AXT (AXTI) Q2 FY26 earnings call: guidance and Q&A

Clarification on the new indium phosphide capacity targets for end of 2026 and 2027, and details on the Lumentum supply agreement.

Confirmed indium phosphide capacity equivalent to $60 million per quarter by end of 2026 and $130 million per quarter by end of 2027. Did not disclose the total revenue impact of the Lumentum deal but noted prepayments.

“Yes, that's about right, Tim. That's exactly what we're looking at here. About $60 million there thereabouts.”

asked by Timothy Savageaux · answered by Timothy Bettles

Inquired about changes in the permit acquisition process and increased confidence in shipping products out of China.

Management noted increased regularity in the permit process, especially in certain geographic regions, which allows them to focus more intensely on capacity and allocation, despite permits remaining somewhat unpredictable.

“But we are seeing more regularity in the process, especially in certain geographic regions. So that's great news.”

asked by Matthew Bryson · answered by Timothy Bettles

Asked about the expected gross margin trend for Q3 and potential for further price appreciation given tight indium phosphide supply.

Management expects gross margins to remain stable or improve, targeting a number starting with '5' (50%+) in the future. Drivers include increased volume, productivity gains, and a favorable mix towards larger diameter indium phosphide substrates, which have higher margins.

“But I have to say, again, management's target is better than that. And let's see what we can do. There's -- when you add more volume, that helps on your gross margin because the fixed costs get absorbed over more units.”

asked by Matthew Bryson · answered by Gary Fischer

Sought clarification on the 'over $100 million' backlog figure and how much of calendar 2027 is covered by current backlog or agreements.

The backlog is 'well over $100 million' and continues to grow, exceeding two quarters. Long-term supply agreements extend well into 2027 and beyond. The company is selective in taking new orders due to capacity constraints, making the reported backlog a conservative figure.

“Yes, I don't want to go into a lot of details about how big exactly our backlog is. But I can tell you that it is growing, and I can tell you it continues to grow even as we ship more material.”

asked by Richard Shannon · answered by Timothy Bettles

Asked about the current and future split of indium phosphide revenue between China and the rest of the world, especially with new agreements.

China accounted for over 50% of Q2 indium phosphide revenue. Management anticipates a future split of 40% to 60% between China and the rest of the world as global capacity and long-term supply agreements are built out.

“So China right now is definitely above 50% of our revenue in Q2. I would anticipate that we would see a revenue split moving forward somewhere in that 40% to 60% range as we build up both capacity and we build up long-term supply agreements, both within China and throughout the rest of the world.”

asked by Richard Shannon · answered by Timothy Bettles

Confirmed the new, higher capacity growth targets for 2026 and 2027 and asked if this implies a change in CapEx plans.

Confirmed the accelerated capacity growth but clarified that it's primarily driven by productivity improvements and product mix changes (larger diameters), not significant additional CapEx spend. Reaffirmed previous CapEx plans.

“So part of the capacity increase that we're seeing here isn't just a CapEx spend, but it's a productivity and a product mix change here. And that's what's really allowing us to grow the revenue quicker than we anticipated.”

asked by Charles Shi · answered by Timothy Bettles

Inquired about potential use of VCSELs for data center scale-up using gallium arsenide substrates and customer discussions.

Confirmed customer discussions and current supply for gallium arsenide VCSELs for data center applications. Noted that indium phosphide and VCSEL technologies coexist, but indium phosphide is favored for higher speeds (200G and above) due to its performance advantages and AXT's dominant position.

“So from what I understand looks like the speed is the killer or is in favor of indium phosphide. VCSEL, I think it's more difficult to reach 200G, both in terms of laser emitter as well as detectors.”

asked by Charles Shi · answered by Morris Young