AXT INC (AXTI)

AXT is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. These wafers are used where silicon cannot meet the performance requirements of a semiconductor or optoelectronic device, for example when chips would run too hot or too slowly, or when applications such as LED lighting and chip-based lasers need wave form frequencies silicon cannot achieve. AXT does not design or manufacture the chips; it adds value by researching, developing and producing the specialty material wafers. Two consolidated subsidiaries also produce raw materials, some used in AXT's own substrate manufacturing and some sold to other companies.

The company has two product groups. The substrate group made up 63% of consolidated revenue in 2023 (79% in 2022 and 75% in 2021), and the raw materials group made up 37% (21% and 25%). Substrates include indium phosphide (InP), gallium arsenide (GaAs, both semi-insulating and semi-conducting) and germanium (Ge). InP is used in fiber optic and broadband applications, 5G infrastructure, data center connectivity, and consumer products such as proximity sensors and wearables. Semi-insulating GaAs is used in microwave components such as power amplifiers, satellite communications and broadcast television. Semi-conducting GaAs is used in LEDs, lasers, sensors and potentially VCSELs and micro-LEDs. Ge is used mainly in solar cells for space and terrestrial use. Raw materials include purified gallium (6N+ and 7N+), InP base material, boron trioxide, gallium-magnesium alloy, pyrolytic boron nitride (pBN) crucibles and pBN insulating parts used in crystal growth, OLED tools, MOCVD and MBE reactors.

Customers and end markets span data centers and AI-related high-speed data transfer, wireless and telecommunications, automotive lighting, displays, industrial lasers and sensing, robotics and lidar, and solar power. The raw materials subsidiaries sell their output to third parties on the open market, including companies producing magnetic materials, high temperature thermometers and various gallium-based ingots. About 10% of revenue comes from importing wafers into the United States, where they are subject to tariffs; AXT paid roughly $1.0 million, $3.3 million and $1.3 million in tariffs in 2023, 2022 and 2021.

All substrate and raw material products are manufactured in the People's Republic of China by PRC subsidiaries and joint ventures, where facility and labor costs are generally favorable. AXT holds partial ownership in its raw material companies and has board representation in all of them, which it believes provides pricing advantages, reliable supply and better sourcing lead-times. Its Tongmei subsidiary was founded in 1998 and is based in Beijing's Tongzhou district, where the InP line and administrative and sales functions remain. At the Beijing government's instruction, GaAs production moved to new facilities: ingot growth to ChaoYang Tongmei in Kazuo and wafer processing to Baoding Tongmei in Dingxing, with the relocation now completed. Part of the germanium line also moved. Tongmei has pursued an IPO on China's STAR Market, which remains subject to CSRC and other approvals, and AXT stays a U.S. public company listed on Nasdaq. AXT does not use variable interest entities for its China operations.