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Technology Stocks : American Xtal Technology, Inc. (AXTI) -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (246)	10/28/2002 4:17:39 PM
From: The Ox	Read Replies (1) \| Respond to of 290

Found on Yahoo: This was written by Forun Technology Research and Advisory on October 23, 2002... AXTI, the future is bright (Nasdaq: AXTI, $1.20) 3Q2002 may prove to be one of the most difficult quarter in AXTI’s history: price pressure in substrate products and disappearing LED orders from Agilent sent revenues down 22% sequentially and 34% from year ago quarter. The stock had decreased from $8 a share at the beginning of the quarter to near $1 a share in the last two weeks. At $1.20, the stock is trading at 22% of tangible book value of $5.54 per share. Given the company’s strong position in GaAs and InP wafers, firming substrate prices, higher ASP for brighter green LEDs, and overall recovery in wireless market and economy, we believe the company will likely overcome short-term challenges and succeed. Thus, we’d like to reiterate our market outperform rating. We do, however, reduce our earnings estimates for next quarter and next year. We now believe the tangible book value will likely to bottom at $4.4 a share. We thus suggest a 12-month price target of $4.4 , i.e. 1.0x tangible book value. We believe there is a good chance to achieve this target, especially if the company can become breakeven by end of Dec. 2003 and if the overall semiconductor market and economy turns up in 2003 and 2004. Compared to last quarter, sales of GaAs decreased 7% to $9.1M, mostly due to price pressure and price competition. Volume was essentially flat. Sales of InP substrates decreased 35% to $1.1M, reflecting weak fiber optic market. Sales of LEDs decreased 55% to $2.5M, reflecting disappearing sales to Agilent. Sales of lasers were flat, while sales of Germanium substrate and other raw materials increased slightly. Compare to year ago quarter, sales of GaAs substrate decreased 18%, sales of InP substrates decreased 86%, while sales of LEDs and lasers increased 39%. Gross profit was negative due to price pressure in substrates and reserves for product returns. R&D was higher due to intensified efforts to increase LED brightness. They achieved 40% enhancement in brightness with good yields in two MOCVD machines. One-time charges totaled $28M, higher than what we expected. Net loss for the quarter was $26.7M. Cash used for operations was $5M, capex was $4.4M, and free cash flow was -$9.4M. For 4Q2002, substrate sales and ASP are stabilizing or will decrease slightly from 3Q02. Its China facility, amounting to 95% of its capacity by end of 2002, passed ISO 9001 qualification, and substrates produced there passed customers’ qualification. The firm consolidated inventories into one location to improve operation efficiency. Breakeven point for the division is reduced to $12M in sales (assuming flat ASP). LEDs sales will likely increase slightly from 3Q02. If Agilent accepts new LEDs and places new orders by early December, LED sales are surely higher. ASP for LEDs will benefit from increased mix of green LEDs and high brightness LEDs. The firm delayed its move of LED manufacturing to China in order to conserve cash. The breakeven point for the optoelectronics division is $6-6.5M in sales. The management is determined to reduce cash burn in 4Q02 by 60% from 3Q02 level and to also reduce capex. For our new estimates, we are assuming sales to bottom in 4Q02 and grow gradually from 1Q03 (see Table). Our projection still indicates that AXTI will survive this downturn. Major positives: new capability of producing 40% brighter LEDs with good yields, low cost production, strong LEDs end market, strong relations with local Chinese governments, best GaAs and InP wafers in industry, and capable management. Major negatives: price pressure with substrate products, low earnings visibility, weak fiber optic end markets, LED production to China delayed because of needs to conserve cash, and inventory level too high.