Executive Summary

Q1 2025 revenue was $19.4m, down 22.9% sequentially and 14.7% year over year, while gross margin collapsed to -6.4% GAAP (-6.1% non-GAAP) on yield issues in semi-insulating GaAs, a 58% Q/Q drop in InP sales due to China export restrictions, and under-absorbed overhead; non-GAAP EPS was -$0.19 and GAAP EPS -$0.20 .
Versus S&P Global consensus, revenue was slightly above ($18.94m* estimate vs $19.36m actual), but EPS missed (Primary EPS -$0.138* estimate vs -$0.19 actual), and EBITDA was materially below (estimate -$4.17m* vs actual -$8.05m*) .
Management guided Q2 2025 revenue to $20–$22m and expects gross margin to recover to ~10%, excluding any InP shipments outside China until permits are received; non-GAAP loss per share guided to -$0.12 to -$0.14, GAAP -$0.14 to -$0.16 .
Near-term stock narrative hinges on permit timing for InP exports (initial responses typically ~45 business days), sequential revenue growth in China data center and lidar demand, and measured execution in GaAs HBT to restore yields and margins; management expects margin improvement beginning in Q2 and continuing through 2025 .

What Went Well and What Went Wrong

What Went Well

China data center connectivity and domestic innovation efforts are creating incremental InP opportunities; management expects healthy double-digit Q2 growth from China data center applications off Q1 levels .
Raw material JVs remained strong at $8.3m revenue in Q1, providing diversification and strategic supply chain benefits; JV portfolio spans gallium, arsenic, PBN crucibles, quartz, indium, and germanium .
OpEx discipline: non-GAAP opex fell to $8.5m vs $10.5m in Q4, reflecting cost control amid revenue pressure .

What Went Wrong

Gross margin severely disappointed due to three factors: 58% Q/Q reduction in InP sales (China restrictions), significant yield reduction in semi-insulating GaAs wafers for wireless HBT, and under-absorbed overhead on lower substrate sales .
EPS and profitability deteriorated: GAAP net loss widened to -$8.8m (-$0.20/sh) and non-GAAP net loss to -$8.2m (-$0.19/sh), vs Q4 GAAP -$5.1m and non-GAAP -$4.3m .
Geopolitical/tariff uncertainty: exports of InP require permits; shipments to the U.S. likely face tariffs (historically ~25% Section 301 in January), with cost sharing nuanced and evolving case-by-case .

Financial Results

Metric	Q1 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$22.688	$25.105	$19.356
GAAP Gross Margin %	26.9%	17.6%	-6.4%
Non-GAAP Gross Margin %	27.3%	17.9%	-6.1%
GAAP Diluted EPS ($)	-$0.05	-$0.12	-$0.20
Non-GAAP Diluted EPS ($)	-$0.03	-$0.10	-$0.19
GAAP Net Income ($USD Millions)	-$2.083	-$5.088	-$8.798

Segment/Product and JV revenue:

Segment Revenue ($USD Millions)	Q4 2024	Q1 2025
Indium Phosphide (InP)	$9.1	$3.8
Gallium Arsenide (GaAs)	$5.4	$6.7
Germanium (Ge)	$1.6	$0.6
Consolidated Raw Material JVs	$9.0	$8.3

Geography mix:

Region	Q4 2024	Q1 2025
Asia Pacific	79%	83%
Europe	11%	11%
North America	10%	6%

KPIs:

KPI	Q4 2024	Q1 2025
Cash and Cash Equivalents ($m)	$22.833	$31.584
Restricted Cash ($m)	$10.978	$6.600
Accounts Receivable ($m)	$25.640	$22.863
Inventories ($m)	$85.077	$80.409
Short-term Loans ($m)	$47.264	$52.520
Total Current Assets ($m)	$158.272	$149.531
Weighted Avg Diluted Shares (m)	43.381	43.554

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q2 2025	N/A	$20.0–$22.0	Initiated
Gross Margin % (GAAP)	Q2 2025	Not provided	~10%	New disclosure
Non-GAAP EPS ($)	Q2 2025	N/A	-$0.12 to -$0.14	Initiated
GAAP EPS ($)	Q2 2025	N/A	-$0.14 to -$0.16	Initiated
Share Count (m)	Q2 2025	N/A	~43.7	Maintained baseline

Notes: Q2 guidance excludes InP shipments outside China; management expects “several million dollars” of InP backlog to ship most likely in Q3 if permits are received .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
AI/Data Center Optical Interconnects	Data center demand solid; anticipating InP photodetectors for AI; year-over-year improvements; non-GAAP GM ~24% in Q3	China data center market accelerating; expect healthy double-digit Q2 growth; backlog ready to ship ex-China post-permits	Improving domestically in China; export constrained near-term
Indium Phosphide export controls	Q4 call previewed new InP controls; 45-business-day permit timeline; expected $4–$5m Q1 impact	Portal opened in April; comprehensive applications submitted; earliest shipments outside China mid-June; risk mitigated by non-military use case	Constraint in H1; recovery expected H2 on permit approvals
GaAs HBT (wireless)	8-inch GaAs capability; growing share from ~0% to ~10%; targeted +30% relative growth in 2025	Yield setback from scaling too fast; measured approach to restore yields; ~$1m+ per quarter opportunity at one large customer	Near-term execution fix; medium-term opportunity intact
Tariffs/Geopolitics	Anticipated permitting similar to GaAs; focus on non-military applications	U.S. shipments likely face tariffs (~25% Section 301 in Jan); case-by-case cost sharing; details evolving	Ongoing uncertainty; manageable per case
STAR Market (Tongmei IPO)	Application kept current; considered good candidate; in-process group smaller	Continues to be in-process; update reiterated	Extended timeline; unchanged trajectory

Management Commentary

“We were highly disappointed with our gross margin performance in Q1… we stumbled in trying to scale too quickly [in GaAs HBT].… We expect to see improvement beginning this quarter and continuing through the balance of 2025.” — CEO Morris Young .
“Revenue for Q1 2025 was slightly above the midpoint of our guidance at $19.4 million… Non-GAAP gross margin in the first quarter was a negative 6.1%.” — CFO Gary Fischer .
“In keeping with our comments today, we believe Q2 revenue will be in the range of $20.0 million to $22.0 million… we do believe that we can see a recovery in our gross margin to around 10% in Q2.” — CFO Gary Fischer .
“We have submitted comprehensive [InP export permit] applications… we typically hear back initial applications within 45 business days… we do not expect to be able to ship indium phosphide to customers outside of China before mid-June at earliest.” — CEO Morris Young .
“Sales in Q1 [raw material JVs] were strong… we continue to invest in expanding our capability… we are ahead of the curve in developing this unique integrated supply chain.” — CEO Morris Young .

Q&A Highlights

GaAs HBT yields: management acknowledged scaling too fast; expects quick margin recovery to ~10% in Q2 as yields stabilize; emphasizes measured approach and solution in hand .
InP permits/backlog: earliest external shipments mid-June; “several million dollars” backlog could ship quickly (1–2 weeks after permits), driving inventory rebuild and potential overship vs end-demand in Q3/Q4 .
Customer retention risk: AXTI believes it holds ~40–50% of global InP market; competitors limited by capacity/quality; customers continuing to place orders despite delays .
Tariffs: January shipments paid ~25% Section 301 tariff; future rates under discussion; AXTI pursuing mitigation plans; cost-sharing varies by customer .
HBT revenue sizing: one large customer represents a bit over $1m per quarter today; opportunity remains active despite Q1 stumble .

Estimates Context

Q1 2025 actuals vs S&P Global consensus:

Metric	Q1 2025 Estimate*	Q1 2025 Actual
Revenue ($USD Millions)	$18.94*	$19.356
Primary EPS ($)	-$0.138*	-$0.19
EBITDA ($USD Millions)	-$4.17*	-$8.05*

Q2 2025 consensus vs company guidance:

Metric	Q2 2025 Consensus*	Company Guidance
Revenue ($USD Millions)	$17.94*	$20.0–$22.0
Primary EPS ($)	-$0.134*	Non-GAAP: -$0.12 to -$0.14; GAAP: -$0.14 to -$0.16

Interpretation:

Revenue was a modest beat vs consensus; EPS was a notable miss given margin compression; EBITDA fell well short amid yield issues and overhead under-absorption .
Q2 revenue guidance is above consensus (ex-InP exports), signaling sequential growth driven by China demand and manufacturing improvements; EPS guidance still negative, reflecting gradual margin recovery .
*Values retrieved from S&P Global.

Key Takeaways for Investors

The margin reset is execution-driven and transitory: management expects ~10% GM in Q2 and further recovery through 2025 as GaAs HBT yields normalize and substrate volumes/mix improve .
InP export permits are the swing factor: earliest H2 recovery for ex-China shipments; backlog visibility supports potential shipment surge and inventory rebuild in Q3/Q4, especially for AI/data center optics .
China market strength is a near-term offset: domestic data center and lidar demand underpin sequential growth even without ex-China InP shipments in Q2 .
Revenue guidance above Street sets a bar; EPS remains pressured: traders should watch margin cadence and yield execution in GaAs HBT as the primary driver of EPS normalization .
JV raw materials provide ballast and strategic supply optionality, supporting revenue and cost structure resilience across cycles .
Tariff outcomes are manageable but uncertain; case-by-case mitigation may reduce volatility once permit flow normalizes .
Medium-term thesis: AXTI’s low-EPD leadership in InP/GaAs positions it for AI optical interconnect upgrades (EML/silicon photonics, photodetectors) and share gains in wireless HBT; permit timing and yield execution are the gating factors to re-rate .

AXT INC (AXTI)·Q1 2025 Earnings Summary