Aixtron’s Q3 upturn not enough to avoid heavy 2012 lossDeposition equipment maker Aixtron SE of Herzogenrath, Germany has seen its third-quarter 2012 equipment orders pick up by 15% sequentially to €34.5m. The company says that current Q4/2012 quotation levels suggest a continuation of this development, implying that “the order trough point in the current investment cycle has been passed”. Q3/2012 revenue increased by 35% sequentially to €62.2m. However, the boost in order intake and revenues during Q3 was not as strong as expected. Fiscal | | | | | Q3/2012 | Quarterly Revenue | €89.8m
| €140.1m
| €42m | €46.1m | €62.2m |
Looking at the longer 9-month business period, from January to September 2012, and comparing it with the 2011 equivalent, paints a different picture, with this year’s three quarters’ sales having dropped 68% to €150m (from €471 m), gross profit down to -€17.3m (from €220m) and earnings before interest and taxes (EBIT) down to -€113m (from €129 m). Aixtron management has therefore reviewed its immediate outlook in relation to the inventories held and concluded that, despite the positive long-term outlook for the LED industry, the existing stock held was inappropriately high in comparison with the current subdued level of demand in the market. The company stated, “Management has decided to write down €51.5 m of inventories as excess to requirement. As it is now evident that Aixtron will not return to profitability during 2012, the company has now guided towards a 2012 EBIT loss of around €125m, based on likely revenues of €220m for the fiscal year 2012.” Aixtron’s Q3/2012 gross profit was reported to be -€42.3m, which was significantly lower than in Q2/2012 (€14.7m), due mainly to the inventory write-downs, but also influenced by a less favorable product mix which included a lower level of final customer acceptances and softer pricing on some legacy products. Despite high MOCVD utilization rates, which have historically been seen as a precursor to an imminent pickup in equipment orders, in the current environment Aixtron said its customers still remain hesitant about adding new LED production capacity. This hesitancy is perceived to be also influenced by the recent highly competitive pricing development in consumer end-markets and the consequent margin pressure on LED makers. In other end markets, Aixtron has seen its non-LED business gaining further traction throughout 2012. This includes Silicon Semiconductor equipment, with increasing demand for the new QXP-8300 ALD (atomic layer deposition) system, offering a compelling and cost-effective technology solution for memory producers. Similarly, the company said it is seeing far greater interest from Power Electronics and LED customers in the recently launched AIX G5+ systems, which are optimized for both power electronics devices and gallium nitride on silicon (GaN-on-Si) LED structures. The firm’s recently announced Prodos range of organic semiconductor technology has attracted interest in both the R&D community and amongst the emerging OLED production industry. Aixtron is currently commissioning and qualifying a production system for a major Asian customer. President & CEO Paul Hyland said he remains confident that Aixtron has the appropriate strategy to capitalize on the next LED-lighting investment cycle and to be able to pursue adjacent growth market opportunities: “We are clearly getting closer to the start of the third major LED investment cycle, namely for LED general lighting. It is not a question of ‘if’ this substantial market arrives; it is only a question of ‘when’. Despite the difficult macro-economic circumstances we are all contending with, we continue to draw cautious optimism from the frequent evidence of increasing adoption momentum towards LED lighting. “It is however increasingly difficult in the current economic environment to predict accurately the exact timing of that solid-state lighting inflection point. This difficulty is evidenced by a much slower-than-expected pick up in orders and revenues, which has led to the €51.5m write-down on inventories we reported in Q3,” he added. “But whatever the precise timing may be, what is certain is that the absolute volume growth being predicted for LED lighting adoption will eventually require a very substantial buildup of LED manufacturing capacity over the next years. This is a significant growth opportunity for Aixtron and we are confident that we are well positioned for this next market up-cycle with our market-driven R&D investments, our technology track record, our strong local footprint and solid customer relationships,” Hyland continued. “We have the necessary support of a strong balance sheet with a solid cash position and no debt, and will continue to look for business-efficient cost-saving measures to optimize our cost structure going forward.” For fiscal year 2012, Aixtron expects sequentially stronger fourth-quarter revenues, albeit considerably less than previously expected. However, as a result of the unexpected slower demand recovery, the firm will not report a profit in fiscal 2012. It expects to achieve full-year 2012 revenues of €220m and an EBIT loss of about -€125m. Management expects to see an increase in demand for manufacturing equipment in 2013, driven by projected stronger equipment demand from the LED general lighting market as well as other non-LED applications, and expects to return to profitability during 2013. Aixtron is also expecting to gain further traction in emerging MOCVD non-LED applications and other technology markets, including silicon semiconductor, power electronics and organic semiconductor applications. Following the company’s announcements of its Q3 results and revised 2012 forecast, president & CEO Paul Hyland and executive VP & chief financial officer Wolfgang Breme made some further comments to the subsequent press conference about the firm’s recent performance, prospects and the wider market conditions affecting Aixtron and other similar manufacturers. “Aixtron has passed the trough point in the current order cycle, which is reflected in that orders and shipments are both picking up, albeit modestly at this point in time,” believes Hyland. “We continue to be optimistic about the development and growth potential of our largest market for MOCVD equipment, namely the LED market. “We remain particularly positive about the growing adoption of LEDs in general lighting. During Q3, for instance, we saw the first sub-€10, 60W-equivalent LED light bulb being offered for sale by a major European supermarket retailer. We anticipate significantly greater demand at these price levels, given the longevity and low maintenance of these products compared to conventional lighting,” he adds. “We also continue to gain traction in our non-LED business. Non-LED MOCVD compound semiconductor equipment enquiries for power applications have continued to grow, reflecting the increasing interest, principally from the power electronics customers focused on the buoyant mobile market. Whilst not yet significant in volume terms, it does offer the prospect of more diversity from another MOCVD end-market opportunity.” Breme added, “Aixtron is still engaged in optimizing [our] cost structure. For the first nine months of the year, general & administration expenses have decreased year-on-year by 41% from €24.9m to €14.7m, principally due to a reduced number of temporary staff, lower consultancy costs, and lower IT infrastructure costs, as well as less profit-related expenses. Selling expenses have also fallen year-on-year by 8%. “We should not forget that the semiconductor equipment business in general is notorious for its ‘feast and famine’ cyclical characteristics,” noted Hyland. “But what is new for compound semiconductors is that it has been further exaggerated by the unprecedented level of government subsidies seen in recent years, which fueled non-market-driven LED equipment demand.” See related items: Aixtron records €51.5m inventory write-down due to slower-than-expected recovery in MOCVD demand
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