Aixtron SE

XETRA:AIXA

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to AIXTRON's conference call regarding the Q2 2023 results. [Operator Instructions]

Now I hand the floor over to Guido Pickert, VP Investor Relations at AIXTRON for opening remarks and introduction.

[Guido Pickert, Vice President of Investor Relations]

Thank you, Miss. Luna. Welcome to AIXTRON's presentation of our first half and second quarter 2023 results. I'd like to welcome our CEO, Dr. Felix Grawert and our CFO, Dr. Christian Danninger. As the operator indicated, this call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission.

Your participation in this call implies your content to this recording. Please take note of our safe harbor statement, which can be found on Page 2 of our results presentation slide deck as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or transfer it on our website at some point after the call.

I would now like to hand you over to our CEO for opening remarks. Felix?

[Felix Grawert, Chief Executive Officer]

Thank you, Guido. Let me also welcome you all to our results presentation. I will start with an overview of the highlights of the quarter and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business and our full year guidance.

Let me now give you an overview of our operating highlights in Q2 '23 on Slide 2. Demand for our equipment remains very strong with an order intake of €178 million, up 17% year-on-year. Orders were again driven by strong demand for white banca power electronics based on gallium nitride and silicon carbide. The majority of orders in Q2 '23 was our G10 system. Customers are ordering equipment for large projects to build high-volume manufacturing capacity.

Our Q2 23 revenues of $134 million were up 69% year-on-year, reflecting the consistent high demand for our systems and were positively affected by the fact that a large portion of the export licenses outstanding in the previous quarter has now been issued. More than €50 million out of the roughly €70 million in systems waiting for shipment at the end of Q1 has and shipped by now and have turned into revenue. This is great news and confirms our expectations that the whole situation around export licenses is now moving back to model. As a result of that, we can report a very strong order backlog of €412 million, up 31% year-on-year.

Now I will hand over to our CFO, Christian Danninger. He will take you through the Q2 23 financial Christian?

[Christian Danninger, Chief Financial Officer]

Thanks, Felix, and hello to everyone. Let me start with the financial highlights of our income statement on Slide 3. As Felix mentioned, orders in the quarter continued to be strong and our backlog was up driven by the mentioned strength in demand. Revenues at €174 million were up 69% compared to €102 million last year and more than doubled compared to the previous quarter. As Felix mentioned, this was due to the strong demand, but also due to a significant number of export licenses having been granted, which allowed us to ship the respective tools and turn those shipments into revenues within this quarter.

Shipments based on further export licenses, which have been granted, will take place in the current and the coming quarters. Gross profit in Q2 '23 was at €74 million, up 94% year-on-year. EBIT for the quarter was at €45 million, and net profit was at €40 million, both more than doubled year-on-year and were up substantially on a sequential basis. Gross margin was at 42% compared to 37% the year before. OpEx in the quarter went up to €29 million, predominantly driven by higher R&D spending and higher personnel expenses resulting from a higher headcount compared to the previous year.

Now to our balance sheet on Slide 4. Inventories increased from €224 million at the end of '22 to €333 million at the end of June, which is mainly due to the preparation for the very high expected business volumes in the upcoming quarters. As mentioned before, we are very carefully managing our inventories to enable us to offer acceptable delivery times to our customers. And our balanced approach has allowed us to ship to our customers supporting their capacity expansion plans.

Trade receivables at the end of June were €115 million compared to €120 million at the end of 2022, mainly being the result of the business volumes in the second quarter of this year compared to the fourth quarter of 2022. The advanced payments received from customers at quarter end were €139 million, representing about 34% of our order backlog.

Our cash balance, including other financial assets as of June 30 decreased to €210 million from €325 million as of December 31, 2022. This was mainly due to our inventory buildup in combination with our dividend payment of €35 million. Out of our quarter end cash balance, €133 million were invested into funds following a very conservative diversification strategy.

Just a quick word on our free cash flow on the next slide before I turn back to Felix. Free cash flow in the first 6 months were at negative €80 million compared to a positive €28 million last year, mainly due to the previously mentioned buildup of inventories to prepare for the strong second half of this year.

With that, let me hand you back over to Felix. Felix?

[Felix Grawert, Chief Executive Officer]

Thank you, Christian. Before giving you some more details on our increased outlook for the remainder of the year 2023, I would like to share with you some highlights on our market development. As stated at the very beginning, the order momentum in most of our addressed end markets remain very healthy. In the area of silicon carbide-based power electronics, the momentum has in fact, accelerated. In fact, our G10 system has taken a #1 position in terms of orders in the second quarter '23. The demand for efficient power electronics based on silicon carbide is driven by the desire of automotive manufacturers to increase the range and charging of electric vehicles. This facilitates the overall transition to electric mobility. We expect strong demand for our products in these areas to continue over the coming years.

The other momentum for gallium nitride [Indiscernible] also remained strong with received orders in this area accounting for the second largest demand driver in the quarter. This is driven by the increasing need for energy-efficient solutions and a growing number of applications. Our customers steadily open up new applications and use cases in the field of GaN based power electronics using our technology. We are confident that this will also translate into a sustainable demand for our tools going forward.

With that, let me now give you the update on our increased full year guidance for 2023 on Slide 6. We see the demand for our products remaining very strong. In addition, we expect that the granting of export licenses is now moving back to a normal pace. Based on this, we have increased our 2023 guidance, both for order intake and for revenue. We now expect total orders for the year in a range between €620 million and €700 million from €600 million to €680 million previously. Our total revenues are expected to range between €600 million and €660 million from previously €580 million to €640 million.

While we lift at the midpoint of the guidance, we have left the absolute range from low to high end of the guidance unchanged. This reflects the unpredictable factor of the exact timing of export licenses and also of some customer projects. We continue to expect a gross margin of around 45% and an EBIT margin in a range between 25% to 27%. We are excited to be able to increase our expectations based on the strong underlying demand in our address end market.

With that, I'll pass it now back to Guido before we take questions.

[Guido Pickert, Vice President of Investor Relations]

Thank you, Felix. Thank you, Christian. Operator, we'll now take questions.

[Operator]

[Operator Instructions] And the first question is Adam Angelov from Bank of America.

[Adam Angelov, Bank of America]

So firstly, just wanted to discuss a little bit the trajectory for silicon carbide and down going forward. I think clearly both very strong now. And at least for us, from the outside, we can see there's constantly a lot of big new things for sick capacity expansions to the end of the decade, but GaN is a little bit harder. So it's a smaller revenue stream for all of the companies. So yes, I just wondered, when you look out maybe 2 to 5 years from now, how do you see the kind of growth trajectory in both markets? That's my first one.

[Felix Grawert, Chief Executive Officer]

I think it's a good question. I think silicon carbide, as you said, the trend is very clear. The main use cases for silicon carbide, none is the electric drivetrain of e-vehicles. I think number two use case is the charging infrastructure for fast charging poles. And then the #3 use case is the much broader and much more diverse industrial applications from large wind power plants, large solar power plants, large electric drives, industrials like high-speed trains and whatever you take it. So the #1 and #2 use cases are essentially driven by the global build-out of electromobility. And as you rightfully said, -- there's a very, very strong drive for several years to be seen as we expect the ramp-up of electric vehicles from now to 2030. I just had analyst reports around 2013 now, it's expected maybe even half or more than half of the global EV production may be based on silicon carbide already. So it's very, very clear.

What does it mean for us? We see around the globe, in fact, it's a global trend. Customers massively investing into silicon carbide fab. We see that both in Europe, we see that in the U.S., but we also see that across Asia, means we see it in Japan, we see it in Korea, in Taiwan and in China. So it's really a global trend. And I would not say there's one region which is missing out on that one. Very strong momentum, very strong. I think that's a very clear and very easy to capture and understand.

The other one, I would say, is also very clear, even though it does not have this widespread perception and that's the trend for gallium nitride power electronics. I think gallium nitride took, so to say, or is about to roll out, I would say, in 3 phases, and we are just about to reach Phase III. What do I mean by that? Phase I, it started off in consumer electronics and fast chargers. Why? Well, gallium nitride was very new as a material reliability was a challenge initially and in consumer electronics long-lever durability don't matter so much. You can take more risks. So the fast charger, the form factor, the small form sector was the first one. That was around, I would say, 2019/'20.

Phase 2, which I would say was '21, '22 with gallium nitride going into high-power, high-efficiency premium applications like data centers, server power supplies, telecom base stations where essentially 24/7 big amounts of energy are being pump through. And in this case where gallium nitride was still relatively expensive customers could make or end customers could have a clear return of invest on that because they were having such big electricity bills that the higher expense for a more expensive game switch was paying off. I would say we have just started Phase III, and this is what we see and what we get as a feedback from many of our customers, which is gallium nitride is displacing and replacing silicon MOSFET at scale. And that is silicon MOSFET in the low voltage range. For example, 40 volts, for example, on a PCB around the circuit of your notebook or your server, 100, 200 volts in solar applications in your electric e-bike in your electric power drill, battery-driven power drills that you may have at home.

So to say these many, many applications of lower power or battery-driven applications. And again, the same topic with silicon carbide in the e-vehicle, the battery lasts longer, also holds here. But then, of course, also in the large number of high-voltage applications like air conditioning devices, AC-to-DC power supply, of course, the server industry continues. And the industry is now at a point where through die-side shrink, GAM has gotten into a competitiveness and many of our customers take the strategy now on to display silicon in the mainstream and add volume. And that is driving a massive boost and a massive growth also in the gallium nitride.

So the strong momentum that we have seen now in the first half of '23, we expect that to continue in the second half of '23, but also throughout the year '24, 5 and 6. This is not just a peak, which then goes back, but this is a continuous trend. I hope I could outline a little bit what the drivers are for that.

[Adam Angelov, Bank of America]

Yes, that's very clear. So secondly, just on microLEDs. Just wondered if you could provide us with an update there. I think there was some news flow of potential delays in the quarter and then I guess your revenue in that line was a bit weak in Q2. So just if you could give the latest update there? And then just a very brief one after that. You gave us the revenue of export licenses that was recognized of the deferred portion. Could you also provide the same for the previously deferred order amount, which I think was around 30 million to 40 million, how much of that was optimized in the quarter?

[Felix Grawert, Chief Executive Officer]

Okay. So a short update on microLED first. I think we all read the same news, right, about some projects getting delayed. The main driver for that one is the transfer, the mass transfer, getting the pixel produced on a wafer is a mature process steps. So it's not on us. The pressure right now is also not on the chip makers, the pressure. It's more on the panel makers who have to transfer the microLEDs. And also, I think we all read the same news, which is this is pushing out maybe towards 25%, maybe to 26%, nobody knows exactly, yes. Because again, it's not us who is directly involved in those projects. but another step of the value chain, which is gating this one, yes.

So nevertheless, at the same time, we see and we are working very closely with a large number of customers together, the projects, the development projects are continuing. All the efforts of the road map also continue, be it [Indiscernible], be it a topic of increasing the brightness of LEDs. And we see in the industry, there's a very clear consensus. It's not a topic whether the microLED comes or whether it may be not come. It's very clear. It will come. It's only a timing question. I think that's what I would like to give you as an update. So microLED is still on the agenda. It's just a timing topic when exactly it's the way it hits.

Now on our side, as mentioned, we continue to supply tools to customers. We have some customers building our pilot lines. We have other customers starting to build smaller lines for the first high-end applications, which will start with microLED. I don't have the exact numbers. I think it may be around 10% of the order intake this quarter, something around that, yes. So it goes on. And then help me again. I think I did not get your last question around export licenses. Could you repeat that, please?

[Adam Angelov, Bank of America]

Yes, sure. So I think previously, you said that there was about 30 million to 40 million of orders that couldn't be recognized because of outstanding export licenses. So presumably, some of that could have been recognized. So just if you could provide the value that was recognized in the quarter.

[Felix Grawert, Chief Executive Officer]

I think -- no, I get it. Okay. So I think the amount of orders that could be recognized from the past quarter, now in the Q2 and the amount of new orders flowing in, in Q2 that we have not recognized about on a balance level.

[Operator]

Next up is Olivia Honychurch from Jefferies.

[Olivia Honychurch, Jefferies]

Two from me if that's all right. So firstly, on silicon carbide, I'd just like to understand a little bit more about your market share. One of your competitors this week announced that it had won a major new European customer. How does that fit in with your growth expectations for this side of your business? Do you still see Europe as a key source of growth in SIC? And I guess in relation to that, where do you see your overall share in silicon carbide reaching by the end of this year, given that your competitor is clearly winning share as well. I think you had previously said 50%, but wondering if that has changed. I have a follow-up that I'll ask afterwards.

[Felix Grawert, Chief Executive Officer]

I think what we see in silicon carbide at this point in time is that all the customers are looking at the 200-millimeter wafer size for tool selections in the market. And that means that the established vendors that made the party in 150 millimeters, but the same need to defend their positions, it means that new opportunities for new entrants or new vendors are opening up. And we at AIXTRON exploiting these opportunities at scale, as you see from our strong order momentum. So I think that news from a competitor doesn't surprise us, and we are on the same train as you can see in our numbers.

[Olivia Honychurch, Jefferies]

And any update on the market share target that you previously put at about 50%, I think, for 2023.

[Felix Grawert, Chief Executive Officer]

Clearly, 50% plus.

[Olivia Honychurch, Jefferies]

And then maybe on the licenses again. How should we think about the impact from those delays going forward? Obviously, you say the majority of them have dropped through into Q2. Is there a risk that those build up again and we start to see more of a lumpy revenue profile quite strong going forward as a result, not only over the next couple of quarters, but into 2024 as well.

[Felix Grawert, Chief Executive Officer]

No, we don’t see that. So as I said, right, that’s sort of say that delay that inventory that was sitting couldn’t be shipped, so to say, is now a large amount, 50 out of the 70 million has left us, yes, it’s gone out. We see now export licenses trickling in one-by-one coming. We see a much more steady, much more patterns. We still see that the times are long, yes. That’s, in fact, so. But we do not see any blockage or pilot piling up of inventory or so. We see that it comes again into a steady rolling and moving pattern. That’s how I would think about it.

[Operator]

The next question comes from Andrew Gardiner from Citi.

[Andrew Gardiner, Citi]

Just perhaps a follow-up on the market share question. In previous calls, you've indicated to us when you've sort of signed on a new major customer. You're talking in the release today about supporting several major customers. Can you say whether there's been any movement in terms of significant wins in the quarter that is going to help support that market share ambition?

[Felix Grawert, Chief Executive Officer]

I think we see overall that the market for silicon carbide in terms of customer base is broadening significantly. We see, at this point in time, a relatively large group of customers with a strong volume ambition in the market, not only the top 5. And we are engaged with a relatively large share of those guys who have a larger scale and volume ambition. I think when you study the industry and follow the news flow, you may have ideas with guys who is making each of the €1 billion plus investment into fabs, yes, and typically, 1/3 of that goes into the equipment just for you to take the number. Yes, so to say, we are talking about here.

[Operator]

And next start is [Indiscernible] from Berenberg.

[Unidentified Analyst]

I have two, please. First is on new customers in silicon carbide as well. I mean you've talked a lot about there being a lot of movement in the industry, a lot of potential customers and existing customers have a lot of ambition in terms of ramping up their silicon carbide capacity. But what you say is the main hindrance or the main barrier for these companies to make a decision on their recruitment supplier today? And what is your view on the time line there? That's my first question.

[Felix Grawert, Chief Executive Officer]

I think there is no hindrance. They continue to make decisions on a regular basis, and we get selected also on a regular basis, and this is moving very strongly at this point in time.

[Unidentified Analyst]

And then a question on GTAM, please. Could you give us an update on the launch of that tool, please? And what you think that might mean in terms of customer demand for your next-generation game.

[Felix Grawert, Chief Executive Officer]

We launched in the third quarter of the year. And we have gone through a very successful qualification with several of our beta customers. One of the beta customers with Texas Instruments together with them, we've done the press release. They've given us for this tool and for the strong collaboration their 2022 supplier award because they gave us the feedback that they said, look, this tool has really brought to gallium nitride power electronics, the maturity that is needed, and that is a requirement to go and to drive into really big volume installations. And gallium nitride is at this point in time going through the wafer size change from 6 inch to 8 inch. I would say 50% of the customers have already changed. The other 50% is just changing from 6 to 8 inch. And we see that on the 200-millimeter wafer size, the G10 GaN is going to be to tool of record for the industry. And we expect for next year already, based on the customer feedback that we get based on a say pre discussions with customers already in 2024, we expect more than 50% of our gallium nitride revenue to be derived from the G10 GaN as compared to the G5 plus, which I think for a tool, again, launching in the Q3 for them in the 5 consecutive quarters already taking more than 50% segment share that speaks for the value and the benefit of the product itself.

[Unidentified Analyst]

Reading into that a little bit. It sounds like you might be winning some new customers for this tool. Do you think that there are any customers that they're waiting for the G10 to be launched before placing orders with you?

[Felix Grawert, Chief Executive Officer]

We had, in fact, customers who had placed orders for the older generation of tools and came back to us and said, you know what, given that the new generation is now just coming, can we switch. And in some selective cases, we have made arrangements with our customers.

[Operator]

The next question comes from Michael Kuhn from Deutsche Bank.

[Michael Kuhn, Deutsche Bank]

Firstly, on your guidance, you obviously increased your sales guidance. At the same time, gross margin guidance and also the corridor for the EBIT guidance is less unchanged. Should we read anything into that regarding, let's say, a little more cost inflation than anticipated? Or would you rather say, let's say, there is probably an element of cautiousness reflected in that guidance?

[Christian Danninger, Chief Financial Officer]

Michael, Christian here. Yes, both not really. First of all, the increase in the midpoint was really only a small relative change, which had only a small effect on the overall numbers. And secondly, as you know, there is always a strong mix effect in our business and with the broad ranges, difficult to re-estimate and therefore, we believe that the bandwidth that was given -- still gives a very good indication, yes? So it is not that we are saying backing.

[Michael Kuhn, Deutsche Bank]

All right. And in relation to that, what trends do you currently see both on the inflation side and on your ability to increase prices? So how do customers currently behave and what our direction on, let's say, proposed price increases or, let's say, proposed passing of inflationary pressure.

[Felix Grawert, Chief Executive Officer]

I think the inflationary topic was especially a topic of the last year. And I think we overall see now that going forward, we expect inflationary pressures to reduce a bit, yes, especially as we see in the euro space, I think looking towards 2024 already, there may be more space and room at our suppliers, yes. So we don't expect such a pressure again. I think that is more a topic of the last 2 years, yes, to really make that clear. And what we have done in the last 2 years is that we've been working closely with our customers to make price increases affordable through productivity gains. And that was an acceptable need for them. And that is why supersedeas been able to go through this period of time by, so to say, without any hit on gross margin. I think going forward, as indicated we're expecting rather the environment to ease. And I think going forward, we'd rather expect cost reductions from our suppliers as the overall economy is cooling off a little bit. And I think this -- we are changing and going into a new and type of environment now going forward.

[Michael Kuhn, Deutsche Bank]

Excellent. And then one more also in that context. Your headcount obviously moved up and you invested in expanding production capacity is probably debottlenecking as well. With your current production footprint, I'd say, how much more can you grow before you have to make a further move? Or is there -- is there still, let's say, enough capacity without, let's say, getting major headache.

[Felix Grawert, Chief Executive Officer]

So I think the expansion until this space, until this point, we've been able to just say, by fully utilizing the existing footprint and taking some efficiencies on the operations model. I think for further expansions, it will be going into 2 and 3 shift models, but we see further opportunity to do so.

[Michael Kuhn, Deutsche Bank]

And then last point on your sales split recent quarter and looking into H2, it was obviously very much dominated by power electronics. Do you see a certain recovery in optoelectronics? And should we expect, let's say, anything on the microLED side in H2? It didn't sound like that and then also into '24. Just to get a better feeling on your expected sales mix over the next, let's say, 12 months or so?

[Felix Grawert, Chief Executive Officer]

So I think for the whole 2023, we see a strong power electronics dominated year. I would guess maybe power electronics, I don't know, 3 quarters, maybe a little more than 3/4 of the total revenue, let's see, yes. For 2024, it's still too early to comment.

[Operator]

And the next question comes from Lee Simpson from Morgan Stanley.

[Lee Simpson, Morgan Stanley]

Maybe just a quick one on R&D. It looks as though the OpEx is going up and I think credit wages to the some good investment in a new design center from what I understand, but obviously some personnel costs in over the top. So I guess what I'm trying to ask is where do we think the run rate in OpEx could be as we exit this year? And maybe additional to that, if we look at that design center development, are we seeing more -- the customers' customer coming down to the building, perhaps vehicle OEMs looking to pack sanction the buying of your G10, for instance.

[Felix Grawert, Chief Executive Officer]

Well, I'll take the first question on like the expected run rate on OpEx and R&D. As we've indicated before, we are moving -- we did very decisively invest into R&D, and the development of the next-generation tools and so on and increase our R&D spend in the range now 75 million to 80 million, that unchanged what came on top was the investment in the R&D center, but that will not have a major impact on the OpEx in next year. And really, I mean, we are driving these -- the R&D spend is driven by the projects, yes, but a very clear ROI evaluation of the opportunities that we have. And here, we see so much opportunity that this R&D spend is required at these levels to materialize all of these potentials. I did not fully get the other question on the innovations [Indiscernible].

[Lee Simpson, Morgan Stanley]

Yes. Sorry, I should be to clarify that. So really when we look at silicon carbide, it seems a lot of the work being done by device makers is being watched over the shoulder by end OEMs. And I just wondered, when it came to making to buy tool sets buying the G10 over whatever LPE has, et cetera, that the customer's customer was making part of that decision on their behalf.

[Felix Grawert, Chief Executive Officer]

No, we don't see that. We don't see that OEMs are getting into the point of, so to say, selecting tools. That's not what we see. We see that OEMs may be bypassing the Tier 1s in the industry, starting so to say, to acquire system know-how on the level how to make an efficient inverter or how to bring the inverter together with a battery architecture and so on. But we don't see them going on to the chip level. I have not seen that at least.

[Lee Simpson, Morgan Stanley]

Maybe just a quick clarification. I think you mentioned earlier you've unwound 50 of the 70 million and from the export license carrying value. But equally, it sounds so that carrying value went up with new, I guess, [indiscernible] orders coming in. Is that the right way to look at this?

[Christian Danninger, Chief Financial Officer]

No, honestly, really, the message is that things are really moving back to normal, yes. I mean, have not fully normalized yet, but moving back to Nora. It’s not that we have now new orders, new tools now piling up waiting for shipments, not the case.

[Operator]

The next question comes from Jürgen Wagner from Stifel.

[Jürgen Wagner, Stifel]

Follow-up on [Indiscernible]. What sales level do you have in your full year guidance? And second one on gallium nitride. I remember 2, 3 years ago, when the cycle started, you predicted the market would need about 5 tools from you per year. How has that changed now? And what would be your best guess how we should model that going forward?

[Christian Danninger, Chief Financial Officer]

So I think for the sales level at this point, I said around maybe 10%, so would be 50 million, 60 million, maybe something like that, just for this year. And again, this is just so to say, to continue that R&D level plus those early pilot lines or those early high-value applications and much more to come, of course.

The second part, tool demand, honestly, one [Indiscernible] getting from our customers, they all say and said Felix, our marketing departments have been wrong. The only thing we see that the road maps are getting pulled in, some they get pulled in by 2 years, some they get pulled in by 3 years. Honestly, there is currently no good number existing in the market. Everybody just knows it's much, much more than has been anticipated before. Maybe in 2 or 3 quarters, I can give you better and a harder number.

[Jürgen Wagner, Stifel]

Okay. And then sorry to follow up on [micrality], should we read it in a way that your initial project is a bit frozen currently and R&D projects are making it up out 50 million, 60 million, still a solid number.

[Christian Danninger, Chief Financial Officer]

I think there was not one project, yes, so to say, we are engaged with, I would say, almost all the customers in the industry globally. I think it’s also just to note there is some work in the U.S. There’s some work in Europe. There is some work in Taiwan, some work in China and Korea also strongly. Let say, it’s a global topic. I would really say the market – think of the market as a pyramid. And it is starting, if you go, for example, to the SIB conference or if you go to the Touch Taiwan conference, you’ll see that everything is just full of microLED. That’s the whole topic that moves the industry. And as always, it starts with a high-end application. Today, you can buy a television based out of microLED. You just have to put down $100,000 for on television. I think not many people do that, yes. But the market does risk, yes. So they say and then customers are now planning the next generation of television, which will only cost USD 20,000 to USD 30,000, so much more affordable. And there will be also soon be revealed the first microLED watches. Again, maybe $2,000, $3,000 for a microLED-based watch. So the market is really starting now, yes?

And then, of course, it’s clear at such price points, the volume, the unit numbers are not that large. And only is now the yield, especially in the transfer step is getting up. Today, the costs and the prices that I mentioned are mostly driven by huge lead losses, 80%, 90% of the microLEDs are not being – cannot be used in yield is very low. But then as the yield goes up, the price point goes down as price point goes down, the unit shipments go up and that is then sort of say driving further revenue. This is how I would think about this market.

[Operator]

And now we have Olivia Honychurch from Jefferies in the line.

[Olivia Honychurch, Jefferies]

And just one on your gross margins. You've obviously kept the guidance for the full year the same as it was at 45%. Although in H1, I think your average for the half was which I assume is partly being driven down by shipment -- higher shipment to China. And that means that you'll need to make quite a big uplift in your margin in H2, maybe around 47%, 48%. How are you going to achieve that, particularly if there are still going to be more tool going into China? And will that higher level of gross margin be sustainable going on with, I guess, I'm asking sort of into the medium term. Could we see those going closer to the 50% types of level?

[Christian Danninger, Chief Financial Officer]

The last point you’ve made, I was not underwrite yet, yes. But the first point I think you are spot on. I mean we will we’ve simulated this through and of course, expect a significantly higher gross margin in H2 based on the order book and the tools we’re going to ship will be an improved product mix, especially G10 family of products now taking a higher share and then driving up the gross margin. And beyond this year, we need to see how things develop here.

[Operator]

Now we have Martin Marandon from ODDO BHF.

[Martin Marandon, ODDO BHF]

Just coming back to the export licenses. Just a clarification will be helpful. How much of the export licenses that were missed in Q1 are included in Q2 earnings, is it all of it? The majority, the minority.

[Christian Danninger, Chief Financial Officer]

Martin, how can you please repeat it is on the export license issue?

[Martin Marandon, ODDO BHF]

Yes, I was asking how much is the export prices [Technical Difficulty] should we expect it [Technical Difficulty]

[Felix Grawert, Chief Executive Officer]

Martin, you have a very spotty connection. It looks like you’re on a very bad and noisy line. Honestly, we don’t understand you. There may be a way that you can send the question by e-mail also, and we can read it aloud or after the call, whatever, no chance to understand. Sorry.

[Operator]

And now we have Gianmarco Bonacina from Equita in the line.

[Gianmarco Bonacina, Equita]

A few questions for me. The first one is just a clarification on the increase in the guidance. We can say that this was just driven by the, let's say, better clarity on the, let's say, export licenses or there was also, let's say, an underlying improvement?

The second one is on, let's say, the customer diversification in silicon carbide because to my understanding, unlike the other segment, here, you are a little bit more concentrated. So if you would say that going in 2024, there is a high probability that you have new customers, and so you can grow faster than, let's say, the market and maybe the run rate we are seeing currently between 140 million and 160 million of order per quarter can then increase.

And then the last one, if you can comment on the recent news about the potential ban on export on gallium from China, which potentially could be, let's say, a headwind for you in the future? We see some of your customers probably giving some comments, but it would be great if you can also give some color on this.

[Felix Grawert, Chief Executive Officer]

Thanks a lot. So let's take the question. So first question on the guidance, key drivers. Of course, the export license topic, but also, as you see, a very strong order momentum, I think it's a combination thereof. It's simply our current most realistic and best guess so to say, where we end up in the year, just not more than that, yes.

The second one on the customer diversification. I would say for us and silicon carbide, I don't know. Maybe we have 20, maybe 30, maybe 35 customers. I think we have in silicon carbide a very, very broad and a very diversified customer base, both in terms of geographic split in terms of concentration on nonconcentration. So I think we are well set here in terms of diversification.

As for the run rate, as you know, we only guide in AIXTRON for 1 year, and we don't guide further out into the future. So I think the total order intake guidance that we have given out for the year implies that in the second half, we will see at least or not even more, so to say, order intake per quarter. I think you can do the math, right? It's very clear. But we discussed in this call also the growth drivers into the future. And I hope we've given you an indication that both in silicon carbide and in gallium nitride and at some point, a bit later, in microLED, there is more to come. I think also qualitatively, you can take those statements, which we have discussed here in the last, I don't know, 30 minutes or so.

So lastly, let me come to the ban on gallium this topic. I think first of all, let's note, this is only the requirements coming from China that an export license is needed or also huge from China. I think there was no announcement that they would not export that anymore. And we have, of course, checked very diligently with our own suppliers for gallium supply with suppliers of our customers. For gallium supply also for germanium, which has been used in some photo detectors and high specialty VCSEL topics. There is not expected to be a shortage. I think you all may have seen those statements that have been issued by Western-based supplier for these materials, such as Tribeca, a wafer maker or Umicore out of Belgium, a material supplier. We have seen the same from our customers. Many of them have issued statements and also our own suppliers that we've been working with have given key indication that this is a one issue.

So I think you don't have to worry about that. And if there is say, the Chinese guys falling out, the western supply comes and even if there is prices increasing for that on the cost of an individual wafer, in the MAX case, we might see a few single -- low single-digit percentage point increase. So the overall trend for gallium metal power electronics by far is not affected. It might rather be that the value of a very efficient equipment such as APRON is providing is even further increasing, yes. So that's not a big topic.

[Gianmarco Bonacina, Equita]

Just a quick follow-up on the SC customer base. I mean I understand you have a good diversification, but my understanding is that there are still, let's say, some large customers that are not ordering for you from you simply because, as you say, there was an incumbent working on, let's say, the previous technology. So in 2024, it would be fair to assume that you can get on top of the market growth, some more customers. So in terms of the pipeline, I mean, do you think this is visible or is something more for the midterm?

[Felix Grawert, Chief Executive Officer]

I think you have exactly outlined our strategy.

[Operator]

There are no further questions.

[Guido Pickert, Vice President of Investor Relations]

I would -- this is Guido Pickert. I'll read out the question of Martin that has arrived. First of all, we asked a question about export license, how much of the export licenses that we're missing in Q1 are included in Q2 earnings. Is it almost all of it, the majority or less than 50%?

[Felix Grawert, Chief Executive Officer]

Yes. As we've said before, yes, out of the 70 million that we have reported in Q1 about a little more than 50 million have been granted and shipped.

[Guido Pickert, Vice President of Investor Relations]

And then also a follow-up on the 2023 guidance. We have not upgraded our EBIT margin guidance. Is this more wooden but more R&D? Or you said it before? Or does it reflect to better expected litem auto than previously expected?

[Felix Grawert, Chief Executive Officer]

No, that I refer to what I said before on Michael’s question, yes, there's not too much to read into that, yes. It was a small increase, a relatively small increase and relatively high uncertainty on product mix in the remainder of the year. So, there's no overall change in our cost expectations.

[Guido Pickert, Vice President of Investor Relations]

Okay. That's it. Thank you very much with this. We will conclude today's call in which we were able to talk about the strong underlying demand continuing during our growth future growth. Have a great rest of the summer, everyone. Some of you we will see soon on the upcoming conference and roadshows. And with that, bye-bye, and thank you.