AXT Backlog Passes $500 Million, Yet Management Is Backing Away From Long-Term Supply Deals
The wafer maker says the order surge is run-rate business, and it wants to keep pricing flexibility.
AXT, which makes specialty semiconductor wafers from indium phosphide, gallium arsenide and germanium, said on its earnings call Thursday that its backlog has passed $500 million, and that long-term supply agreements are not what drove it. Management said it is deliberately holding back on such deals to protect pricing.
Backlog is run-rate business
CEO Morris Young said on the call that the company is in "brand new territory" with backlog above $500 million. He said it spans long-term multi-year agreements, contracts under 12 months and spot purchase orders.
An analyst from Needham noted backlog was over $100 million a quarter earlier. VP of Business Development Tim Bettles confirmed the jump and said China demand is rising significantly. Lead times now run nine-plus months on much of the business.
Asked by an analyst from Northland Capital Markets whether long-term agreements drove a roughly $300 million to $400 million sequential increase, Bettles agreed it was "run rate business." He said those agreements are a relatively small part of backlog.
Why AXT is limiting long-term deals
CFO Gary Fischer said management has "pulled back on formal long-term agreements." The company will still make commitments beyond 90 days or six months, he said, but wants to protect price and avoid being locked in if it can supply more or less.
Announcing multiple such deals, Fischer said, is "not what we think is the right strategy for AXT." He said plenty of customers want them.
The one long-term agreement the company has highlighted is with Lumentum, signed in the third quarter, which brought a $43.5 million prepayment for wafers. Bettles said it is the same contract announced earlier, not a second one. The prepayment sits as a liability and converts to revenue as products ship.
Quarter and fourth-quarter outlook
Third-quarter revenue rose 162% from a year earlier to $73.4 million, up 54% from $47.6 million in the second quarter. Indium phosphide contributed $54.3 million, mostly from data center uses. Adjusted gross margin was 56.1%, and adjusted net profit was $26.8 million, or 41 cents a share.
Fischer said about $90 million of fourth-quarter revenue can be recognized with shipping permits already in hand or not required. He guided adjusted earnings of $0.57 to $0.59 a share, with adjusted operating expense of about $13 million. Bettles said all the growth would come from indium phosphide.
On margins, Fischer said he does not think they have peaked and that a low-60s figure is reasonable next quarter, but he was hesitant to predict further because "things are moving so fast." The company's market value was $4.2 billion as of Thursday's report.
Fischer said on the call that 2027 and 2028 capital spending plans look reasonable to him and are likely less than what demand will require.
Sources
- AXT: Q3 Earnings Snapshot — Associated Press
- AXTI Stock Before Q3 Earnings Release: To Buy or Not to Buy? — Yahoo Finance
- AXT topping estimates contingent upon permits, mix, pricing, Wedbush says (AXTI:NASDAQ) | Seeking Alpha — seekingalpha.com
- AXT Non-GAAP EPS of $0.41 beats by $0.10, revenue of $73.41M beats by $7.41M (NASDAQ:AXTI) — seekingalpha.com
- AXT Soars 10% on $545 Million Tongmei Financing as Indium Phosphide Demand Is “Outpacing Supply” — Yahoo Finance
