News: Suppliers
10 November 2025
AXT’s Q3 revenue far exceeds guidance, after China export licenses granted for InP
For third-quarter 2025, AXT Inc of Fremont, CA, USA — which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials at plants in China — has reported revenue of $28m, rebounding by 56% on $18m last quarter and up 18% on $23.6m a year ago, and far exceeding the guidance of $19–21m.
Of total revenue in Q3 (compared with a year previously), the proportion from the Asia Pacific region was 87% (up from 77%), North America was just 1% (down on 11%), while Europe was 12% (level with a year ago). The proportion of revenue coming from the top five customers has risen further, from 29.4% a year ago and 30.9% last quarter (with one customer exceeding 10%) to 45.2% in Q3/2025 (with two customers now exceeding 10%).
“This has been a highly active time for our business with the strong uptick in indium phosphide demand from data-center applications globally,” says CEO Morris Young.
Indium phosphide revenue grew to a three-year high of $13.1m, rebounding by 250% (far more than the expected 30%) from just $3.6m last quarter (and almost doubling from $6.8m a year ago), due mainly to data-center and passive optical network (PON) customers outside China. “We obtained export permits [from China] for a number of significant InP orders [after being granted the first permit for InP in late June],” says Young. “Our indium phosphide permits are taking approximately 60 business days or approximately three months to be processed by China’s Ministry of Commerce. This is a bit longer than our initial expectations, but customers are adapting to the requirements and are adjusting their ordering patterns to give us more visibility and longer lead-times,” he adds.
The China government imposed trade restrictions on export of GaAs in August 2023 and InP in February 2025, aiming to restrict the export of materials used for military applications and requiring an export permit for every customer order.
Gallium arsenide revenue was $7.5m, up by more than 20% from $6.2m last quarter. The biggest driver was semi-insulating wafers for wireless RF devices, which remains a focused application for AXT. Industrial laser applications were roughly flat relative to Q2, but there was an uptick in semiconducting wafers for data-center laser applications. “However, VCSELs [vertical-cavity surface-emitting lasers] don’t typically require a lot of GaAs material, so they don’t move the needle much as a gross driver. But they do require high-quality material, which we are well positioned to supply,” says Young.
Germanium substrate revenue fell back to $0.64m, from $1.5m last quarter (which had been driven by satellite solar cell applications in China). AXT had said that germanium substrates permits for sales outside of China have been difficult to obtain, and that revenue would remain at a lower-level rate throughout second-half 2025. “The germanium substrate market has very poor gross margin potential today,” notes Young. “While our material performed well in the solar cell applications that we supply, gross margin constraint disincentivizes us to pursue many opportunities. In addition, certain customers prefer to source substrates outside of China. As such, we do not expect growth in germanium substrates in Q4,” he adds.
Revenue was level sequentially at $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). “Raw material business in Q3 was solidly profitable within a stable pricing market,” notes Young. “We expect the same for Q4.”
“We remain highly focused on our efforts to drive gross margin recovery and expansion, operating expense discipline, and inventory reduction,” says Young.
On a non-GAAP basis, gross margin was 22.4%, recovering further from 8.2% last quarter and exceeding the low- to mid-teens guidance (reflecting improved product mix and a higher volume to absorb fixed overhead costs, as well as continuing to drive better manufacturing efficiency) but still down on 24.3% a year ago.
Operating expenses have been cut further, from $8.34m a year ago and $7.6m last quarter to $6.66m. “Given the difficult climate, we’ve been working hard to hold down OpEx,” notes chief financial officer Gary Fischer. “In addition, we had some favorable adjustments in R&D in Q3 that brought our OpEx down to a lower-than-normal level. These will not carry over into Q4.”
Net loss was $1.17m ($0.03 per share, far better than the expected $0.11–0.13), cut from $6.4m ($0.15 per share) last quarter and $2.12m ($0.05 per share) a year ago.
During the quarter, cash and cash equivalents and investments fell further, by $3.9m, from $35.1m to $31.2m. Accounts receivable rose by $11m. So, the difference in cash is explained in working capital.
Net inventory has been cut further, from $86.1m a year ago and $80.1m last quarter to $77.7m. “This continues to be a focus, and we expect to bring it down further in quarters to come,” says Fischer.
Growing order backlog
“We continue to build healthy backlog for both indium phosphide and gallium arsenide materials as our industry and our customers adapt to a new normal within a rapidly changing environment,” notes Young.
“Tremendous growth in demand for InP-based lasers and detectors for high-speed optical connectivity [related to AI and the ongoing data-center upgrade cycle], coupled with our successful obtaining export permits on behalf of our customers, are driving a strong increase in our InP order backlog, which, as of today, is more than $49m [a record, more than doubling from Q2] and growing. Our established customers are planning for longer lead-times by placing longer-term orders and giving us more visibility into their expected demand. We are also seeing active engagement with several new tier-1 customers to qualify our material into their supply chains for the first time in many years. This includes leading optical transceiver module makers, both in China and around the globe. The supply chain for optical transceiver is quite complex and highly globalized. This geographic interdependence is providing both opportunities and incentives for the ecosystem to work together in new ways to solve global supply chain shortages,” says Young.
Fourth-quarter outlook
“We have about $20m in revenue that can be realized in Q4 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required because it shifts within China. In addition, we believe there's an incremental $7–10m in InP and GaAs backlog, which is currently in our manufacturing process, for which we believe we may be able to ship in Q4 if we are awarded permits,” says Fischer.
“We are in a similar or slightly better position in terms of customer order backlog and permit submissions than we were at this same point in the prior quarter,” he adds. “We have the capability to achieve revenue of $27–30m in Q4. This takes into consideration approximately flat sequential revenue contribution from germanium substrates and raw materials, with incremental growth in Q4 likely coming from InP and GaAs substrates.”
However, OpEx is expected to increase to about $9m as a result of some incremental end-of-the-year adjustments and a return to a more normalized level. Net loss is hence expected to be $0.01–0.03.
Return to profitability expected in 2026
“The massive AI infrastructure build-out and the planned CapEx spending by cloud services and AI platform providers in the USA is the primary driver for EML [electro-absorption modulated lasers] and silicon photonics-based optical transceivers,” says Young. “Our material are being used in multiple US hyper-scalers, and we expect that end-customers' use will continue to broaden. In China, the data-center build-out is early in its ramp, but there is a strong desire for domestic suppliers at every level of the supply chain, and we believe over the next 12–18 months, we will see healthy growth in the China data-center market. Data-center expansion in China is quickly overtaking PON as the leading application in China for our indium phosphide substrates,” he adds.
“With strong, ongoing market trends fueling the data-center upgrade cycle, we believe we have tremendous opportunity in 2026 to drive meaningful growth in our business and a return to profitability,” concludes Young.
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’s Tongmei receives China export permits to resume shipping InP substrates to certain customers
AXT’s Q2 revenue constrained by slower-than-expected China export permitting
