Good afternoon, ladies and gentlemen, and welcome to the conference call regarding Q2 2022 results of AIXTRON SE. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me hand the phone now over to your host, Guido Pickert.
Thank you very much, operator. Welcome to AIXTRON's presentation of our Q2 and first half 2022 results. I'd like to welcome our CEO, Dr. Felix Grawert, and our CFO, Dr. Christian Danninger. As the operator indicated, this call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of our safe harbor statement, which can be found on page two of our results presentation slide deck, as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or a transcript on our website at some point after the call. I would now like to hand over to our CEO for opening remarks. Felix?
Thank you, Guido. Let me also welcome you all to our results presentation. I will start with an overview of the highlights in the quarter, and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business. Let me start by giving you an overview of the key business developments in Q2 on slide two. Demand for our equipment remains dynamic across the board, resulting in an outstanding order situation with an order intake of EUR 153 million for Q2. We have received our first order for the volume production of Micro LED, which is very encouraging. In addition to that, demand for our equipment to produce efficient power electronics was again very strong this quarter, with demand for laser tools remaining strong as well.
This leaves us right now with an order backlog of EUR 314 million, of which the majority is due for delivery still this year. Revenues in the quarter increased by 51% year-on-year to EUR 103 million. Gross margin was slightly lower than normal, at 37% in the quarter, due to a high share of tool deliveries to make traditional red LEDs and some one-time project costs to further optimize our operations. EBIT more than tripled year-on-year to EUR 17 million, resulting in a quarterly net profit of EUR 17 million or $0.16 Per share due to the further recognition of tax loss carryforwards.
Based on the strong demand for our products, we can again confirm our original guidance for the fiscal year 2022, which we have first given in February of this year, as we are fully on track to achieve what we have guided for orders, revenues, and profit margins. Orders will remain on high levels, while revenues and margin are expected to be higher in the second half of 2022 versus the first half of the year. In fact, we expect Q3 to be stronger than Q2 and Q4 to be stronger than Q3 in terms of revenue this year again. I'm glad that today's global crisis situation still do not have a significant impact on our business. Logistics and supply chains are still not back to normal. They remain tense, but they continue to be stable.
We are in close exchange with our suppliers and support them wherever required. Now I will hand over to our CFO, Christian Danninger. He will take you through the Q2 financials. Christian?
Thanks, Felix, and hello to everyone. I'm happy to share with you that we had a very strong quarter again, both from an operational as well as from a financial perspective. Let me start with our income statement on slide three. Total revenues for the second quarter 2022 were close to EUR 103 million, 51% above the same quarter of last year. Gross profit went up by 36% year-on-year to EUR 38 million. The gross margin at 37% was influenced by less favorable product mix and one-time costs for pro-projects to further strengthen our production and supply chains. Both effects were only partially offset by a favorable U.S. dollar/euro exchange rate, which affected around 36% of our revenues that were recorded in U.S. dollars.
OpEx in the quarter decreased to EUR 21 million from EUR 22 million in the same quarter of 2021, mainly due to lower R&D spending resulting from the timing of projects. Our EBIT in the quarter more than doubled year-on-year to EUR 17 million from EUR 6 million the year before. EBIT margin was 17%. We again utilized tax loss carryforwards and capitalized additional deferred tax assets in the amount of EUR 2.5 million due to expected future profits. We can therefore report a quarterly net profit of EUR 17 million, which also more than doubled compared to EUR 8 million recorded in the same quarter of last year.
Turning to the balance sheet on the next slide. Inventories at the end of June 2022 have risen to EUR 162 million from EUR 144 million at the end of March, in preparation for the higher expected business volume in the coming quarters. As part of our supply chain strategy, we also keep strategic inventories of select components to maintain and ensure our capability to timely deliver our tools to our customers. Due to the high demand supporting our revenue guidance for the year, advance payments received from customers by the end of June 2022 increased to EUR 104 million from EUR 81 million at the end of March, representing about 33% of our order backlog.
Trade receivables increased EUR 58 million from EUR 50 million at the end of March, due to a higher share of shipments at the end of the quarter. Our cash balance, including our other financial assets, decreased to EUR 346 million at the end of the quarter from EUR 375 million at the end of March. The reduction being mainly due to the dividend payments of EUR 34 million in May. Moving to our cash flow statement on slide 5. In Q2 of 2022, free cash flow was at EUR 4 million compared to EUR 18 million in the same quarter of last year, mainly due to an increase in inventories and trade accounts receivable, combined with a rise in advance payments received for customer orders. With that, let me hand you back over to Felix. Felix?
Thank you, Christian. Before giving you our updated view of the outlook for the second half of the year, I would first like to give you a quick update on the key developments in some of our addressed markets. In most of our addressed end markets, we continue to see strong momentum. As previously mentioned, we have shipped a sizable number of tools representing the largest share of Q2 revenues. The second largest contributor were tools shipped for silicon carbide power electronics. The next biggest contributor to Q2 revenues were tools to make datacom lasers. Energy-efficient power electronics based on wide bandgap materials continue to be broadly adopted in an increasing number of applications, replacing less efficient silicon. We see that in the orders and revenues for our systems in these areas.
In GaN power, the strong momentum continues, going far beyond initial customer applications such as chargers. Our customers are already addressing opportunities and applications with 24/7 operations, such as data centers, base stations, or household appliances such as refrigerators, just to name a few. Market adoption of GaN in these applications is driven by energy savings offered by efficient GaN-based power supplies compared to silicon power electronics. In addition to these applications, we see our customers already looking further ahead, for example, towards motor drive or applications in battery electric vehicles. Therefore, we believe that demand will continue to be driven by the structural demand drivers behind it. In silicon carbide power, we see our customers building up or expanding their capacities based on the fast-growing adoption within battery electric vehicles, replacing silicon as a material.
As we have said before, our new silicon carbide tool for 6- and 8-inch wafers is showing very good performance. It offers high throughput due to its multi-wafer batch approach in combination with full cassette-to-cassette automation. At the same time, it offers individual wafer process controls with a high quality output. This makes us strongly believe that we have a highly attractive solution in our portfolio, particularly in comparison to single wafer solutions being offered by competition. The growing acceptance of our existing and our new customer confirms our view. In the area of Micro LED, we are very happy to announce that we have received a first order for the volume production of red, green, and blue Micro LED from our customers. This is very encouraging as this is seen as clear evidence that preparations to develop and launch a first commercial product has started.
As we have stated before, this development makes us increasingly confident that we will see further commercial products with Micro LED displays, such as television, notebooks or smartphones and smartwatches going forward. With that, let me now give you an update on our full year guidance for 2022 on slide six. Based on the strong business development in the first half and our positive view on the development of our business in the second half of the year, we confirm our growth guidance for the full year 2022, originally issued in February. Including the EUR 283 million of orders recorded in the first half, we continue to expect total orders for the year in a range between EUR 520 million and EUR 580 million.
We continue to expect our 2022 revenues to be in a range between EUR 450 million and EUR 500 million. This is based on the EUR 191 million of total revenues recorded in the first half. Build on our equipment order backlog of EUR 340 million, of which a large part is due for delivery during 2022. Based on the 39% gross margin and the 16% EBIT margin we achieved in the first half, we continue to expect a gross margin of around 41% and an EBIT margin in a range of 21%-23% due to the stronger expected business volume for the second half of the year.
These expectations for 2022 are subject to the provision that the current global crisis situation around us will not have a significant impact on the development of our business. With that, I will pass it back to Guido before we take questions.
Thank you very much, Felix. Thank you very much, Christian. Operator, we will now take questions, please.
Yes. Ladies and gentlemen, if you'd like to ask a question, please press nine star on your telephone keypad. Please press nine star if you'd like to ask a question. The first question comes from Olivia Honychurch. Your line is open.
Hi. Thank you for taking the question, and congratulations on a good set of results. I've got two questions, if that's all right. The first is on silicon carbide, and then I'll follow up afterwards. So we recently heard that ASM International had acquired LPE, who I think, as we know, is another player in the silicon carbide epitaxy space. It seems they offer a tool that has single wafer capability, which obviously differs from your proposition, which offers batch. I believe that LPE have said that a large proportion of their future revenue are coming from China. So I was just wondering what you think is driving those customers, whoever they are or wherever they're from, to choose a single wafer tool versus a batch.
As another context, I think generally the Chinese company's approach tends to be more around price sensitivity and focused on higher productivity. I suppose I'm really asking in the context of whether this could impact the outlook of your silicon carbide business in China going forward.
Mm-hmm. Thank you very, very much for the question. Yes, of course, we know LPE as a competitor in the market. Of course, also in the China market and of course we have followed also this acquisition in the industry. It is true that the LPE is deriving according to our observation most of their revenues of their tools from China with their silicon carbide single-wafer tool. I think the reason why China has adopted this tool quite well is that this tool can be operated in a what I would call a semi-manual mode, not fully automated, so in contrast to our tool.
We all know that labor cost in China is relatively low, so it can be operated with a high manual effort with a lot of labor around the tool, which is cheap in China, and then also be operated in a very cost-efficient way. I think that is the reason for why the LPE tool has a good spread already in the China market, and that is also the principle that right now also local Chinese competitors are of course following.
Okay. That's helpful. Thank you. The second question was around the order or the shape of orders from Micro LED. Obviously you've had the first chunk of those orders in this quarter. How can we think about the shape, the momentum and the timeframe of the remainder of those orders coming from your first volume customer going forward over the next few quarters? Will it be that it's a similar level of orders in each quarter for the next three or four quarters, for example? Or will there be more of an upwards round, or will it be less frequent than that? Just an idea of the timing would be very helpful.
Well, Olivia, you ask a very difficult question. Let me try to answer what I have in my head about it. It's a very detailed question. I don't have the detail, all the details in my head? We have received, as indicated, the first order, shipping starting towards the end of this year. As we have indicated, this is the beginning of a ramp, which will extend and continue then of course throughout the year 2023. Throughout the year 2023, you will continually see Micro LED shipments, as customer is building up the capacity.
These orders will then I think start later in the second half of the year and of course in terms of order volume extend through to the beginning of the first half of 2023 in terms of when we record the POs, I would say, to give you a high level indication. That of course is for a customer building a first, so to say a line, a Micro LED production line. We have indicated it's all three colors, RGB. This is a customer really playing in one of those highly innovative fields, bringing out and very clear a consumer electronics product.
Fantastic. Thank you. Sorry, if I can just go back to my first question quickly on LPE. Given what you said about the semi-manual nature of the tool, can we infer from that that their tool is perhaps slightly lower in ASP than yours given it's fully automated?
Oh, yes, absolutely. I think our tool is producing 4-5 times the number of wafers and, of course, our tool is much higher priced, given this much higher output of wafers.
Okay, fantastic. Thank you so much.
Okay, the next question comes from Charlotte Friedrichs from Berenberg. The line is open.
Hello, thank you for taking my questions. Two or three questions. The first one would be if you are generally seeing more competition in silicon carbide. If I didn't misunderstand you did mention that you're seeing somewhat more competition in the Chinese local market here. On Micro LED, did Q2 already include a revenue contribution from Micro LED here? Thirdly, are you seeing any kind of impact from weaker consumer sentiment now on order intake demand or the conversations that you're having with customers in Micro LED or the pixel space? Thank you.
I think I didn't fully get your second question. Could you repeat that?
The second question was if you already had a revenue contribution from Micro LED now in the second quarter, a meaningful one.
Okay. Now I get it. Thank you very much. Yes, let me address your three questions. I had mentioned in conjunction with the question on LPE, in fact, that in China there is equipment competition starting now for silicon carbide. We have also added to our competitive environment two players in this market to our competitive landscape to give you a fully accurate picture reflecting this. I think this is a very natural development. We all know that China has a big automotive industry. China is a leader in electrification. Now China is heavily switching towards silicon carbide in the drivetrain and in the charging infrastructure as well.
With that, we observe overall in China the build-up of a complete local silicon carbide value chain that ranges from the local production of substrate wafers to device makers producing the epi, but then also producing the silicon carbide MOSFET. Lastly, also, Chinese players trying to enter the market with their own equipment. Yes, this is true. There is a complete value chain being built up in China. With that, let me switch to your second question, whether we had any revenue already in the second quarter on Micro LED. Yes, we did have a reasonable number of Micro LED revenues in the second quarter. I'm just looking through my table and my data here.
In the second quarter, revenues from Micro LED were the fourth largest segment of revenues, contributing somewhere between 10% and 20% already. However, these 10%-20% with still multiple customers more towards R&D and pilot lines, and as we have indicated with the comment that we made in our press announcement, is the remarkable thing is that we really got an order for a volume production which is shipping later in the year. So the revenue we did actually for multiple customers is more towards the preparation and the development pilot line qualification of this technology. With that, let me come to your third question about the weaker consumer sentiment.
We observe here trends which vary highly by end market, and that is, of course, we see inflation at global scale, in the United States and in Europe, quite heavily, quite strong numbers, which we haven't seen for decades. As a result of that, our customers in the consumer electronics domain are more cautious about investment. We see that both from the domain of television but also from the domain of smartphones and handsets. I think everybody has seen those numbers, quite significant drops that these segments are realizing. As a result of that, the products that we ship into those segments see a bit weaker demand. We get that signal also from customers.
However, this makes for us only a very small portion of our overall revenue. Yeah. I would say that maybe a 20%, maybe 25% portion of our total revenue will be affected by that. On the other hand, we see that the segment of power electronics, both gallium nitride power, but also silicon carbide power, strongly increasing. The increase and the demand side pull from customers continues to be strong. We see that even some customers are upping their orders, asking for even more systems that they hadn't forecast before. We believe that the power electronics is more than offsetting the somewhat weaker trend that we see on the consumer electronics side. Last but not least, we all know Micro LED, of course, also go into television, smartphones, smartwatches, so consumer electronics devices.
We get very clear signals from customers in those end markets that their ramp plans, their development for innovative products are continuing and are not getting put on shelf or getting delayed or anything like that. I hope this gives you a complete picture around the end markets. Operator?
Okay. The next question comes from Martin Marandon-Carlhian from Oddo BHF. Your line is open.
Yes. Good afternoon, everyone. Thanks for taking my question. My first question will be on gallium nitride. How much is the penetration of gallium nitride for fast charging at the moment? That's my first point. How is the split between fast charging and new applications such as data centers, white goods for gallium nitride at the moment? I have a follow-up, yeah. Thank you.
That's a very good question. So the penetration of gallium nitride in fast charging, I have to admit that I don't have hard data from industry analysts. Nevertheless, I have perceptions, yeah? This is just based on observations that I have. Also, what I see, what customers are launching and what's in the discussion in the industry. The impression I have, again, it's not backed by hard data, is that a very, very, very significant part of the fast charging has migrated to the GaN charger. Yeah. Look, look at all the many GaN chargers that you can buy on Amazon. You know, everything the size of like an iPhone charger but now 45 or 65 watts.
You may have seen Infineon did a press announcement today about an integrated one, not only GaN, but including some driving electronics today with a maker Anker that was out. You know, they are the leading aftermarket player for this one. My impression is that for the fast charging of smartphones, it's already a leading and dominating share. Again, it's just an impression, and I don't have the correct data from analyst houses here, yeah? While I observe there's still many laptops ship with traditional GaN-based power supplies, but I hope that will also change over the next year. Coming to the second part of your question, if I got it right, on data centers, we also see the penetration going very fast.
Especially I hear from customers that Western data center players who are all subject to reporting their greenhouse gas emissions. I'm thinking of large players like Google, Amazon, Facebook, Microsoft, you know, who operate the big data centers in the Western Hemisphere. I see and I get the feedback from customers in China that in China this trend is also just starting now. It does not have the full penetration yet.
Also, in China, where electricity is getting more and more expensive and greenhouse gas emission topics have become more and more prominent, a penetration of GaN is to be expected.
Okay. Thank you. Very helpful. I have just a quick follow-up on coming back on LPE acquisition. They gave a revenue target for 2023 around EUR 100 million. I think it surprised quite a lot of people. Does that mean that actually LPE has a bigger market share than you at the moment? Or is it the current number that we should expect also for you in 2023?
I cannot comment on the EUR 100 million revenues. I don't know where this number is coming from, yeah? I mean, very clear, this is a competitor, and we don't look into their plans or their design-in pipeline. I can clearly say that their presence outside of China is very small. Nevertheless, inside of China, they have a very good presence. In order for that number to come true, that would mean that one of their customers is really, or some of their customers are really planning a significant capacity build-up in the next year.
Okay. Thank you. Very clear. Thank you.
The next question comes from Jürgen Wagner from DekaBank. Your line is open.
Yeah, good afternoon. Thank you for taking my questions. Actually, I have a follow-up on Micro LED. How sizable was the order from that volume customer in Q2, and what is left for Q3, Q4? You mentioned you have some pilot line business. I mean, beyond the current or the customer that is currently ramping production, how advanced are discussions with those other Micro LED customers on timing for their volume ramp? Thank you.
Thank you. This is very good. Two very good questions on MicroLEDs. The size of the first order that we've been announcing and commenting in our press release was, I would say, a good handful, two handfuls of systems, you know, to give you an idea. A sizable first step towards build-up of a line. The overall size of a line to be installed 2023 is much larger. The step-by-step, the orders will trickle in over the second half of the year and first half of 2023, as I had indicated. Now, I think the second part of your second question is also very interesting. How advanced the discussions or the qualifications are with other customers.
The answer to that is it varies a lot. I observe some of our Micro LED customers to be still in an early stage or a mid-level stage of maturity in their development. Other customers, with other customers, we are discussing very concrete plans for a ramp. So in order to say what does it mean for us in AIXTRON, I would say it means very clear that 2023, throughout the year, we will see a substantial portion of our revenue to come from Micro LED, both in the first half of the year but also in the second half of the year. Then assuming that further of the customer engagements which we have right now kick in, this trend will clearly continue 2024.
Are those Chinese and Taiwanese players?
This is all over the globe.
Okay. Okay, thank you.
There are no more questions. Ladies and gentlemen, if you'd like to ask a question, please press nine star on your telephone keypad. Please press nine star if you'd like to ask a question. There is another question from Charlotte Friedrichs. Your line is open.
Yeah, a couple of more boring ones, if you allow. Your services revenues were quite strong again in the second quarter. If I recall correctly, you said Q1 had some one-offs that were positively affecting that. Is that also the case now in the second quarter, or is that sort of the new run rate that we should expect for services in parts?
This is on services, or what is the question related to?
On parts and services.
Oh, I didn't know that. Christian?
I'm not sure if I got the question completely.
Charlotte, could you do us a favor and repeat it? We're not fully understanding it, I think.
Okay. Your spare parts and services revenue in the second quarter was quite strong again compared to the prior year. You did comment in the first quarter that there was some one-offs in there, but now Q2 is strong again. The question is that the new run rate or was there again a positive one-off effect in the second quarter?
I think we are approaching a new run rate. It may not always-
Mm-hmm.
...be around 20%+, but it may be around the 20%-ish. Yeah. It could also in some quarters be 17% or 18%. Yeah. But I would say it's approaching about a 20%-ish. Yeah. I think it is increasing. A driver for that is, for a big part, that we are addressing on the one hand more mature customers who like to take on a service contract with us in order to make sure that the tools are running very well, supported by our service engineers and technicians. And secondly, the percentage of the gallium nitride and silicon carbide equipment of our installed base is increasing. These two materials or AIXTRON tools they're producing these two materials have a slightly higher consumption rate of consumables than the established gallium arsenide G4 tools.
Okay, understood. Then, on pricing or your cost base, are you planning any price increases this year? I know it's not always a like-for-like comparison, but is that a conversation that you're having with some of your customers to reflect potentially higher, raw materials and labor costs?
Definitely.
Okay.
We did increase our prices at the beginning of this year. We are looking at the global supply chain prices and the cost of materials. You know, just look at the prices for steel and copper and electronic components like chips, but also electricity and labor. Of course, we will increase our prices at the end of this year or beginning of next year again to compensate for those inflation effects that we see.
Can you give us an order of magnitude for that? A, how much you've already increased, and also B, how much you're planning to increase your fee?
Well, I think there's two things to mention. First of all, you need to take into account that, after we announce an increase, it's valid for all orders which are placed after that point in time. The shipments for that occur typically now 9-12 months after an order is placed. That's the lead time that currently we have due to the increased demand and volumes and also the type of supply chains. All effects come into play with a bit of a delay, which is not a problem for us because also the material that we order comes in in that point in time. The price increases of cost match very well the price increases that we can realize on our revenues. Yeah.
However, from the point of announcing, there is a delay of 9-12 months in case you build a model for that. Yeah. The size of that, I would say mid- to high-single-digit numbers.
The last question comes from Miss Lucy Liu from BlackRock.
Yeah, thanks for taking my question. I have a similar question. I want to check on margin. I noticed we have very high backlogs. I wonder if the pricing already fixed at the time of booking. Given you just mentioned we have a long lead time, worry the inflation environment will have a pressure on the margin. I want to have more color. Thank you.
Yeah, I can take your question. As Felix has this logic that Felix explained before totally applies here to the order backlog. A big part of that order backlog already includes an increase in our prices, and we expect to go increasing prices on the material side go pretty much in line with the realization of the price increases that we have now already in the backlog. We do not expect a negative effect on our gross margins from inflationary effects.
Yeah. Got it. Thank you.
Thank you very much for that. We conclude today's call. Please all stay safe, have a great summer, and please feel free to contact us if you have any additional questions. Thank you and bye-bye.