Slide 1: AXT, Inc.
Phil C.S. Yin, Ph.D. AXT, Inc. CEO Wilson W. Cheung CFO January 2007
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains forward-looking information about the Company’s business and financial outlook. Forward- looking information addresses matters that are subject to risks and uncertainties. In addition to the risks associated with developing complex technology, the Com
Slide 3: Investment Highlights
Investment Highlights • Experienced and committed management executing effective operational turn-around and driving revenue and profitability growth • AXT’s products serve rapidly growing handset, HBLED and solar markets • Increasing content of GaAs devices in handsets creates additional growth opp
Slide 4: New Management Driving Operational Turnaround
New Management Driving Operational Turnaround AXT Begins Polishing and Cleaning at China Quality Issue Identified Facility Post Epi-Haze Begins and Process 14 to Affect Revenues Improvements Put In Place 12 New CEO, COO and Sales Organization Joins AXT 10 In Millions 8 6 4 2 0 Q104 Q2 04 Q304 Q404 Q
Slide 5: AXT Management Team
AXT Management Team • Phil C.S. Yin, Ph.D. – CEO – AIXTRON, ATMI Epitaxial Services, Crysteco • Minsheng Lin – COO – Wafer Works/Helitek Company, MEMC • Wilson W. Cheung – CFO – interWAVE Communications, Yahoo!, Deloitte & Touche • Morris Young, Ph.D. – CTO – Co-founded AXT, Lawrence Livermore Natio
Slide 6: Compound Semiconductor Value Chain
Compound Semiconductor Value Chain Wireless HB LEDs AXT Substrates Epi-layer Epi-layer + Devices Systems AXT, INC. 6 2006
Slide 7: Product/Market Applications
Product/Market Applications • GaAs Substrates, 2”– 6” Semi-insulating – HBTs (power amplifiers) – pHEMTs (switches) • GaAs Substrates, 2” – 4” Semi-conducting – LB LED’s (for novelty applications) – HB LED’s (LCD backlighting, general & and solid state lighting, automotive, etc.) • Ge substrates, 2”
Slide 8: Total Market Opportunity: Substrate Market
Total Market Opportunity 70 SC GaAs Substrate Ge Substrate 60 SI GaAs Substrate Substrate Market (Msi) 50 R AG 18 %C 40 30 20 10 0 2005 2006 2007 2008 2009 2010 • Demand for AXT’s substrates is increasing by 18% CAGR • TAM growing from $500m in 2005 to $1.1b in 2010, a CAGR of 16% Source: Strategy A
Slide 9: Handset Shipments Drive Demand for SI GaAs Substrates
Handset Shipments Drive Demand for SI GaAs Substrates 6-inch 1,400 4-inch 35 3-inch Global Handset Shipments (m) 2-inch 1,200 Global Handset Shipments (m) 30 Substrate Demands (MSI) R 1,000 C AG 25 20% 800 20 600 15 400 10 200 5 0 0 2005 2006 2007 2008 2009 2010 • SI GaAs substrate to grow 20% CAGR,
Slide 10: LEDs Drive Demand for SC GaAs Substrates
LEDs Drive Demand for SC GaAs Substrates Other applications (including signals etc) Illumination (inc. general illumination) 10 Signs/Displays 20 Automotive 9 Backlighting (including FPTV) 18 Mobile Devices (including cellular handsets) 8 GaAs SC Substrates 16 R AG Substrate Demand (MSI) 7 % C 14 13
Slide 11: Photovoltaic Drives Demand for Ge Substrates
Photovoltaic Drives Demand for Ge Substrates 12 Other Applications 10 Satellite R CAG Ge Substrate (Msi) 8 21 % 6 4 2 0 2005 2006 2007 2008 2009 2010 • Poly-Silicon is in shortage • Ge has higher energy conversion rate than Silicon and is becoming more cost effective • Ge substrate market growing fr
Slide 12: Market Share Gains in SI GaAs through Customer Validation
Market Share Gains in SI GaAs through Customer Validation 2005 TAM by Customers Q205 AXT Customer Position Q306 AXT Customer Position MBE Tech Sumika RFMD Other ENCORE Kopin IQE Hitachi Cable No Position Qualifying 3rd Position 2nd Position 1st Position • Q205 market share ~ 5% • Q306 market share ~
Slide 13: Market Share Gains in SC GaAs through Customer Validation
Market Share Gains in SC GaAs through Customer Validation 2005 TAM by Customers Q205 AXT Customer Position Q306 AXT Customer Position Nichia Osram Others Avago Citizen SEMCO Seoul Cree Semi Toyoda Gosei Everlight Lumileds Stanley Electric No Position Qualifying 3rd Position 2nd Position 1st Position
Slide 14: AXT Competitive Advantages
AXT Competitive Advantages AXT Competitors Crystal Growing Build Buy ? Furnace Cost Facilities Cost Existing Greenfield ? Labor Cost China Germany + Japan Raw Materials Buy from Buy on open Availability JVs market Product Lead- 6-8 weeks 10-12 weeks times Time to Capacity ~ 2 months ~ 18+ months AXT
Slide 15: GaAs Industry Utilization Rates Increasing
GaAs Industry Utilization Rates Increasing GaAs Industry Fab Utilization 100% 75% 50% 25% 0% 2003 2004 2005 2006 • Fabs increasing capacity & converting to 6” • Substrate suppliers not increasing capacity Source: Strategy Analytics AXT, INC. 15 2006
Slide 16: Incremental Capacity Requirement for the GaAs Market
Incremental Capacity Requirement for the GaAs Market 25.00 6-inch 20.00 24% Substrate output (Msi) G R 15.00 CA 10.00 5.00 0.00 2005 2006 2007 2008 2009 2010 • Incremental 6” substrate capacity demand to grow by 24% CAGR from 2005 to 2010 Source: Strategy Analytics AXT, INC. 16 2006
Slide 17: Benefits of Joint Ventures
Benefits of Joint Ventures • Five JV Operations started in 1999 - 2001 – Supplies critical raw materials • Ga, As, Ge, pBN, B2O3 • All located locally; Beijing/Nanjing – AXT uses 100% of JV’s capacity – All JV’s expanding capacity • Current market on allocation • Provides price and volume stability/
Slide 18: 2005 - 2006 Financial Summary
AXT, Inc. 2005 - 2006 Financial Summary AXT, INC. 18 2006
Slide 19: Financial Leverage in Operating Model
Financial Leverage in Operating Model • Revenues – Higher ASP products and industry capacity constraints • Gross Margins: - Capacity utilization - Product mix • Operating Expenses: - Current infrastructure can support revenue growth - Nominal capital expenditures required to grow revenues AXT, INC.
Slide 20: 2005 - 2006 Statement of Operations
2005 - 2006 Statement of Operations 2005 2006 (in millions) Q2 Q3 Q4 Q1 Q2 Q3 Revenue $6.0 $6.2 $7.7 $8.5 $10.4 $12.5 Gross Margin 2.1% 18.6% 8.4% 17.8% 26.6% 27.7% Op. Exp.* $3.4 $3.4 $4.0 $3.8 $4.4 $4.5 Net Income (Loss) $(3.3) $(2.1) $(2.7) $(2.2) $(0.9) $0.7 *Restructuring / Impairment $0.2 $- $
Slide 21: 2005 - 2006 Financial Metrics
2005 - 2006 Financial Metrics 2005 2006 (in millions) Q2 Q3 Q4 Q1 Q2 Q3 Unrestricted Cash & Equiv. $25.0 $24.2 $23.0 $22.0 $17.3 $15.9 Total Debt $7.8 $7.6 $7.7 $7.6 $7.4 $7.3 Total Assets $77.3 $75.6 $74.8 $74.1 $72.2 $72.6 Cash Use Ops $(2.3) $(0.6) $(1.6) $(4.2) $(2.6) $(2.6) AXT, INC. 21 2006
Slide 22: Investment Highlights
Investment Highlights • Experienced and committed management executing effective operational turn-around and driving revenue and profitability growth • AXT’s products serve rapidly growing handset, HBLED and solar markets • Increasing content of GaAs devices in handsets creates additional growth opp
Slide 23: Thank You!
AXT, Inc. THANK YOU! © Copyright 2006, The Nasdaq Stock Market, Inc. Reprinted with permission. AXT, INC. 23 2006