Earnings Call Transcript - AXTI Q1 2025

Operator, Operator

Good afternoon, everyone, and welcome to AXT's First Quarter 2025 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. In addition, Tim Bettles, VP of Business Development, will be participating in the Q&A portion of the call. My name is John, and I will be your conference operator today. Thank you. I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Please go ahead.

Leslie Green, Investor Relations

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 current expectations. This call will be available on our website through May 1, 2026. Also, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the first quarter and fiscal 2025. This information is available on the Investor Relations portion of our website. I would now like to turn the call over to Gary Fischer for a review of our first quarter 2025 results. Gary?

Gary Fischer, CFO

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, and $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 PON 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 5 customers generated approximately 35.9% of total revenue and no customer was over the 10% level. Non-GAAP gross margin in the first quarter was a negative 6.1% compared with 17.9% in Q4 2024 and 27.3% in Q1 of 2024. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was negative 6.4% compared with 17.6% in Q4 and 26.9% 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 in our semi-insulating gallium arsenide wafers as we worked quickly to scale our output for sizable wireless opportunities. 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 under-absorbed 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-GAAP 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 GAAP 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 with a 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 GAAP 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 31. By comparison, at December 31, it was $33.8 million. Depreciation and amortization in the first quarter was $2.2 million. Total stock compensation 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 is 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, Tongmei 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 markets. Morris?

Morris Young, CEO

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 gross margin improvement. As many of you know, on February 4, the Chinese government imposed trade restrictions on the export of indium phosphide material, similar to the 2023 restriction on gallium 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 indium phosphide similar to what we have done for gallium arsenide 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 indium phosphide customers outside of China. In our experience, we typically hear back on initial applications within 45 business days, and repeat applications are often processed faster. As such, we do not expect to be able to ship indium phosphide to customers outside of China before mid-June at the earliest. As previously mentioned, we do not believe that any of our indium 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 connectivity market in China is accelerating. And in an effort to promote innovation and reduce dependency on foreign suppliers, we are seeing a significant effort to develop a domestic source of EML and silicon photonics-based lasers. We estimate that the Chinese data center optical interconnect market is currently around 1/3 of the global market. However, most of the optical devices for these interconnects are sourced from outside of China and applications for indium phosphide within China remain focused on PON today. Further, laser manufacturers in China are developing an appreciation for the critical benefit of very low EPD material in high-speed interconnect devices, both in the traditional PON market and in the new data center market. As a result, our sales of indium phosphide within China are increasing. The TAM for the data center market remains small at this moment, but we do expect to see significant growth over the next few years, as the PON laser providers expand their portfolio of market to include EML and silicon photonics solutions. That said, in Q2, we expect healthy double-digit growth for our revenue from data center applications in China from Q1 levels. We also have significant indium 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 gallium arsenide. We continue to see recovery, particularly in China and Taiwan across a number of applications like high-power industrial lasers, wireless routers and Wi-Fi. We believe there is a sizable opportunity for our gallium arsenide substrate in HPT devices for the wireless market. This represents exciting potential for which we believe our technology and products are well suited for. With the cost of performance breakthroughs we achieved on our 8-inch 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 qualification for gallium arsenide-based lidar for the autonomous vehicle market in China. With the growing adoption of autonomous vehicles and high-precision sensing technologies, gallium arsenide 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 arsenide, recognizing their potential to enhance resolution and accuracy in object detection and navigation over 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 advanced the technical capability of our material to help our global customer base solve complex next-generation challenges. The material we supply is being used in highly sophisticated applications such as those that we have mentioned today, where our breakthroughs in delivering extremely low EPD give us a distinct competitive advantage in both indium phosphide and gallium arsenide. I'm extremely proud of our team for the rapid progress we have made. For that reason, I cannot allow gross margin setbacks in our substrate business to cloud the achievements 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 HPT market to ensure that our gallium arsenide production and yield can ride themselves. This is now among our highest priority here in China and the top priority for our manufacturing leadership. We expect to see improvement beginning this quarter and continue 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 sales as a result of trade restriction has also impacted our gross margin performance, as Gary noted. We feel good about our ability to begin to secure indium phosphide permits, which should help our overall sales volume in the back half of the year and contribute to a healthy revenue and product mix. Both of these will help us achieve a gross margin lift for our business. Before I conclude, I want to say a few words about our raw material joint ventures. Sales in Q1 were 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 gallium, arsenic, PBM crucibles, quartz, indium, and germanium. The strategic value of this material is not only that we can more cost-effectively supply all of our critical materials needed to manufacture our product, but we also benefit from the additional revenue stream generated by our joint ventures to sales of this product 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 connectivity and sensors for autonomous driving, and we are pursuing these and other opportunities with success across key markets for indium phosphide, gallium 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 needs 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?

Gary Fischer, CFO

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 indium phosphide for our customers outside of China in Q2. Once we do receive permits, we have several million dollars of indium 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 in our 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 Q2 and GAAP net loss will be in the range of $0.14 to $0.16. 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. John, operator?

Operator, Operator

Your first question comes from the line of Ross Cole with Needham & Company. Please go ahead.

Ross Cole, Analyst

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 when do you expect to see these yield issues resolved? And is there any change to your market opportunity as a result of this?

Morris Young, CEO

Sure. As we said, I think we were excited about the opportunity for the 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 indium 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, although this quarter's margin was negative 6%, we do expect a very quick recovery to about 10% next quarter. So that is a good sign. And I think we entered this market a little too aggressively, so that hurt 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 will just approach it more carefully, but we think the opportunity is there for us to get into once we have our yielding order and our manufacturing line more effectively producing this product.

Operator, Operator

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

Richard Shannon, Analyst

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'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 at a slower pace, and I think you could get back there fairly quickly? Or am I misunderstanding the situation?

Morris Young, CEO

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 thousands of wafers per month, any little change can require a recalibration of our production line with our customers' needs. So I think that is perhaps one of the reasons that hit our yield. And it is that we thought we could deliver this product to them for many years before we can enter this market. So we can quickly change our manufacturing slightly. But manufacturing is something that you don't change very quickly. So I think we want to make sure that we are approaching this problem more measuredly so that we can protect our gross margin and our profitability. And so we can get back to the 10% gross margin from negative 6% in the next quarter in Q2. Also, as Gary mentioned, the gross margin hit is not only coming from this manufacturing yield loss but also it's coming from the product mix as well as the other factors. The decrease in substrate sales due to trade restrictions has also impacted our gross margin performance, as Gary noted. We feel good about our ability to secure indium phosphide permits, which should help our overall sales volume in the back half of the year and contribute to a healthy revenue and product mix. Both of these will help us achieve a gross margin lift for our business.

Richard Shannon, Analyst

Okay, Morris. Let's discuss indium phosphide. As you mentioned last quarter, the permitting process was mostly seamless for gallium arsenide, aside from some initial delays. Have you received any assurances that we can expect a similar process for indium phosphide? Or are there concerns about potential delays beyond your mid-June timeframe for starting shipments to the backlog?

Morris Young, CEO

Well, to get a permit, it's dealing with bureaucrats, and bureaucracy is always very difficult to predict. But given that China announced that they want to ensure these are not for military applications and none of our customers, we believe are using indium phosphide 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 it's hard to say, but I think in our prediction, we think we can get our permits soon. The normal 45 days state once we submit the application into the Commerce Department of China.

Richard Shannon, Analyst

Okay. So looking ahead, I believe you mentioned that if you receive the permits by mid-June, you could ship out several million dollars. Could you provide more clarity on what that entails? Additionally, are there any timing issues that could prevent all of that amount from being shipped and accounted for in the second quarter?

Morris Young, CEO

Yes. We are processing large customer orders on our production line, preparing them for shipment. Some orders are completed in stages, allowing us to finish with the final cleaning or polishing to maintain the freshness of the wafers for our customers. We believe that once we obtain the necessary permits, we can ship quickly. Our customers are eagerly awaiting this product, and they continue to place orders with us. Therefore, we are confident that we will be able to ship within a week to ten days after receiving the permits.

Richard Shannon, Analyst

Okay. So again, related to indium phosphide, that's stretching out the time frame 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 was a question asked about what kind of growth do you expect from indium 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?

Morris Young, CEO

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

Tim Bettles, VP of Business Development

Yes. I think that growth outlook is still there. The market dynamics are still pushing towards what we would see as a growth of 20%, given that obviously, we can ship wafers outside of China. So 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, indium phosphide that is outside of China. But from a timing perspective, we see that the first permits come through at the end of Q2, as we've said. But from a guidance perspective, we haven't included indium phosphide shipments outside of China in our Q2 numbers. We believe it's better to be conservative until we have more clarity on this timing. So what you'll see is that we still see that market trend going, increasing to about 20%. We believe we'll be able to capture that fully in 2026.

Richard Shannon, Analyst

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

Tim Bettles, VP of Business Development

Sorry, yes. So we're being more conservative on 2025 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.

Operator, Operator

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

Matthew Bryson, Analyst

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

Morris Young, CEO

That's a good question. We consider ourselves a leading supplier of indium phosphide and estimate our market share to be around 40% to 50% globally. The production of indium phosphide is quite complex, and we believe there are only two primary competitors in this space. Qualifying indium phosphide material with customers is a lengthy process due to the nature of lasers and the increasing current density and size requirements. This necessitates careful qualification of high-quality low EPD materials, which is not easily replicated. Given the current market demand, we understand that everyone is looking to acquire more indium phosphide. Tim, can you share what feedback we are receiving from the market? Are any of our lost orders being taken by competitors?

Tim Bettles, VP of Business Development

Yes. I agree. We don't believe that it's the case so far. 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 is 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.

Matthew Bryson, Analyst

Got it. So the best guess is that once you get your permits approved that your customers end up resuming orders, and there's inventory refill and you possibly see almost a period of overshipment versus end demand just as customers catch back up? Is that fair?

Tim Bettles, VP of Business Development

That's absolutely fair. Yes, we would see a rebuild of inventory as permits come through. So we should see a pretty healthy bump, yes.

Matthew Bryson, Analyst

Got it. Next question, I think, Gary, when you were talking about the factors weighing on gross margin, it was lower indium phosphide shipments, problems with the HPT. And then I think the third factor was just lower gross margins on a couple of products. Can you just...

Gary Fischer, CFO

When we developed our plan after learning about the February 4 announcement from China, we understood it would negatively impact both our revenue and gross margins. We anticipated that the other product lines, particularly raw materials, would help to mitigate this impact to some extent. However, the effect was not as strong as I had hoped, which was the third factor.

Matthew Bryson, Analyst

Got it. So it's more you didn't see a lift as opposed to there was lower pricing or anything else going on in the other?

Gary Fischer, CFO

Yes. No, there's not really an ASP issue in the story. The real story is indium phosphide 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 Morris said, maybe we're a little bit too aggressive there. And so those are our understandings.

Matthew Bryson, Analyst

Understood. However, there are no changes happening with pricing in other markets.

Gary Fischer, CFO

I'll let Tim take that one.

Tim Bettles, VP of Business Development

Some of the traditional PON markets are experiencing price pressures as we enter this year, and we expect some growth in those markets. Overall, while we're continually facing some level of price pressure in other markets, nothing seems unusual at this time.

Matthew Bryson, Analyst

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

Gary Fischer, CFO

Go ahead, Tim.

Tim Bettles, VP of Business Development

Yes. 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 risks 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 were about 8%. So it's not something that gives us real great heartburn at the moment.

Operator, Operator

Next question comes from the line of Dave Cheng with B. Riley. Please go ahead.

David Cheng, Analyst

Yes. My question is regarding the last statement about your sales to the U.S. My understanding is that semis are exempt. So your products wouldn't they be exempt as well?

Tim Bettles, VP of Business Development

Yes, 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 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.

David Cheng, Analyst

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

Morris Young, CEO

Yes. I think perhaps Dave's question is 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 tariff, okay? But that was the old tariff. What was the percentage, Tim? I think it's around 25%, correct?

Tim Bettles, VP of Business Development

Yes, correct. The Section 201 tariff is 25%.

Morris Young, CEO

And now it has changed. We are closely monitoring what the percentage of the tariff will be and how it will be resolved. As you mentioned, there could be exemptions. I've also seen reports suggesting that China may exempt certain imports from the United States, specifically materials they want, like semiconductors. This could potentially influence reciprocal tariffs from the United States, especially since the indium phosphide products cannot be manufactured domestically, and our customers in the United States require this material. At this point, we are uncertain. However, our priority is to resolve the permit issue first. We are confident that we can navigate the tariff situation and have a strategy in place to address it.

Tim Bettles, VP of Business Development

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

David Cheng, Analyst

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.

Tim Bettles, VP of Business Development

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

David Cheng, Analyst

Got it. And my last question is regarding the wireless HPT, the one with yield issues. Just wondering if you got that business, I mean, can you kind of quantify as far as the revenue? And is it because of your stumble, is it a lost opportunity? Or are you still in the derby, I guess? And is it just one customer or multiple customers?

Morris Young, CEO

It's a specific large customer, and we haven't missed the opportunity. We're still working on it, and we're adopting a more careful approach to increase our market share. It's not about yield, but rather about aligning our capabilities with the customer's specifications. Once we resolve that, we should be able to return to it. It's probably around $2 million.

David Cheng, Analyst

Per quarter?

Morris Young, CEO

No, a little more than $1 million per quarter.

Operator, Operator

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.

Morris Young, CEO

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

Operator, Operator

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