Oct 29, 2026 earnings call — Indium phosphide capacity expansion and Tongmei financing
Q3 revenue was $73.4 million, driven by strong indium phosphide demand and capacity expansion.
Revenue $0.1B (est $0.1B) · EPS $0.41 (est $0.31)
Key quotes
"Demand for indium phosphide continues to exceed supply, and we're moving quickly to expand our capacity, improve our productivity and advance large diameter substrates."
"What we're seeing with this new technology is a significant increase in productivity as we move forward."
"Assuming the maximum amount of the investment at USD 545 million, AXT will maintain control of Tongmei with approximately 73.4% ownership, down approximately 12.1% following the completion of the transaction."
Analyst Q&A 4
Gross margin drivers and indium phosphide capacity
Q (Richard Shannon · Craig-Hallum): The analyst asked how to think about gross margins going forward and what drives them (volume, mix, wafer size, ASPs, spot pricing). He also asked what indium phosphide revenue capacity looks like exiting this year and next.
A: Management said gross margin is mainly driven by volume and product mix, with productivity gains and migration to larger wafers (4-inch and 6-inch) adding further upside. They noted low EPD requirements give a price premium and raw material cost increases will modestly deduct. On capacity, Q3 indium phosphide revenue was $54.3 million, Q4 could be around $90 million, and most growth going forward will be indium phosphide.
"As usual, the gross margin is hugely driven by volume." — Gary Fischer (CFO)
Supply and backlog outlook
Q (Charles Shi · Needham): The analyst asked whether AXT adding capacity could create overcapacity for indium phosphide next year and requested insight on supply-demand and competitors. He also asked if the Lumentum agreement was new and about the large backlog increase to over $500 million.
A: Management said they are significantly overbooked and every customer is on allocation; demand is growing faster than they can add capacity. They said AXT's low EPD substrates give a competitive advantage and new Chinese entrants face high technical barriers. The Lumentum deal was the Q3 contract (not a separate second deal) and backlog has surpassed $500 million made up of long-term, short-term and spot orders.
"So as we stand right now, we are significantly overbooked." — Timothy Bettles
Margins baseline and role of long-term deals
Q (Timothy Savageaux · Northland): The analyst asked if the 60% gross margin level is a new baseline given high incremental margins and whether initial ramps from long-term supply agreements drove Q3 results and Q4 guidance.
A: Management said they expect to cross over 60% gross margin but the situation is fast-moving and they are cautious to predict. They said long-term supply agreements are beginning to contribute but currently make up a relatively small part of backlog; most of the backlog growth is from spot purchase orders and annual contracts. They emphasized keeping flexibility rather than locking into many long-term deals.
"a lot of this is still being built up on spot purchase orders, annual contracts, that type of stuff." — Timothy Bettles
Larger wafers and capacity growth plans
Q (Matthew Bryson · Wedbush): The analyst asked what share of shipments might be 4-inch and above, the pricing or margin benefit when shifting 3-inch to 4-inch to 6-inch, how many competitors can deliver 4/6-inch, and whether indium phosphide capacity still roughly doubles from Q4 '26 to Q4 '27.
A: Management said the majority of wafer volumes have moved to 3-inch but 4-inch has been growing (detectors first, lasers next) and by late 2027 wafer volumes for 3-inch and 4-inch could be about equal, which raises ASPs and gross margins. They said 6-inch pilot production is starting and there are two main players at 6-inch; others are more distant. On capacity, they said they will be more than double in 2026 (about 2.75x–3x versus end of 2025) and they plan to double again in 2027.
"you could be looking at something equal in 3-inch and 4-inch by the end of the year." — Timothy Bettles