Axt Inc (AXTI) Q1 2025 Earnings Call Transcript

Good afternoon everyone and welcome to AXT's first quarter 2025 financial conference call. Leading the call today is Dr. Maurice Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. In addition, Tim Bethels, VP of Business Development, will be participating in the Q&A portion of the call. My name is John and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, you could press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXP. Please go ahead.

Thank you, John, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global, economic, and political conditions, including trade tariffs and export and import restrictions, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies, increased environmental regulations in China, and COVID-19 and other outbreaks of contagious disease. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our expectations. This conference call will be on our website through May 1, 2026. I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter and fiscal year 2025. This information is also available on the investor relations portion of our website. I would now like to turn the call over to Gary Fisher for a review of our first quarter 2025 results.

Thank you, Leslie, and good afternoon to everyone. revenue for the first quarter of 2025 was slightly above the midpoint of our guidance at 19.4 million compared with 25.1 million in the fourth quarter of 2024 22.7 million in the first quarter of last year 2024. to break down our q1 2025 revenue for you by product category indium phosphide was 3.8 million primarily from pawn and data center applications gallium arsenide was 6.7 million Germanium substrates were $0.6 million. Finally, revenue from our consolidated raw material joint venture companies in Q1 was $8.3 million based on continued healthy demand. In the first quarter of 2025, revenue from the Asia-Pacific region was 83%, Europe was 11%, and North America was 6%. The top five customers generated approximately 35.9% of total revenue, and no customer was over the 10% level. Non-gap gross margin in the first quarter was a negative 6.1%, compared with 17.9% in Q4 of 2024, and 27.3% in Q1 of 2024. For those who prefer to track results on a gap basis, gross margin in the first quarter was negative 6.4 percent compared with 17.6 percent in Q4 and 26.9 percent in Q1 of 2024. The magnitude of the decline in gross margin was a disappointment in the quarter and primarily the result of three factors. First, we had significant yield issues at our semi-insulating gallium arsenide wafers as we worked quickly to scale our output for sizable wireless opportunity. I think the lesson for us is that while the opportunity is compelling, the sophistication of the product specs require us to move in a more measured way to ensure that we can execute cost efficiently. Revenue mix also played a role in our gross margin deficit. Due to the current trade restrictions, substrate sales were down meaningfully in the quarter, and our joint venture sales were higher than normal as a percentage of our revenue. As a manufacturing company, this resulted in underabsorbed factory overhead that was greater than expected. And finally, we were expecting to see a little bit higher gross margins across the board from our joint ventures, from gallium arsenide, and from germanium sales. Morris will talk more about gross margins and our plans for improvement shortly. Moving to operating expenses, we did better than expected in holding OpEx down in Q1. Total non-gap operating expense in Q1 was $8.5 million, compared with $10.5 million in Q4 of 2024, and $8.7 million in Q1 of 2024. On a gap basis, total operating expense in Q1 was $9.0 million, compared with $10.6 million in Q4 of 2024, and $9.4 million in Q1 of 2024. Our non-GAAP operating loss for the first quarter of 2025 was $9.6 million, compared with a non-GAAP operating loss in Q4 of 2024 of $5.4 million, and a non-GAAP operating loss of $2.5 million in Q1 of 2024. For reference, our GAAP operating line for the first quarter of 2025 was a loss of $10.3 million compared with an operating loss of $6.2 million in Q4 of 2024 and an operating loss of $3.3 million in Q1 of 2024. Non-operating other income and expense and other items below the operating line for the first quarter was a net gain of $0.4 million. The details can be seen in the P&L included in our press release today. For Q1 of 2025, we had a non-GAAP net loss of $8.2 million, or $0.19 per share, compared to the non-GAAP net loss of $4.3 million, or $0.10 per share, in the fourth quarter of 2024. Non-GAAP net loss in Q1 of 2024 was $1.3 million, or $0.03 per share. On a GAAP basis, net loss in Q1 was $8.8 million, or $0.20 per share. By comparison, net loss was $5.1 million, or $0.12 per share, in the fourth quarter. And gap net loss in Q1 of 2024 was $2.1 million, or $0.05 per share. The weighted average basic shares outstanding in Q1 of 2025 was $43.6 million. Cash and cash equivalents and investments increased by $4.4 million to $38.2 million as of March 31st. By comparison, at December 31st, it was $33.8 million. Depreciation and amortization in the first quarter was $2.2 million. Total stock comp was $0.6 million. Net inventory was down by approximately $4.7 million in the first quarter to $80.4 million. This continues to be a focus for us, and we expect to bring it down further in quarters to come. Okay, this concludes the brief discussion of quarterly financial results. Turning to our plan to list the subsidiary in China, Tongmei, on the star market, we continue to keep our IPO application current. Tongmei remains an in-process category as part of a much more selective and smaller group of prospective listings than a few years ago. While we're not insensitive to the current geopolitical environment, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. Okay, with that, I'll now turn the call over to Dr. Morris Young for a review of our business and market. Morris?

Thank you, Gary. I want to begin with an update on the export restriction because I know that is top of mind for many of you. Then I will discuss current market opportunities and our plan for growth margin improvement. As many of you know, on February the 4th, the China government imposed trade restrictions on the export of yin-hung phosphide material, similar to 2023 restrictions on galling arsenide substrates. These regulations explicitly seek to restrict the export of material used for military applications. Therefore, we are now undertaking an export permit process for EME fast-five, similar to what we have done for Gali last night over the last two years. We were disappointed that the portal to accept export applications did not open until April. That said, we were well prepared when it did open. and we have submitted comprehensive applications on behalf of all major Indian phosphide customers outside of China. In our experience, we typically hear back initial applications within 45 business days, and repeat applications are often processed faster. As such, we do not expect to be able to ship eene phosphide to customers outside of China before mid-June, as early as. As we have mentioned previously, we do not believe that any of our eene phosphide sales go to military applications, so we feel that we are in a good position to realize a backlog of sales once we can navigate the permit process. While the current geopolitical environment presents a near-term headwind for our business, we are also discovering some unique opportunities. The cloud and data center of connectivity market in China is accelerating. In an effort to promote innovation and reduce dependency of foreign suppliers, we are seeing a significant effort to develop a domestic source of EML and silicon photonic space lasers. We estimated that the Chinese data center optical interconnect market is currently around one-third of the global market. However, most of the optical devices for these interconnects are sourced from outside of China. and applications for yin-in phosphide within China remain focused on palm today. Further, laser manufacturers in China are developing an appreciation for the critical benefit of very low EPD material in high-speed intercanic devices, both in the traditional palm market and in the new data center market. As a result, our sales of e-phosphate within China are increasing. The time for data center market remains small at this moment, but we do expect to see significant growth over the next few years as the pollen laser providers expand their portfolio of market to include EML and silica photonics solutions. That said, in Q2, we expect healthy double-digit growth for our revenue from data center applications in China of a Q1 level. We also have significant Indian phosphide backlog from customers outside of China that is ready to ship. We are working diligently to support the needs of our customers globally, and we are hopeful that TongMei can begin to secure permits for initial geographies soon. Turning to Gowling Osmai, we continue to see recovery, particularly in China and Taiwan, across a number of applications like high-powered industrial lasers, wireless sounders, and Wi-Fi. We believe there is a sizable opportunity for our galliocinite substrate and HPT devices for the wireless market. These represent exciting potential for which we believe our technology and product are well-suited for. With the cost of performance breakthroughs we achieved on our age product, as well as strong relationship building with one of our largest Asian-based EPI providers, we're in a great position for growth. But this is a competitive and sophisticated market. We were excited in Q1 to have the opportunity to compete for a large share, but we stumbled in trying to scale too quickly. We continue to view this as an exciting space, but are taking a more measured approach to market share expansion to ensure that we can execute effectively as we increase our production levels. We're also seeing a notable increase in design activities and qualifications for Galeosanide-based LiDAR for the autonomous vehicle market in China. With the growing adoption of autonomous vehicles and high-precision sensing technologies, Galeosanide has become a critical material due to its superior electronic properties and ability to operate effectively in high-frequency applications. Chinese manufacturers are increasingly investing in the development of LiDAR systems for the EV market that leverage gallium oxide, recognizing their potential to enhance resolution and accuracy in object detection and navigation over the competing camera-based solutions. Similar to what we are seeing in the data center market, there seems to be a push in China towards reducing dependency on foreign suppliers and fostering domestic innovation. As a result, we believe that the demand for LiDAR is poised to grow. And that this is a market in which our low EPD gallium arsenide substrates are showing tremendous value in device performance. Over the last 12 months, we have aggressively advance the technology technical capability of our material to help our global customer base solving complex next generation challenges the material we supply of being used in highly sophisticated applications such as the ones that we have mentioned today where our breakthroughs in delivering extremely low epd give us a distinct competitive advantage in both indian phosphide, and gallium oxide. I'm extremely proud of our team for the rapid progress we've made. For that reason, I cannot allow gross margin setbacks in our substrate business to cloud the achievement that we're making in our technology. We strongly believe, over the coming quarters, we can drive meaningful improvement in our gross margin. In the near term, we're taking a more measured approach in the HPG market to ensure that our gallon asset production and yield can right themselves. This is now among our highest priorities here in China and the top priority for our manufacturing leaderships. We expect to see improvement beginning this quarter and continues throughout the balance of 2025. This is an issue that is very much in our control, and we are laser-focused on fixing it. It is also worth noting that the decrease in substrate cells as a result of trade restriction has also impacted our growth-modging performance, as Gary noted. We feel good about our ability to begin secure Indian classified permits, which should help our overall sales following in the back half of the year and contribute to a healthy revenue and product mix. Both of these will help us in a gross margin list for our business. Before I conclude, I want to say a few words about our raw material joint ventures. Sales in Q1 was strong, and we have been trending up over the past year. We continue to invest in expanding our capability and have built an impressive portfolio, which today includes galleon, arsenic, PBN crucibles, quartz, indian, and germanium. The strategic value of these materials is not only that we can more cost-effectively supply all of our critical materials needed to manufacture our products, but we also benefit from the additional revenue stream generated by our joint ventures through sales of these products on the open market. the asset value of this portfolio has grown substantially over the last 20 years and we will continue to expand our opportunity in 2025 through the development of new markets there is a new and greater awareness of the importance of earth material and we are ahead of the curve in developing this unique integrated supply chain in summary While the geopolitical environment is creating undeniable challenges, we are focusing our energies where we can drive positive return today. We're uniquely positioned to optimize growth opportunities in China, such as high-speed data center of connectivity and sensors for autonomous driving. And we're pursuing these and then other opportunities with success across key markets for Indian phosphat, valley arsenide, and germanium substrates. We're also working tirelessly on behalf of our global customer base to ensure that we can continue to support their need across all our products. We recognize this is a challenging time for our customers, our investors, and our employees, and we are deeply committed to working diligently on your behalf. With that, I will turn the call back to Gary for our second quarter guidance. Gary?

Thank you, Morris. In keeping with our comments today, we believe Q2 revenue will be in the range of $20.0 million to $22.0 million. This guidance range excludes any contribution from Indian Phosphide for our customers outside of China in Q2. Once we do receive permits, we have several millions of dollars of Indian Phosphide backlog that we would be able to ship, most likely in Q3. We do feel encouraged that even without these shipments, we are in a good position to grow our business sequentially. As Morris mentioned, this is due to our success in optimizing emerging opportunities to grow our business in China across all of our product categories. While we don't normally give gross margin guidance, we do believe that we can see a recovery on a gross margin to around 10% in Q2 based on manufacturing improvements. We also believe that production volume growth in the second half, coupled with continued yield improvements this year, will allow us to drive continued gross margin recovery for the rest of the year. Based on our revenue range, we believe our non-GAAP net loss will be in the range of $0.12 to $0.14 in Q3, and GAAP net loss will be in the range in Q2, and GAAP will be a loss in the range of $0.14 to $0.16. cents share count will be approximately 43.7 million shares okay this concludes our prepared comments and we'd be glad to answer your questions now um john operator thank you ladies and gentlemen we will now begin the question and answer session if you have dialed in and would like to ask a question as a reminder please press star followed by the number one on your telephone keypad if you would like to withdraw your question simply press star 1 again if you are called upon

to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Thank you. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Frost Cole with Needham and Company. Please go ahead.

Hi, and thank you for taking my question on behalf of Charles Shi. I was wondering if you could maybe dive a little deeper into the yield issues you're seeing for the semi-insulating gallium arsenide and maybe, you know, when do you expect to see these yield issues resolved. And is there any change to your market opportunity as a result of this? Thank you.

Sure. As we said, I think we were excited about the opportunity for HPT market for wireless because it's an existing market. And we have a good relationship with good customers in Asia, we thought we could penetrate that market with the imine phosphide permit restriction on our revenue. So we were taking on that market a bit too aggressively. So we encountered a yield problem, but we think that is solvable, and we have been in manufacturing business for years, and we have a yield glitch, and we already find the source of the problem. As Gary mentioned, that although, you know, this quarter's margin was negative 6%, but we do expect a very quick recovery to about 10% next quarter. So that is a good sign. And I think, you know, we get into this market a little bit more too aggressive, so that hurts our ability to achieve a good margin. but we think we have the solution in hand, but we will take a more measured approach to this market. But this market is there, so we'll just approach it more carefully, but we think the opportunity is there for us to get into, you know, once we get our yielding order and our manufacturing line more effectively producing this product.

Great. Thank you. That was very helpful.

Next question comes from the line of Richard Shannon with Craig Callums. Please go ahead.

Well, hi guys. Thanks for letting me ask a question here as well. Since we just talked about yields, why don't I ask another question on this topic here? And I guess, Morris, I guess I'm curious why it's going to take more than a quarter or two to fix the yields here. I mean, is this an entirely new product? I guess I thought this was kind of an existing product that you could just go back to the way you were doing it before, maybe just set a slower pace so you could get back there fairly quickly or am I misunderstanding the situation?

Richard, you're correct. I mean, it is a product that we have worked on for many years. But as you know, when you are dealing with a commercial volume of tens of thousands, I mean, thousands of wafer per month and the customer specification from time to time will change and but if you're not laser focused into uh you know supplying them consistently any little change can require a recalibration of our production line without our customers need so i i think that is perhaps one of the reasons which hit our yield um and it's that we thought we delivered this product to them for many years before we can re-enter this market so we can go quickly you know change our manufacturing slightly but you know manufacturing is something which you don't change very quickly so I think we want we want to make sure that we are approaching this problem more measurably so that we can protect our growth margin and our profitability And so we can get back to the 10% growth margin from negative six in the next quarter in Q2. And also, you know, as Gary mentioned, that the growth margin hit not only coming from the dismanufacturing yield loss, yield lower, but also is coming from the product mix as well as the third point. Gary, remind me what was the third one? And so it's a mixed product of, you know, for instance, EVA phosphide, for the first quarter, we had one month of EVA phosphide revenue of January. You know, the restriction comma was coming on February the 4th, and that we cannot deliver any after that. And the Q2 guidance, taking into account that we don't have any outside of China, any phosphide permit, and that will hit our margins as well compared to Q1. But if we can secure any permit on any phosphide, then that can improve our gross margin. But we're taking a more conservative view of making that estimate of what our product mix will be in Q2.

Okay. Fair enough for that, Morris. Maybe let's touch on Indian phosphide here. And I guess, as you said last quarter with this permitting process, since you've already done it with gallium arsenide, and it's been, other than the delay factor you had initially, it seemed like it was mostly seamless here. Have you been given any assurances that you're expecting a similar process here? Do you have any worries that we're going to have a delay beyond what I think you said as a mid-June time frame to hopefully start shipping to the backlogs you have there?

Well, you know, to getting a permit, it's dealing with bureaucrats and, you know, bureaucracy is always very difficult to predict. But given that China announced that they want to make sure these are now for military applications, and none of our customers, we believe, are using FOSTA for military applications. So we think that a permit should have no restriction for our customers to get permits. But on the other hand, there are geopolitical struggles between countries. So, you know, it's hard to say, but I think in our prediction, we think we can get our permits soon. I mean, the normal 45-day state, once we submit the application into the Commerce Department of China.

So, playing this forward here, like you said, assuming you get the permits here by the middle of June, you can ship out, I think your words were, several million dollars. I guess if we, I guess maybe give us a little bit better quantification of what exactly that means. Is there any timing dynamics here would prevent all that, you know, quote unquote, several million dollars being able to be shipped and recognized in the second quarter?

Yes, we are actually making, you know, especially large customer orders. We're making them in our production line just ready for shipment. Or some of them we make it into stages that we can finish up by the final clean or the final polish so that we don't lose the freshness of these wafers to our customers. So we do believe if we can get the permits, we can ship these very quickly. And, you know, honestly, our customers are waiting patiently for this product to be delivered to them too. They're giving us orders. So, I think we're confident we should be able to ship them within, let's say, a week to 10 days after we get the permits.

Okay. So, again, related to any phosphide, it's stretching out the timeframe to calendar 25 here. Going back to your last call, and I can't remember if it was you, Morris, that said this, or maybe it was Tim. There's a question asked about what kind of growth do you expect from any phosphide? And the answer given was something in the 20% growth range. Let's assume that the permitting process isn't onerous enough such that you can't get anything done this year, which hopefully will be the case where we've got real big problems. But is that growth outlook still roughly intact here?

So maybe I can give this question to Tim. Maybe Tim answered that 20%.

Yeah, I think that growth outlook is still there. The market dynamics is still pushing towards what we would see as a growth of 20%, given that, obviously, we can ship places outside of China. I just want to make a quick comment about that, too. As I said, and Morris commented, we feel like we're in a good position to get permits to ship outside of China, Indian phosphide, that is, outside of China. But from a timing perspective, we see that the first permits come through and the Q2, as we've said. But from a guidance perspective, we haven't included Indian phosphide shipment outside of China in our Q2 numbers. And we believe it's better to be conservative until we have more clarity on this timing. So what you'll see is you'll see, We still see that market trend going, increasing to about 20%. We believe we'll be able to capture that fully in 2026.

In 2026, I think last conference call, that was related 25. So I just want to make sure that we're citing the correct year here. Is that what you mean, Tim, 2026?

Sorry, yes. So we're being more conservative on 2026 – on 2025, sorry, just because of a timing perspective on these permits. So, what we're looking at here is, let's say, Q2 numbers, we believe we've not included any of the permits. We still believe this market is growing at 20% in terms of indium phosphide, and we'll be able to capture that beyond Q2 in 2025, beyond Q2, second half, and then into 2026.

Perfect. I think that's all the question for now. I will jump on the line, guys.

Your next question comes from the line of Matt Bryson with Ledger Securities. Please go ahead.

Hey, guys. Thanks for taking my questions. I'm going to kind of follow on Richard's question. With Indian Fossified, is there any risk at all that you're not being able to ship to customers, end up with customers going with another supplier? Or that some of this business doesn't come back to you?

Um, that's a good question. I think we, I think, you know, we are a major Indian phosphide supplier. We believe we have perhaps good between 40 to 50% worldwide market. And any phosphide material is not the easiest material to make. We believe there are only two major competitors worldwide. And, you know, get any phosphide material to be qualified with a customer takes a very long time because they are lasers, they are, you know, the device increasing in terms of current density as well as the size of the lasers. So all that requires very careful qualification of the good low EPD material. So we believe that those shoes are not very easily to be filled. But, of course, I mean, with this market demand out there, we believe it's, you know, everybody wants to get more in the phosphide team. Maybe you can help. What do you hear from the marketplace? Is any of our loss order being taken by our competitors?

Yeah, thanks, Boris. I agree. We don't believe that it's the case so far. You know, we're still seeing orders coming in from all of our customers. We're building up a backlog within those orders or from those orders. And if we can begin to see permits late this quarter, early next, we're pretty much ready to ship through Q3, Q4. This market's growing too fast. And as Morris said, we're a major supplier into this market. The other players both cannot keep up with capacity, nor can they meet our quality performance that our customers are starting to demand from us now.

So at the moment, we're really not seeing people move away, but we're seeing people kind of hang in there continue to place orders and wait for permits to get approved got it so then best guess is that once you get your permits uh approved um that your customers end up resuming orders um there's there's inventory refill and you possibly see a almost a period of over shipment versus end demand just as customers catch back up is that is that fair that's absolutely fair yes we would we would see see a rebuild of um inventory um as the those permits come through so we we should we should see a pretty healthy bump yes got it um next question i think uh gary when you were talking about uh the the the factors weighing on gross margin um it was lowering the phosphide shipments uh the problems with uh uh the hbt and then i think the third factor was just lower gross margins on a couple products um when we made our our plan for the you know once we learned about the

the um february 4th announcement from china um you know we knew that that was going to hurt both our top line and our gross margin line but but we had we we had expected maybe that the rest of the product lines including raw materials would have some at least mitigating lifting effect um and um had a little bit of that but it wasn't probably wasn't quite as robust as i as i had hoped but but that was the third factor you got it so it's it's it's more you didn't see a lift as opposed to there was lower pricing or or anything else going on in the other yeah no there's no not really an asp issue in this story the real the real story is is is you know india phosphide uh dropped in revenue and at the same time we're trying to make up for that revenue drop by accelerating some gallium arsenide work and as more said maybe we're a little bit too aggressive there and um so those are that's our understanding yeah yeah but there's nothing there's nothing going on with pricing across across all the markets or no there's no there's always And then just with the material shipping to China, if there's more material shipping

in China, does that have any impact on pricing at all?

I'll let Tim take that one.

So some of the traditional GON markets are seeing some price pressures as we go into that, and we see some growth this year into those markets. But generally, as we look at other markets, of course, we're always under some kind of price pressure, But we're not seeing anything out of the ordinary that I would say at this moment in time.

Got it. And then last one for me, just I don't think you shipped a lot of product in North America. But can you just talk to any ramifications from the substantial tariffs that the U.S. is placing on China? Is it affecting your business at all?

Go ahead, Tim.

Yep. So for context, revenues to the U.S. in 2024 were about 8%. They'll probably be less in 2025 as a result of these trade restrictions and the timing of the permitting process. But anything that we ship to the U.S. will likely have a tariff on it. The amount of this tariff is still a little unclear, and it still seems to be under discussion between the U.S. and China. So, yes, we expect that we're going to have to deal with this tariff. Again, revenues in 2024 are about 8%, so it's not something that gives us real great heartburn at the moment. Got it. Thank you so much.

Thanks, Matt. Next question comes from the line of Dave Kahn with V. Riley. Please go ahead.

Yes, thank you. Good afternoon. My question is regarding that last statement about your sales to US. My understanding is that semis are exempt, so your products, wouldn't they be exempt as well?

Yeah, they're exempt from the reciprocal tariff, but they're not fully exempt from all tariffs at the moment. But as we say, this tariff situation is still under discussion. There still seems to be some negotiation going on between the U.S. and China. So I think, you know, once the permit process opens up and we start shipping again, we'll get a clearer understanding of what our position is in terms of tariffs.

So what happened in first quarter? I mean, can you just tell us the facts, like how much showed if you can quantify tariffs? And you didn't mention that in your three factors we got in gross margin, but then tariffs didn't impact your gross margin as well.

Again, Boris, did you want to comment?

Yeah, I think perhaps Dave's question is, you know, our gross margin impact from tariffs, since in Q1, we have shipped at least one month in January. I think our product shipped in January did pay tariffs, okay? But that was the old tariff. What was the percentage, Tim? I think it's around 25%, correct?

Yeah, correct. The Section 301 tariff is 25%.

And now it has changed. So, you know, what percentage of tariff it's going to be, I think we're watching very intensely how it's going to be resolved. And as you mentioned, it could be exempt. And I also heard China, on the web, actually, China is going to exempt some of the imports from the United States on certain material that China wants to import from the United States, such as semiconductors. So could that play into, you know, reciprocal tariff from the United States? Because, you know, these Indian phosphide products, none of them can be made in the United States anyway. And our customers in the United States need this material. So, you know, we don't know at this point. I mean, but, you know, let's get the permit problem solved first. But we believe that the tariff issue can be navigated. We have a plan to resolve this tariff issue, right, King? Correct.

We do have some plans to navigate around this. It's too early to say anything about them yet, though.

Some of the component vendors told me that their customers, not all, but some customers are willing to pick up tariffs at least temporarily. I mean, it sounds like you guys are paying the tariffs, not your customers.

Well, we've been faced with this situation before, and there's no easy answer to it, right? Some customers will pick up the tariffs. Some customers will pick up some of the tariffs. We've dealt with it with gallium arsenide for the past 18 months, and we'll deal with the tariffs as we go case by case. sorry, with indium phosphide for the past 18 months. And we'll deal with this as a case-by-case basis as we move forward. And we have to get a better understanding of what this tariff really means.

Got it. And my last question is regarding the wireless HPT, the one with yield issues. Just wondering if you've got that business.

I mean, can you kind of quantify as far as uh the revenue and is it uh because of your stumble is it a lost opportunity or are you still uh in the derby i guess and is it just one customer or four customers well it's one specific customer it's a fairly large customer and i think we have not lost the opportunity i mean we're still working on it and as i said we will take a little more measured approach to trying to gain more market share, but I mean, once we got our, you know, actually it's not a yield issue per se, but it's a matching of specifications from what we can make and the customer demand. Once we got that sorted out, I think we should be able to get back to it.

And, Moritz, can you kind of quantify?

Let's see. It's probably around $2 million. dollars.

Per quarter?

No, a little bit more than one million dollars per quarter.

Yeah, for the quarter. Okay, got it. Thank you.

And it seems that we have no further questions today. I would now like to turn the call over back to Dr. Morris Young for closing remarks.

Thank you for participating in our conference call. Later this month, we will be participating in the Be Riley Security 2025 Annual Investor Conference. As always, please feel free to contact me, Gary Fisher or Leslie Green, if you would like to set up a call. We do look forward to speaking with you in the near future.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.