Axt Inc (AXTI) 2024年10-K年度報告「NASDAQ」.pdf

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1、Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIESEXCHANGE ACT OF 1934For the fiscal year ended December 31,2024ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIESEXCHA

2、NGE ACT OF 1934For the transition period from to Commission file number:000-24085AXT,INC.(Exact name of registrant as specified in its charter)Delaware94-3031310(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)4281 Technology Drive,Fremont,California9453

3、8(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(510)438-4700Securities registered pursuant to Section 12(b)of the Act:Title of each class:Trading Symbol Name of each exchange on which registered:Common Stock,$0.001 par valueAXTIThe NASDAQ Stock Ma

4、rket LLCSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by checkmark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act Yes NoIndicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 1

5、5(d)of theAct.Yes NoIndicate by checkmark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the SecuritiesExchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been su

6、bject to such filing requirements for the past 90 days.Yes NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submittedpursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorte

7、r period that theregistrant was required to submit such files).Yes NoIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smallerreporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accel

8、erated filer,”“smaller reportingcompany,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected

9、not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of theeffectiveness of

10、 its internal control over financial reporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by theregistered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial

11、statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the reg

12、istrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by checkmark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes NoThe aggregate market value of the voting stock held by non-affiliates of the registrant,based upon the c

13、losing sale price of$3.38for the common stock on June 28,2024 as reported on the Nasdaq Global Select Market,was approximately$119,813,368.Shares ofcommon stock held by each officer,director and by each person who owns 10%or more of the outstanding common stock have beenexcluded in that such persons

14、 may be deemed to be affiliates.This determination of affiliate status is not a conclusive determination for otherpurposes.As of March 1,2025,45,597,995 shares,$0.001 par value,of the registrants common stock were outstanding.Document Incorporated by ReferencePortions of the registrants definitive p

15、roxy statement relating to our annual meeting of stockholders to be held on May 15,2025(the“Proxy Statement”)areincorporated by reference into Part III of this Annual Report on Form 10-K where indicated.Such Proxy Statement will be filed with the Securities and2025/5/19 14:07AXT INC_December 31,2024

16、https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm1/136Exchange Commission(the“SEC”)pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form10-K.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec

17、.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm2/136Table of Contents1TABLE OF CONTENTS PagePART IItem 1.Business3Item 1A.Risk Factors18Item 1B.Unresolved Staff Comments45Item 1C.Cybersecurity45Item 2.Properties47Item 3.Legal Proceedings47Item 4.Mine Safety Disclosures48PAR

18、T IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchasesof Equity Securities49Item 6.Reserved51Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations51Item 7A.Quantitative and Qualitative Disclosures About Market Risk67Item

19、 8.Consolidated Financial Statements and Supplementary Data69Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure69Item 9A.Controls and Procedures69Item 9B.Other Information70Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections70PART IIII

20、tem 10.Directors,Executive Officers and Corporate Governance71Item 11.Executive Compensation71Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters71Item 13.Certain Relationships and Related Transactions and Director Independence71Item 14.Principal Acc

21、ountant Fees and Services71PART IVItem 15.Exhibits and Financial Statement Schedules72Item 16.Form 10-K Summary1162025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm3/136Table of Contents2PART IThis Annual Report on Form 10-K

22、 of AXT,Inc.,a Delaware corporation(“AXT”,“the Company”,“we,”“us,”and“our”refer to AXT,Inc.and its consolidated subsidiaries)contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933,as amended,and Section 21E ofthe Securities Exchange Act of 1934,as amended.

23、Statements relating to our expectations regarding results ofoperations,market and customer demand for our products,customer qualifications of our products,our abilityto expand our markets or increase sales,emerging applications using chips or devices fabricated on oursubstrates,including the use of

24、InP wafer substrates in artificial intelligence(“AI”)applications,thedevelopment and adoption of new products,applications,enhancements or technologies,the life cycles of ourproducts and applications,product yields and gross margins,expense levels,the impact of the adoption ofcertain accounting pron

25、ouncements,our investments in capital projects,potential severance costs with respectto any reduction in our work force,our ability to have new customers qualify substrates from ourmanufacturing locations in China,our ability to utilize or increase our manufacturing capacity,and our beliefthat we ha

26、ve adequate cash and investments to meet our needs over the next 12 months are forward-lookingstatements.Additionally,statements regarding completing steps in connection with the proposed listing ofshares of our wafer manufacturing company,Beijing Tongmei Xtal Technology Co.,Ltd.(“Tongmei”),on theSh

27、anghai Stock Exchanges Sci-Tech innovAtion boaRd(the“STAR Market”),being accepted to list shares ofTongmei on the STAR Market,the timing and completion of such listing of shares of Tongmei on the STARMarket are forward looking statements.Words such as“expects,”“anticipates,”“intends,”“plans,”“believ

28、es,”“seeks,”“estimates,”“goals,”“should,”“continues,”“would,”“could”and similar expressions orvariations of such words are intended to identify forward-looking statements,but are not the exclusive meansof identifying forward-looking statements in this annual report.Additionally,statements concerning

29、 future matters such as our strategy and plans,industry trends,tariffs and trade wars,geopolitical tensions,export restrictions in China,the potential impact of COVID-19 or other pandemics on our business,results of operations and financial condition,mandatory factory shutdowns in China,changes in p

30、olicies and regulations in China and economic cycles on our business are forward-looking statements.Our forward-looking statements are based upon assumptions that are subject to uncertainties andfactors relating to the Companys operations and business environment,which could cause actual results tod

31、iffer materially from those expressed or implied in the forward-looking statements contained in this report.These uncertainties and factors include,but are not limited to:the withdrawal,cancellations or requests forredemptions by private equity funds in China of their investments in Tongmei,the admi

32、nistrative challengesin satisfying the requirements of various government agencies in China in connection with the investments inTongmei and the listing of shares of Tongmei on the STAR Market,continued open access to companies to listshares on the STAR Market,investor enthusiasm for new listings of

33、 shares on the STAR Market andgeopolitical tensions between China and the United States.Additional uncertainties and factors include,butare not limited to:the timing and receipt of significant orders;the cancellation of orders and return of product;emerging applications using chips or devices fabric

34、ated on our substrates;end-user acceptance of productscontaining chips or devices fabricated on our substrates;our ability to bring new products to market;productannouncements by our competitors;the ability to control costs and improve efficiency;the ability to utilizeour manufacturing capacity;prod

35、uct yields and their impact on gross margins;possible factory shutdowns as aresult of air pollution in China;COVID-19 or other outbreaks of a contagious disease;the availability ofcurrent COVID-19 vaccines;tariffs and other trade war issues;export restrictions in China;the financialperformance of ou

36、r partially owned supply chain companies;policies and regulations in China;and otherfactors as set forth in this Annual Report on Form 10-K,including those set forth under the section entitled“Risk Factors”in Item 1A below.All forward-looking statements are based upon managements views as ofthe date

37、 of this annual report and are subject to risks and uncertainties that could cause actual results to differmaterially from historical results or those anticipated in such forward-looking statements.Such risks anduncertainties include those set forth under the section entitled“Risk Factors”in Item 1A

38、 below,as well asthose discussed elsewhere in this annual report,and identify important factors that could disrupt or injure ourbusiness or cause actual results to differ materially from those predicted in any such forward-lookingstatements.These forward-looking statements are not guarantees of futu

39、re performance.Readers are cautionednot to place undue reliance on these forward-looking statements,which speak only as of the datehereof.Readers are urged to carefully review and consider the various disclosures made in this report,whichattempt to advise interested parties of the risks and factors

40、that may affect our business,financial condition,results of operations and prospects.We undertake no obligation to revise or update any forward-lookingstatements in order to reflect any development,event or circumstance that may arise after the date of thisreport.2025/5/19 14:07AXT INC_December 31,2

41、024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm4/1362025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm5/136Table of Contents3Item 1.BusinessAXT is a worldwide materials science comp

42、any that develops and produces high-performancecompound and single element semiconductor substrates,also known as wafers.Two of our consolidatedsubsidiaries produce and sell certain raw materials some of which are used in our substrate manufacturingprocess and some of which are sold to other compani

43、es.Our substrate wafers are used when a typical silicon substrate wafer cannot meet the performancerequirements of a semiconductor or optoelectronic device.The dominant substrates used in producingsemiconductor chips and other electronic circuits are made from silicon.However,certain chips may becom

44、etoo hot or perform their function too slowly if silicon is used as the base material.In addition,optoelectronicapplications,such as LED lighting and chip-based lasers,do not use silicon substrates because they require awave form frequency that cannot be achieved using silicon.Alternative or special

45、ty materials are used toreplace silicon as the preferred base in these situations.Our wafers provide such alternative or specialtymaterials.We do not design or manufacture the chips.We add value by researching,developing and producingthe specialty material wafers.We have two product lines:specialty

46、material substrates and raw materialsintegral to these substrates.Our compound substrates combine indium with phosphorous(indium phosphide:InP)or gallium with arsenic(gallium arsenide:GaAs).Our single element substrates are made fromgermanium(Ge).InP is a high-performance semiconductor wafer substra

47、te used in broadband and fiber opticapplications,5G infrastructure and data center connectivity.Data centers use InP devices for high-speedoptical data transmission.We believe the growth of AI applications will increase the need for high-speed datatransfer which may lead to an increase in InP substr

48、ate demand from such data centers.Currently,InPsubstrates are being used in certain consumer products,including proximity sensors and other sensors inmobile devices.Semi-insulating GaAs substrates are used to create various high-speed microwavecomponents,including power amplifier chips used in cell

49、phones,satellite communications and broadcasttelevision applications.Semi-conducting GaAs substrates are used to create opto-electronic products,such aslight emitting diodes(LEDs)that are used in a wide range of applications including automotive lighting,horticulture,signage,display,sensors and mach

50、ine vision.Semi-conducting GaAs substrates are also used inmaking industrial lasers.GaAs wafers could also be used for making vertical cavity surface emitting lasers(VCSELs)for facial recognition and micro-LEDs targeting improved screen technology.Ge substrates areused in applications such as solar

51、cells for space and terrestrial photovoltaic applications.Our supply chain strategy includes several consolidated raw material companies.One of theseconsolidated companies produces pyrolytic boron nitride(pBN)crucibles used in the high temperature(typically in the range 500 C to 1,500 C)growth proce

52、ss of single crystal ingots,effusion rings when growingOLED(Organic Light Emitting Diode)tools,epitaxial layer growth in MOCVD(Metal-Organic ChemicalVapor Deposition)reactors and MBE(Molecular Beam Epitaxy)reactors.We use these pBN crucibles in ourown ingot growth processes and they are also sold in

53、 the open market to other companies.A secondconsolidated company converts raw gallium to purified gallium.We use purified gallium in producing ourGaAs substrates and it is also sold in the open market to other companies for use in producing magneticmaterials,high temperature thermometers,single crys

54、tal ingots,including gallium arsenide,gallium nitride,gallium antimonite and gallium phosphide ingots,and other materials and alloys.In addition to purifiedgallium,the second consolidated company also produces InP base material which we then use to grow singlecrystal ingots.Our substrate product gro

55、up generated 68%,63%,and 79%of our consolidated revenue andour raw materials product group generated 32%,37%,and 21%for 2024,2023,and 2022,respectively.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm6/136Table of Contents

56、4The following chart shows our substrate products and their materials,diameters and illustrativeapplications and shows our raw materials group primary products and their illustrative uses and applications.Products Substrate Group and Wafer Diameter Sample of ApplicationsIndium Phosphide Data center

57、connectivity using light/lasers(InP)High-speed data transfer in data centers2”,3”,4”,6”5G communications Fiber optic lasers and detectors Consumer devices Passive Optical Networks(PONs)Silicon photonics Photonic Integrated circuits(PICs)Thermo-Photovoltaics(TPVs)RF amplifier and switching(military w

58、ireless&5G)Infrared light-emitting diode(LEDs)motion control Lidar for robotics and autonomous vehicles Infrared thermal imagingGallium Arsenide Wi-Fi devices(GaAs-semi-insulating)IoT devices1”,2”,3”,4”,5”,6”High-performance transistors Direct broadcast television Power amplifiers for wireless devic

59、es Satellite communications High efficiency solar cells for drones and automobiles Solar cellsGallium Arsenide High brightness LEDs(GaAs-semi-conducting)Screen displays using micro-LEDs1”,2”,3”,4”,5,6”,8 Printer head lasers and LEDs 3-D sensing using VCSELs Data center communication using VCSELs Sen

60、sors for industrial robotics/Near-infrared sensors Laser machining,cutting and drilling Optical couplers High efficiency solar cells for drones and automobiles Other lasers Night vision goggles Lidar for robotics and autonomous vehicles Solar cellsGermanium Multi-junction solar cells for satellites(

61、Ge)Optical sensors and detectors2”,4”,6”Terrestrial concentrated photo voltaic(CPV)cells Infrared detectors Carrier wafer for LEDRaw Materials Group6N+and 7N+purified gallium Key material in single crystal ingots such as:-Gallium Arsenide(GaAs)-Gallium Nitride(GaN)-Gallium Antimonite(GaSb)-Gallium P

62、hosphide(GaP)Boron trioxide(B2O3)Encapsulant in the ingot growth of III-V compound semiconductorsGallium-Magnesium alloy Used for the synthesis of organo-gallium compounds in epitaxial growth on semiconductor waferpyrolytic boron nitride(pBN)crucibles Used when growing single-crystal compound semico

63、nductor ingots Used as effusion rings when growing OLED toolspBN insulating parts Used in MOCVD reactors Used when growing epitaxial layers in Molecular Beam Epitaxy(MBE)reactors2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k

64、.htm7/136Table of Contents5All of our substrate products and raw material products are manufactured in the Peoples Republic ofChina(PRC or China)by our PRC subsidiaries and PRC joint ventures material companies.The PRCgenerally has favorable costs for facilities and labor compared with comparable fa

65、cilities in the United States,Europe or Japan.Our supply chain includes partial ownership of raw material companies in China(subsidiaries/joint ventures).We believe this supply chain arrangement provides us with pricing advantages,reliable supply,market trend visibility and better sourcing lead-time

66、s for key raw materials central tomanufacturing our substrates.In the event of industry-wide supply shortages we believe our verticallyintegrated supply chain strategy will be even more advantageous.Our raw material companies producematerials,including raw gallium(4N Ga),high purity gallium(6N and 7

67、N Ga),starting material for InP,arsenic,germanium,germanium dioxide,pyrolytic boron nitride(pBN)crucibles,and boron oxide(B2O3).We have board representation in all of these raw material companies.We consolidate the companies in whichwe have either a controlling financial interest,or majority financi

68、al interest combined with the ability toexercise substantive control over the operations,or financial decisions,of such companies.We use the equitymethod to account for companies in which we have noncontrolling financial interest and have the ability toexercise significant influence,but not control,

69、over such companies.We purchase portions of the materialsproduced by these companies for our own use and they sell the remainder of their production to third parties.In 2015,the Beijing city government announced its decision to move most of its offices into thedistrict where our original manufacturi

70、ng facility is currently located(the Tongzhou district)and the Beijingcity government has moved thousands of government employees into this district.The government hasconstructed showcase tower buildings and overseen the establishment of new apartment complexes,retailstores and restaurants.A large p

71、ark,named Green Heart City Park,was built across the street from our facilityand Universal Studios has developed an amusement park within a few miles of our facility.To create roomand upgrade the district,the city instructed virtually all existing manufacturing companies,includingTongmei,to relocate

72、 all or some of their manufacturing lines.We were instructed to relocate our galliumarsenide manufacturing lines.For reasons of manufacturing efficiency,we elected to also move part of ourgermanium manufacturing line.Our indium phosphide manufacturing line,as well as various administrativeand sales

73、functions,remain primarily at our original site.New customer qualifications and expanding capacity as needed require us to continue to diligentlyaddress the many details that arise at each of our sites.A failure to properly accomplish this could result indisruption to our production and have a mater

74、ial adverse impact on our revenue,our results of operations andour financial condition.If we fail to meet the product qualification and volume requirements of a customer,we may lose sales to that customer.Our reputation may also be damaged.Any loss of sales could have amaterial adverse effect on our

75、 revenue,our results of operations and our financial condition.On November 16,2020,we announced a strategic initiative to access Chinas capital markets bybeginning a process to list shares of Tongmei in an initial public offering(the“IPO”)on the STAR Market,anexchange intended to support innovative

76、companies in China.We formed and founded Tongmei in 1998 andbelieve Tongmei has grown into a company that will be an attractive offering on the STAR Market.To qualifyfor a STAR Market listing,the first major step in the process was to engage private equity firms in China(“Investors”)to invest funds

77、in Tongmei.By December 31,2020,Investors,which consist of 10 private equityfunds,had entered into two sets of definitive transaction documents,each consisting of a capital increaseagreement along with certain supplemental agreements in substantially the same form(collectively,the“Capital Investment

78、Agreements”),with Tongmei for a total investment of approximately$48.1 million.Thecurrency used in the investment transactions was the Chinese renminbi,which has been converted toapproximate U.S.dollars for this Annual Report on Form 10-K.The remaining investment of approximately$1.5 million of new

79、capital was funded in January 2021.The government approved the approximately$49million investment in its entirety on January 25,2021.In exchange for an investment of approximately$49million,the Investors received a 7.28%redeemable noncontrolling interest in Tongmei.Pursuant to the Capital Investment

80、 Agreements with the Investors,each Investor has the right torequire AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid bysuch Investor,without interest,in the event the IPO fails to pass the audit of the Shanghai Stock Exchange,isnot approved by the Ch

81、inese Securities Regulatory Commission(“CSRC”)or Tongmei cancels the IPOapplication.The aggregate redemption amount is approximately$49 million,subject to the foreign exchangerate variable at time of redemption.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000

82、155837025003004/axti-20241231x10k.htm8/136Table of Contents6Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it wasformally accepted for review on January 10,2022.The Shanghai Stock Exchange approved the IPOapplication on July 12,2022.On August 1,2022,the CSR

83、C accepted for review Tongmeis IPO application.The STAR Market IPO remains subject to review and approval by the CSRC and other authorities.Theprocess of going public on the STAR Market includes several periods of review and therefore is a lengthyprocess.Subject to review and approval by the CSRC an

84、d other authorities,Tongmei hopes to accomplish thisgoal in the coming months.The listing of Tongmei on the STAR Market will not change the status of AXT asa U.S.public company.An early step in the STAR Market IPO process involved certain entity reorganizations and alignmentof assets under Tongmei.I

85、n this regard our two consolidated raw material companies,Nanjing JinMei GalliumCo.,Ltd.(“JinMei”)and Beijing BoYu Semiconductor Vessel Craftwork Technology Co.,Ltd.(“BoYu”)andtheir subsidiaries were assigned to Tongmei in December 2020.As of June 30,2021,AXT-Tongmei,Inc.,awholly owned subsidiary of

86、 AXT,was assigned to Tongmei.The assignment to Tongmei of JinMei and BoYuand their subsidiaries,and AXT-Tongmei,Inc.increased the number of customers and employees attributableto Tongmei as well as increased Tongmeis consolidated revenue.We are neither a PRC operating company nor do we conduct our o

87、perations in China through the useof variable interest entities(“VIEs”).Recent statements and regulatory actions by Chinas government on theuse of VIEs and data security or anti-monopoly concerns have not impacted our ability to conduct ourbusiness or continue to list our common stock on the Nasdaq

88、Global Select Market.The following organization chart depicts the consolidated structure as of December 31,2024.The businesses of our PRC subsidiaries and PRC joint ventures are subject to complex and rapidlyevolving laws and regulations in the PRC,which can change quickly with little advance notice

89、.The PRCgovernment is a single party form of government with virtually unlimited authority and power to intervene inor influence commercial operations in China.In the past,we have experienced such intervention or influenceby the PRC government and a change in the rules and regulations in China when

90、we were instructed by theBeijing municipal government to relocate part of our manufacturing facility in Beijing and expect that suchintervention or influence or change in the rules and regulations in China could occur in the future.In the ordinary course of business,our PRC subsidiaries and PRC join

91、t ventures require permits andlicenses to operate in the PRC.Such permits and licenses include permits to use hazardous materials inmanufacturing operations.From time to time,the PRC government issues new regulations,which may requireadditional actions on the part of our PRC subsidiaries and PRC joi

92、nt ventures to comply.For example,onFebruary 27,2015,the China State Administration of Work Safety updated its list of hazardous substances.The previous list,which was published in 2002,did not restrict the materials that we use in our wafers.Thenew list added gallium arsenide.As a result of the new

93、ly published list,we2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm9/136Table of Contents7were required to seek additional permits.In the ordinary course of business,our PRC subsidiaries and PRCjoint ventures apply for pe

94、rmits as required.Any such intervention or influence or change in the rules andregulations in China could result in a material change in our PRC operations and/or the value of our commonstock or cause the value of such securities to significantly decline or be worthless.In September 2018,the United

95、States announced a list of thousands of categories of goods thatbecame subject to Section 301 tariffs when imported into the United States from China.This pronouncementimposed tariffs on wafer substrates we imported into the United States.The initial tariff rate was 25%.OnJuly 3,2023,China announced

96、 new export control regulations on materials including gallium and germaniumand compounds of these materials,effective as of August 1,2023.Materials that could be used in militaryapplications,specifically including weapons of mass destruction,were the primary focus.This requiredTongmei to seek permi

97、ts from the applicable Chinese authorities to export gallium arsenide and germaniumsubstrates.Since that time,a general escalation has been underway with further increases to the tariffs fromthe US and additional export controls from China.In late 2024 and early 2025,a new round of trade restriction

98、s was announced by China and the United States.On December 3,2024,China issued further rules restricting exports of materials that can typically be used in military applications including antimony,gallium,germanium and other superhard materials.The effective date was December 3,2024,the same day as

99、the announcement itself.Reciprocally,the United States increased tariffs on many items from China from 25%to 50%,effective January 1,2025.On February 1,2025,the United States again further increased the tariff on imports of many products from China,including our wafer substrates,to 60%.On March 4,20

100、25,the United States further increased the tariff on imports of many products,including our wafer substrates,to 70%.We have little or no germanium exports to the U.S.and historically a relatively small value of imports of gallium arsenide wafers into the U.S.Our primary revenue generator derived fro

101、m imports into the U.S.is indium phosphide substrates.While Tongmei has generally received the required permits for exports to countries in Asia and Europe,our U.S.gallium arsenide customers are considered“dual use”customers:in addition to commercial applications they have significant levels of mili

102、tary involvement.As such,no permits for gallium arsenide to the U.S.have yet been approved.On February 4,2025,China added indium phosphide substrates to its export control list.As a result,the three wafer substrate product lines manufactured by Tongmei all require permits from Chinas Ministry of Com

103、merce before they can be exported from China.To our knowledge,indium phosphide is rarely used in military applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S.will be granted.But since the requirement is new it will take at least several mo

104、nths from February 4,2025 to have early applications processed.We have created a vertically integrated supply chain and transfer cash through our corporate structurein three ways.First,we capitalize our investments in our PRC subsidiaries.We licensed to our PRCsubsidiaries intellectual property and

105、received from our PRC subsidiaries royalty payments or one-time fees.Second,we use transfer pricing arrangements to buy from our PRC subsidiaries and PRC joint ventureswafers and raw materials.We review the terms of the transfer pricing arrangements annually with ourindependent registered public acc

106、ounting firm.In the past,we sold to our PRC subsidiaries capital equipmentthat we purchased at the request of our PRC subsidiaries and for which we were reimbursed by the applicablePRC subsidiary.In recent years,Tongmei purchases capital equipment from suppliers in Taiwan,Japan,China,Europe or South

107、 Korea.Third,our PRC subsidiaries and PRC joint ventures pay dividends to entitieswithin the Companys corporate structure.For the years ended December 31,2024,2023 and 2022,theaggregate dividends paid to the Company,directly or to an intermediate entity within our corporate structure,by our PRC subs

108、idiaries and PRC raw material joint ventures were approximately$2.4 million,$4.3 millionand$2.9 million,respectively.For years ended December 31,2024 and 2023,no dividends were paid tominority shareholders by our PRC subsidiaries and PRC raw material joint ventures.In the year endedDecember 31,2024,

109、we continued the settlement of amounts owed under our transfer pricing arrangements inthe ordinary course of business.We have no current intentions to distribute earnings to our investors under ourcorporate structure.The cash generated from one PRC subsidiary is not used to fund another PRC subsidia

110、rysoperations.None of our PRC subsidiaries has ever faced difficulties or limitations on its ability to transfercash between our subsidiaries.We have cash management policies that dictate the amount of such funding.We are subject to a number of unique legal and operational risks associated with our

111、corporatestructure,any of which could result in a material change in our operations and/or the value of our commonstock or cause the value of2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm10/1362025/5/19 14:07AXT INC_Dece

112、mber 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm11/136Table of Contents8such securities to significantly decline or be worthless.Please carefully read the“Risk Factors”in this AnnualReport on Form 10-K in Item 1A below,including Category III,“Risks

113、Related to International Aspects ofOur Business”.In particular,the following risk factors address issues associated with our corporate structure:Although we are a Delaware corporation and are neither a PRC operating company nor do weconduct our operations in China through the use of VIEs,in the even

114、t we inadvertentlyconcluded that we do not require any permissions or approvals from the CSRC or other PRCcentral government authorities to complete a public offering of securities in the U.S.orapplicable laws,regulations,or interpretations change,we may be required to obtain suchpermissions or appr

115、ovals to complete such a public offering of securities.The PRC central government may intervene in or influence our PRC operations at any time andthe rules and regulations in China can change quickly with little advance notice.The PRC central government may also exert more control over offerings con

116、ducted overseasand/or foreign investment in China-based issuers,which could result in a material change in ouroperations and/or the value of our common stock.Changes in Chinas political,social,regulatory or economic environments may affect ourfinancial performance.Joint venture raw material companie

117、s in China bring certain risks.Risks exist in utilizing our new gallium arsenide manufacturing sites efficiently.The Chinese central government is increasingly aware of air pollution and other forms ofenvironmental pollution and their reform efforts can impact our manufacturing,includingintermittent

118、 mandatory shutdowns.Shutdowns or underutilizing our manufacturing facilities may result in declines in our grossmargins.Enhanced trade tariffs,import restrictions,export restrictions,Chinese regulations or other tradebarriers may materially harm our business.If China places restrictions on freight

119、and transportation routes and on ports of entry anddeparture this could result in shipping delays or increased costs for shipping.Our international operations are exposed to potential adverse tax consequence in China.We derive a significant portion of our revenue from international sales,and our abi

120、lity to sustainand increase our international sales involves significant risks.The terms of the private equity raised in China as a first step toward an IPO on the STARMarket grant each Investor a right of redemption if Tongmei fails to achieve its IPO.We are subject to foreign exchange gains and lo

121、sses that may materially impact our statement ofoperations.Although the audit report is prepared by an independent registered public accounting firm that iscurrently inspected fully by the Public Company Accounting Oversight Board(the“PCAOB”),there is no guarantee that future audit reports will be p

122、repared by an independent registeredpublic accounting firm that is completely inspected by the PCAOB.Our independent registered public accounting firm is BPM LLP(“BPM”),which is registered withthe PCAOB.The Holding Foreign Companies Accountable Act(the“HFCA Act”)requires that the PCAOBdetermine whet

123、her it is unable to inspect or investigate completely registered public accounting firms locatedin a non-U.S.jurisdiction because of a position taken by one or more authorities in that jurisdiction.OnDecember 16,2021,the PCAOB issued a report on its determinations that the PCAOB is unable to inspect

124、 orinvestigate completely registered public accounting firms headquartered in the PRC and Hong Kong becauseof positions taken by PRC authorities in those jurisdictions.BPM is headquartered in the United States andnot in the PRC or Hong Kong.As such,BPM is subject to the determinations announced by t

125、he PCAOB.Accordingly,the Company does not expect the HFCA Act,the Accelerating Holding Foreign CompaniesAccountable Act and the related regulations to affect the Company and does not expect to be identified by theSecurities and Exchange Commission,or SEC,under the HFCA Act.On December 15,2022,the PC

126、AOBvacated its 2021 determinations that the positions taken by authorities in the PRC and Hong Kong prevented itfrom inspecting and investigating completely registered public accounting firms headquartered in thosejurisdictions.See“Although the audit report is prepared by an independent registered p

127、ublic accounting firmthat is currently inspected fully by the PCAOB,there is no guarantee that future audit reports will be preparedby an independent registered public accounting firm that is2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti

128、-20241231x10k.htm12/136Table of Contents9completely inspected by the PCAOB”under the section entitled“Risk Factors”in Item 1A below for furtherinformation on risks related to our foreign operations and dependence.We were incorporated in California in December 1986 and reincorporated in Delaware in M

129、ay 1998.The Company went public in 1998.We changed our name from American Xtal Technology,Inc.to AXT,Inc.in July 2000.Our principal corporate office is located at 4281 Technology Drive,Fremont,California 94538,and our telephone number at this address is(510)438-4700.Industry BackgroundCertain electr

130、onic and opto-electronic applications have performance requirements that exceed thecapabilities of conventional silicon substrates,also known as wafers,and often require high-performancecompound wafers(mixture of two materials)or single element wafer substrates.Examples of higherperformance non-sili

131、con based wafer substrates include GaAs,InP,gallium nitride(GaN),silicon carbide(SiC)and Ge.One of the earliest broadly used alternative wafer substrates was GaAs and GaAs wafersubstrates were the earliest wafer substrates we produced.Silicon substrates dominate the semiconductor substrate market.Si

132、licon wafers are larger in diameterand significantly lower in cost.AXT and our competitors exist because the laws of physics prevent certainfunctions from performing properly,or at all,if silicon material is used as the wafer substrate.Our substratewafers are used when a typical silicon substrate wa

133、fer cannot meet the performance requirements of asemiconductor chip or optoelectronic device.Demand for higher performance non-silicon-based wafersubstrates,such as the substrates in which AXT specializes,is expected to increase as new applications areadopted.In contrast to the ever-more complex ele

134、ctronic circuit designs and the skill sets required toaccomplish such designs,the knowledge base and skill sets required for AXT and our competitors are materialscience-based.We do not design or manufacture the semiconductor chips and other electronic circuits.Instead,we apply our deep knowledge in

135、material science to grow single crystal ingots that are then slicedinto individual wafer substrates.We add value by researching,developing and producing the specialtymaterial wafers.This places us at the beginning of the semiconductor“food chain”.InP is a high-performance semiconductor wafer substra

136、te used in broadband and fiber opticapplications,5G infrastructure and data center connectivity.Data centers use InP devices for high-speedoptical data transmission.We believe the growth of AI applications will increase the need for high speed datatransfer,which may lead to an increase in InP substr

137、ate demand from such data centers.Currently,InPsubstrates are being used in certain consumer products,including proximity sensors and other sensors inmobile devices.Semi-insulating GaAs substrates are used to create various high-speed microwavecomponents,including power amplifier chips used in cell

138、phones,satellite communications and broadcasttelevision applications.Semi-conducting GaAs substrates are used to create opto-electronic products,including light emitting diodes(LEDs)that are used for a wide range of applications including automotivelighting,horticulture,signage,display,sensors and m

139、achine vision.They are also used in making industriallasers.GaAs wafers could also be used for making vertical cavity surface emitting lasers(VCSELs)for facialrecognition and micro-LEDs targeting improved screen technology.Ge substrates are used in applicationssuch as solar cells for space and terre

140、strial photovoltaic applications.The AXT AdvantagesWe believe that we benefit from the following advantages:We believe our InP substrates are best in class.We believe our InP substrates have the lowestdefect densities and lowest stress and slip lines on the market and are best in class.Our InPsubstr

141、ates enable our customers to achieve the highest wafer fab and device yields.We havedeveloped a strong base of proprietary InP technology that we continue to expand.There aresignificant barriers to entry in the InP substrate market and currently there are only threeprimary suppliers,including AXT.Fu

142、rther,we believe we can be the dominant supplier in the emerging 6-inch diameter market.Already,our InP substrates have reached production in at least two well-known consumerproducts.Also,one of our largest data center upgrade customers works closely with us as apartner.Our advantages increase with2

143、025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm13/1362025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm14/136Table of Contents10larger diameters,w

144、hich the industry is starting to demand,and we believe our superiortechnology will converge with new demands from data centers that are driven by AIapplications,additional consumer application wins and other data center and 5G/telecomapplications.New facilities,equipment and added capacity.We believ

145、e we are the only company in ourindustry to have added significant new facilities,equipment and capacity in recent years.Although current customers and prospective customers previously viewed our relocationprocess as a risk,we believe our success in managing this process now positions us as the“goto

146、”supplier with a state of the art manufacturing line,a proven ability to add capacity and acommitment to continuous improvement.We believe that we are the only compound semiconductor substrate supplier to have a positionin raw materials.We believe this provides us with a more reliable supply of,and

147、shorter lead-times for,the raw materials central to our final manufactured products.Customers find thisbusiness model attractive.Revenue from the sale of raw materials provides further diversity inour customer base and business model.Unique access to capital if needed to expand capacity.We believe t

148、he combination of access toboth the U.S.and China capital markets presents a strong position to our customers and gives usan advantage over our competitors.Low-cost manufacturing operation in China.Since 2004,we have manufactured all of ourproducts in China,which generally has favorable costs for fa

149、cilities and labor compared to costsof comparable facilities and labor in the United States,Japan or Europe.Our primarycompetitors have their major manufacturing operations in Germany or Japan.Key provider of low defect density GaAs wafer substrates.In recent years customer demandfor low etch pit de

150、nsity(“EPD”)GaAs wafer substrates has increased.The most recent exampleis the requirement for 8-inch wafers GaAs.The requirement of low EPD is a barrier to entry andwe believe there are a limited number of potential substrate providers that can meet thisrequirement,including AXT.We believe the quali

151、ty of our low EPD wafers will enable us tosupport new applications and generate additional revenue.Proprietary process technology drives manufacturing.In our industry,the single crystalgrowth process and the wafer manufacturing process incorporate proprietary processtechnology.Tongmei has a substant

152、ial body of proprietary process technology and we believethis gives us a competitive advantage,especially in InP.This also creates a barrier to entry.Our team.We have a strong technical sales support team that engages with our customers andunderstands their product requirements.A significant percent

153、age of the members of our teamthat engage with customers have advanced degrees in physics or materials science.We areknown in the marketplace to be knowledgeable and responsive.StrategyOur goal is to become the leading worldwide supplier of high-performance compound and singleelement semiconductor s

154、ubstrates.Key elements of our strategy include:Promote our strengths in InP.As cloud-based data centers continue to combine integratedcircuits and InP-based lasers to transfer data through light,we believe there will be increaseddemand for InP substrates.We intend to promote our capabilities as we b

155、elieve we provide“bestin class”InP wafers.AI will use InP for high-speed data transmission.Other applications couldinclude driverless cars,5G in cell phones and health and well-being biometric wearables.Promote flagship products:8-inch GaAs and 6-inch InP.We intend to promote ourtechnological streng

156、ths by showcasing our success in developing larger diameter wafers.Our 8-inch GaAs product has2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm15/136Table of Contents11crossed several milestones and is now shipping in small

157、 quantities.Our 6-inch InP is nowdesired by some key customers.Expand our recycling program.We have successfully deployed InP recycling and havedeveloped a recycling program for GaAs.Recycling can lower our manufacturing costs and it isalso good for the environment.Some customers require recycling p

158、rograms.Showcase our new facilities.With travel restrictions largely removed,we plan to host morecustomers that tour our facilities.We had several very positive visits in 2024 and plan toincrease the number of visits in 2025.Strengthen our raw materials supply chain.The supply and demand equation fo

159、r specialtymaterials can be complex and volatile.Over the years,we have established or invested in rawmaterial companies in China that are an integral part of our supply chain.We will continue toprovide strategic support to these companies and they,in turn,will continue to be the backboneof our supp

160、ly chain.We have identified some new steps that will make our supply chain evenstronger.Offer diverse products,including custom products.We believe AXT has a reputation in the market for providing a broad range of products,including custom products that are supported by a team of technical sales sup

161、port professionals,the majority of whom hold advanced graduate degrees in physics or materials science.We plan to further promote this brand image as a way to differentiate ourselves in the market.We believe this strategy will lead to a more diverse customer base and higher revenue volumes.Increase

162、manufacturing efficiencies.The recent industry-wide inventory corrections andreduced manufacturing volumes impacted our manufacturing efficiencies.We will seek tocontinue to leverage our China-based manufacturing advantages by increasing efficiencies inour manufacturing methods,systems and processes

163、.We promote the concept and practice ofcontinuous improvement within our company culture.Materials of the future.The specialty materials substrate market is dynamic and subject tocontinued changes and cycles.We plan to use our deep knowledge and experience in specialtymaterials and wafer substrates

164、to seek new applications for existing substrates in our portfolioand explore additional materials that may be synergistic with our knowledge base,customerneeds and manufacturing lines.TechnologyWafer substrates on which integrated circuits and optical devices are fabricated serve as a foundationfor

165、semiconductor device fabrication.Wafers are derived from ingots that are grown in a cylindrical form.Thediameter and length of an ingot will vary depending on the type of material and the growth process used.Aningot can be single-crystalline(a single crystal)or multi-crystalline(polycrystalline).A s

166、ingle crystal is acontinuous lattice of atoms with no boundaries within the structure.The ingot must be a single crystal in orderfor it to be useful in making wafers for device fabrication.A single crystal ingot can be made from a singleelement such as germanium or silicon,or it can be made from two

167、 or more elements such as gallium arsenide(with gallium and arsenic)or indium phosphide(with indium and phosphorous).Depending on physicalproperties of the materials in a wafer,the performance of devices and circuits can be remarkably different.Tongmei uses its proprietary vertical gradient freeze(V

168、GF)technology for growing single crystalIndium Phosphide(InP),Gallium Arsenide(GaAs)and Germanium(Ge)ingots.After growing the crystallineingot,the ingot is then sliced into individual substrates or wafers.Before specialty material wafers can beused,a thin layer of structured chemicals is grown on th

169、e surface of the substrate.This is called an epitaxiallayer and it is a complicated and highly technical process.We do not grow the epitaxial layer.We sell themajority of our substrates to companies that specialize in applying the epitaxial layer.Our wafers are thenused to produce state-of-the-art e

170、lectronic circuits and opto-electronic devices.The chips are used in a widevariety of applications.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm16/136Table of Contents12InP and GaAs compounds are formed by combining ele

171、ments from Groups III and V in the periodic table of elements,whereas Ge is a Group IV elemental material.Each of these materials has unique properties that determine the best device and/or circuit applications.As a result of their special high electron mobility combined with their direct ban-gap pr

172、operties,both InP and GaAs wafers have enjoyed dominant roles in the production of light-emitting diodes(LEDs),solid-state lasers and power amplifiers for mobile phones,to name a few applications.Ge wafers,on the other hand,have played a key role in the manufacturing of special solar cells known as

173、triple junction solar cells(TJSCs)for space and terrestrial power generation.Crystal growth process technology frequently contains steps and procedures that are consideredproprietary trade secrets held by the manufacturer,often including methods to control the temperature withinthe crucible.InP crys

174、tal growth relies on extreme pressure within the crucible.As such it requires not onlytemperature control methodologies,but also pressure control and stabilization process methodologies,manyof which we consider proprietary trade secrets.It is this combination of variables and the required methods to

175、control them that create a barrier to entry.We believe our long-term investment in research and developmenthas resulted in a substantive body of proprietary knowledge.After growing the crystalline ingot,the material is then sliced into individual substrates or wafers.We have continued to invest in w

176、afer processing technology covering each step in the process from sawing toedge smoothing to final cleaning and we believe we have technology and trade secrets addressing the scope ofwafer processing.One focus in our recent development programs has been on automation,particularly incleaning the wafe

177、rs.Ideally,all the atoms in a wafer or substrate are arrayed in a specific periodic order.However,sensitivities in the ingot growth process will cause some atoms to be improperly aligned and these are referredto as dislocations.The aggregate number of dislocations in a wafer is referred to as the di

178、slocation density.Dislocation densities can be seen as a group of tiny marks or pits under a microscope by etching the waferwith acid and each wafer has an etch pit density or EPD.Certain micro devices,such as GaAs industriallasers,require wafers with very low EPD.We consider the process technology

179、used by Tongmei to achievelow EPD as proprietary process technology and we believe we are one of only a few substrate manufacturingcompanies that can produce low EPD wafers.ProductsWe have two product lines:specialty material substrates and raw materials integral to thesesubstrates.We design,develop

180、,manufacture and distribute high-performance semiconductor substrates,alsoknown as wafers.Through our consolidated subsidiaries in our supply chain,we also sell certain rawmaterials.InP is a high-performance semiconductor substrate used in fiber optic lasers and detectors,passiveoptical networks(PON

181、s),telecommunication,5G infrastructure,connectivity in data centers including metro,hyperscale and artificial intelligence,silicon photonics data center upgrades,photonic ICs(PICs),terrestrialsolar cell(CPV),lasers,RF amplifiers,infrared motion control and infrared thermal imaging.We make semi-insul

182、ating GaAs substrates used in making semiconductor chips in applications such as power amplifiers forwireless devices and high-performance transistors.Our semi-conducting GaAs substrates are used to createopto-electronic products,which include High Brightness LEDs that are often used to backlight wi

183、relesshandsets and LCD TVs and for automotive,signage,display and lighting applications,as well as high powerindustrial lasers for material processing(welding,cutting,drilling,soldering,marking and surfacemodification).Our semi-conducting GaAs substrates can also be used to make micro-LEDs for advan

184、cedscreen technologies and to create opto-electronic products for 3-D facial recognition sensing using VCSELs.Ge substrates are used in emerging applications,such as triple junction solar cells for space and terrestrialphotovoltaic applications and for optical applications.Substrates.We currently se

185、ll compound substrates manufactured from InP and GaAs,as well as single-element substrates manufactured from Ge.Many of our customers require customized specifications,such as special levels of iron or sulfur dopants or a special wafer thickness.We supply InP substrates in two-,three-and four-inch d

186、iameters,and are in pilot production and customer qualifications with six-inch diameterInP substrates.We supply Ge substrates in two-,four-and six-inch diameters.We supply both semi-insulatingand semi-conducting GaAs substrates in one-,two-,three-,four-,five-and six-inch diameters.More recentlywe ha

187、ve successfully developed 8-inch GaAs wafers and are selling them in small quantities.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm17/136Table of Contents13Raw Materials.Our consolidated raw material subsidiaries produc

188、e and sell certain raw materials,some of which are used in our substrate manufacturing process and some of which are sold to othercompanies.One of these consolidated companies produces pBN crucibles and another consolidated company converts raw gallium to purified gallium and produces InP base mater

189、ial.A third newly formed subsidiary will focus on production and sale of arsenic.We promote our product diversity as a way to differentiate ourselves in the market.Some competitors provide only gallium arsenide substrates.We provide gallium arsenide and also indium phosphide and germanium substrates

190、.Some competitors limit their wafer diameters to only a few sizes.Our wafers range from one inch to up to eight inches in diameter.We also produce substrates with customer defined specifications,which may range in thickness,smoothness or flatness and may include adding special additional materials,s

191、uch as iron or sulfur.In addition to our wafers or substrates,we also generate revenue from our two consolidated subsidiaries that sell raw materials.Product diversity can mitigate some of the down cycles in our market because we are not dependent on a single product or application for revenue.Custo

192、mersBefore specialty material wafers can be processed in a typical wafer manufacturing facility thatfabricates the electronic circuit,laser or optical device on a chip,a thin layer of structured chemicals is grownon the surface of the substrate.This is called an epitaxial layer.We do not grow the ep

193、itaxial layer.We sell oursubstrates to companies that apply the epitaxial layer,who then in turn sell the modified wafers to the waferfabs,chip design companies,LED manufacturers and others.Some customers do both the epitaxial layer andwafer fabrication.Epitaxial layer companies that form our custom

194、er base are located in Asia,the United States andEurope.We also sell our products to universities and other research organizations that use specialty materialsfor experimentation in various aspects of semi-conducting and semi-insulating applications.Our customersthat purchase raw materials are locat

195、ed in Asia,the United States and Europe.We have at times sold a significant portion of our products in any particular period to a limitednumber of customers.No customer represented more than 10%of our revenue for the years ended December31,2024 and 2023 and one customer represented 15%of our revenue

196、 for the year ended December 31,2022.Our top five customers,although not the same five customers for each period,represented 30%of our revenuefor the year 2024,25%of our revenue for 2023 and 34%of our revenue for 2022.For the year ended December 31,2024,three customers of our consolidated subsidiari

197、es,inaggregate,accounted for 31%of raw material sales.For the year ended December 31,2023,three customersof our consolidated subsidiaries,in aggregate,accounted for 31%of raw material sales and for the year endedDecember 31,2022,three customers accounted for 29%of raw material sales.Our subsidiaries

198、 andconsolidated raw material companies are a key strategic benefit for us as they further diversify our sources ofrevenue.Manufacturing,Raw Materials and SuppliesAll of our products are manufactured in China.We believe this location generally has favorable costsfor facilities and labor compared to

199、the United States or compared to the location of some of our competitorsin Japan and Germany.We use a two-stage wafer manufacturing process.The first stage deploys VGF technology for the crystal growth of single element or compound element ingots in diameters currently ranging from one inch to eight

200、 inches.The growth process occurs in high temperature furnaces built using Tongmei proprietarydesigns.Growing the crystalline elements into cylindrical ingots takes a number of days,depending on thematerial,the diameter and length of the ingot produced.The crystal growth stage utilizes our proprieta

201、ryprocess technology.The second stage includes slicing or sawing the ingot into wafers or substrates,thenprocessing each substrate to strict specifications,including grinding to reduce the thickness,beveling theedges,and then polishing and cleaning each substrate.Many of the wafer processing steps u

202、se chemical bathsand properly cleaning the wafer is a critical process.The wafer processing stage also utilizes our proprietaryprocess technology.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm18/136Table of Contents14Waf

203、ers from each ingot will include some material that does not meet specifications or qualitystandards.Defects may occur as a result of inherent factors in the materials used in the crystalline growthprocess.They may also result from variances in the manufacturing process.We have many steps in ourmanu

204、facturing line that are partially or fully automated but other manufacturing steps are performed manually.We intend to increase the level of automation,particularly in cleaning the wafers.Due to potential defects,yield is a key factor in our manufacturing cost.Other key elements are the initial cost

205、 of the raw materialelements,manufacturing equipment,factory loading,facilities and labor.Together with certain subsidiaries we have partial ownership in over ten raw material companies inChina that form the backbone of our supply chain model.These companies generally provide us with reliablesupply,

206、market trend visibility,and shorter lead-times for raw materials central to our manufactured products,including gallium,gallium alloys,indium phosphide poly-crystal,high-purity arsenic,germanium,germaniumdioxide,pBN and boron oxide.We believe that these raw material companies have been and will cont

207、inue tobe advantageous in allowing us to procure materials to support our planned growth.In addition,we purchasesupply parts,components and raw materials from several other domestic and international suppliers.Wedepend on a single or limited number of suppliers for certain critical materials used in

208、 the production of oursubstrates,such as quartz tubing,arsenic,phosphorus and polishing solutions.We generally purchase ourmaterials through standard purchase orders and not pursuant to long-term supply contracts.RecyclingWe developed a proprietary process technology that enables us to recycle remna

209、nts of indiumphosphide processing material.The process was introduced into manufacturing in 2022.The process involvescapturing certain InP waste materials generated in the manufacturing process.These materials can then be re-processed and cycled back into the normal process procedures.Not only is th

210、is beneficial for environmentalreasons,it also reduces our total material costs and,ultimately,improves our gross margin.We have alsodeveloped a recycling process for gallium arsenide.Sales and MarketingWe sell our substrate products directly to customers through our direct salesforce in the UnitedS

211、tates,China and Europe.We also use independent sales representatives and distributors in Japan,Taiwan,Korea and other areas.Our direct sales force is knowledgeable in the use of compound and single-elementsubstrates.Specialty material wafers are scientifically complicated.Our application engineers m

212、ust workclosely with customers during all stages of our wafer substrate manufacturing process,from developing theprecise composition of the wafer substrate through manufacturing and processing the wafer substrate to thecustomers specifications.We believe that maintaining a close relationship with cu

213、stomers and providing themwith engineering support improves customer satisfaction and provides us with a competitive advantage inselling.A significant percentage of the members of our technical sales support team who frequently engagewith customers have PhDs in physics or materials science.Internati

214、onal Sales.International sales are a substantial part of our business.Sales to customers outside North America(primarily the United States)accounted for approximately 92%of our revenue for 2024 and approximately 90%and 86%of our revenue during each of 2023 and 2022,respectively.The primary markets f

215、or sales of our substrate products outside of North America are to customers located in Asia and Western Europe.Our raw material companies sell specialty raw materials including 4N,5N,6N,7N and 8N gallium,boron oxide,germanium,arsenic,germanium dioxide,and pyrolytic boron nitride crucibles used,for

216、example,in crystal growth processes,epitaxial layer growth in MBE reactors and manufacturing OLED rings.Each rawmaterial company has its own separate sales force and sells directly to its own customers in addition to sellingraw materials to us.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.go

217、v/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm19/136Table of Contents15Research and DevelopmentTo maintain and improve our competitive position,we focus our research and development efforts on designing new proprietary processes and products,improving the performance of exist

218、ing products,achieving new lows in EPD,increasing yields and reducing manufacturing costs.We also conduct research and development focusing on larger diameter wafers and,in our history,we have consistently developed new products based on larger wafer diameters.Crystal growth of specialty earth mater

219、ials becomes significantly more difficult as the ingot diameter increases because a consistent temperature,and in the case of InP,consistent control of pressure,must be applied over a larger surface area.Certain micro devices,such as those used in industrial lasers,require GaAs wafers with very low

220、EPD.Low EPD will also be required for GaAs 8-inch diameter wafers applications and InP wafers that will be used in certain high-end applications.Low EPD has been,and will remain,a focus in our research and development efforts.Our current substrate research and development activities focus on continu

221、ed development andenhancement of GaAs,InP and Ge substrates,including improved yield,enhanced surface and electricalcharacteristics and uniformity,greater substrate strength and increased crystal length.In 2015,we acquiredproprietary wafer processing equipment from Hitachi Metals.The Hitachi Metals

222、purchase includes a licensecovering the use of the proprietary equipment and Hitachi Metals proprietary wafer processing technology.Aparticular focus of the equipment and process technology is on cleaning the wafers.It is important to removeany residual cleaning agents from each wafer to ensure that

223、 the epitaxial growth process is not encumbered byresidual chemicals on the wafer.We are also focused on developing 6-inch InP wafer substrates and onincreasing yields on the recently developed 8-inch GaAs wafers substrates.As a manufacturing company,we must constantly improve our manufacturing proc

224、esses to remaincompetitive,and our research and development programs must be integrated into our manufacturing lines.Allof our research and development is conducted at our manufacturing facilities in China and the processtechnology developed by the China teams over the last 20 years enables us to re

225、main competitive and toprovide high-quality wafer substrates to our customers.Our China research and development teams mustcontinue to stay close to the manufacturing sites and develop new process steps,features and benefits.Webelieve our teams are fully capable of moving the process technology forw

226、ard.Our consolidated subsidiaries conduct research and development,focusing on gallium alloys,galliumrefinement and pyrolytic boron nitride crucibles used in high temperature crystal growth.We have assembled a multi-disciplinary team of skilled scientists,engineers and technicians to meetour researc

227、h and development objectives.Research and development expenses were$14.5 million in 2024,compared with$12.1 million in 2023 and$13.9 million in 2022.Development work focusing on yield,continuous improvement and other matters related to our research and development efforts also occurs withinregular m

228、anufacturing processes.These costs are included in our cost of revenue because it is difficult toisolate them as research and development.CompetitionThe semiconductor substrate industry is characterized by narrow technological boundaries,priceerosion and generally intense competition.Certain wafer s

229、ubstrates,such as low-quality wafer substrates forconsumer products using LED lighting,compete almost entirely on price.Other products,such as InP and lowEPD GaAs wafers,have fewer competitors and quality is a key competitive factor in addition to price.Weface actual and potential competition from a

230、 number of established companies who have the advantages ofgreater name recognition and more established relationships in the industry.In some cases,our competitorshave substantially greater financial,technical and marketing resources as they are divisions of much largercompanies.They may utilize th

231、ese advantages to expand their product offerings more quickly,adapt to new oremerging technologies and changes in customer requirements more quickly,and devote greater resources tothe marketing and sale of their products.We believe a critical factor in our business is the level of technicalsupport w

232、e provide to the customer or prospective customer and we attempt to counter possible advantages ofname recognition or size with superior technical support through our team of technical sales supportprofessionals,the majority of whom hold PhDs in physics or materials science.2025/5/19 14:07AXT INC_De

233、cember 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm20/136Table of Contents16We believe that the primary competitive factors in the markets in which our substrate productscompete are:quality;low EPD;price;customer technical support;performance;meeting

234、 customer specifications;andmanufacturing capacity.Our ability to compete in target markets also depends on factors such as:the timing and success of the development and introduction of new products,including largerdiameter wafers,and product features by us and our competitors;the availability of ad

235、equate sources of raw materials;protection of our proprietary methods,systems and processes;protection of our products and processes by effective use of intellectual property laws;andgeneral economic conditions,which impact end markets using substrates.A majority of our customers specialize in epita

236、xial growth,a complex series of chemical layersgrown on top of our wafers.Our wafers cannot be used to make chips until the epitaxial layers are grown.Typically,our customer or prospective customer has at least two qualified substrate suppliers.Qualifiedsuppliers must meet industry-standard specific

237、ations for quality,on-time delivery and customer support.Once a substrate supplier has qualified with a customer,then price,consistent quality and current and future product delivery lead times become the most important competitive factors.A supplier that cannot meet a customers current lead times o

238、r that a customer perceives will not be able to meet future demand and provide consistent quality can lose market share.Our primary competition in the market for compound and single element semiconductor substrates includes Sumitomo Electric Industries(“Sumitomo”),Japan Energy(“JX”),Freiberger Compo

239、und Materials(“Freiberger”),Umicore,China Crystal Technology Corp.(“CCTC”)and Vital Materials.We believe that at least two of our competitors are shipping high volumes of GaAs substrates manufactured using a process similar to our VGF technology.In addition,we also face competition from semiconducto

240、r device manufacturers that may use other specialty material substrates that are not GaAs,InP or Ge based materials and that are actively exploring alternative materials.For example,silicon-on-insulator(“SOI”)technology,a silicon wafer technology that produces satisfactory devices at lower cost,has

241、been proven in the market.From 2012 to 2015,SOI technology displaced GaAs chips in key sectors,primarily the radio frequency(“RF”)switching function in cell phones.Because of our vertically integrated,sophisticated supply chain,we believe we are the onlycompound semiconductor substrate supplier to o

242、ffer a broad suite of raw materials.We believe this gives us aunique competitive advantage because we have greater control and stability over many of our neededmaterials.Further,we believe we have some advantage in manufacturing costs.In the event of a significantincrease in demand we believe our ra

243、w materials supply chain strategy and our ability to rapidly increasecapacity can provide us some advantage.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm21/136Table of Contents17Intellectual PropertyOur success and the

244、competitive position of our VGF technology depend on our ability to maintainthe proprietary process technology secrets developed by teams in China and other intellectual propertyprotections.We rely on a combination of patents,trademark and trade secret laws,non-disclosure agreementsand other intelle

245、ctual property protection methods to protect our proprietary technology.We believe that,dueto the rapid pace of technological innovation in the markets for our products,our ability to establish andmaintain a position of technology leadership depends as much on the skills of our research and developm

246、entpersonnel in China as upon the legal protections afforded our existing technologies.To protect our tradesecrets,we take certain measures to ensure their secrecy,such as executing non-disclosure agreements withour employees,customers and suppliers.However,reliance on trade secrets is only an effec

247、tive businesspractice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverseengineered or independently developed.In addition to proprietary process trade secrets,we also file patents.To date,we have been issued170 patents that relate to our VGF products and

248、processes;139 in China,13 in the United States,8 in Japan,4in Taiwan,4 in the European Union,and 2 in Germany.Patents have a protected life of 20 years(or 10 yearsfor utility model patents in China)from their filing dates.Our patents have expiration dates ranging from2025 to 2039.In some cases we ma

249、y consider filing divisional,continuation or continuation-in-part of theexisting patents for additional claims.We have several patent applications pending in China,United States,and rest of the world.Furthermore,in aggregate,our consolidated raw material companies have been issued132 patents in Chin

250、a,including 36 patents issued to JinMei,80 patents issued to BoYu and 15 patents issuedto ChaoYang XinMei High Purity Semiconductor Materials Co.,Ltd.(“ChaoYang XinMei”),and 1 patentissued to ChaoYang ShuoMei High Purity Semiconductor Materials Co.,Ltd.(“ChaoYang ShuoMei”).In the normal course of bu

251、siness,we periodically receive and make inquiries regarding possiblepatent infringement.In dealing with such inquiries,it may become necessary or useful for us to obtain orgrant licenses or other rights.However,there can be no assurance that such licenses or rights will be availableto us on commerci

252、ally reasonable terms.If we are not able to resolve or settle claims,obtain necessarylicenses on commercially reasonable terms and/or successfully prosecute or defend our position,our business,financial condition and results of operations could be materially and adversely affected.Environmental Regu

253、lationsWe are subject to federal,state and local environmental and safety laws and regulations in all of ouroperating locations,including laws and regulations of China,such as laws and regulations related to thedevelopment,manufacture and use of our products,the use of hazardous materials,the operat

254、ion of ourfacilities,and the use of the real property.These laws and regulations govern the use,storage,discharge anddisposal of hazardous materials during manufacturing,research and development and sales demonstrations.We maintain a number of environmental,health and safety programs that are primar

255、ily preventive in nature.As part of these programs,we regularly monitor ongoing compliance.If we fail to comply with applicableregulations,we could be subject to substantial liability for clean-up efforts,personal injury,fines orsuspension or be forced to cease our operations,and/or suspend or termi

256、nate the development,manufacture oruse of certain of our products,the use of our facilities,or the use of our real property,each of which couldhave a material adverse effect on our business,financial condition and results of operations.The regulatorylandscape shifts and changes in China as that coun

257、try works to improve the environment.Because wemanufacture all of our products in China,we are subject to an evolving set of regulations that could requirechanges in our equipment and processes,which may increase our capital expenditures and require us to obtainnew permits.In 2017,China increased it

258、s focus on environmental concerns which increased pressure onmanufacturing companies.During periods of severe air pollution in Beijing,manufacturing companies,including Tongmei,may be ordered by the local government to stop production for several days.For example,in the first quarter of 2018,over 30

259、0 manufacturing companies,including Tongmei,were intermittently shutdown by the local government for a total of ten days from February 27 to March 31,due to severe airpollution.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.

260、htm22/136Table of Contents18Human CapitalAs of December 31,2024,AXT and Tongmei had 1,075 employees,which consisted of 25employees in our headquarters in Fremont,California,one sales professional in France and 1,049 employeesin our factories in China.In addition,our consolidated raw material compani

261、es had,in total,452 employees.In aggregate,we and our consolidated raw material companies had 1,527 employees,of whom 1,111 wereprincipally engaged in manufacturing,202 in sales and administration and 214 in research and development.Of these 1,527 employees,25,consisting of sales and marketing,accou

262、nting and finance,administration andcorporate executives were located in the United States,one in France and 1,501 in China.Our employees inChina are citizens of China,have families and pay taxes in China.We believe these factors are viewedfavorably by government agencies in China.We believe that ou

263、r future success largely depends upon our continued ability to attract and retainhighly skilled employees.We provide our employees with competitive salaries and bonuses,opportunities forequity ownership,development programs that enable continued learning and growth and a robust employmentpackage tha

264、t promotes well-being across all aspects of their lives,including health care and paid time off.Most of our employees in China are represented by unions.As of December 31,2024,1,341 employees inChina,including employees of our consolidated raw material companies,were represented by unions.Wehave nev

265、er experienced a work stoppage and we consider our relations with our employees to be good.Geographical InformationPlease see Note 14 to our consolidated financial statements for information regarding our foreignoperations,and see“Risks related to international aspects of our business”under Item 1A.

266、Risk Factors forfurther information on risks attendant to our foreign operations and dependence.Available InformationOur principal executive offices are located at 4281 Technology Drive,Fremont,CA 94538,and ourmain telephone number at this address is(510)438-4700.Our Internet website address is .Our

267、website address is given solely for informational purposes;we do not intend,by this reference,that ourwebsite should be deemed to be part of this Annual Report on Form 10-K or to incorporate the informationavailable at our website address into this Annual Report on Form 10-K.We file electronically w

268、ith the SEC our annual reports on Form 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended.We make these reports available free of chargethrough our Inter

269、net website as soon as reasonably practicable after we have electronically filed such materialwith the SEC.These reports can also be obtained from the SECs Internet website at www.sec.gov.Item 1A.Risk FactorsFor ease of reference,we have divided these risks and uncertainties into the following gener

270、alcategories:I.Summary Risk Factors;II.Risks Related to Our Business and Operations;III.Risks Related to International Aspects of Our Business;IV.Risks Related to Our Financial Results and Capital Structure;V.Risks Related to Our Intellectual Property;andVI.Risks Related to Compliance,Environmental

271、Regulations and Other Legal Matters.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm23/136Table of Contents19I.Summary Risk FactorsGlobal economic and political conditions,including trade tariffs,import-export restrictions

272、,andother restrictions,may have a negative impact on our business and financial results.We are subject to a number of unique legal and operational risks associated with our corporatestructure.The PRC central government may intervene in or influence our PRC operations at any time and therules and reg

273、ulations in China can change quickly with little advance notice.Although the audit report included in this Annual Report is prepared by an independent registeredpublic accounting firm who is currently inspected fully by the Public Company AccountingOversight Board(the“PCAOB”),there is no guarantee t

274、hat future audit reports will be prepared byan independent registered public accounting firm that is completely inspected by the PCAOB.Our NASDAQ stock price is volatile and our stock price could decline.Unpredictable fluctuations inour operating results,changes and events in our end markets and glo

275、bal trends cause volatility in ourstock price.We face litigation and legal proceedings which could adversely affect our business,financialcondition,results of operations or cash flows.Changes in Chinas political,social,regulatory or economic environments may affect our financialperformance.The Chine

276、se central government is increasingly aware of air pollution and other forms of environmental pollution and their reform efforts can impact our manufacturing,including intermittent mandatory shutdowns.Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margin

277、s.Escalating trade tariffs,import restrictions,export restrictions,Chinese regulations or other tradebarriers may materially harm our business.If China places restrictions on freight and transportation routes and on ports of entry and departurethis could result in shipping delays or increased costs

278、for shipping.Our international operations are exposed to potential adverse tax consequence in China.Our gross margin has fluctuated historically and may decline or increase due to several factors.Factors such as product mix,unit volume,yields and other manufacturing efficiencies can cause ourgross m

279、argin to decrease or increase from quarter to quarter.The proposed Tongmei IPO on the STAR Market in China could fail to be completed.This couldresult in investor disappointment and in failure to secure sufficient capital needed to take advantageof market opportunities for our products.Our stock pri

280、ce could decline.The terms of the private equity raised by Tongmei in China grant each investor a right of redemptionif the IPO fails to pass the audit of the Shanghai Stock Exchange,is not approved by the CSRC orTongmei cancels the IPO application.This could result in disgorging the cash that we ra

281、ised from theInvestors.Defects in our products could diminish demand for our products.Our ability to receive orders fromtier one customers is contingent on producing wafer substrates of very high quality and deployingbest practices in manufacturing.We may not always be able to meet these requirement

282、s and wecould then lose revenue.Difficulties in accurately estimating market demand could result in over-investing in inventory,equipment and capacity expansion or losing market share if we do not invest sufficiently.Attracting and retaining tier one customers requires that we succeed in our researc

283、h and development programs.Customers establish difficult to meet product specifications regarding defect densities,surface flatness,diameter size and other specifications pushing the boundaries of material science.We may not achieve these specifications.We are subject to foreign exchange gains and l

284、osses that materially impact our consolidatedstatements of operations.Because we are a global company we are exposed to changes and swings inforeign exchange,particularly when currencies experience periods of volatility.Joint venture raw material companies in China bring certain risks.We derive a si

285、gnificant portion of our revenue from international sales,and our ability to sustain andincrease our international sales involves significant risks.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm24/136Table of Contents20I

286、I.Risks Related to Our Business and OperationsGlobal economic and political conditions,including trade tariffs,import-export restrictions,and otherrestrictions,may have a negative impact on our business and financial results.In September 2018,the United States announced a list of thousands of catego

287、ries of goods thatbecame subject to Section 301 tariffs when imported into the United States from China.This pronouncementimposed tariffs on wafer substrates we imported into the United States.The initial tariff rate was 25%.OnJuly 3,2023,China announced new export control regulations on materials i

288、ncluding gallium and germaniumand compounds of these materials,effective as of August 1,2023.Materials that could be used in militaryapplications,specifically including weapons of mass destruction,were the primary focus.This requiredTongmei to seek permits from the applicable Chinese authorities to

289、export gallium arsenide and germaniumsubstrates.Since that time,a general escalation has been underway with further increases to the tariffs fromthe US and additional export controls from China.The escalating requirements resulted in a new layer of administration within our company.Eachorder needs t

290、he customer to certify in writing that our wafer substrates will not be used in militaryapplications and must state the end use of our products.This is a labor intensive process and has extended thecycle time in order fulfillment.To ensure compliance in trade matters we have consulted with legal exp

291、ertsand incurred additional legal costs.The rapid pace of change and new regulations in trade matters results inmore internal administrative review and costs.In late 2024 and early 2025,a new round of trade restrictions was announced by China and the United States.On December 3,2024,China issued fur

292、ther rules restricting exports of materials that can typically be used in military applications including antimony,gallium,germanium and other superhard materials.The effective date was December 3,2024,the same day as the announcement itself.Reciprocally,the United States increased tariffs on many i

293、tems from China from 25%to 50%,effective January 1,2025.On February 1,2025,the United States again further increased the tariff on imports of many products from China,including our wafer substrates,to 60%.On March 4,2025,the United States further increased the tariff on imports of many products,incl

294、uding our wafer substrates,to 70%.All of our wafer substrates are manufactured in China and in the years 2024,2023 and 2022,approximately 8%,10%and 14%of our revenue,respectively,were generated by sales to customers in NorthAmerica,primarily in the U.S.In the years 2024,2023 and 2022,we paid approxi

295、mately$1.0 million,$1.0million and$3.3 million,respectively,in tariffs.The trade and political tensions between China and the U.S.remain high and controls on exports and tariffs are changing and fluid.Silicon substrates(wafers)are significantly lower in cost compared to substrates made from specialt

296、ymaterials,such as those that we produce,and new silicon-based technologies could enable silicon-basedsubstrates to replace specialty material-based substrates for certain applications.Historically silicon wafers or substrates are less expensive than specialty material substrates,such asthose that w

297、e produce.Electronic circuit designers will generally consider silicon first and only turn toalternative materials if silicon cannot provide the required functionality in terms of power consumption,speed,wave lengths or other specifications.Beginning in 2011,certain applications that had previously

298、usedGaAs substrates,specifically the RF chip in mobile phones,adopted a new silicon-based technology calledsilicon on insulator,or SOI.SOI technology uses a silicon-insulator-silicon layered substrate in place ofconventional silicon substrates in semiconductor manufacturing.SOI substrates cost less

299、than GaAs substratesand,although their performance is not as robust as GaAs substrates in terms of power consumption,heatgeneration and speed,they became acceptable in mobile phones and other applications that were previouslydominated by GaAs substrates.The adoption of SOI resulted in decreased GaAs

300、 wafer demand,and decreasedrevenue.If SOI or new silicon-based technologies gain more widespread market acceptance,or are used inmore applications,our sales of specialty material-based substrates could be reduced and our business andoperating results could be significantly and adversely affected.202

301、5/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm25/136Table of Contents21Our gross margin has fluctuated historically and may decline due to several factors.Our gross margin has fluctuated from period to period as a result of

302、 increases or decreases in totalrevenue,unit volume,shifts in product mix,shifts in the cost of raw materials,costs related to the relocationof our gallium arsenide and germanium production lines,including costs related to hiring additionalmanufacturing employees at our new locations,tariffs imposed

303、 by the U.S.government,the introduction ofnew products,decreases in average selling prices for products,utilization of our manufacturing capacity,fluctuations in manufacturing yields and our ability to reduce product costs.These factors and other variableschange from period to period and these fluct

304、uations are expected to continue in the future.For example,in thethird quarter of 2022 our gross margin was 42.0%but it dropped to 10.7%in the third quarter of 2023 as aresult of several of these factors.Our raw material companies experience selling price volatility and purchase price volatility ina

305、cquiring base materials.We consolidate the results of several of these raw material companies,and anyreduction in their gross margins could have a significant,adverse impact on our overall gross margins.One ormore of our companies has in the past sold,and may in the future sell,raw materials at sign

306、ificantly reducedprices in order to gain volume sales or sales to new customers.In addition,the market price of galliumdropped below our per unit inventory cost and we incurred an inventory write down under the lower of cost ornet realizable value accounting rules.Shutdowns or underutilizing our man

307、ufacturing facilities may result in declines in our gross margins.An important factor in our success is the extent to which we are able to utilize the available capacityin our manufacturing facilities.A number of factors and circumstances may reduce utilization rates,includingperiods of industry ove

308、rcapacity,low levels of customer orders,operating inefficiencies,mechanical failuresand disruption of operations due to expansion,power interruptions,fire,flood,other natural disasters orcalamities or government-ordered mandatory factory shutdowns,including as a result of the COVID-19pandemic.Severe

309、 air pollution in Beijing can trigger mandatory factory shutdowns.For example,in the firstquarter of 2018,over 300 manufacturing companies,including Tongmei,were intermittently shut down by thelocal government for a total of ten days from February 27 to March 31,due to severe air pollution.Further,w

310、ehave increased capacity by adding two new sites and this could reduce our utilization rate and increase ourdepreciation charges.Because many portions of our manufacturing costs are relatively fixed,high utilizationrates are critical to our gross margins and operating results.If we fail to achieve a

311、cceptable manufacturingvolumes or experience product shipment delays,our results of operations will be negatively affected.Duringperiods of decreased demand,we have underutilized our manufacturing lines.If we are unable to improveutilization levels at our facilities during periods of decreased deman

312、d and correctly manage capacity,the fixedexpense levels will have an adverse effect on our business,financial condition and results of operations.Forexample,in the three months ended September 30,2023,our revenue dropped to$17.4 million and our grossmargin was only 10.7%.If we are unable to utilize

313、the available capacity in our manufacturing facilities,we may need toimplement a restructuring plan,which could have a material adverse effect on our revenue,our results ofoperations and our financial condition.For example,in 2013,we concluded that incoming orders wereinsufficient and that we were s

314、ignificantly underutilizing our factory capacity.As a result,in February 2014,we announced a restructuring plan with respect to our China company,Tongmei,in order to better alignmanufacturing capacity with demand.Under the restructuring plan,we recorded a charge of approximately$907,000 in the first

315、 quarter of 2014.If we receive fewer customer orders than forecasted or if our customers delay or cancel orders,wemay not be able to reduce our manufacturing costs in the short-term and our gross margins would benegatively affected.In addition,lead times required by our customers are shrinking,which

316、 reduces our abilityto forecast orders and properly balance our capacity utilization.2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm26/136Table of Contents22Cyber-attacks,system security risks and data protection issues c

317、ould disrupt our internal operations andcause a reduction in revenue,increase in expenses,negatively impact our results of operation or result inother adverse consequences.Like most technology companies,we could be targeted in cyber-attacks.We face a risk thatexperienced computer programmers and hac

318、kers may be able to penetrate our network security andmisappropriate or compromise our confidential and proprietary information,potentially without beingdetected.Computer programmers and hackers also may be able to develop and deploy viruses,worms,andother malicious software programs that attack our

319、 information technology infrastructure and demand a ransompayment.The costs to us to eliminate or alleviate cyber or other security problems,bugs,viruses,worms,malicious software programs and security vulnerabilities could be significant,and our efforts to address theseproblems may not be successful

320、 and could result in interruptions and delays that may impede our sales,manufacturing,distribution,accounting or other critical functions.Breaches of our security measures could create system disruptions or cause shutdowns or result inthe accidental loss,inadvertent disclosure or unapproved dissemin

321、ation of proprietary information or sensitiveor confidential data about us.Cyber-attacks could use fraud,trickery or other forms of deception.A cyber-attack could expose us to a risk of loss or misuse of information,result in litigation and potential liability,damage our reputation or otherwise harm

322、 our business.In addition,the cost and operational consequences ofimplementing further data protection measures could be significant.Portions of our information technology infrastructure might also experience interruptions,delays orcessations of service or produce errors in connection with upgrades,

323、systems integration or migration workthat takes place from time to time,which may have a material impact on our business.We may not besuccessful in implementing upgrades,new systems and transitioning data,which could cause businessdisruptions and be more expensive,time consuming,disruptive and resou

324、rce-intensive than originallyanticipated.Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes.Delayed sales,lower margins or lost customers could adversely affect our financial results and reputation.COVID-19 or other contagious diseases may affect our

325、business operations and financial performance.The spread of COVID-19 impacted our operations and financial performance.The outbreak ofCOVID triggered references to the SARS outbreak,which occurred in 2003 and affected our businessoperations.Any severe occurrence of an outbreak of a contagious diseas

326、e such as COVID-19,SARS,AvianFlu or Ebola may cause us or the government to temporarily close our manufacturing operations in China.InJanuary 2020,virtually all companies in China were ordered to remain closed after the traditional Lunar NewYear holiday ended,including our subsidiaries in China.If t

327、here is a renewed surge of the COVID-19pandemic in cities in which our PRC subsidiaries and PRC joint ventures are located,the Chinese governmentmay require these companies to close again.If one or more of our key suppliers is required to close for anextended period,we might not have enough raw mate

328、rial inventories to continue manufacturing operations.Inaddition,travel restrictions between China and the U.S.were disrupted and this impacted our efficiency.In thefuture,if our manufacturing operations were closed for a significant period or we experience difficulty inshipping our products,we coul

329、d lose revenue and market share,which would depress our financialperformance and could be difficult to recapture.If one of our key customers is required to close for anextended period,this may delay the placement of new orders.As a result,our revenue would decline.If we have low product yields,the s

330、hipment of our products may be delayed and our product cost andoperating results may be adversely impacted.A critical factor in our product cost is yield.Our products are manufactured using complex crystalgrowth and wafer processing technologies,and the number of usable wafer substrates we produce c

331、anfluctuate as a result of many factors,including:poor control of furnace temperature and pressure during crystal growth;impurities in the materials used;2025/5/19 14:07AXT INC_December 31,2024https:/www.sec.gov/Archives/edgar/data/1051627/000155837025003004/axti-20241231x10k.htm27/136Table of Conte

332、nts23contamination of the manufacturing environment;quality control and inconsistency in quality levels;lack of automation and inconsistent processing requiring manual manufacturing steps;substrate breakage during the manufacturing process;andequipment failure,power outages or variations in the manu

333、facturing process.An example where yield is of special concern is for our six-inch semi-conducting gallium arsenidesubstrates,which can be used for manufacturing industrial lasers and LED lighting.These applications requirevery low defect densities,also called EPD,and our yields will be lower than the yields achieved for the samesubstrate when it will be used in other applications.If we are unable