AXT Brushes Off Glut Talk: 'Impossible To Keep Up With Demand' For Indium Phosphide
Management says every customer is on allocation, backlog tops $500 million and a planned 2027 doubling of capacity may fall short.
AXT executives pushed back on investor chatter about an indium phosphide glut on the company's third-quarter earnings call Thursday, with VP of Business Development Tim Bettles saying "it is impossible to keep up with demand." AXT, which makes specialty semiconductor wafers called substrates, reported $73.4 million in quarterly revenue and said backlog has passed $500 million.
Allocation, not oversupply
An analyst from Needham raised talk that AXT's capacity additions could produce overcapacity in indium phosphide substrates next year, comparing it to the memory-chip overcapacity worries of late 2024, which the analyst said he did not buy.
Bettles said the company is "significantly overbooked" and that "all of our customers are on allocation." Some customers are asking to raise long-term supply agreements "2x or 3x," he said, so the plan to double capacity in 2027 may not even "get our head above water." Asked about worries over adding capacity through next year, he answered: "No, I don't have any."
CEO Morris Young said he is "reasonably confident" for at least two years and that three years out "it's hard to say." He told analysts to "ask me next year." He also relayed that a major customer told him the market will expand 1000x rather than 20x, a figure he said he could not explain.
Capacity plans and the spending question
Young said that, taking the end of 2025 as one, capacity should finish 2026 at 2.75 to 3, with a goal of doubling again in 2027. He said he hopes that by mid-year management can say it is still ahead of plan. Bettles said lead times on many orders now run nine-plus months.
CFO Gary Fischer said he is "not at all worried about 2027 CapEx," which he knows is less than will be needed, and feels the same about 2028. The planned spending for those two years is reasonable and not overspending, he said, and the company would need to look at 2029 as it gets closer.
Backlog, which includes long-term agreements, contracts under 12 months and spot orders, was more than $100 million a quarter ago, Bettles said. He said long-term agreements are a small part of it, and Fischer said the company has pulled back from formal long-term deals to protect price and flexibility.
A record quarter and a $90 million outlook
Third-quarter revenue rose 54% from $47.6 million in the second quarter and 162% from $28.0 million a year earlier. Indium phosphide contributed $54.3 million, mostly from data center uses. Adjusted gross margin was 56.1%, against 45.0% in the second quarter, and adjusted net profit was $26.8 million, or 41 cents a share.
For the fourth quarter, Fischer said about $90 million of revenue is either permitted to ship or needs no permit, and he has a high degree of confidence in recognizing it. He guided adjusted earnings of $0.57 to $0.59 a share. Cash and investments stood at $825.9 million at September 30, helped by a $43.5 million prepayment under a long-term supply agreement with Lumentum.
AXT's market value was $4.2 billion after Thursday's session.
AXT will present at the UBS Global Technology and AI Conference and the Northland Growth Conference in December, and the Needham Growth Conference in January.
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
