AXT (AXTI) 28th Annual Needham Growth Conference Virtual summary

Company overview and product focus

• Specializes in compound semiconductor wafers: germanium, gallium arsenide, and indium phosphide, with vertical integration into raw materials and manufacturing in China.

• Indium phosphide is the core growth driver, critical for optical transceivers in data centers and AI infrastructure.

• Holds a unique market position as the only pure-play indium phosphide company listed on major stock exchanges.

• Vertically integrated supply chain enables cost control, risk mitigation, and scalability.

• Does not provide epitaxial substrates, only bare substrates for further processing.

Market trends and demand outlook

• Indium phosphide demand is surging due to AI data center expansion and shift from copper to optical connectivity.

• Anticipates doubling of order demand in 2026 and again in 2027, driven by scale-out and future scale-up (CPO, silicon photonics) applications.

• Expects significant growth in China’s silicon photonics market within the next 12 months.

• Market share in 2024 is roughly 40% (with Sumitomo at 40%, Japan Energy at 10%).

• Capacity is being doubled by end of 2026 to meet anticipated demand.

Supply chain, export controls, and risk management

• Indium phosphide added to China’s export control list as of February 2025; all exports now require permits.

• Export permit process is complex, multi-agency, and lacks transparency, causing shipment delays and business risk.

• Over 70% of indium phosphide revenue is from outside China, but 40-50% of total revenue is from China.

• Raw material sourcing is diversified, with ownership in mining and recycling companies, and some supply from outside China.

• Political tensions and export restrictions between China and Japan add further complexity to global supply strategies.