0.61 per share, for the quarter. This comprised a loss of $3.9 million for the substrate business, and a loss of $13.8 million associated with AXT s discontinued optoelectronics business.

In late June, the company s board approved a plan to exit the optoelectronics business, and AXT will now cease its manufacturing operations by August 31, 2003.

The company plans to sell its manufacturing equipment through private asset sales or a public auction or both by December 31, 2003. The real estate assets of the division are expected to be sold within one year.

"Our decision to discontinue the opto-electronics business was difficult, but it was the right one. Now we can focus all of our efforts on growing and improving the performance of our core substrate business," said Morris Young, AXT s president and CEO.

The loss of $3.9 million (17 cents per share) for the ongoing substrate business was higher than the loss of $2.5 million (11 cents per share) reported in the first quarter of 2003.

Gross margin was 7.9 percent of revenue compared with gross margin of 3.2 percent of revenue in the first quarter of 2003. Operating expenses were $3.2 million in the second quarter of 2003, compared with $2.9 million in the first quarter of 2003.

"We have improved the performance of the substrate business since the downturn began during the third quarter of 2001," said Young. "Our costs are down substantially, product quality has improved, and the substrate business generated more than $8.6 million in cash during the past 24 months."

"We also believe that market conditions in our two largest end markets for substrates, wireless handsets and red and yellow LEDs, are favorable. Also, the end-use markets for our materials sales are improving."

The company anticipates that revenue from continuing operations will be between $8.5 and $8.8 million in the September 2003 quarter, with a loss of $2.5-2.7 million (11-12 cents per share).

Net loss, including discontinued operations, is expected to be $2.9-3.2 million, or 13-14 cents per share.

AXT files counterclaims against Cree Lighting and Boston University

AXT is filing counterclaims against Cree Lighting and Boston University in a patent dispute concerning devices manufactured using a GaN-based buffer technology (see Cree files patent infringement lawsuit against AXT ).

AXT was accused of infringing on US patent no. 5,686,738, entitled "Highly Insulating Monocrystalline Gallium Nitride Thin Films," which is owned by Boston University and licensed to Cree Lighting Company.

AXT has denied the infringement in a filing made in the US District Court for the Northern District of California.

Furthermore, AXT filed counterclaims against Cree Lighting and Boston University alleging that the plaintiffs actions were intentionally designed to interfere with AXT s prospective business relationships.

AXT also claimed that its rivals attempted to gain an unfair business advantage, and violated Section 2 of the Sherman Act and the Cartwright Act.

AXT s submittal requests that plaintiffs complaint be dismissed with prejudice and that AXT receive damages and injunctive relief.

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