8-K: AXT, Inc. Reports Preliminary Q2 2025 Revenue Below Guidance Amid Export Control Delays and Weak China Demand

AXT, Inc. announced preliminary second-quarter 2025 revenue of $17.5 million to $18 million, falling short of its previous guidance due to slower export permit issuance for gallium arsenide and weaker demand in China, despite strong AI-related indium phosphide demand.

Summary

• Preliminary revenue for the second quarter ended June 30, 2025, is expected to be in the range of $17.5 million to $18 million.
• This preliminary revenue range is below the company's previously stated guidance of $20 million to $22 million, which was provided on May 1, 2025.
• The primary reasons for the lower revenue are slower than expected issuance of export control permits for gallium arsenide products in Q2 and a weaker demand environment in China.
• Despite the revenue shortfall, the company expects to deliver Q2 2025 gross margins in the high single digits.
• A meaningful increase in AI-related demand for indium phosphide was observed in China during Q2.
• Beijing Tongmei Xtal Technology Co. (Tongmei), a subsidiary, received its first export control permits for indium phosphide late in the quarter.
• Full financial results for the second quarter of 2025 are scheduled to be announced on July 31, 2025, accompanied by a conference call.

Sentiment

Score: 4

Explanation: Preliminary revenue fell below guidance due to export control delays and weak China demand, indicating operational challenges. However, strong AI-related indium phosphide demand and initial export permits for Tongmei provide some positive counterbalance.

Positives

• Saw a meaningful increase in AI-related demand for indium phosphide in China during Q2.
• Subsidiary, Beijing Tongmei Xtal Technology Co. (Tongmei), received its first export control permits for indium phosphide late in the quarter.
• Remains highly focused on gross margin improvement and expects to deliver Q2 2025 gross margins in the high single digits despite the revenue shortfall.

Negatives

• Preliminary revenue for Q2 2025 is expected to be $17.5 million to $18 million, which is below the previously stated guidance of $20 million to $22 million.
• Slower than expected issuance of export control permits for gallium arsenide products in Q2.
• Weaker demand environment in China for gallium arsenide substrate business and consolidated raw material joint ventures.

Risks

• The current geopolitical environment remains challenging across the business.
• Slower than expected issuance of export control permits for gallium arsenide products.
• Weaker demand environment in China for gallium arsenide substrate business and consolidated raw material joint ventures.
• Requests for redemptions by private equity funds in China of investments in Tongmei.
• Administrative challenges in satisfying the requirements of various government agencies in China in connection with the listing of shares of Tongmei on the STAR Market.
• Continued open access to companies to list shares on the STAR Market.
• Investor enthusiasm for new listings of shares on the STAR Market.
• Geopolitical tensions between China and the United States.
• The timing and receipt of significant orders.
• The cancellation of orders and return of product.
• Emerging applications using chips or devices fabricated on substrates.
• End-user acceptance of products containing chips or devices fabricated on substrates.
• Ability to bring new products to market.
• Product announcements by competitors.
• Ability to control costs and improve efficiency.
• Ability to utilize manufacturing capacity.
• Product yields and their impact on gross margins.
• Relocation of manufacturing lines and ramping of production.
• Possible factory shutdowns as a result of air pollution in China or COVID-19.
• COVID-19 or other outbreaks of a contagious disease.
• Tariffs and other trade war issues.
• The financial performance of partially owned supply chain companies.
• Policies and regulations in China.

Future Outlook

AXT, Inc. anticipates announcing its full financial results for the second quarter of 2025 on July 31, 2025, and will host a conference call to discuss these results. The company remains confident about its participation in exciting technology trends and is highly focused on gross margin improvement, despite current geopolitical challenges and weaker demand in China. The company also expects to continue developing larger diameter substrates that are believed to enable the next generation of technology innovation across a number of end-markets.

Management Comments

• "Though we continue to feel confident about our participation in a number of exciting technology trends, the current geopolitical environment remains challenging across our business." Morris Young, Chief Executive Officer
• "Further, the demand environment in China has been weaker than expected for our gallium arsenide substrate business, as well as our consolidated raw material joint ventures." Morris Young, Chief Executive Officer
• "That said, we saw a meaningful increase in AI-related demand for indium phosphide in China during Q2 and were also pleased that our subsidiary, Beijing Tongmei Xtal Technology Co., (Tongmei), received its first export control permits for indium phosphide late in the quarter." Morris Young, Chief Executive Officer
• "In addition, we remain highly focused on gross margin improvement and despite the revenue shortfall, we expect to deliver Q2 2025 gross margins in the high single digits." Morris Young, Chief Executive Officer

Industry Context

AXT operates in the specialized compound semiconductor substrate market, serving applications where typical silicon substrates cannot meet performance requirements. The company's preliminary revenue shortfall highlights the impact of geopolitical tensions, specifically export controls, and regional demand fluctuations (China) on global supply chains in the semiconductor industry. The reported increase in AI-related demand for indium phosphide aligns with broader industry trends of increasing demand for advanced materials driven by AI and high-performance computing, indicating a strategic positioning in emerging high-growth areas despite current headwinds.

Comparison to Industry Standards

• NA

Related Party Transactions

• Partial ownership in ten companies in China producing raw materials for the manufacturing process.
• Consolidated raw material joint ventures experienced weaker demand.

Stakeholder Impact

• Shareholders: Potential negative impact on share price due to revenue miss and ongoing geopolitical risks, but potential upside from AI-related demand and future Tongmei STAR Market listing.
• Customers: Potential impact on supply of gallium arsenide products due to export control delays.
• Employees: Continued operations in China and focus on gross margin improvement may impact operational efficiency and potentially staffing.
• Suppliers: Weaker demand environment in China for raw material joint ventures could affect suppliers.

Next Steps

• Announce full financial results for the second quarter of 2025 on July 31, 2025.
• Host a conference call to discuss Q2 2025 results on July 31, 2025, at 1:30 p.m. PT.
• Continue to focus on gross margin improvement.
• Continue development of larger diameter substrates to enable next-generation technology innovation.

Key Dates

Recommendation

Keywords

AXT, AXTI, semiconductor, compound semiconductor, substrate, indium phosphide, gallium arsenide, germanium, wafer, material science, export control, China, AI, preliminary revenue, Q2 2025, earnings, financial results, NASDAQ