News Article

AXT Shrugs Off GaAs Manufacturing Setbacks

The substrate vendor makes up for lost business from a US fab closure with strong sales of GaAs material to other customers.

Compound semiconductor substrate specialist AXT has posted a solid financial quarter, despite the difficulties posed by three separate setbacks.

In the three months ended June 30, the north Californian company with operations in China delivered a net profit of $0.7 million on total sales of $19.9 million.

That slight increase in sales revenue masked a $0.4 million sequential decline in shipments of 6-inch GaAs material to $5.5 million.

Although the market for large semi-insulating GaAs substrates remains strong, thanks mostly to increased GaAs content in the latest generations of mobile handsets, AXT s CEO Phil Yin pointed out that three unexpected events in the quarter had dented 6-inch sales.

First an unspecified US customer closed operations at its West Coast GaAs fab, before a key Asian chip maker shut down operations for two weeks for routine maintenance. That same customer also switched to a new epiwafer process during the quarter, the change seemingly causing some manufacturing problems.

Yin says that with the customer moving to a new set of epitaxy reactors, any problems should be resolved shortly.

But with strong growth at other key accounts, the CEO said that the market for compound semiconductor materials remained solid, and he is hopeful that the rest of 2008 will see a return to stronger growth.

AXT s sales remain dominated by GaAs, which accounted for $13.1 million in revenue "“ a figure that includes both 6-inch and 4-inch semi-insulating material, as well as 4-inch semi-conducting substrates used in red LED manufacturing.

The company is currently expanding its 6-inch manufacturing capacity, with the 27 per cent hike scheduled to be completed by the end of this year.

Sales of germanium substrates, which are used by some LED manufacturers but increasingly for triple-junction solar cell production, remained flat at $1.4 million in the quarter.

Despite that leveling off in demand, Yin said that AXT was now in volume germanium wafer production for two customers, with a third in the final stages of qualification and three more in earlier stages of qualification.

"Many of our customers with excess epi capacity are not only requesting pricing for germanium substrates, but also forward-pricing for an expected conversion to 6-inch [germanium] diameters," revealed the CEO.

Demand for germanium used in high-efficiency solar cells recently prompted AXT s key competitor, Umicore, to say that it was setting up a new manufacturing facility in the US (see related story).

AXT now expects to post a slight increase in revenue when it delivers its next quarterly report, with anticipated sales of between $20.1 million and $20.5 million in the current quarter.

But the stock market showed a cool reaction to AXT s announcement, with shares in the company down 10 per cent to $3.65 in early trading on July 31.

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