-- our gallium joint venture in China is housed in and receives services
from an affiliated aluminum plant. Our joint venture ceased production for
five weeks during the fourth quarter as a result of a supply shortage of
raw materials from the aluminum plant, which had reduced production and
halted operations due to falling aluminum prices in the second half of
2008. Accordingly, in order to meet customer supply obligations, our joint
venture had to source finished products from another independent third
party supplier, resulting in low gross margin for the quarter. Our joint
venture has also sourced finished products from this independent third
party supplier when demand has exceeded the joint venture's capacity, and
will continue to source finished products from this independent third party
supplier, despite lower gross margins, if it again experiences power and
supply shortages or if customer demand again exceeds its capacity; and
-- gross margin was negatively impacted as a result of lower production
volume (less overhead recoveries), higher warranty expense as a result of
warranty reserves from certain customers resulting from our failure to meet
specification requirements, and higher unfavorable variances due to lower
yields from our GaAs production line.
Operating expenses were $4.1 million in the fourth quarter of 2008,
compared with $5.5 million in the third quarter of 2008, and $3.7 million
in the fourth quarter of 2007.
Loss from operations for the fourth quarter of 2008 was $(3.4) million
compared with loss from operations of $(926,000) in the third quarter of
2008, and income from operations of $1.6 million in the fourth quarter of
2007.
Net interest and other income for the fourth quarter of 2008 was $656,000,
compared with net interest and other income of $89,000 in the third quarter
of 2008, and net interest and other income of $608,000 in the fourth
quarter of 2007.
Net loss in the fourth quarter of 2008 was $(2.4) million or $(0.08) per
diluted share, compared with net loss of $(1.0) million or $(0.03) per
diluted share in the third quarter of 2008, and net income of $1.9 million,
or $0.06 per diluted share in the fourth quarter of 2007.
Fiscal Year 2008 Results
Revenue for fiscal year 2008 was $73.1 million, compared with $58.2 million
in fiscal year 2007. Gross margin for fiscal year 2008 was 24.6 percent of
revenue compared with 34.8 percent of revenue for fiscal year 2007.
Net loss for fiscal year 2008 was $(689,000) or $(0.03) per diluted share
compared with net income of $5.3 million or $0.16 per diluted share for
fiscal year 2007.
Management Qualitative Comments
"2008 was a challenging but productive year for AXT," said Phil Yin,
chairman and CEO. "We recorded more than a 25% increase in revenue from
2007, successfully negotiated a new 2009 contract worth nearly $15 million
with one of our largest customers, concluded a major qualification with a
leading germanium substrate customer, expanded our customer base to include
several top tier companies and laid important groundwork for growth when
the macro environment strengthens. Still, the economic downturn in 2008,
coupled with the inventory overhang in our industry and customer-specific
issues that we continue to work through, put pressure on our financial
performance and will have a significant impact on our first quarter 2009
results. As we look beyond the first quarter, we believe that the business
will begin to improve as a result of pockets of strength in our gallium
arsenide business, new qualifications of customers in the LED and
photovoltaics market and our improved cost structure as a result of efforts
to streamline our business in relation to the current demand environment.
We remain encouraged by the overall trends in our industry and believe that
we will successfully leverage our competitive advantages for growth and
market share gains as the economy improves."
Outlook for First Quarter, Ending March 31, 2009
AXT estimates revenue for the first quarter will decrease to between $7.0
million and $8.0 million. The company estimates that net loss per diluted
share will be between $(0.05) and $(0.08), which takes into account our
weighted average share count of approximately 30.5 million shares.
Conference Call
The company will also host a conference call today to discuss these results
at 1:30 p.m. Pacific Time. The conference call can be accessed at (719)
325-4806 (passcode 3616784). The call will also be simulcast on the
Internet at www.axt.com. Replays will be available at (719) 457-0820
(passcode 3616784) until March 4, 2009. Financial and statistical
information to be discussed in the call will be available on the company's
website immediately prior to commencement of the call. Additional investor
information can be accessed at http://www.axt.com or by calling the
company's Investor Relations Department at (510) 683-5900.
About AXT, Inc.
AXT designs, develops, manufactures and distributes high-performance
compound and single element semiconductor substrates comprising gallium
arsenide (GaAs), indium phosphide (InP) and germanium (Ge) through its
manufacturing facilities in Beijing, China. In addition, AXT maintains its
sales, administration and customer service functions at its headquarters in
Fremont, California. The company's substrate products are used primarily
in lighting display applications, wireless communications, and fiber optic
communications. Its vertical gradient freeze (VGF) technique for
manufacturing semiconductor substrates provides significant benefits over
other methods and enabled AXT to become a leading manufacturer of such
substrates, particularly in optoelectronics applications. AXT has
manufacturing facilities in China and invests in five joint ventures
producing raw materials. For more information, see AXT's website at
http://www.axt.com.
Safe Harbor Statement
The foregoing paragraphs contain forward-looking statements within the
meaning of the Federal Securities laws, including statements regarding our
outlook for the first quarter of 2009, success in qualifying additional
opportunities, and our ability to continue to drive future businesses in
2009. These forward-looking statements are based upon specific assumptions
that are subject to uncertainties and factors relating to the company's
operations and business environment, which could cause actual results of
the company to differ materially from those expressed or implied in the
forward-looking statements contained in the foregoing discussion. These
uncertainties and factors include but are not limited to overall conditions
in the markets in which the company competes; global financial conditions
and uncertainties, market acceptance and demand for the company's products;
the impact of the factory closures or other delays by our customers on the
timing of sales of products; and other factors as set forth in the
company's annual report on Form 10-K and other filings made with the
Securities and Exchange Commission. Each of these factors is difficult to
predict and many are beyond the company's control. The company does not
undertake any obligation to update publicly any forward-looking statement,
as a result of new information, future events or otherwise.
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- --------------------
2008 2007 2008 2007
========= ========= ========= =========
Revenue $ 15,646 $ 17,564 $ 73,075 $ 58,203
Cost of revenue 14,888 12,270 55,115 37,942
--------- --------- --------- ---------
Gross profit 758 5,294 17,960 20,261
--------- --------- --------- ---------
Operating expenses:
Selling, general and
administrative 3,605 3,218 15,751 13,746
Research and development 529 508 2,164 1,699
Impairment (recovery) on
assets held for sale - - 83 (481)
--------- --------- --------- ---------
Total operating expenses 4,134 3,726 17,998 14,964
--------- --------- --------- ---------
Income (loss) from operations (3,376) 1,568 (38) 5,297
Interest income, net 80 153 513 704
Minority interests (7) (606) (1,431) (1,896)
Other income, net 583 1,061 1,290 1,912
--------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes (2,720) 2,176 334 6,017
Provision (benefit) for income
taxes (349) 302 1,023 728
--------- --------- --------- ---------
Net income (loss) $ (2,371) $ 1,874 $ (689) $ 5,289
========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.08) $ 0.06 $ (0.03) $ 0.17
========= ========= ========= =========
Diluted $ (0.08) $ 0.06 $ (0.03) $ 0.16
========= ========= ========= =========
Shares used in computing net
income (loss) per share:
Basic 30,434 30,337 30,400 30,035
========= ========= ========= =========
Diluted 30,434 31,550 30,400 31,348
========= ========= ========= =========
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31, December 31,
2008 2007
============ ============
Assets:
Current assets
Cash and cash equivalents $ 13,566 $ 18,380
Short-term investments 17,756 20,825
Accounts receivable, net 11,497 12,149
Inventories, net 35,082 24,781
Prepaid expenses and other current assets 3,131 3,569
Assets held for sale - 5,140
------------ ------------
Total current assets 81,032 84,844
Property, plant and equipment, net 22,184 15,986
Restricted deposits 3,013 6,700
Other assets 5,433 5,242
------------ ------------
Total assets $ 111,662 $ 112,772
============ ============
Liabilities and stockholders' equity:
Current liabilities
Accounts payable $ 6,657 $ 4,328
Accrued liabilities 4,453 4,716
Line of credit 3,013 -
Current portion of long-term debt 73 450
------------ ------------
Total current liabilities 14,196 9,494
Long-term debt, net of current portion 591 6,250
Other long-term liabilities 3,211 3,778
------------ ------------
Total liabilities 17,998 19,522
------------ ------------
Stockholders' equity:
Preferred stock 3,532 3,532
Common stock 186,784 185,979
Accumulated deficit (99,232) (98,543)
Other comprehensive income 2,580 2,282
------------ ------------
Total stockholders' equity 93,664 93,250
------------ ------------
Total liabilities and stockholders'
equity $ 111,662 $ 112,772
============ ============
Contact Information: Contacts: Wilson W. Cheung Chief Financial Officer (510) 683-5900 Leslie Green Green Communications Consulting, LLC (650) 312-9060