- 20 April 2006 -

AXT sees 10% revenue increases over Q4 2005

AXT, Inc., reported its financial results for the first quarter ended March 31, 2006. During the period, the company continued strong execution of growth plans with good revenue growth and positive feedback from customers on the quality and consistency of product, said CEO Phil Yin. He went on to say how energized AXT now is, on course to becoming the number one compound substrate supplier in the world.

The company's financial statements have been presented to reflect the optoelectronics division as a discontinued operation for all periods. Revenue for the first quarter of 2006 was $8.5 m compared with $7.7 mn for the fourth quarter of 2005. During the first quarter, substrate revenue was $7.1 m compared with $6.1 m in the prior quarter primarily due to our improved quality and higher demands for two-inch and six-inch diameter wafers. Revenue from raw materials sales was $1.4 m for the first quarter of 2006 compared with $1.7 m in the fourth quarter of 2005. Raw materials sales in the fourth quarter of 2005 benefited from the timing of certain customer shipments that fell from the third quarter into the fourth quarter. The company reported a loss from operations of $2.3 m for the first quarter of 2006, compared with a loss from operations of $3.4 m for the fourth quarter of 2005.

Gross margin was 17.8% in the first quarter of 2006 compared with 8.4% in the fourth quarter of 2005. The 17.8% gross margin included sales of fully reserved wafers of $569,000, which positively affected the quarterly gross margin by 6.7 percentage points. By comparison, the prior quarter 8.4% gross margin included sales of fully reserved wafers of $642,000, or 8.3 percentage points of the quarterly gross margins, offset by year-end inventory valuation adjustments of $573,000, which negatively affected the quarterly gross margin by 7.4 percentage points.

CEO Phil Yin commented that: "As a result, we posted revenue growth in a quarter that has historically been seasonally down. The intensive efforts of our operations group have resulted in a significantly improved quality and manufacturing process. Most importantly, as each month progresses, we are demonstrating to our marketplace that we are able to continually deliver a high quality product in volume quantity.

"As we look ahead, we are energized by the goal of regaining our stature in the industry and becoming the number one compound substrate supplier in the world. We are participating in a growing market that is full of opportunity. We have the most experience and demonstrated leadership in VGF technology, as well as rapidly expandable capacity and a lower cost-environment in which to produce our products. Further, with our sales efforts gaining momentum and significant competitive advantages such as our raw material joint ventures, the prospects for our continued growth are strong. Our goal is to bring enhanced value to our customers, stockholders and employees through revenue and margin increases and operating expense reductions that will ultimately lead us to profitability."

Operating expenses were $3.8 m in the first quarter of 2006, compared with $4.0 m in the fourth quarter of 2005.

Net interest and other income was $366,000 for the first quarter of 2006 compared with net interest and other expense of $286,000 for the fourth quarter of 2005. Other income included a gain on sale of 100,000 shares of Finisar stock totaling $376,000. As of March 31, 2006, the company continues to hold approximately 1.1 m shares of Finisar. The company also recorded an income tax provision of $318,000 for the first quarter of 2006 relating to foreign entities, compared with a U.S. federal income tax benefit of $1.0 m in the prior quarter.
Net loss in the first quarter of 2006 was $2.2 m compared with a loss of $2.7 m for the fourth quarter of 2005.

AXT projects the following performance for the second quarter of 2006: Revenue is expected to be between $8.6 m and $8.9 m; Net loss is expected to be between $1.4 m and $1.8 m, including stock compensation expense of $275,000.

Web: http://www.axt.com