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AXT: IQE wafer deal renewal key for 2009

Continued firm RF orders, plus gaining Philips Lumileds as a customer, keeps the substrate manufacturer positive despite poor sales.

AXT is emphasizing its latest contract wins, after its revenues for the last quarter of 2008 slumped by more than 25 percent from its earlier expectation.

Epiwafer manufacturer IQE has agreed a $14.3 million deal to meet its 2009 requirements for 4-inch and 6-inch semi-insulating GaAs substrates, down from $18.6 million in 2008.

With AXT s quarterly sales set to reach just $15.9 million, compared with a prediction of $21.9 million, chief financial officer Wilson Cheung underscored the agreement s significance.

“The really important news is that we ve renewed the IQE contract,” he told analysts at the Needham Growth Stock Conference in New York on January 6. “This will help ensure we have an extremely high level of capacity utilization.”

Cheung also revealed a further potential revenue boost, as AXT has gained top LED manufacturer Philips Lumileds as a customer for semi-conducting GaAs in 2009. His company will supply substrates for the company's cutting-edge red-orange-yellow emitter manufacturing, although not in the 6-inch diameters other substrate suppliers suggest blue LED manufacturing is reaching.

“The state of the art is 4-inch, there are no 5-inch or 6-inch manufacturers "“ yet,” Cheung asserted.

Germanium substrate sales are set for a boost, having completed qualification with German III-V solar cell producer Azur Space, with production orders set to begin in January.

This sector should multiply into AXT s largest revenue driver in the second and third quarters of 2009 when three additional solar cell manufacturers complete their production qualification.

The substrate maker is determined to expand its few-percent market share and chip into the 90 percent-plus share of leading producer Umicore.

Cheung says that its potential customers are keen to complete qualification to open up the market. “These companies want to have multiple vendors so they don't get pricing issues,” he said.

Beyond its revenue anticipations AXT s financial health is bolstered by the low costs of its Beijing, China, based manufacturing and self-built crystal growth furnaces. The Beijing facility has large amounts of space to expand into, allowing the company to respond quickly to changing demand.

Cheung predicts that this will help it take substrate market share as GaAs manufacturers move further towards 6-inch manufacturing into 2009 and 2010.

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