News: Suppliers
5 August 2025
AXT’s Q2 revenue constrained by slower-than-expected China export permitting
For second-quarter 2025, AXT Inc of Fremont, CA, USA — which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials — has reported revenue of $18m, down 7.2% on $19.4m last quarter and 35.5% on $27.9m a year ago. This is below the guidance of $20–22m provided on 1 May, but at the top end of the revised guidance of $17.5–18m issued on 9 July.
Of total revenue in Q2 (compared with a year previously), the proportion from the Asia Pacific region has risen further from 78% to 90%, while Europe has fallen further from 17% to 9% and North America has dropped from 5% to just 1%.
“The China government imposed trade restrictions on export of gallium arsenide in August of 2023 and our indium phosphide in February of 2025. These regulations explicitly seek to restrict the export of materials used for military applications and require that we file an export permit for every customer orders,” says CEO Dr Morris Young. “We typically hear back on initial applications with 45 business days, and repeat applications are often processed faster. We found the permitting process in Q2 for gallium arsenide to be slower than we typically see over the last two years,” he adds. “The delays in Q2 resulted in our being able to ship less material outside of China than we had anticipated. About half of our revenue shortfall in Q2 was the result of this factor.”
By product category:
- Indium phosphide revenue was $3.6m (more than halving from $7.7m a year ago but down only slightly on $3.8m last quarter), primarily from passive optical networks (PONs) and data-center applications in China.
- Gallium arsenide revenue has fallen further, from $9.1m a year ago and $6.7m last quarter to $6.2m. “Demand in China was sluggish in Q2, and customers are taking a more cautious approach to ordering and holding inventory,” notes Young. “Despite a lackluster environment, we were pleased to be able to grow our wireless business in China during the quarter.”
- Germanium substrate revenue was $1.5m, almost halving from $2.9m a year ago but rebounding from just $0.6m last quarter, driven by satellite solar cell applications in China. “This market is highly price sensitive, and we continue to be very selective in the business opportunities we choose to support as the sharp rise in germanium raw material pricing in the last several years has severely constrained gross margins.”
“Our substrate revenue increased in Q2 from the prior quarter, though the increase was less than we had expected as a result of longer processing times for gallium arsenide export permits, coupled with some sluggishness in the demand environment in China, which also affected our raw material business,” says Young.
Revenue was $6.7m from the two consolidated raw material joint venture companies: BoYu (which makes high-temperature pyrolytic boron nitride crucibles and pBN-based tools for organic light-emitting diodes) and JinMei (which supplies high-purity materials including gallium and germanium, as well as InP poly and other materials). This was down about 19% on $8.3m last quarter and $8.2m a year ago.
On a non-GAAP basis, gross margin was 8.2%, down on 27.6% a year ago but a rebound from –6.1% last quarter. “We took a more measured approach to market expansion and we were able to service a portion of the customer opportunity, while executing effectively at modestly higher production levels. The adjustment we made in our approach, along with the strong focus from our manufacturing organization on yield and efficiency, allowed us to drive meaningful improvements in gallium arsenide gross margins,” says Young.
“We also saw healthy growth in AI-related demand for indium phosphide in China,” Young continues.” We were granted our first permit for indium phosphide in late June, and we were able to ship nearly $700,000 of material for our non-China backlog in indium phosphide in Q2.”
Operating expenses in Q2/2025 were $7.6m, cut from $8.5m last quarter and $8.9m a year ago, due to R&D spending falling by $1.25m. “Given the difficult climate, we have been working hard to hold OpEx down,” notes chief financial officer Gary Fischer.
Net loss was $6.4m ($0.15 per share), up from $0.8m ($0.02 per share) a year ago but cut from $8.2m ($0.19 per share) last quarter.
During the quarter, cash and cash equivalents and investments fell by $3.1m, from $38.2m to $35.1m.
Net inventory was down by about $300,000 to $80.1m. “This continues to be a focus for us, and we expect to bring it down further in quarters to come,” says Fischer.
“We continue to be highly focused on driving continued improvement, including further recovery in Q3,” he adds.
“The pace of permits in the month of July has improved meaningfully, mostly on smaller orders, but this improvement is good news, and we do expect gallium arsenide revenue to grow sequentially,” says Young.
“Although, the process for indium phosphide has been a bit slower than we expected as well, we have received additional permits in July and expect to see more over the coming months,” he adds. “Based on the pace so far, we’re taking a conservative view of the timing of larger permits in Q3. We don’t believe that any of our indium phosphide sales go into military applications. So, we feel we are in a good position to realize millions of dollars of sales backlog once we navigate the permit process.”
“In addition, germanium substrates permits for sales outside of China have been difficult to obtain. Therefore, in Q3, we expect to see our [germanium] sales come down again, and we may remain at lower-level rate through the second half of the year.”
Raw material revenue is expected to be approximately flat in Q3/2025.
In total, Q3/2025 revenue should grow sequentially to $19–21m, including a modest contribution from indium phosphide and gallium arsenide for customers outside of China. “Although the export permit process has been slower than we would like to be, we are making progress against a backlog of more than $10m in customer orders for gallium arsenide and indium phosphide substrates,” says Young. “Within China, we continue to optimize the emerging opportunities to grow our business in strategic applications for both indium phosphide and gallium arsenide,” says Fischer. “We’re also encouraged to see growth in strategic applications within China, including indium phosphide for AI-related data-center connectivity and gallium arsenide for wireless devices,” notes Young.
“We expect our margins to improve again and to be in the low- to mid-teens,” he adds. Net loss in Q3/2025 should be cut further, to $0.11–0.13.
“Our competitive positioning continues to be enhanced by superior product performance in key specifications such as low etch pit density (EPD), and we are working diligently to support the next-generation technology requirements of our global customer base,” says Young.
“While the recent geopolitical environment present a near-term headwind for our business, we are also taking advantage of some of the unique opportunities,” he adds.
“The cloud and data-center connectivity market in China is accelerating. And, in an effort to promote innovation and reduce dependency on foreign suppliers, we’re seeing a significant effort to develop a domestic source of EML [electro-absorption modulated lasers] and silicon photonics-based lasers. We estimate that China data-center optical interconnect market is currently around a third of the global market. However, most of the optical devices for these interconnects are sourced from outside of China, and applications for indium phosphide substrate within China remain focused on PON business only. Further, laser manufacturers in China are developing an appreciation for the critical benefit of low-EPD material in high-speed interconnect devices, both in the traditional PON market and in the new data-center market. As a result, our sales of indium phosphide within China are increasing. In Q2, we nearly doubled our revenue for indium phosphide within China, and our revenue for AI-related applications in China also are increasing, although the revenue base is small, and we expect to continue to grow in Q3,” says Young.
“The total addressable market TAM for the data-center market in China remains small at this moment, but we expect to see significant growth over the next few years as the PON laser providers expand their portfolio to include EML and silicon photonic solutions. Broadly speaking, we expect to grow our total indium phosphide revenue by 30% or more in Q3 as a result of growth in applications for PON, data-center connectivity and various InP-based sensors,” he adds.
STAR Market listing update
On 10 January 2022, AXT’s China-based wafer manufacturing subsidiary Beijing Tongmei Xtal Technology Co Ltd submitted its application to list its shares in an initial public offering on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (STAR Market) and the application was accepted for review.
Subsequently, Tongmei responded to several rounds of questions received from the Shanghai Stock Exchange (SSE). On 12 July 2022, the SSE approved the listing of Tongmei’s shares. On 1 August 2022, the China Securities Regulatory Commission (CSRC) accepted Tongmei’s IPO application for review. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities.
AXT reduces Q2 revenue guidance from $20–22m to $17.5–18m
