About AXT

AXT, Inc. operates as a materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. The company’s substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device. The company adds value by researching, developing and producing the specialty material wafers. The company has two product lines: specialty material substrates and raw materials integral to these substrates. The company’s compound substrates combine indium with phosphorous (indium phosphide: InP) or gallium with arsenic (gallium arsenide: GaAs). The company’s single element substrates are made from germanium (Ge). InP is a high-performance semiconductor wafer substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. More recently, InP substrates are being used in certain consumer products, including biometric wearables and other health monitoring applications. The company’s supply chain strategy includes several consolidated raw material companies. One of these consolidated companies produces pyrolytic boron nitride (pBN) crucibles used in the high temperature (typically in the range 500 C to 1,500 C) growth process of single crystal ingots, effusion rings when growing OLED (Organic Light Emitting Diode) tools, epitaxial layer growth in MOCVD (Metal-Organic Chemical Vapor Deposition) reactors and MBE (Molecular Beam Epitaxy) reactors. The company uses these pBN crucibles in its own ingot growth processes and they are also sold in the open market to other companies. The company uses purified gallium in producing its GaAs substrates and it is also sold in the open market to other companies for use in producing magnetic materials, high temperature thermometers, single crystal ingots, including gallium arsenide, gallium nitride, gallium antimonite and gallium phosphide ingots, and other materials and alloys. In addition to purified gallium, the second consolidated company also produces InP base material which the company then uses to grow single crystal ingots. All of its products are manufactured in the People’s Republic of China (PRC or China) by its PRC subsidiaries and PRC joint ventures. The company’s supply chain includes partial ownership of raw material companies in China (subsidiaries/joint ventures). Strategy The key elements of the company’s strategy are to promote its strengths in InP; add InP capacity and continue InP R&D; target GaAs based 3-D and Time of Flight sensing array applications in mobile devices; analyze and monitor the potential market for GaAs-based micro-LEDs; create customer awareness that the new facilities are designed to allow the company to add equipment and capacity rapidly; offer diverse products, including custom products; sustain manufacturing efficiencies; increase productivity and seek profitability in its subsidiaries/consolidated raw material companies; and materials of the future. Products The company has two product lines: specialty material substrates and raw materials integral to these substrates. The company designs, develops, manufactures and distributes high-performance semiconductor substrates, also known as wafers. Through two consolidated subsidiaries in its supply chain, the company also sells certain raw materials. InP is a high-performance semiconductor substrate used in fiber optic lasers and detectors, passive optical networks (PONs), telecommunication, 5G infrastructure, metro and data center connectivity, silicon photonics, photonic ICs (PICs), terrestrial solar cell (CPV), lasers, RF amplifiers, infrared motion control and infrared thermal imaging. During the year ended December 31, 2022, two consumer products were released that use chips fabricated on the company’s InP substrate wafers. The company makes semi-insulating GaAs substrates used in making semiconductor chips in applications, such as power amplifiers for wireless devices and high-performance transistors. The company’s semi-conducting GaAs substrates are used to create opto-electronic products, which include High Brightness LEDs that are often used to backlight wireless handsets and LCD TVs and for automotive, signage, display and lighting applications, as well as high power industrial lasers for material processing (welding, cutting, drilling, soldering, marking and surface modification). The company’s semi-conducting GaAs substrates can be used to make micro-LEDs for advanced screen technologies and to create opto-electronic products for 3-D sensing using VCSELs. Ge substrates are used in emerging applications, such as triple junction solar cells for space and terrestrial photovoltaic applications and for optical applications. Substrates: The company sells compound substrates manufactured from InP and GaAs, as well as single-element substrates manufactured from Ge. The company supplies InP substrates in two-, three- and four-inch diameters, and are developing six-inch diameter InP substrates. The company supplies Ge substrates in two-, four- and six-inch diameters. The company supplies both semi-insulating and semi-conducting GaAs substrates in one-, two-, three-, four-, five- and six-inch diameters. The company is developing eight-inch diameter GaAs substrate wafers and began selling samples in the second half of 2022. Many of the company’s customers require customized specifications, such as special levels of iron or sulfur dopants or a special wafer thickness. Customers The company sells its substrates to companies that apply the epitaxial layer, who then in turn sell the modified wafers to the wafer fabs, chip design companies, LED manufacturers and others. Some customers do both the epitaxial layer and wafer fabrication. Epitaxial layer companies that form the company’s customer base are located in Asia, the United States and Europe. The company also sells its products to universities and other research organizations that use specialty materials for experimentation in various aspects of semi-conducting and semi-insulating applications. The company’s customers that purchase raw materials are located in Asia, the United States and Europe. The company has at times sold a significant portion of its products in any particular period to a limited number of customers. One customer, Landmark, represented 15% of the company’s revenue for the year ended December 31, 2022. Sales and Marketing The company sells its substrate products directly to customers through its direct salesforce in the United States, China and Europe. The company also uses independent sales representatives and distributors in Japan, Taiwan, Korea and other areas. The company’s direct salesforce is knowledgeable in the use of compound and single-element substrates. Specialty material wafers are scientifically complicated. The company’s application engineers must work closely with customers during all stages of its wafer substrate manufacturing process, from developing the precise composition of the wafer substrate through manufacturing and processing the wafer substrate to the customer’s specifications. International Sales: International sales are a substantial part of the company’s business. Sales to customers outside North America (primarily the United States) accounted for approximately 86% of the company’s revenue for 2022. The primary markets for sales of the company’s substrate products outside of North America are to customers located in Asia and Western Europe. Research and Development The company’s research and development expenses were $13.9 million in 2022. Intellectual Property As of December 31, 2022, the company had been issued 111 patents that relate to its VGF products and processes; 83 in China, 11 in the United States, 8 in Japan, 4 in Taiwan, 3 in the European Union, and 2 in Germany. Patents have a protected life of 20 years (or 10 years for utility model patents in China) from their filing dates. The company’s patents have expiration dates ranging from 2023 to 2038. The company has several patent applications pending in China, United States, and rest of the world. Furthermore, in aggregate, the company’s consolidated raw material companies have been issued 59 patents in China, including 26 patents issued to JinMei and 59 patents issued to BoYu. Competition The company’s primary competition in the market for compound and single element semiconductor substrates includes Sumitomo Electric Industries (Sumitomo), Japan Energy (JX), Freiberger Compound Materials (Freiberger), Umicore, China Crystal Technology Corp. (CCTC) and Vital Materials. History The company was founded in 1986. It was incorporated in California in 1986 and reincorporated in Delaware in 1998. The company was formerly known as American Xtal Technology, Inc. and changed its name to AXT, Inc. in 2000.