Good afternoon, ladies and gentlemen, and welcome to AIXTRON's conference call regarding the Q2 2023 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Now, I hand the floor over to Guido Pickert, VP Investor Relations at AIXTRON, for opening remarks and introduction.
Thank you, Miss Brunner. Welcome to AIXTRON's presentation of our first half and second quarter 2023 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 you 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 of the quarter. 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 and our full year guidance. Let me now give you an overview of our operating highlights in Q2 2023 on slide two. Demand for our equipment remains very strong, with an order intake of EUR 178 million, up 17% year-on-year. Orders were again driven by strong demand for wide bandgap power electronics based on gallium nitride and silicon carbide. The majority of orders in Q2 2023 were for our G10-SiC system. Customers are ordering equipment for large projects to build high volume manufacturing capacity.
Our Q2 2023 revenues of EUR 174 million were up 69% year-on-year, reflecting the consistent high demand for our system, and were positively affected by the fact that a large portion of the export licenses outstanding in the previous quarter have now been issued. More than EUR 50 million out of the roughly EUR 70 million in systems waiting for shipment at the end of Q1, have been shipped by now and have turned into revenues. This is great news and confirms our expectation that the whole situation around export licenses is now moving back to normal. As a result of that, we can report a very strong order backlog of EUR 412 million, up 31% year-on-year. I will hand over to our CFO, Christian Danninger. He will take you through the Q2 2023 financials. Christian?
Thanks, Felix. Hello to everyone. Let me start with the financial highlights of our income statement on slide three. As Felix mentioned, orders in the quarter continued to be strong and our backlog was up, driven by the mentioned trends in demand. Revenues at EUR 174 million were up 69% compared to EUR 102 million last year, and more than doubled compared to the previous quarter. As Felix mentioned, this was due to the strong demand, but also due to a significant number of export licenses having been granted, which allowed us to ship the respective tools and turn those shipments into revenues within this quarter. Shipments based on further export licenses, which have been granted, will take place in the current and the coming quarters. Gross profit in Q2 2023 was at EUR 74 million, up 94% year-on-year.
EBIT for the quarter was at EUR 45 million, and net profit was at EUR 40 million, both more than doubled year-on-year and were up substantially on a sequential basis. Gross margin was at 42% compared to 37% the year before. OpEx in the quarter went up to EUR 29 million, predominantly driven by higher R&D spending and higher personnel expenses, resulting from a higher headcount compared to the previous year. Now to our balance sheet on slide four. Inventories increased from EUR 224 million at the end of 2022, to EUR 333 million at the end of June, which is mainly due to the preparation for the very high expected business volumes in the upcoming quarters. As mentioned before, we are very carefully managing our inventories to enable us to offer acceptable delivery times to our customers.
Our balanced approach has allowed us to ship to our customers, supporting their capacity expansion plans. Trade receivables at the end of June were EUR 115 million, compared to EUR 120 million at the end of 2022, mainly being a result of the business volumes in the second quarter of this year, compared to the fourth quarter of 2022. The advanced payments received from customers at quarter end were EUR 139 million, representing about 34% of our order backlog. Our cash balance, including other financial assets as of June 30th, decreased to EUR 210 million from EUR 325 million as of December 31st, 2022.
This was mainly due to our inventory buildup in combination with our dividend payment of EUR 35 million. Out of our quarter end cash balance, EUR 133 million were invested into funds following a very conservative diversification strategy. Just a quick word on our free cash flow on the next slide before I turn back to Felix. Free cash flow in the first six months was at negative EUR 80 million, compared to a positive EUR 28 million last year, mainly to the previously mentioned buildup of inventories to prepare for the strong second half of this year. With that, let me hand you back over to Felix. Felix?
Thank you, Christian. Before giving you some more details on our increased outlook for the remainder of the year 2023, I would like to share with you some highlights on our market development. As stated at the very beginning, the order momentum in most of our address end markets remains very healthy. In the area of silicon carbide-based power electronics, the momentum has in fact accelerated. In fact, our G10-SiC system has taken a number one position in terms of orders in the second quarter of 2023. The demand for efficient power electronics based on silicon carbide is driven by the desire of automotive manufacturers to increase the range and charging speed of electric vehicles. This facilitates the overall transition to electric mobility. We expect strong demand for our products in these areas to continue over the coming years.
The order momentum for gallium nitride epi tools also remains strong, with received orders in this area accounting for the second-largest demand driver in the quarter. This is driven by the increasing need for energy-efficient solutions in a growing number of applications. Our customers steadily open up new applications and use cases in the field of GaN-based power electronics using our technology. We are confident that this will also translate into a sustainable demand for our tools going forward. Let me now give you the update on our increased full year guidance for 2023 on slide six. We see the demand for our products remaining very strong. In addition, we expect that the granting of export licenses is now moving back to a normal pattern. Based on this, we have increased our 2023 guidance, both for order intake and for revenue.
We now expect total orders for the year in a range between EUR 620 million and EUR 700 million, from EUR 600 million-EUR 680 million previously. Our total revenues are expected to range between EUR 600 million-EUR 660 million, from previously EUR 580 million-EUR 640 million. While we lifted the midpoint of the guidance, we have left the absolute range from low to high end of the guidance unchanged. This reflects the unpredictable factor of the exact timing of export licenses and also of some customer projects. We continue to expect a gross margin of around 45% and an EBIT margin in a range between 25%-27%. We are excited to be able to increase our expectations based on the strong underlying demand in our address end market.
With that, I'll pass it now back to Guido before we take questions.
Thank you, Felix. Thank you, Christian. Operator, we'll now take questions, please.
Yes, thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. In case you wish to withdraw your question, please press nine and star again. Please press nine and star to register for a question. The first questioner is Adam Angelov from the Bank of America. Over to you.
Hi there, thanks for taking my questions. firstly, just wanted to discuss a little bit the trajectory for silicon carbide and GaN going forward. I think clearly both very strong now, and at least for us from the outside, we can see there's, you know, constantly a lot of big-name things for SiC capacity expansions to the end of the decade, but GaN is a little bit harder. it's a smaller revenue stream for a lot of the companies. Yeah, I just wondered, you know, when you look out maybe 2 to 5 years from now, how do you see the kind of growth trajectory in both markets? That's my first one.
Thank you very much. I think it's a good question. I think silicon carbide, as you said, the trend is very clear. The main use cases for silicon carbide, number one, is the electric drivetrain of e-vehicles. I think number two use case is the charging infrastructure for fast charging poles. The number three use case is the much broader and much more diverse industrial applications from large wind power plants, large solar power plants, large electric drive industrials, like high-speed trains and whatever you take it. Yeah. The number one and number two use cases are essentially driven by the global build out of electromobility.
As you rightfully said, there's a very, very strong drive, for several years to be seen as we expect the ramp up of electric vehicles from now to 2030. I just read analyst reports around 2030 now, it's expected maybe even half or more than half of the global EV production may be based on silicon carbide already. It's a very, very clear. What does it mean for us? We see, around the globe, in fact, it's a global trend, customers massively investing into silicon carbide fabs. We see that both in Europe, we see that in the U.S., but we also see that across Asia, means we see it in Japan, we see it in Korea, in Taiwan, and in China.
It's really a global trend, and I would not say there's one region which is missing out on that one. Very strong momentum, very strong. I think that's a very clear and very easy to capture and understand. The other one, I would say, is also very clear, even though it does not have this widespread perception, and that's the trend for gallium nitride power electronics. I think if gallium nitride took, so to say, or is about to roll out, I would say, in three phases, and we are just about to reach phase III. What do I mean by that? Phase I, it started off in consumer electronics and fast chargers. Why? Gallium nitride was very new as a material. Reliability was a challenge initially, and in consumer electronics, longevity, durability don't matter so much. You can take more risks.
The fast charger, the form factor, the small form factor was the first one. That was around, I would say, 2019, 2020. Phase II, which I would say was 2021, 2022, with gallium nitride going into high power, high efficiency premium applications like data centers, server power supplies, telecom base stations, where essentially 24/7 big amounts of energy are being pumped through. You know, in this phase, where gallium nitride was still relatively expensive, customers, so end customers could have a clear return of invest on that because they were having such big electricity bills that the higher expense for a more expensive GaN switch was paying off.
I would say we have just started phase III, this is what we see and what we get as a feedback from many of our customers, which is gallium nitride is displacing and replacing silicon MOSFET at scale. That is silicon MOSFET in the low voltage range, for example, 40 volts, for example, on a PCB around the circuit of your notebook or your server. 100, 200 volts in solar applications, in your electric e-bike, in your electric power drill, battery-driven power drill that you may have at home. To say, these many applications of lower power or battery-driven applications, again, the same topic with silicon carbide in the e-vehicle, the battery lasts longer, also holds here.
Of course, also in the large number of high voltage applications, like air conditioning devices, AC to DC power supplies, of course, the server industry continues. The industry is now at a point where through die size, GaN has gotten into competitiveness, and many of our customers take the strategy now on to displace silicon in the mainstream and at volume. That is driving a massive boost and a massive growth also in the gallium nitride. The strong momentum that we have seen now in the first half of 2023, we expect that to continue in the second half of 2023, but also throughout the year 2024, 2025, and 2026. This is not just a peak, which then goes back, but this is a continuous trend. I hope I could outline a little bit what the drivers are for that.
Yeah, that's very clear. Thanks very much. Secondly, just on Micro-LEDs, just wondering if you could provide us with an update there. I think, you know, there was some news flow, potential delays, in the quarter, I guess your revenue in that line was a bit weak in Q2. Just if you could give the latest update there. Just a very brief one after that. You gave us the revenue of export licenses that was recognized, of the deferred portion. Could you also provide the same for the previously deferred order amounts, which I think was around EUR 30 million-EUR 40 million? How much of that was recognized in the quarter?
Okay, short update on Micro-LED first. I think we all read the same news, right, about some projects getting delayed. The main driver for that one is the transfer, the mass transfer. Getting the pixels produced on a wafer is a mature process step. Yeah, it's not on us. The pressure right now is also not on the chip makers. It's more on the panel makers who have to transfer the Micro-LEDs. I think we all read the same news, which is this is pushing out maybe towards 2025, maybe to 2026. Nobody knows exactly, yeah? Again, it's not us who is directly involved in those projects, but another step of the value chain, which is gating this one, yeah?
Nevertheless, at the same time, we see and we are working very closely with a large number of customers together. The projects, the development projects are continuing. All the efforts of the roadmap also continue, be it die size shrinks, be it topics of increasing the brightness of LEDs. We see in the industry there's a very clear consensus. It's not a topic whether the Micro-LED comes or whether it maybe not come. It very clear, it will come. It's only a timing question, yeah? I think that's what I would like to give you as an update. Micro-LED is still on the agenda, it's just a timing topic when exactly it's the wave hits. Now, on our side, as mentioned, we continue to supply tools to customers. We have some customers building our pilot lines.
We have other customers starting to do to build smaller lines for the first high-end applications, which will start with Micro-LEDs. I don't have the exact numbers. I think it may be around 10% of the order intake this quarter, something around that. Yeah. It goes on. Help me again, I think I did not get your last question around export licenses. Could you repeat that, please?
Yeah, sure. I think previously you said that there was about EUR 30 million-EUR 40 million of orders that couldn't be recognized because of outstanding export licenses. Presumably some of that could have been recognized. Just if you could provide the value that was recognized in the quarter.
Now I get it. Okay. I think the amount of orders that could be recognized from the past quarter, yeah, now in the Q2, and the amount of new orders flowing in in Q2, that we have not recognized are about on a balanced level.
I see. Okay. Thank you.
Next up is Olivia Honychurch from Jefferies. Over to you.
Thanks a lot. Good afternoon, everyone. Two from me, if that's all right. Firstly, on silicon carbide, just like to understand a little bit more about your market share. One of your competitors this week announced that it had won a major new European customer. How does that fit in with your growth expectations for this side of your business? Do you still see Europe as a key source of growth in SiC? I guess in relation to that, where do you see your overall share in silicon carbide reaching by the end of this year, given that your competitor is clearly winning share as well? I think you had previously said 50%, wondering if that has changed. I have a follow-up, I'll ask afterwards. Thank you.
Thank you. I think, what we see in silicon carbide at this point in time, is that all the customers are looking at the 200 mm wafer size for tool selections in the market. That means that the established vendors that made the party in 150 mm, so to say, need to defend their positions. It means that new opportunities for new entrants or for new vendors are opening up, and we at AIXTRON exploiting these opportunities at scale, as you see from our strong order momentum. I think that news from a competitor doesn't surprise us, and we are on the same train, as you can see in our numbers.
Any update on the market share target that you'd previously put at about 50%, I think, for 2023?
Clearly 50% +.
Okay, great. Thank you. Then maybe on the licenses again, how should we think about the impact from those delays going forward? Obviously, you say the majority of them have dropped through into Q2. Is there a risk that those build up again and we start to see more of a lumpy revenue profile for AIXTRON going forward as a result, you know, not only over the next couple of quarters, but into 2024 as well?
No, we don't see that. As said, right, that delay, inventory that was sitting, couldn't be shipped, so to say, is now a large amount, 50 out of the 70 has left us, yeah, and it's gone out. We see now export licenses trickling in, one by one coming. We see a much more steady, much more pattern, yeah? We still see that the times are long. Yes, that's in fact so, we do not see any blockage or pilot piling up of inventory or so. We see that it comes again into a steady rolling and moving pattern. That's how I would think about it.
Okay, that's really helpful. Thanks, Felix.
The next question comes from Andrew Gardiner, from Citi.
Good afternoon. Thank you for taking the question. Just perhaps a follow-up on the market share question. In previous calls, you've indicated to us when you've sort of signed one, a new major customer. You talked in the release today about supporting several major customers. Can you say whether there's been any movement in terms of significant wins in the quarter that is gonna help support that market share ambition? Thank you.
Mm-hmm, mm-hmm. Thanks. Good question. I think we see overall that the market for silicon carbide in terms of customer base, is broadening significantly. We see at this point in time, a relatively large group of customers, with strong volume ambitions, in the market, not only the top five. We are engaged with a relatively large share of those guys who have a larger scale and volume ambition. I think when you study the industry and follow the news flow, you may have ideas which guys, who's making each of them a EUR 1 billion plus investment into fabs, yeah, typically one third of that goes into EPI equipment, just for you to take the number. Yeah, so to say, we are talking about here.
Thanks very much.
Next up is Gustav Froberg from Berenberg.
Good afternoon. Thank you for taking mine also. I have two, please. First is on new customers in, in silicon carbide as well. I mean, you've talked a lot about, there being a lot of movement in, in the industry, a lot of, potential customers and existing customers, have a lot of, ambition in terms of ramping up, their, their silicon carbide capacity. What do you say is the main hindrance or the main barrier for these companies to make a decision on their equipment supplier today? What is your view on the timeline there? That's my first question.
... I think there is no hindrance. They continue to make decisions on a regular basis, and we get selected also on a regular basis, and this is moving very strongly at this point in time.
Okay, super. A question on G10-GaN, please. Could you give us an update on the launch of that tool, please, and what you think that might mean in terms of customer demand for your next generation GaN tool?
Thank you very much. We launched in the third quarter of the year. We have gone through a very successful qualification with several of our beta customers. One of the beta customers was Texas Instruments. Together with them, we've done a press release. They've given us for this tool and for the strong collaboration, their 2022 Supplier Award, because they gave us the feedback that they said, "Look, this tool has really brought to gallium nitride power electronics, the maturity that is needed, and that is a requirement to go and to drive into really big volume installations." Gallium nitride is, at this point in time, going through the wafer size change from 6-inch to 8-inch. I would say 50% of the customers have already changed.
The other 50% is just changing from 6 to 8 inch. We see that on the 200 mm wafer size, the G10-GaN is going to be the tool of record for the industry. We expect for next year already, based on the customer feedback that we get, based on, so to say, pre-discussions with customers, already in 2024, we expect more than 50% our gallium nitride revenue to be derived from the G10-GaN as compared to the G5 +. Which I think for a tool, again, launching in the Q3, for them, in the 5 consecutive quarters, already taking more than 50% segment share, that speaks for the value and the benefit of the product itself.
Thank you very much. Reading into that a little bit, it sounds like you might be winning some new customers, for this tool. Do you think that there are any customers today waiting for the G10 to be launched before placing orders with you?
We had, in fact, customers who had placed orders for the older generation of tools and came back to us and said, "You know what? Given that the new generation is now just coming, can we switch?" In some selective cases, we have made arrangements with our customers.
Amazing. Thank you.
The next question comes from Michael Kuhn from Deutsche Bank. Over to you.
Good afternoon. Thanks for taking the questions. Firstly, on your guidance, you obviously increased your sales guidance. At the same time, gross margin guidance and also the corridor for the EBIT guidance is left unchanged. Should we read anything into that regarding, let's say, little more cost inflation than anticipated, or would you rather say, let's say, there is probably an element of cautiousness reflected in that guidance?
Michael, Christian here. Both not really. First of all, the increase in the midpoint was really only a small relative change, which had only a small effect on the overall numbers. Secondly, as you know, there's always a strong mix effect in our business, and with the broad ranges, difficult to really estimate, and therefore, we believe that the bandwidth that was given still gives a very good indication. It is not that we are saying begging here.
All right. In relation to that, what trends do you currently see, both on the inflation side and on your ability to increase prices? How do the customers currently behave, and what are the reaction on, let's say, proposed price increases or, let's say, proposed passing on of inflationary pressure?
I think the inflationary topic was especially a topic of the last year, and I think we overall see now that going forward, we expect the inflationary pressures to reduce a bit, yeah. Especially as we see in the Euro space, I think looking towards 2024 already, there may be more space and room at our suppliers, yeah, so we don't expect such a pressure again. I think that is more a topic of the last two years, yeah, to really make that clear. What we have done in the last two years is that we've been working closely with our customers to make price increases affordable through productivity gains.
That was an acceptable mean for them, and that is why, so to say, we've been able to go through this period of time, by, so to say, without any hit on growth margin. I think going forward, as indicated, we're expecting rather, the environment to ease. I think going forward, we'd rather expect cost reductions from our suppliers, as the overall economy is cooling off a little bit. I think this, we are changing and going into a new type of environment now going forward.
Excellent. And then one more also in, in, in that context. your, your head count obviously moved up and you invested in expanding production capacities, probably debottlenecking as well. with your current production footprint, let's say, how much more can you grow before you have to make a further move, or, is there, is there still, let's say, enough capacity without, let's say, getting major headache?
I think the expansion under this space, until this point, we've been able, so to say, by fully utilizing the existing footprint and taking some efficiencies on the operations model. I think for further expansions, it will be going into two and three shift models, but we see further opportunity to do so.
Excellent. Last point on your say, split, recent quarter and looking into H2, it was obviously very much dominated by power electronics. Do you see a certain recovery in optoelectronics? Should we expect, let's say, anything on the Micro-LED side in H2? It didn't sound like that, also into 2024. Just to get a better feeling on your expected sales mix over the next, let's say, 12 months or so.
I think for the whole 2023, you see a strong power electronics dominated year. I would guess maybe power electronics, I don't know, three quarters, maybe a little more than three quarters of the total revenue. Let's see. Yeah. For 2024, it's still too early to comment.
Excellent. Thank you very much.
The next question comes from Lee Simpson, from Morgan Stanley. Over to you.
Great, thanks for fitting me in. Maybe just a quick one on R&D. It looks as though the OpEx is going up, and I think credit where it's due, there's been some good investment in a new design center, from what I understand, but obviously some personnel costs in over the top. I guess what I'm trying to ask is, where we think the run rates in OpEx could be as we exit this year? Maybe additional to that, if we look at that design center development, are we seeing more the customer's customer coming down to the building, you know, perhaps vehicle OEMs looking to perhaps sanction the buying of your G10s, for instance?
Well, I take the first question on, like, expected run rate on OpEx and R&D, yeah. As we've indicated before, we are moving, you know, we did very decisively invest into R&D, yeah, and the development of the next generation tools and so on. increase our R&D spend in the range now, EUR 75 million-EUR 80 million, yeah. That's unchanged. What came on top was the investment in the R&D center, that will not have a major impact on the OpEx, yeah, in next year. really, I mean, we are driving these, you know, the R&D spend is driven by the projects, yeah, by very clear ROI evaluation of the opportunities that we have.
Here we see so much opportunity that this R&D spend is required at these levels to materialize all of these potentials. I did not fully get the other question on the innovation center, Felix.
Yeah, sorry, I should maybe clarify that. Really, when we look at silicon carbide, it seems a lot of the work being done by device makers is being watched over the shoulder by end OEMs. I just wondered, when it came to making a decision to buy, you know, buy tool sets, you know, buying the G10 over whatever LPE has, et cetera, that the customer's customer was making, you know, part of that decision on their behalf.
No, we don't see that. We don't see that. We don't see that, that OEMs are getting into the point of, so to say, selecting tools. That's not what we see. We see that OEMs may be bypassing the tier ones in the industry, starting, so to say, to acquire system know-how on the level, how to make an efficient inverter, or how to bring the inverter together, together with a, with a battery architecture and so on, yeah. We don't see them going onto the chip level. I have not seen that at least.
Perfect, thanks. Maybe just a quick clarification. I think you mentioned earlier, you've unwound 50 of the 70, and from the expert license carrying value. Equally, it sounds as though that carrying value went up with new, I guess, GaN power, orders coming in. Is that the right way to look at this?
No. No, honestly, I think really the message is that things are really moving back to normal, yeah? I mean, have not fully normalized yet, but moving back to normal. It's not that we have now new orders, new tools now piling up, waiting for shipment. Not the case.
Okay. Thank you very much.
The next question comes from Jürgen Wagner, from Stifel.
Yeah, good afternoon. Thank you for my question. Follow up on Micro-LED, what sales level do you have in your full year guidance? Yeah, second one on gallium nitride. I remember two, three years ago, when the cycle started, you predicted the market would need about 50 tools from you per year. How has that changed now, and what would be your best guess, how we should model that going forward? Thank you.
I think for the sales level at this point, I said around maybe 10%, so it would be EUR 50 million-EUR 60 million, maybe something like that, yeah, just for this year. Again, this is just so to say, to continue that R&D level, plus those early pilot lines or those early high-value applications, yeah. Much more to come, of course. The second part, tool demand, honestly, what I'm currently getting from our customers, they all say, I said, Felix, our marketing departments have been wrong. The only thing we see that the roadmaps are getting pulled in. Some say get pulled in by two years, some say, get pulled in by three years. Honestly, there is currently no good number existing in the market. Everybody just knows it's much, much more than has been anticipated before.
Maybe in two or three quarters, I can give you better and a harder number.
Okay. Then, sorry, to follow up on Micro-LED. Should we read it in a way that your initial project is a bit frozen currently, and R&D projects are making it up? Because EUR 50 million, EUR 60 million, still solid number.
I mean, there was not one project, yeah. To say we are engaged with almost all the customers in the industry globally. I think it's also to note there is some work in the U.S., there's some work in Europe, there is some work in Taiwan, some work in China and Korea, also strongly. As I say, it's a global topic. I would really say the market. Think of the market as a pyramid, and it is starting. If you go, for example, to the SID conference or if you go to the Touch Taiwan conference, you see that everything's just full of Micro-LEDs. That's the whole topic that moves the industry. As always, it starts with a high-end application.
Today, you can buy a television based out of Micro-LED. You just have to put down $100,000 for one television. I think not many people do that, yeah, but the market does exist, yeah? To say, customers are now planning the next generation of television, which will only cost $20,000-$30,000, yeah, so much more affordable. Yeah, you know, there will be also soon be revealed, the first Micro-LED watches, yeah. Again, maybe $2,000-$3,000 for a Micro-LED-based watch, yeah. The market is really starting now, yeah? Of course, it's clear at such price points, the volume, the unit numbers are not that large, only is now the yield, especially in the transfer step, is getting up.
Yeah, today, the cost and the prices that I mentioned are mostly driven by huge yield losses. 80%, 90% of the Micro-LEDs cannot be used, yeah. The yield is very low. As the yield goes up, the price point goes down. As price point goes down, the unit shipments go up, and that is then, so to say, driving further revenue. This is how I would think about this market.
Okay, thank you.
Now we have Olivia Honychurch from Jefferies, again, in the line. Over to you.
Hi, thanks for letting me on again. Just one on your growth margin. You've obviously kept the guidance for the full year the same as it was, at 45%. Although in H1, I think your average for the half was about 42%, which I assume is partly being driven down by higher shipments to China. That means that you'll need to make, you know, a quite a big uplift in your margin in H2, maybe around 47%-48%. How are you going to achieve that, particularly if there are still going to be more tools going into China? Will that higher level of growth margins be sustainable going onwards? I guess I'm asking sort of into the medium term, could we see those going closer to the 50% type of level?
The last point you've made, I would not underwrite yet. The first point, I mean, we will, we've simulated this through and, of course, expect a significantly higher gross margin in H2 based on the order book and the tools we're going to ship. We'll see an improved product mix, especially G10 family of products now taking a higher share, and they're driving up the gross margin. Beyond this year, we need to see how things develop.
Okay, thank you.
Thank you. Now we have Martin Marandon from ODDO BHF in the line.
Hi, thanks for taking my question. Just coming back to the export licenses, just a clarification will be helpful. How much of the export licenses that were missed in Q1 are included in Q2 earnings? Is it all of it, the majority or minority? Just exactly.
Martin, can you please repeat? It is on the export license issue.
Yes, I was asking of how much the export licenses we're seeing in Q1, including in Q2, is it majority, or should we expect it to go?
Martin, you have a very spotty connection. It looks like you're on a very bad and noisy line. Honestly, we don't understand you. Is there maybe a way that you can send the question by email or so, then we can read it aloud...
Sure.
-or after the call, whatever. No chance to understand. Sorry.
Sure, sure. Sorry for that. I will send an email.
All right. Thank you.
Now we have Gianmarco Bonacina from Equita in the line. Floor is yours.
Yes, good afternoon. A few questions from me. The first one is just a clarification on the increase in the guidance. If we can say that this was just driven by the, let's say, better clarity on the
... Let's say, export licenses, or there was also, let's say, an underlying improvement. The second one, is on, let's say the, customer diversification in, silicon carbide, because, to my understanding, unlike the other segments, here you are a little bit more concentrated. If you would say that going in 2024, there is a high probability that you have new customers, and so you can grow faster than, let's say, the, the market. Maybe the run rate we are seeing currently between EUR 140 million and EUR 160 million of order per quarter can then increase.
The last one, if you can comment on the recent news about the potential ban on export on gallium from, from China, which potentially could be, let's say, a headwind for you in the future. We see some of your customers probably giving some, some comments, but it would be great if you can also give some, some color on this. Thank you.
Thanks a lot. Let's take the question. First question on the guidance, key drivers, of course, the export license topic, but of also, as you see, very strong order momentum. I think it's a combination thereof. It's simply our current, most realistic and best guess, so to say, where we end up in the year, just not more than that, yeah? The second one on the customer diversification, I would say to us, in silicon carbide, I don't know, maybe we have 20, maybe 30, maybe 35 customers. I think we have in silicon carbide, a very broad and a very diversified customer base, both in terms of geo-geographic split, as in terms of concentration or non-concentration. I think we are well set here in terms of diversification.
As for the run rate, as you know, we only guide in AIXTRON for one year. We don't guide further out into the future. I think, the total order intake guidance that we have given out for the year implies that in the second half, we will see at least, no or not even more, so to say, order intake per quarter. I think you can do the math, right? It's very clear. We discussed in this call also the growth drivers into the future, and I hope we've given you an indication that both in silicon carbide and in gallium nitride, and at some point a bit later in Micro-LED, there is more to come. I think also qualitatively, you can take those statements, which we have discussed here in the last, I don't know, 30 minutes or so.
Lastly, let me come to the ban on gallium, this topic. I think, first of all, let's note, this is only the requirement coming from China, that an export license is needed of those materials from China. There was no announcement that they would not export that anymore. We have, of course, checked very diligently with our own suppliers for gallium supply, with suppliers of our customers, for gallium supply, also for germanium, which is being used in some photodetectors and high specialty VCSEL topics, right? There is not expected to be a shortage. I think you all may have seen those statements that have been issued by Western-based suppliers of these materials, such as Freiberger, a wafer maker, or Umicore, out of Belgium, a material supplier.
We have seen the same from our customers. Many of them have issued statements, also our own suppliers that we've been working with have given clear indication that this is a non-issue, yeah. I think you don't have to worry about that. If there is, so to say, the Chinese guy is falling out, the Western supply comes, and even if there is prices increasing for that on a cost of an individual wafer, in the max case, we might see a few single, low single-digit percentage points increase. The overall trend for gallium nitride power electronics, by far, is not affected. It might rather be that the value of a very efficient equipment, such as AIXTRON is providing, is even further increasing.
Okay.
For us, that's not a big topic.
Thank you. Just a quick follow-up on the SiC customer base. I mean, I understand you have a good diversification, but my understanding is that there are still, let's say, some large customers that are not ordering for you from you, simply because, as you say, there was an incumbent working on, let's say, the previous technology. In 2024, it would be fair to assume that you can get on top of the market growth some more customers. In terms of the pipeline, I mean, you think this is visible or is something more for the midterm? Thank you.
I think you have exactly outlined our strategy. Thank you.
Thank you.
There are no further questions.
I would, this is Guido Pickert, I would read out the question of Martin that has arrived. First of all, he asked a question about export licenses. How much of the export licenses that were missing in Q1 are included in Q2 earnings? Is it almost all of it, the majority, or less than 50%?
Yes, as we've said before, yeah, out of the EUR 70 million that we have reported, with, in Q1, about a little more than EUR 50 million have been granted and shipped.
Mm-hmm. Then also a follow-up on the 2023 guidance. We have not upgraded our EBIT margin guidance. Is this more driven by more R&D, or you said it before, or does it reflect, let's say, better expected mid-term outlook than previously expected?
No, that I refer to what I said before on Michael's question, yeah. There's not too much to read into that, yeah. Was a small increase, relatively small increase and relatively high uncertainty on product mix in the remainder of the year, so there's no overall change in our cost expectations.
Okay. That's it. Thank you very much. With this, we will conclude today's call, in which we were able to talk about the strong underlying demand continuing, fueling our growth, future growth. Have a great rest of the summer, everyone. Some of you, we will see you soon on the upcoming conference and the roadshow. With that, bye-bye, and thank you.