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AXT Reap Rewards with $23.2 Million Revenue for Q2 2010

The demand for gallium arsenide substrates and raw material continues to grow at a healthy pace, fueled by strong sales of wireless devices and the increasing worldwide adoption and investment into LED technology.

 AXT, a leading manufacturer of compound semiconductor substrates has reported financial results for the second quarter ended June 30, 2010.
Revenue Q2 2010 was $23.2 million, compared with $18.6 million in the first quarter of 2010, and $13.1 million for Q2 2009.  Income from operations for the second quarter of 2010 was $5.0 million compared with income from operations of $2.9 million in the first quarter of 2010, and loss from operations of $1.3 million in the second quarter of 2009.

 Net interest and other income for the second quarter of 2010 was $1.6 million, which included $1.2 million, net, sales tax refund and an unrealized foreign exchange gain of $230,000. This compares with net interest and other income of $94,000 in the first quarter of 2010, which included $120,000 gain on investment notes that matured and an unrealized foreign exchange loss of $68,000, and net interest and other income of $321,000 in the second quarter of 2009, which included an unrealized foreign exchange gain of $183,000 and an investment gain of $138,000 from equity in its two unconsolidated joint ventures.

Net income in Q2 2010 was $5.5 million or $0.17 per diluted share. Excluding the $1.2 million, net, sales tax refund or $0.04 per diluted share, its net income in Q2 2010 was $4.3 million or $0.13 per diluted share compared with net income of $2.6 million or $0.08 per diluted share in the previous quarter, and with a net loss of $1.3 million, or loss of $0.05 per diluted share in the second quarter of 2009.

 Total gallium arsenide (GaAs) substrate revenue was $16.2 million for the second quarter of 2010, compared with $13.4 million in the first quarter of 2010, and $10.1 million in the second quarter of 2009. Indium phosphide (InP) substrate revenue was $1.1 million for the second quarter of 2010, compared with $875,000 in the first quarter of 2010, and $684,000 in the second quarter of 2009. Germanium (Ge) substrate revenue was $1.60 million for the second quarter of 2010 compared with $1.64 million in the first quarter of 2010 and $1.22 million in the second quarter of 2009. Raw materials sales were $4.2 million for the second quarter of 2010, compared with $2.7 million in the first quarter of 2010 and $1.0 million in the second quarter of 2009.

Gross margin was 36.8 % of revenue for Q2 2010, not much change from 36.1 % for the previous quarter. This is a significant increase in gross margin from the same quarter last year when it was 19.3 %.
Operating expenses were $3.6 million in the second quarter of 2010, compared with $3.9 million in the first quarter of 2010. Operating expenses in the second quarter of 2009 were $3.8 million.
"This is an exciting time for AXT," said Morris Young, CEO. "The demand for gallium arsenide substrates continues to grow at a healthy pace, fueled by strong sales of wireless devices and the increasing worldwide adoption and investment into LED technology in many applications. As a result, we are enjoying solid increases in our sales of semi-insulating and semi-conducting gallium arsenide substrates and strong increases in the sales of gallium raw material. In addition, the demand for our indium phosphide substrates is also growing, reaching nearly 5 % of our total revenues in the second quarter, and we expect to see increasing contribution from germanium substrates in the second half of the year. We believe that the trends fueling growth in all of these areas will create meaningful opportunity for AXT and we are strongly positioned to benefit given our raw material access and attractive cost-structure."
AXT estimates revenue for the third quarter will increase to between $24.7 million and $25.5 million. The company estimates that net income per share will be between $0.12 and $0.14, which takes into account our weighted average share count of approximately 32.2 million shares.

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