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Earnings Call Transcript

Earnings Call Transcript
2022-Q4

from 0
Operator

Good afternoon, ladies and gentlemen, and welcome to the Conference Call regarding the Results of the Fourth Quarter and of the Financial Year 2022 of AIXTRON SE. [Operator Instructions] Let me now turn the floor over to your host, Guido Pickert.

G
Guido Pickert
IR

Thank you very much. Welcome to our Q4 and full year 2022 results presentation. 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 and therefore, considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of our safe harbor statement, which can be found on Page 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 video. However, we will place an audio file of the recording or a transcript on our website at some point after the call.

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

F
Felix Grawert
CEO

Thank you, Guido. Let me also welcome you to our full year 2022 results presentation. I will start with an overview of the highlights of the year 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 guidance.

Let me start by giving you an overview of the key business developments in the year on Slide 2. Demand for our equipment was very strong, resulting in an order intake of €586 million, up 18% year-on-year, driven by the strength of the end markets our customers are serving. In fact, the 2022 order intake was the second best order intake in the 14-year history of AIXTRON.

I'm very pleased that the area of silicon carbide and gallium nitride power electronics has been the strongest demand driver, representing the majority of our equipment order intake for the year. Orders for our silicon carbide power solutions has more than tripled year-on-year. This strong development is a result of major capacity expansion activities of our customers, but also a great success of our new G10-SiC multi-wafer system.

This product is being adopted by our customers in an amazing speed since the launch in Q3 of last year due to an excellent cost per wafer proposition. This is a huge team success and we now have a highly competitive tool in the market. With this, we very much look forward to the wafer size transition from 6-inch to 8-inch, and this is a trigger point for many customers to look into their tool installations and tool base anew.

I think we can say that for silicon carbide at AIXTRON, we have also now reached a tipping point of broad market adoption similar to what we have seen for gallium nitride some years ago. While we have seen an acceleration of demand for silicon carbide, orders for gallium nitride power electronics also continued to grow year-on-year, reflecting our customers' aspiration to replace the incumbent material silicon with gallium nitride-based solutions in more and more applications. In summary, the biggest demand driver for the quarter are our systems for silicon carbide and gallium nitride power electronics.

Demand for laser tool in the area of optoelectronics also remains strong. Demand for tools to produce LEDs is mainly driven by micro LED production orders more than offsetting lower demand for traditional red-orange-yellow LED tool. As a result of all that and of the delayed export licenses last year, due to which we are not able to ship all tools we had produced in 2022, we can report a strong order backlog of €352 million, up 64% year-on-year.

Overall, we could grow our annual revenue 8% year-on-year to €463 million. Our gross margin ended up at 42% and our EBIT margin at 22%. With this, we have successfully mastered the global supply chain issues of the year 2022 and also maneuvered around some of the delays in export licenses that required us to shift some production slots back and forth within the year 2022.

In this place, I would like to express a strong gratitude to the entire AIXTRON team that has made all these achievements possible in a difficult year 2022, namely that we fully delivered on our upgraded 2022 growth guidance in all aspects.

Now I will hand over to our CFO, Christian Danninger. He will take you through the full year 2022 financials. Christian?

C
Christian Danninger
CFO

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 and the year continue to be strong and our backlog was up, fueled by the mentioned strength in demand. Revenues in 2022 were at €463 million, gross profit at €195 million, both up 8% year-on-year. EBIT at €105 million and net profit was €100 million for the year, were both up 6% year-on-year. Quarterly revenues at €183 million in Q4, even at the very strong level of €181 million in the same quarter of last year.

Both gross margin and EBIT margin in 2022 were on the same level as the corresponding margins in 2021, which was 42% and 23% respectively. OpEx in the year went up to €91 million, predominantly driven by higher variable compensation elements and higher personnel costs due to more staff combined with slightly higher R&D spending.

In fiscal year 2022, AIXTRON has primarily driven the completion of the new product generation. In 2022, we completed a major publicly funded development project, which is why we recorded less other operating income from grounds at €5 million compared to a year ago at €9 million. In 2022, we again utilized tax loss carryforwards and capitalized some additional deferred tax assets in the amount of €9 million due to expected future profit.

Now to our balance sheet on Slide 4. Partially due to the shifted shipments, as mentioned by Felix and mainly due to the preparation for higher deliveries in subsequent quarters, inventory levels at the end of '22 went up to €224 million compared to €121 million at the end of 2021.

The advance payments received from customers were significantly up year-on-year at €141 million from €77 million, also indicating higher levels of shipments to be expected. The down payments represented about 40% of the order backlog. All this led to a total cash balance, including other financial assets of €325 million, which was below the €352 million we had on the books last year.

Just a quick word on our free cash flow on the next slide before I turn back to Felix. Free cash flow in the fourth quarter was up €8 million compared to €49 million in 2021. The difference compared to the previous year mainly related to temporary working capital effects, like the mentioned increase in inventories and high accounts receivables due to the very late shipments in December 2022. We have also increased our investments in property, plant and equipment, especially in R&D-related LED equipment and extensions.

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

F
Felix Grawert
CEO

Thank you, Christian. Before giving you our updated view on the outlook for this year, I would like to share some highlights on our market development. The momentum remains strong in all areas. We see capacity buildup or expansion activities in most of our addressed end markets. In particular, the area of wide bandgap power electronics based on gallium nitride and silicon carbide has developed very strongly, now representing the biggest contributor to orders and revenues in addition to the contributions from optoelectronics and micro LED.

Let's now take a deeper look at the area of silicon carbide-based power electronics. Here, we see the demand accelerating, especially since we launched our new G10-silicon carbide technology solution. Since the launch in Q3 of last year, this tool was received so well by customers that it now already represents the vast majority of all orders for our silicon carbide manufacturing solution, suggesting a similar development in revenues going forward.

With the new G10-SiC, we have again made great steps forward in the tool performance. In combination with our multi-wafer output, this enables our customers to produce SiC devices at a highly competitive cost position. And we strongly believe that cost will be one of the major decision criteria in this market.

Beyond the current volume ramp of the industry, driven by the fast adoption of battery electric vehicles, we see further demand down the line, driven by government policy pushing towards electric vehicles, similar to what we have seen from EU lawmakers who have banned the sale of new CO2 emitting cars from 2035. Furthermore, we see the widespread promotion of renewable energy is very positive for the broad adoption of silicon carbide power electronics. Therefore, we believe that demand for our silicon carbide manufacturing solutions will be the strongest growth driver for AIXTRON in 2023 and possibly even beyond.

We observed a similar trend for our equipment in the area of gallium nitride-based power electronics, which continues to be in high demand by our customers. We see large industry players expanding their capacity at scale, while we continue to see new players entering the arena of GaN power. The adoption of GaN replacing the incumbent material silicon is going full steam ahead. The GaN market volumes are growing steadily, driven by our customers tapping into more and more sub-segments of the vast power electronics space, such as most recently, the efficient conversion of household solar power.

Today's market participants have to increasingly make an active choice between fab investments into incumbent silicon-based device manufacturing or the novel wide bandgap material, GaN or SiC. Besides the much higher energy efficiency, this is the main driver for the acceleration in GaN power.

For the gallium arsenide, in the phosphide material system, we have just launched our new high-volume manufacturing platform, G10-AsP. It marked a major step forward in both the area of micro LEDs, but also in the segment of high-performance lasers and vectors. For all these 3 segments, the new G10-AsP offers the value of much lower particles, uniformity improved by a factor of 2x to 3x and a much reduced consumption of processed gases, which translates into a reduction of cost per wafer. Again, costs will be a main driver in this segment.

In the second half of 2022, we have seen a remarkable slowdown in all consumer electronics-related investments of our customers, while fab expansions and telecom datacom did continue. Also we observed that the development work towards micro LED solutions continue as the vast majority of our large customers despite spending cuts in other areas of these companies. At this stage, it seems that not all technological challenges for mass production, in particular, in downstream processes such as mass transfer of pixels have been followed yet. But given the focus and dedication of our customers, we are convinced that micro LED displays will be the next generation of display technology.

With that, let me now present our full year guidance for 2023 on Slide 6. First of all, it is important to note that we have adjusted our U.S. dollar to euro budget exchange rate at which we record U.S. dollar-denominated orders and backlog for 2023 to USD 1.15 per euro from previously USD 1.20 per euro. This has just a minor effect on our orders and backlog as only less than 1/3 of those are recorded in U.S. dollars.

Secondly, please note that we expect to have a positive extraordinary revenue effect from the shift of some units that have been produced in 2022 and will be shipped and recognized as revenue in 2023. Based on strong customer demand, we expect orders for 2023 in the range of €600 million to €680 million. In '23, we expect total revenue in the range of €580 million to €640 million. This includes the above-mentioned shift of units that have been assembled already in 2022 and shipped in 2023. We expect a 2023 gross margin of around 45% and an EBIT margin between 25% and 27%. In summary, we expect a double-digit growth of the AIXTRON business in 2023, driven by the strong demand from power electronics and in particular, from our new G10-SiC tool.

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

G
Guido Pickert
IR

Thank you very much, Felix and Christian. Operator, we will now take questions, please.

Operator

[Operator Instructions] And the first questioner is Mr. Martin Marandon of ODDO BHF.

M
Martin Marandon
Oddo BHF

Congrats for the strong result. My first question then, my query, can you maybe give us a bit more color on your assumption in terms of orders and sales for micro LEDs for 2023? And it also looks like the first smartwatch using micro LED maybe delayed by a few months. So has this impacted your clients' road map in terms of ramping up your capabilities? That's my first one, and I have a follow-up.

F
Felix Grawert
CEO

Thank you very much on that question relating to the micro LEDs. So we expect in 2023 to get a decent amount of orders and a decent amount of shipments on micro LEDs because we see that our customers are continuing their -- first of all, the R&D efforts, but also we see that customers continue or start to build pilot lines, smaller scale pilot lines to really gain first experiences with the tool production set, including the mass transfer and all these.

And with that, I would say, for us, the micro LEDs might be in the order of 10% of orders and revenues in 2023. This is not yet a large big volume ramp that could have been expected. Previously, that might be shifted a bit into the future because as we have indicated in some of the complementary process that, which has nothing to do with the [APIs], which is the pixel transfer of the fully completed wafer with the micro LEDs on it, we hear that on this process step that followed many steps after the API deposition, there is still some technical challenge and topics to be involved. That's our current understanding.

M
Martin Marandon
Oddo BHF

And you also talked about very strong orders in silicon carbide with your new G10 tools starting Q3 last year. I was wondering, was it more driven by 1 or 2 specific customers or by winning also new customers?

F
Felix Grawert
CEO

Very much both. We have strong repeat orders from existing customers, very strong. In addition, we have a very large success in winning new customers. Some of these new customers ordering one or two tools, but also we have one new customer, which is ordering relatively large quantity tools at once, so to say, yes. And all this is building up now in a very, very strong pipeline that we see for the G10-SiC.

Operator

Next, we have Mr. Michael Kuhn of Deutsche Bank.

M
Michael Kuhn
Deutsche Bank

Firstly, on the sales guidance, looking at the midpoint, I think you will add around €150 million. Is that purely driven by power semis? Or do you expect growth in other areas as well?

F
Felix Grawert
CEO

Oh, I haven't looked now in the detailed split of that. I would -- let me give you a qualitative answer without now having the detailed numbers in front of me, yes. I would say the very strongest contribution by far comes from the power semis as we highlighted and also in our introductory remarks, to some extent, by gallium nitride, which really continues to accelerate the ramp. But now it just is casted silicon carbide, which is really adding an additional segment and additional growth. This is by far the biggest growth driver.

On the remaining optoelectronics business, as indicated before, we see a continuation of the business of micro LED, not yet in an accelerating manner, that might come a year later, yes, not for 2023, but we see that on a good and a stable level continuing. We see in the year 2020 through no or minor business in the area of red-orange-yellow LEDs. If you remember, that used to be always a certain part of our revenue that was also dragging our margins down a little bit. We have seen and remarked the 45% gross margin, yes. Now we got rid of this diluting effect, so to say, yes? So that helps us a little bit. So that falls out in this year because of the weakness of the consumer electronics market.

And we do see continued momentum on the other optoelectronics business, namely, we do see that the optical datacom business continues a very steady, a very solid growth path. And we expect that further to continue also in future years because we all know that the volume of data and data traffic is exponentially continuing and expanding, yes? You know that we have a very strong market position in this one. So we continue to serve that market, continuing to be growing.

However, in absolute terms, the number of tools here are smaller than what we see -- what needs to go into the silicon carbide power electronics. Yes, just bear in mind into one silicon carbide wafer can just serve a couple of electric vehicles, yes, while one wafer of optoelectronics, I don't know, can serve a couple of thousand optical transmitters and that gives you already an idea why the silicon carbide is currently now adding so many tools and so many units. Maybe that helps you a little bit.

M
Michael Kuhn
Deutsche Bank

That helps definitely. And one quick follow-up on sales mix. In the fourth quarter, the LED/micro LED sales, was that micro LED only? Or did you still ship, let's say, old LED tools in the fourth quarter?

F
Felix Grawert
CEO

Mostly micro LED. But the red-orange-yellow LED was towards the end of the year and in 2023, almost dead, I would say.

M
Michael Kuhn
Deutsche Bank

Okay. Fantastic. And then a few more on P&L and also CapEx. CapEx went up quite a bit to around about €30 million last year. Is that kind of a new run rate? Or do you rather expect a moderation here this year?

C
Christian Danninger
CFO

Well, CapEx is primarily -- as we indicated in the report, is primarily related to R&D activities, yes, lab expansions, also tools that go into our labs and that just goes in parallel with all of our R&D efforts continuing at around that level rather going up slightly.

F
Felix Grawert
CEO

Yes, I would agree, yes. Technology solutions to measure particle defects. Some of these tools are horrible expenses, yes, sometimes costing a couple of millions for just the metrology tool. So I would rather say that the run rate will rather go up.

C
Christian Danninger
CFO

Yes. And we still stay with our message. We had not changed our asset-light operating model. So this is primarily R&D driven and not operations-driven, yes. So you cannot -- you can expect that this CapEx requirements are not significantly increasing driven by our volume growth, but it's really driven by our R&D activities.

M
Michael Kuhn
Deutsche Bank

Okay. That's good to hear. Then maybe one more. You showed, I think, about €17 million of overdue receivables, which was quite an increase year-over-year, but you still regard them as recoverable. Can you add a few more details on that position?

C
Christian Danninger
CFO

No, there's no concern on unrecoverable accounts receivables. So there might only be timing effect, but there's no concern at all, yes.

M
Michael Kuhn
Deutsche Bank

All right. And then very last one. On the payout ratio, 35% this year and last year, is that a new permanent number we should look for? And how do you more generally think about shareholder participation, both in terms of dividend and also potentially buybacks?

C
Christian Danninger
CFO

Yes. To your first question, we continue to not formalize -- tip out the former dividend policy. However, we want -- after the strong year 2022, we wanted our shareholders to, for sure, participate well in the good results of the year and we did not want to go down with the percentage from the prior year as a percentage of net income, yes. But that does not formalize a policy into the future.

And in general, through cash allocation, of course, we are planning in general to continue paying dividends. And we're also considering share buyback programs. Right now we -- I mean, you've seen our cash flow in the last year, which was primarily driven by this working capital effect, okay, now when we turn that into cash, especially the receivables, but also part of the inventories, we will realize a strong -- most likely a very strong cash flow during the course of the year and we will consider them how to have our shareholders participate in that in the right form.

Operator

Next, we have Mr. Adam Angelov of Bank of America.

A
Adam Angelov
Bank of America

So firstly, I just wanted to touch on gallium nitride. So the penetration you're seeing there in different markets, it feels like datacenter is just starting really. But I think in the consumer market, people are a bit unsure. Is that highly saturated now, i.e., are all smartphones coming with fast chargers? So just your view on that would be good. And then yes, the future growth drivers for GaN beyond datacenter perhaps? And then, yes, maybe start there and continue.

F
Felix Grawert
CEO

Yes. I think that's a very good question. I think gallium nitride tends to be associated a bit with the consumer stuff, but I think that really should be taken out of the perception because the consumer stuff is a fantastic starter because it doesn't count so much on the reliability of devices. In the end, if your smartphone charter doesn't work anymore, you throw it away, you buy a new one, right? However, if you have a telecom base station sitting somewhere, let me say, on a remote island location, it doesn't work anymore, you need to fly over with the helicopter just to replace a part, yes, and that's a bit more tricky.

As the datacenter goes down, you hit your service level agreement in terms of uptime and that's really painful with your customers, yes? So therefore, the consumer starts with the first market to penetrate, but the consumer market in the end is really not the most relevant also in terms of [indiscernible].

[indiscernible] you could put a couple of thousand smartphones to supply with while in terms of datacenter, you need much larger chips, you may only be able to serve a couple of dozens or a few hundred of servers from one wafer. Just to put that upfront.

So that being said, I think the real interesting adoption for gallium nitrate just started. It started with datacenters and telecom base stations, which is, I would say, a traditional high-voltage, high-power solution, also historically in the silicon business that used to be key market drivers. They are step-by-step now converting from silicon to gallium nitride simply because these devices are operating essentially 24/7, the entire year around, yes, and server never gets switched off. And when you can realize a benefit in energy efficiency, you'll see the benefit in your P&L.

But also we see right now that additional areas are getting penetrated. One of the biggest areas that's currently taking off is the area of solar. Also solar and [indiscernible] is essentially running, I would say, maybe half of the hours of the year, always when the sun is shining, right? And now with solar and [indiscernible] it's a very big die sizes, very big convert that you have in there, you achieve a benefit in efficiency, which you see in the individual P&L. And the dynamics is very favorable here for the gallium nitride.

So there is new market segments coming and these market segments are on the one hand, being served by both the established big players. I think everybody knows who the big 3, 4 established players in gallium nitride are. They continue to accelerate the capacity expansion.

And on the other hand, we see now new entrants coming into this market being attracted typically, the new entrants focusing or having a very narrow focus on one of these segments, having a unique go-to-market or application benefit and now looking into building out their own sub capacities. So it's an acceleration of the demand in this market.

A
Adam Angelov
Bank of America

That's very helpful. Just wondering on the power electronics business, if you could roughly quantify the size of gallium nitride versus silicon carbide for maybe '22 revenue and then moving forward into '23, either in terms of order or revenue, where you think it lands?

F
Felix Grawert
CEO

I would say in 2022 for AIXTRON, power electronics revenue, it might have been 40% silicon carbide, 60% gallium nitride as a relative split. And I think in 2023, it's probably the other way around, 40% gallium nitride, 60% silicon carbide, just as a rough indication, yes? And you see gallium nitride is continuing to grow and silicon carbide is clearly adding on top and the single biggest individual growth driver for the year, so to say.

A
Adam Angelov
Bank of America

Yes. That's very helpful. And one more, if I could just squeeze it in. I think you talked about potentially getting to 50% market share in silicon carbide in the past. Is that still the number you're looking at? Or given the positive momentum you're seeing -- yes, how are you viewing that? That's all for me.

F
Felix Grawert
CEO

I think that's a decent number to look at.

Operator

Next, we have Olivia Honychurch of Jefferies.

O
Olivia Honychurch
Jefferies

Apologies in advance for a little background noise. Just on the overall order outlook, maybe to ask the previous question in a slightly way. You said that power semi, silicon carbide and then GaN are going to be the main drivers of growth this year [indiscernible] but it does feel so that there may be a payoff in 2024 without that GaN and another big order. I guess the question is, do you see enough demand in GaN and SiC into 2024 and '25, being able to keep driving good strength in the business even if we do get a little bit of effect in micro LED?

F
Felix Grawert
CEO

Olivia, sorry, I can't understand the question at all. Maybe you shoot an e-mail to Guido and we just pick it up on that one. No chance to hear what you say.

O
Olivia Honychurch
Jefferies

All right. Okay. I will do.

F
Felix Grawert
CEO

Good. All right. So we'll come to that. Guido, just bring it up in here when it arrives in your inbox. Operator, next question, please.

Operator

Of course. The next questioner is Mr. Malte Schaumann of Warburg Research.

M
Malte Schaumann
Warburg Research

First question is a follow-up on the micro LED side. Could you share maybe a number of how many customers or potential or active players, active customers you're currently discussing on projects besides your large commercial customer?

F
Felix Grawert
CEO

Very good question. I think we talked clearly about a double-digit number of customers. As mentioned before, the research and pilot line activities continue to be very strong on the micro LED side. And it's clearly all the display makers, yes, who is currently in the display business, but we also work with a large consumer electronics companies here. And given the weakness in the consumer electronics market, we have heard from some of these large giants about job cuts, yes, I think that went around through the press, especially in the fourth quarter and Silicon Valley in the Q4. But we were very happy to then see that none of the micro LED programs has been affected by these job cuts, yes, that we saw in the consumer area. And so those activities are ongoing.

As mentioned, display makers, consumer electronic players, but then, of course, also a number of technology-driven startups who will drive and develop new technology, of course, with a clear aspiration and the clear idea that when it comes to the ramp, they either sell or license their technology or they get bought up by one of the giants with the cash to put down double-digit billion investments into fact. That's clear.

M
Malte Schaumann
Warburg Research

Good. And if these customers build a pilot line kind of, are they ordering all colors from your side or do they kind of mix and match and just pick -- I don't know, red or something from you and then blue from other ones? Are they going with one supplier here?

F
Felix Grawert
CEO

So those players who do the full color game are ordering all colors from us, RGB. Nevertheless, we also know that there is some players who work with color filters, yes. So they only do blue LEDs and the green and the red is being created by color filters or some other color conversion methods, yes, a different approach. So these ones are also ordering tools from us.

M
Malte Schaumann
Warburg Research

Yes. Okay. Good. And with respect to the technical delays we see in the industry from your point of view, do you think that will be sorted out in the next, let's say, 6 to 12 months? Or have there been some serious threats that could lead to a larger push-out of the technology adoption?

F
Felix Grawert
CEO

Honestly, I have to admit we are not very close to this step because it's not directly connected to what we do, yes, so everything around the EPI and the steps directly before or after the EPI, we typically know from close collaboration with customers. But this step, as mentioned before, is clearly many, many process that after our step. So therefore, we don't have, let me say, original genuine insight or market insight, yes? And I wouldn't therefore want to give a qualified opinion.

M
Malte Schaumann
Warburg Research

Okay. Fair enough. Then on the service spare parts business, you're guiding for an increase to €100 million this year, so which is quite substantial. Nevertheless, you're still growing revenues quite substantial as well. So should we expect another strong rise then in the future years, '24, '25? Or do you expect that level to be more or less sustained in the €100 million you're expecting?

F
Felix Grawert
CEO

No, I expect further growth in this area.

M
Malte Schaumann
Warburg Research

More or less in line with top line growth? Or is there a different function?

F
Felix Grawert
CEO

There's multiple factors involved. It grows with the installed base of our current series of tools, which, of course, is growing step-by-step as we grow the revenue. But it's not directly connected to the revenues.

M
Malte Schaumann
Warburg Research

Yes. Okay. Good. Then a question on the tax losses. I saw that the tax losses have -- according to the annual report, increased quite substantially. I was wondering if you could -- what's the explanation for that? I think they've gone up from €150 million to almost [€160 million]. So what's the reason?

C
Christian Danninger
CFO

Yes. Christian here, I take that quite detailed question. Good catch. There has been no change in the tax loss carryforward. It's a pure disclosure topic. So in this year, if you read very closely, we are now disclosing the absolute amount of tax loss carryforwards, which is the €283 million that you find in Note 14, while in the prior years, we disclosed actually the deferred -- actual deferred taxes on these losses. It's a technical difference, yes. It's just because these IFRS [framework] here actually requires this disclosure. So there's no content-wise change. It's a pure disclosure change. And yes, does that answer your question?

M
Malte Schaumann
Warburg Research

Yes. And quickly, last one on the R&D budget, maybe you can share a number. And obviously, R&D budget is expected to go up quite strongly this year. So will it exceed €70 million in 2023 or come close to that number?

C
Christian Danninger
CFO

It will exceed the number.

Operator

[Operator Instructions] Meanwhile, we have received the questions of Olivia Honychurch.

G
Guido Pickert
IR

Thank you, operator. So on the overall order outlook, you've said that power semis are the predominant driver of orders rather than micro LED. For micro LED, you're seeing a lot of revenue from your first major customer, but it sounds like that may tail off slightly in 2024 without there being another big order yet. The question is, do you see enough demand in GaN and silicon carbide into '24, '25, being able to keep driving good strength in the business even if there is a bit of an air pocket in micro LED?

F
Felix Grawert
CEO

So I understand the question relates to the years 2024 and '25. So beyond 2023, I would expect that we continue our growth path also beyond 2023 because we see the strong demand on the GaN and the silicon carbide side. And yes, in fact, the micro LED topic is shifting or has shifted somewhat in terms of the big wave coming, but we see the micro LED continuing on the basis like 2022. So it's not going down. It's rather staying stable on a stable level, yes, rather accelerating. But sometime in '24 or sometime in '25, the micro LED will kick in, in addition. The timing we can't tell, yes, also relating to one of the previous questions we just had. But at some point, it would also kick in.

G
Guido Pickert
IR

Okay. A follow-up question here on another question before. New silicon carbide customer ordering relatively large quantities, is that a Chinese customer or perhaps a European-based one?

F
Felix Grawert
CEO

The majority of our silicon carbide customers is based in Europe and the U.S. This is where we currently see also the strongest momentum. On the one hand, this is -- we know that Europe is traditionally very strong on power electronics in terms of the device makers. I think we all know the name. And also, the U.S. is very strong in power electronics and we see further momentum now, of course, from the U.S. CHIPS Act with U.S. customers also expanding their facilities.

G
Guido Pickert
IR

Okay. And one more question on the gross margin. You've previously said that the 45% was a midterm aspiration, but now you're guiding to it in 2023 already. Does that mean we can now assume that the medium-term guidance should be higher? Or is that about the level we should expect going forward?

F
Felix Grawert
CEO

It's a very good but also a very difficult question because we all know that there is a different market forces at work. On the one hand, we had achieved the 45% much faster than we had expected to the fact that the diluting red-orange-yellow business has now fallen off. On the other hand, along with the growing volumes that we see in our markets, our customers are driving for further productivity and further costs. We have to see how that develops. I would say 45% is for sure to be said, there might be an uptick in the years to come, let's see.

G
Guido Pickert
IR

That's the questions. We'll hand now to the operator.

F
Felix Grawert
CEO

Olivia, does that also answer all? If there's others, just let us know. Yes?

G
Guido Pickert
IR

Operator?

Operator

Next, we have Jeff Bernstein of [indiscernible].

U
Unidentified Analyst

You guys have an investment, I believe, in an Australian company called Blueglass that was developing an RP CVD capability on your tools. And I guess they've gone commercial with high-power blue and green lasers. Can you just talk about what you see as the importance and the opportunity there?

F
Felix Grawert
CEO

Just to clarify, we do not have an investment in this company, yes? Blueglass in Australia is a customer. They have purchased tools. They work on a specific technology. I don't want to reveal the details because I don't know what they have revealed themselves. And we serve them as a regular customer as we serve other customers, yes? Of course, all the collaboration and all what they aspire to do is under an NDA as with all the other customers. So I could not reveal in this place now details about what they do, what specifics they try.

Of course, I do know that, yes, but that would not be the right thing to disclose it here in public. I think you would need to approach their Board directly in the management team.

Operator

Mr. Adam Angelov has a follow-up question.

A
Adam Angelov
Bank of America

Just a very quick one. Just wanted to check on the export licenses where you're at. Have you fully received everything that maybe was slow to come in the second half of 2022?

C
Christian Danninger
CFO

Yes. We see that the missing licenses are now coming in one by one and also now the units that we spoke about are shipping step-by-step. Not all of them are yet there, but we see that the situation is starts to be relaxing.

Operator

Next, we have Ms. [Elizabeth Wiesenhaun] of [Portugous Investment].

U
Unidentified Analyst

I would like to raise also the question of these export licenses because here in Germany, the economic ministry, they do have some change in their policy towards China. And sometimes, I think maybe these slow process in getting out the export licenses is not only because of bureaucratic [indiscernible], but it is more of a systematic thing. And second, your part of turnover in China was always very high. Does that now change? And how do you look at this from a risk standpoint?

F
Felix Grawert
CEO

Yes. So I see two questions. The first, whether there is a systematic change on this policy. We cannot confirm that, yes? We rather see that the licenses are coming. Some are coming a bit faster than expected. Others are coming a bit slower than expected, but they are all coming. So we cannot confirm a systematic change here to your first question.

To the second part of your question about the China share of revenue, that's a very good observation. That's related mostly to the end market and the end application and the regional strength of different applications. For the last 10 years, AIXTRON had a very strong China exposure, driven largely by the LED market and the LED industry, which was mostly located or which is mostly or was mostly in the traditional LEDs located in China, while we all know that the highly innovative micro LED topic is mostly driven out of Europe and the U.S.

And we currently see, as mentioned before, the biggest growth momentum coming from gallium nitride and silicon carbide power electronics, again, an application or 2 applications where the majority of customers and the real strength is located in Europe and in the U.S. And with that, we do see the share of China revenue as a percent of overall revenue going down quite strongly. It used to be somewhere 50%, 60%. I think we are now talking 25%, 30%, something on that order. And that's due to the shift of end market, yes?

However, also to be very clear, we have a very good, very strong, also in some segments, very innovative customers in China, which we'll continue to serve and which we want to continue to serve. And I think it's only a question of time when China is also picking up on these new applications that's currently causing so much growth for us.

Operator

And the last questioner is Mr. Johannes Ries of Apus Capital.

J
Johannes Ries
Apus Capital

Only maybe coming back on micro LEDs, only to have a feeling about the size of the opportunity, I think it is unchanged given maybe technology problems we have now for some time being. But is it still the case that despite silicon carbide and gallium nitride, especially since silicon carbide are growing stronger than maybe 1 or 2 years back expected, so is this in the longer term period your maybe largest market opportunity? Is that still right?

F
Felix Grawert
CEO

I would see that the market opportunity is really quite balanced across all the 3 material systems that AIXTRON is offering in its portfolio. So -- and again, there may be certain shifts, yes. But I would say, to a very rough order, you can say 1/3 silicon carbide, 1/3 gallium nitride, both power, but also the LED side of the gallium nitride and 1/3 gallium arsenide, both on the lasers, the pixels which is the established market as much as the gallium arsenide side, the red micro LEDs, yes? And then an individual year from this 1/3, 1/3, 1/3, of course, it can deviate. And in a specific year, one of those may be around 40% or even a little higher than 40%, but I would say we have a quite stable basis of all 3 material systems.

J
Johannes Ries
Apus Capital

And micro LED, it's the largest opportunity, isn't it?

F
Felix Grawert
CEO

I wouldn't want to quantify it like that. I think it's nicely competing with silicon carbide. If we see all the plans for electrification of everything, yes, and the replacement of all combustion engines and burning of fossil fuels with electric things, yes, and if you look at the big growth driver on everything that needs to be replaced from the profile economy to an electric economy, you need power electronics, silicon carbide for the very high power, gallium nitride for the lower power, yes. If you -- I just read a study, in 2050 more than 50% of the world's energy will be produced by solar cells, yes, not only here in Germany, where we might be pushing this a little faster than others, yes, but also in developing countries.

And all these new power converters, yes, on the roof, so to say, or on the field where the solar cell is attached and all these power converters with either gallium nitride or silicon carbide, let's see. I think the future is uncertain, but for sure, growing.

G
Guido Pickert
IR

Thank you for all the questions. This ends today's call. Our next earnings call will be our Q1 call on April 27, followed by our Annual General Meeting on May 17. We ask you to participate and ideally support us. And until then, I'd say goodbye and see some of you in between. Thank you very much.

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