CMP PROCESSING

Learn more about R&D chemical mechanical polishing by requesting our FREE informational CD.

Download our CMP White Paper

 

FREE subscription
Subscribe for free to receive each issue of Semiconductor Today magazine and weekly news brief.

News

26 October 2007

 

AXT’s 6” GaAs sales dip due to BiFET transition

For third-quarter 2007, substrate and raw material supplier AXT Inc of Fremont, CA, USA has reported revenue of $14.5m, up 7% on Q2’s $13.6m and 16% on $12.5m a year ago. Of total revenue, 19% came from North America, 64% from Asia-Pacific, and 17% from Europe. No customers comprised more than 10% of total revenue.

Gallium arsenide (GaAs) substrate revenue was $9.9m, up 6% on Q2’s $9.3m but down 7% on $10.6m a year ago. In particular, revenue for 2-3” semiconducting (SC) GaAs substrates rose from Q2’s $4.6m to $6.3m, driven by demand from LED makers (both existing customers fearing GaAs shortages and therefore placing large orders, and new customers seeking an alternate source). The latter includes a US customer returning after many years (currently being qualified, for production release in Q4). However, 6” semi-insulating (SI) wafer sales of $2.2m were down from $2.8m in Q2 (with the split between semi-insulating and semiconducting GaAs substrates correspondingly shifting from 67:33 to 42:58). This was due to “two unexpected events with two 6” customers”, according to chief financial officer Wilson Cheung.

CEO Phil Yin elaborates that this included one customer making an inventory correction due to AXT being the last of its suppliers to be qualified for BiFET technology (although AXT should be qualified in Q4). The other customer transitioned to a new device with different specifications. A consequent gain issue led to inconsistent failure rates, so production shipments were put on hold while new sample substrates were shipped. These now conform to the new requirements, says AXT, so large-scale shipments have resumed.

Indium phosphide (InP) revenue was back to a more ‘normal’ $408,000, down 38% on Q2’s $660,000 (which included $250,000 from a one-time sale of InP scrap). Nevertheless, this was up 20% on $340,000 a year ago.

Germanium (Ge) substrate revenue was $536,000, up 33% on Q2’s $402,000 and 39% on $387,000 a year ago. AXT claims to be one of few suppliers of substrates for concentrator photovoltaic (CPV) cells, with two customers in production, a large US customer now taking initial production orders (though ramping slowly until mid-2008) and four more in Europe in qualification.

Raw materials sales were $3.6m, up 9% on Q2’s $3.3m and almost tripling from $1.3m a year ago due to demand from a US customer and rises in pricing. Four-nines (99.99%) pure gallium has risen from $350-400/kg in January to $650-700/kg now, while six- and seven-nines gallium has risen to $750-99/kg. Likewise, germanium has risen from $630/kg a year ago to $1200-1300/kg.

Gross margin was 31.3% of revenue, down from Q2’s 36.9% but up from 27.7% a year ago. Correspondingly, net income was $858,000, down from Q2’s $1.2m but up from $639,000 a year ago.

“As we have discussed throughout the year, there are several important industry trends that are driving the increasing demand for our products, such as the rapid replacement cycles of cellular handsets, the emergence of a new market for low cost handsets, the proliferation of applications for LED lighting and the increasing focus on solar energy,” says Yin.

The qualification of BiFET devices led to an industry-wide slowing of 6” SI GaAs substrate sales in 2007. However, the emergence from this lull after the transition to BiFETs is a positive step for suppliers, says Yin. The technology’s higher level of integration suits low-cost phones for emerging markets, which are on course to comprise 481 million unit sales in 2007 (43% of the market). In addition, BiFET’s contribution to longer battery life and lower RF losses should drive use in high-end handsets too.

For fourth-quarter 2007, AXT estimates that revenue will grow again sequentially, by 6-9% to $15.3-15.8m. Most of the rise should be due to the two 6” SI GaAs customers ramping back up towards expected run rates (and big 6” order influxes from AXT’s four largest customers), as well as SC GaAs for LEDs gaining momentum, reckons Cheung. However, if 6” SI GaAs substrates become a greater proportion of sales, as expected (targeting a return in 2008 more to the 67% proportion of Q2/2007), then profit margin should improve recover to Yin’s target of mid-30% in Q4. Longer-term, this week’s announcement by Skyworks of its transition from 4” to 6” GaAs represents an opportunity for AXT, says Yin.

Raw materials revenues should return back to a ‘more normal’ $3.2m, as gallium pricing has peaked, believes Yin. However, he adds that AXT is investigating opportunities for more joint ventures for raw materials.

InP revenue should remain at the $400-500,000 level near-term. However, AXT is currently qualifying a new InP customer (which should start to contribute to revenues in 2008). Since InP is one of AXT’s most profitable products, this should contribute to margins.

“Our own internal competencies are expanding into complementary technologies, such as standard Czochralski and liquid encapsulated Czochralski (LEC) crystal growth, allowing us to offer a comprehensive product portfolio spanning a wide variety of applications,” says Yin. Small-diameter (2-3”) SC GaAs substrate sales are high-volume and low-margin, below 20% (especially for the majority of customers - LED makers in Taiwan - where pricing pressure is ‘horrendous’, says Yin). However, the less critical etch-pit-density for LEDs (compared to microelectronic devices) enables the use of LEC growth (which is faster and produces longer ingots than VGF). In addition, the trend among some manufacturers to transition to 4” substrates should help, although ramps are currently small, and AXT has so far only shipped mechanical wafers. Single-element Ge (with no segration coefficient) can be grown faster using standard Czochralski, offering greater flexibility in pricing and performance.

“We believe we are coming to another inflection point in our business as the convergence of these increasing market opportunities, coupled with the completion of the industry BiFET transition and leverages within our business model, create opportunities for growth in the coming years,” Yin concludes.

*CEO Philip C.S. Yin has been named chairman of the board of directors. Former chairman Jesse Chen will continue to serve on the board and has been appointed lead independent director.

See related items:

AXT's second-quarter growth fuelled by strong demand for GaAs substrates and raw gallium

Search: AXT GaAs GaAs substrate germanium InP

See: AXT Company Profile

Visit: www.axt.com