AXT, Inc.

Company Overview

Business Model: AXT, Inc. is a global materials science company specializing in the development and production of high-performance compound and single element semiconductor substrates, also known as wafers. These wafers are utilized in applications where traditional silicon substrates cannot meet performance demands, such as high-speed data transmission, optoelectronics, and specific power management. The company's value proposition is rooted in researching, developing, and producing these specialty material wafers. AXT, Inc. operates two primary product lines: specialty material substrates and raw materials integral to these substrates. In 2025, the substrate product group generated 67% of consolidated revenue, while the raw materials product group accounted for 33%.

Market Position: AXT, Inc. operates within the intensely competitive semiconductor substrate industry, focusing on non-silicon based materials. The company leverages a vertically integrated supply chain in China, which it believes provides pricing advantages, reliable supply, market trend visibility, and shorter lead-times for key raw materials. AXT, Inc. highlights its proprietary Vertical Gradient Freeze (VGF) technology for ingot growth and its low-cost manufacturing operations in China as key competitive advantages. The company claims its Indium Phosphide substrates are "best in class" with potential for "dominant supplier" status, and it is a "key provider of low defect density Gallium Arsenide wafer substrates." AXT, Inc. also states it is the "only compound semiconductor substrate supplier to offer a broad suite of raw materials."

Recent Strategic Developments:

• Tongmei STAR Market IPO: AXT, Inc. initiated a strategic process in November 2020 to list shares of its wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd. ("Tongmei"), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the "STAR Market"). As part of this, private equity firms in China invested approximately $49 million in Tongmei, receiving a 7.28% redeemable noncontrolling interest. Tongmei's IPO application was formally accepted for review by the Shanghai Stock Exchange in January 2022, approved in July 2022, and accepted by the Chinese Securities Regulatory Commission ("CSRC") in August 2022. The IPO remains subject to review and approval by the CSRC and other authorities.
• Entity Reorganizations: In December 2020, Nanjing JinMei Gallium Co., Ltd. ("JinMei") and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. ("BoYu") and their subsidiaries were assigned to Tongmei. AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, Inc., was assigned to Tongmei as of June 30, 2021.
• Capacity Expansion: AXT, Inc. has increased capacity by adding new facilities and equipment, including new manufacturing sites in Dingxing, China, and Kazuo, China.
• Recycling Program: A proprietary process for recycling Indium Phosphide processing material was introduced into manufacturing in 2022, reducing material costs and improving gross margins. A recycling process for Gallium Arsenide has also been developed.
• Public Offering: In December 2025, AXT, Inc. completed a public offering of common stock, raising approximately $100 million in gross proceeds ($93.9 million net). The net proceeds are intended to support Tongmei's efforts to increase manufacturing capacity for Indium Phosphide substrates for worldwide export, fund research and development, and for working capital and general corporate purposes.

Geographic Footprint: AXT, Inc.'s principal corporate office is in Fremont, California, USA. All of its substrate and raw material products are manufactured in the People’s Republic of China by its PRC subsidiaries and PRC joint ventures, with key operational locations including Beijing, Dingxing, Kazuo, Tianjin, and Nanjing. International sales are substantial, accounting for approximately 98% of total revenue in 2025, with primary markets in Asia (China, Taiwan, Japan) and Western Europe. Sales to North America represented approximately 2% of total revenue in 2025.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 12.7% (2025), 24.0% (2024)
• Operating Margin: -24.9% (2025), -14.9% (2024)
• Net Margin: -26.3% (2025), -11.9% (2024)

Investment in Growth:

• R&D Expenditure: $9.0 million (10.2% of revenue) in 2025, $14.5 million (14.6% of revenue) in 2024.
• Capital Expenditures: $6.0 million (2025), $5.8 million (2024) for purchases of property, plant, and equipment.
• Strategic Investments: $0.8 million (2025) and $0.8 million (2024) in non-marketable equity investments. Net proceeds of $93.9 million from the December 2025 public offering are earmarked for increasing Indium Phosphide manufacturing capacity, research and development, working capital, and general corporate purposes.

Product Line Analysis

Substrates

Financial Performance:

• Revenue: $58.9 million (2025), $67.7 million (2024)
• YoY Change: -13.1% (2025 vs 2024)
• Key Performance Drivers (2025 vs 2024): The decrease was primarily due to lower sales of germanium wafers, a deliberate reduction due to increased raw material costs against competitive pricing. Indium Phosphide revenue also declined due to new export permit requirements from China effective February 4, 2025. Gallium Arsenide revenue saw a slight decline.
• Key Growth Drivers (2024 vs 2023): The increase was driven by higher demand for Indium Phosphide wafers (for 5G applications, data center upgrades, and consumer products), Gallium Arsenide wafers (for LED products, industrial lasers, and other low defect density applications), and Germanium wafers from customers in China.

Product Portfolio:

• Indium Phosphide (InP): Available in 2”, 3”, 4” diameters, with 6” in pilot production and customer qualifications. Applications include broadband and fiber optic, 5G infrastructure, data center connectivity (high-speed optical data transmission, AI applications), consumer devices (proximity sensors), Passive Optical Networks (PONs), silicon photonics, Photonic Integrated Circuits (PICs), Thermo-Photovoltaics (TPVs), RF amplifier and switching (military wireless), infrared light-emitting diodes (LEDs) for motion control, Lidar for robotics and autonomous vehicles, and infrared thermal imaging.
• Gallium Arsenide (GaAs):
  • Semi-insulating: Available in 1”, 2”, 3”, 4”, 5”, 6” diameters. Used in high-speed microwave components, power amplifier chips (cell phones, satellite communications, broadcast television), Wi-Fi devices, IoT devices, high-performance transistors, and high efficiency solar cells for drones and space.
  • Semi-conducting: Available in 1”, 2”, 3”, 4”, 5”, 6”, 8” diameters (8” wafers are being sold in small quantities). Used in high brightness LEDs (automotive, horticulture, signage, display, sensors, machine vision), industrial lasers, 3-D sensing using Vertical Cavity Surface Emitting Lasers (VCSELs) for facial recognition, data center communication using VCSELs, micro-LEDs for advanced screen technologies, printer head lasers, optical couplers, laser machining, cutting and drilling, night vision goggles, Lidar, and solar cells.
• Germanium (Ge): Available in 2”, 4”, 6” diameters. Applications include multi-junction solar cells for satellites, terrestrial concentrated photovoltaic (CPV) applications, optical sensors and detectors, infrared detectors, and as a carrier wafer for LEDs.

Raw Materials and Other

Financial Performance:

• Revenue: $29.4 million (2025), $31.6 million (2024)
• YoY Change: -6.9% (2025 vs 2024)
• Key Performance Drivers (2025 vs 2024): The decrease was primarily due to decreased sales of purified gallium, partially offset by increased revenue from pyrolytic boron nitride (pBN) crucibles and pBN-based OLED manufacturing tools sold by Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.
• Key Growth Drivers (2024 vs 2023): The increase was primarily due to increased sales of purified gallium and increased revenue from pBN crucibles and pBN-based OLED manufacturing tools sold by consolidated raw material companies.

Product Portfolio:

• Pyrolytic Boron Nitride (pBN) crucibles: Used in high-temperature single crystal ingot growth processes, as effusion rings when growing OLED tools, and in epitaxial layer growth in MOCVD and MBE reactors.
• Purified Gallium (6N+, 7N+): Used in AXT, Inc.'s Gallium Arsenide substrate production and sold to other companies for use in magnetic materials, high-temperature thermometers, and growing single crystal ingots (e.g., Gallium Arsenide, Gallium Nitride, Gallium Antimonite, Gallium Phosphide).
• Indium Phosphide base material: Used by AXT, Inc. to grow single crystal ingots.
• Other raw materials (from supply chain companies): Raw gallium (4N Ga), arsenic, germanium, germanium dioxide, quartz tubing, and boron oxide (B2O3).

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: No shares were repurchased in 2025, 2024, or 2023 under the existing program. Approximately $2.7 million remained available for future repurchases as of December 31, 2025.
• Dividend Payments: AXT, Inc. has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future, intending to retain all future earnings for business operations and expansion. Dividends accrue on Series A preferred stock at $0.20 per annum per share (5.0% cumulative annual dividend rate), with $2.9 million in cumulative dividends as of December 31, 2015, included in accrued liabilities. Dividends paid to AXT, Inc. from its PRC subsidiaries and PRC raw material joint ventures totaled approximately $0.9 million in 2025, $2.4 million in 2024, and $4.3 million in 2023.
• Future Capital Return Commitments: No current intentions to distribute earnings to investors under the corporate structure.

Balance Sheet Position:

• Cash and Equivalents: $120.3 million (2025), $22.8 million (2024).
• Total Debt: $62.8 million in short-term loans and $5.2 million in long-term loans (non-current portion) as of December 31, 2025.
• Net Cash Position: Approximately $60.4 million as of December 31, 2025 (Cash, restricted cash, and cash equivalents less total debt).
• Debt Maturity Profile: Short-term loans typically have a term of 12 months or less. Long-term loan maturities for 2026, 2027, 2028, and 2029 are $4.3 million, $1.2 million, $1.5 million, and $2.6 million, respectively.

Cash Flow Generation:

• Operating Cash Flow: -$12.8 million (2025), -$12.1 million (2024), $3.4 million (2023).
• Free Cash Flow: Estimated at -$18.8 million in 2025 and -$17.9 million in 2024 (Operating Cash Flow minus Capital Expenditures).

Operational Excellence

Production & Service Model: AXT, Inc. employs a two-stage wafer manufacturing process entirely within China. The first stage involves crystal growth using its proprietary Vertical Gradient Freeze (VGF) technology to produce single element or compound element ingots (ranging from one to eight inches in diameter) in high-temperature furnaces built with proprietary designs. Indium Phosphide crystal growth specifically requires advanced temperature and pressure control methodologies. The second stage encompasses wafer processing, including slicing, grinding, beveling, polishing, and cleaning, all utilizing proprietary process technology. The company is focused on increasing automation, particularly in wafer cleaning. AXT, Inc. sells its substrates primarily to companies that apply an epitaxial layer, which is a critical step before chip fabrication.

Supply Chain Architecture:

• Key Suppliers & Partners: AXT, Inc. has a vertically integrated supply chain with partial ownership in over ten raw material companies in China (subsidiaries and joint ventures). This arrangement is designed to provide pricing advantages, reliable supply, market trend visibility, and shorter lead-times for critical raw materials.
  • Raw Material Production: These companies produce materials such as raw gallium (4N Ga), high purity gallium (6N and 7N Ga), starting material for Indium Phosphide, arsenic, germanium, germanium dioxide, pyrolytic boron nitride (pBN) crucibles, quartz tubing, and boron oxide (B2O3). One consolidated company also recycles scrap materials.
  • Critical Material Dependency: AXT, Inc. depends on a single or limited number of suppliers for certain critical materials, including quartz tubing, arsenic, phosphorus, and polishing solutions.
• Facility Network:
  • Manufacturing: All manufacturing operations are located in China. Key production sites include Beijing (where Indium Phosphide lines and administrative/sales functions remain), Dingxing (new manufacturing facility for Gallium Arsenide and Germanium lines), and Kazuo (production facility).
  • Research & Development: All research and development activities are conducted at the manufacturing facilities in China, focusing on process and product improvements.

Operational Metrics:

• Yield: A critical factor in product cost, yield can fluctuate due to inherent material defects, manufacturing process variances, and the level of automation.
• Quality: Low Etch Pit Density (EPD) is a key quality indicator and competitive factor, particularly for Gallium Arsenide industrial lasers and high-end Indium Phosphide applications.
• Capacity Utilization: High utilization rates are essential for gross margins and operating results, with underutilization occurring during periods of decreased demand.

Market Access & Customer Relationships

Go-to-Market Strategy:

• Distribution Channels: AXT, Inc. sells its substrate products directly to customers through its direct salesforce in the United States, China, and Europe. Additionally, it utilizes independent sales representatives and distributors in Japan, Taiwan, Korea, and other regions.
• Sales Approach: The company emphasizes close customer relationships and provides engineering support through its technical sales support team, many members of which hold PhDs in physics or materials science.

Customer Portfolio:

• Customer Types: The primary customer base consists of epitaxial layer companies located in Asia, the United States, and Europe. AXT, Inc. also sells to universities and research organizations. Its raw material companies sell specialty raw materials to third parties in Asia, the United States, and Europe.
• Customer Concentration: No single customer accounted for more than 10% of total revenue in 2025, 2024, or 2023. The top five customers collectively represented 29% of revenue in 2025, 30% in 2024, and 25% in 2023. For raw material sales from consolidated subsidiaries, three customers accounted for 25% in 2025, 31% in 2024, and 31% in 2023.

Geographic Revenue Distribution:

• China: 62% of total revenue (2025)
• Taiwan: 15% of total revenue (2025)
• Japan: 5% of total revenue (2025)
• Asia Pacific (excluding China, Taiwan and Japan): 3% of total revenue (2025)
• Europe (primarily Germany): 13% of total revenue (2025)
• North America (primarily the United States): 2% of total revenue (2025)

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The semiconductor substrate industry is characterized by narrow technological boundaries, price erosion, and intense competition. Demand for high-performance non-silicon-based wafer substrates, such as those AXT, Inc. specializes in, is expected to increase with the adoption of new applications like AI and 5G. The industry requires a deep knowledge base in material science for crystal ingot growth.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: AXT, Inc. faces competition from other substrate manufacturers including Sumitomo Electric Industries, Japan Energy (JX), Freiberger Compound Materials, Umicore, China Crystal Technology Corp. (CCTC), and Vital Materials. Emerging Competitive Threats: The company also faces competition from semiconductor device manufacturers exploring alternative materials (e.g., silicon-on-insulator (SOI) technology, which displaced Gallium Arsenide in some mobile phone applications). New entrants, such as a company established by a former employee in China supplying semi-conducting Gallium Arsenide wafers, and increased domestic production efforts in China driven by trade tensions, pose additional competitive threats. Competitive Response Strategy: AXT, Inc.'s strategy includes promoting its strengths in Indium Phosphide for cloud-based data centers and AI applications, advancing flagship products like 8-inch Gallium Arsenide and 6-inch Indium Phosphide, expanding its recycling programs, strengthening its raw materials supply chain, offering diverse and custom products, increasing manufacturing efficiencies, and focusing on "materials of the future."

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: The semiconductor industry is highly cyclical, experiencing periods of diminished product demand, overcapacity, excess inventory, and price erosion. Demand for AXT, Inc.'s products is directly tied to end-user applications, which are sensitive to global economic and political conditions.
• Technology Disruption: New silicon-based technologies, such as silicon-on-insulator (SOI), could potentially replace specialty material substrates for certain applications, impacting demand for AXT, Inc.'s products. Competitors may also introduce new or enhanced products more quickly.
• Customer Concentration: While no single customer accounts for more than 10% of revenue, the loss of a major customer or significant order cancellations/delays could materially impact operating results. The top five customers represented 29% of revenue in 2025.

Operational & Execution Risks

• Supply Chain Vulnerabilities: AXT, Inc. relies on a limited number of suppliers for critical raw materials (e.g., quartz tubing, arsenic, phosphorus, polishing solutions). Operational issues or regulatory changes affecting its partially owned raw material companies in China could disrupt supply and increase costs.
• Geographic Concentration: All manufacturing operations are located in China, exposing AXT, Inc. to risks associated with China's rapidly evolving regulatory environment, potential government intervention, mandatory factory shutdowns (e.g., due to air pollution), and geopolitical tensions.
• Capacity Constraints: The company's ability to meet demand depends on utilizing its manufacturing capacity. Factors such as industry overcapacity, low customer orders, operating inefficiencies, equipment failures, natural disasters, or government-ordered shutdowns can reduce utilization rates and negatively impact gross margins. New product and customer qualifications have lengthy cycles, making revenue forecasting difficult.
• Product Defects: Defects arising from raw material impurities or manufacturing inconsistencies can lead to product rejections, returns, increased costs, and loss of market share.
• Manufacturing Issues: Unforeseen manufacturing issues and restrictions at new production sites (Dingxing, Kazuo) could disrupt production.

Financial & Regulatory Risks

• Market & Financial Risks: Gross margins are subject to fluctuations due to changes in revenue, product mix, raw material costs, manufacturing yields, and tariffs. AXT, Inc. is exposed to foreign exchange gains and losses, particularly with the Chinese renminbi and Japanese yen. Investments in raw material companies are subject to impairment risk.
• Regulatory & Compliance Risks: AXT, Inc. is subject to complex and evolving PRC laws and regulations, including those related to hazardous materials, environmental controls, and data security. China's export control regulations on materials like gallium, germanium, and Indium Phosphide require permits, creating uncertainty and potential delays. US tariffs on imports from China also impact costs and revenue. The proposed Tongmei IPO on the STAR Market carries a redemption right for private equity investors (approximately $49 million) if the IPO is not completed, which could require AXT, Inc. to seek additional capital. The company is also involved in shareholder class action and derivative lawsuits.

Geopolitical & External Risks

• Geopolitical Exposure: Trade and political tensions between China and the United States create an unstable business environment, leading to reciprocal trade restrictions, tariffs, and export controls. This has impacted sales to North America, which decreased from 8% of total revenue in 2024 to 2% in 2025.
• Trade Relations: US tariffs on imports from China have increased significantly (up to 70% by March 2025), although some IEEPA-based tariffs were invalidated in February 2026. China has implemented export controls on critical materials, including Indium Phosphide (February 2025), Gallium, and Germanium. Permits for Gallium Arsenide exports to US "dual use" customers have not been approved.
• External Risks: Health epidemics (e.g., COVID-19) can disrupt business operations, supply chains, and travel. Financial market volatility, high inflation, interest rates, and global conflicts (e.g., Russian invasion of Ukraine, Middle East conflict) can adversely affect the business.

Innovation & Technology Leadership

Research & Development Focus: AXT, Inc. prioritizes research and development to maintain and enhance its competitive position.

• Core Technology Areas: The company focuses on its proprietary Vertical Gradient Freeze (VGF) technology for growing single crystal Indium Phosphide, Gallium Arsenide, and Germanium ingots. It also invests in wafer processing technology, covering steps from sawing to final cleaning.
• Innovation Pipeline: Current R&D activities include continuous development and enhancement of Gallium Arsenide, Indium Phosphide, and Germanium substrates, aiming for improved yield, enhanced surface and electrical characteristics, uniformity, greater substrate strength, and increased crystal length. A significant focus is on developing 6-inch Indium Phosphide wafer substrates and increasing yields on the recently developed 8-inch Gallium Arsenide wafers. Automation, particularly in wafer cleaning, is also a key R&D area.
• Competitive Position: AXT, Inc. believes its long-term investment in R&D has resulted in a substantive body of proprietary knowledge, particularly in achieving low Etch Pit Density (EPD) for micro devices like Gallium Arsenide industrial lasers and high-end Indium Phosphide applications. All R&D is conducted at its manufacturing facilities in China.

Intellectual Property Portfolio:

• Patent Strategy: AXT, Inc. relies on a combination of patents, trademarks, trade secrets, and non-disclosure agreements to protect its proprietary technology. The company has been issued 198 patents related to its VGF products and processes globally (153 in China, 22 in the United States, 8 in Japan, 5 in Taiwan, 6 in the European Union, 2 in Germany, 1 in France, and 1 in Korea), with expiration dates ranging from 2026 to 2045. Its consolidated raw material companies hold an additional 130 patents in China.
• Licensing Programs: In 2020, AXT, Inc. entered into a fixed-cost cross license and covenant agreement with a competitor, which expires on December 31, 2029.

Technology Partnerships: In 2015, AXT, Inc. acquired proprietary wafer processing equipment and a license covering Hitachi Metals' proprietary wafer processing technology.

Leadership & Governance

Executive Leadership Team

Board Composition: The Board of Directors is responsible for the oversight of risk management, including cybersecurity. Following the passing of Ms. Christine Russell on July 11, 2025, the Audit Committee was temporarily non-compliant with Nasdaq listing rules. Mr. Jesse Chen was appointed Chair of the Audit Committee on July 29, 2025. Mr. Leonard J. Leblanc was appointed to the Board on July 29, 2025, and, after a re-evaluation on January 26, 2026, was determined to be independent under Nasdaq Listing Rules. Effective January 26, 2026, Mr. Leblanc was appointed Chair of the Audit Committee and is recognized as an "audit committee financial expert." The Board also has a Compensation Committee and a Nominating and Corporate Governance Committee.

Human Capital Strategy

Workforce Composition: As of December 31, 2025, AXT, Inc. and its consolidated raw material companies had a total of 1,541 employees.

• Geographic Distribution: 23 employees are located at the Fremont, California headquarters, 1 sales professional in France, and 1,517 employees in China.
• Skill Mix: 1,137 employees are principally engaged in manufacturing, 188 in sales and administration, and 216 in research and development. The technical sales support team includes many individuals with PhDs in physics or materials science.

Talent Management:

• Acquisition & Retention: AXT, Inc. aims to attract and retain highly skilled employees by offering competitive salaries and bonuses, opportunities for equity ownership, development programs for continuous learning, and a comprehensive employment package that includes health care and paid time off.
• Culture & Engagement: Most employees in China (1,383 as of December 31, 2025) are represented by unions. The company reports no history of work stoppages and considers its relations with employees to be good.

Environmental & Social Impact

Environmental Commitments: AXT, Inc. is subject to federal, state, local, and Chinese environmental and safety laws and regulations, particularly concerning the use, storage, discharge, and disposal of hazardous materials in manufacturing and R&D. The Chinese central government's increasing focus on environmental protection has led to stricter regulations, increased inspections, and mandatory factory shutdowns (e.g., due to severe air pollution), which can impact manufacturing operations. The company's recycling programs for Indium Phosphide and Gallium Arsenide waste materials are noted for their environmental benefits and cost reduction.

Business Cyclicality & Seasonality

Demand Patterns: The semiconductor industry, to which AXT, Inc. is a supplier, is highly cyclical. It experiences significant economic downturns characterized by reduced product demand, overcapacity, and price erosion. Demand for AXT, Inc.'s products is sensitive to end-user applications and global economic conditions. The company has experienced slowdowns and "inventory correction" periods, such as in the second half of 2022, following periods of strong demand. AXT, Inc. anticipates similar cycles of strong and lower demand for its Indium Phosphide, Gallium Arsenide, and Germanium substrates in the future.

Planning & Forecasting: The cyclical nature of the industry and shrinking customer lead times make accurate demand forecasting challenging. This impacts inventory management and the ability to maintain optimal capacity utilization.

Regulatory Environment & Compliance

Regulatory Framework: AXT, Inc.'s operations are subject to complex and rapidly evolving laws and regulations in the People's Republic of China, which can change with little advance notice. These include permits and licenses for manufacturing operations, particularly those involving hazardous materials. For example, the addition of gallium arsenide to China's hazardous substances list in 2015 required additional permits.

• Trade & Export Controls: AXT, Inc. is significantly impacted by trade tensions between China and the United States. China has implemented export control regulations on materials including gallium and germanium (effective August 1, 2023), antimony and other superhard materials (effective December 3, 2024), and Indium Phosphide substrates (effective February 4, 2025). These require Tongmei to seek permits for exports from China. While permits for Indium Phosphide exports to Europe and Japan have been received, the timing for permits to the U.S. remains uncertain. US tariffs on imports from China, including AXT, Inc.'s wafer substrates, have increased significantly, reaching 70% by March 4, 2025, although some IEEPA-based tariffs were invalidated in February 2026.
• International Compliance: The company's US Gallium Arsenide customers are considered "dual use," and no export permits for Gallium Arsenide to the U.S. have yet been approved.

Legal Proceedings: AXT, Inc. is currently involved in a putative shareholder class action complaint filed in May 2024, alleging violations of federal securities laws (Sections 10(b) and 20(a) of the Securities Exchange Act of 1934). A derivative lawsuit was also filed in August 2024 against current and former directors and officers, alleging breaches of fiduciary duties based on similar allegations. AXT, Inc. believes these claims are meritless and intends to vigorously defend against them, but notes that litigation is inherently uncertain and could result in significant costs or adverse impacts.

Tax Strategy & Considerations

Tax Profile: AXT, Inc.'s income tax liabilities are influenced by the geographic composition of its worldwide earnings, particularly in China. Its subsidiaries in China qualify for a preferential 15% tax rate as High and New Technology Enterprises (HTE), providing benefits of $419,100 in 2025, $348,000 in 2024, and $47,000 in 2023. These subsidiaries also qualify for reductions in taxable income for research and development expenditures.

• NOL Carryforwards: As of December 31, 2025, AXT, Inc. had U.S. federal net operating loss (NOL) carryforwards of approximately $50.5 million (beginning to expire in 2026) and California NOL carryforwards of approximately $0.1 million (beginning to expire in 2040). A full valuation allowance has been recorded against its net deferred tax assets due to uncertainty regarding future profitability.
• Geographic Tax Planning: The company's intercompany transfer pricing and operational practices are subject to review by local tax authorities in China, which could lead to increased consolidated income tax expense if challenged.

Insurance & Risk Transfer

Risk Management Framework: AXT, Inc. has entered into indemnification agreements with its directors and officers and maintains directors' and officers' insurance.

• Risk Transfer Mechanisms: To mitigate foreign currency risk, AXT, Inc. instituted a foreign currency hedging program in 2015 for Japanese yen-denominated sales. The company may consider applying this program to other currencies, such as the Chinese renminbi, in the future.