AXT Inc

Good afternoon, everyone, and welcome to AXT's first quarter 2025 financial conference call. Leading the call today is Dr. Maurice Young, Chief Executive Officer, and Gary Fisher, Chief Financial Officer. In addition, Tim Bettles, VP of Business Development, will be participating in the Q&A portion of the call. My name is John, and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Leslie Green, investor relations for AXP. Please go ahead.

Thank you, John, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrate, our product mix, global economic and political conditions, including trade tariffs and export and import restrictions, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies, increased environmental regulations in China, and COVID-19 and other outbreaks of contagious disease. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our expectations. This conference call will be on our website through May 1st, 2026. I also want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter and fiscal year 2025. This information is also available on the investor relations portion of our website. I would now like to turn the call over to Gary Fisher for a review of our first quarter 2025 results. Gary?

Thank you, Leslie, and good afternoon to everyone. Revenue for the first quarter of 2025 was slightly above the midpoint of our guidance at $19.4 million, compared with $25.1 million in the fourth quarter of 2024. $22.7 million in the first quarter of last year, 2024. To break down our Q1 2025 revenue for you by product category, indium phosphide was $3.8 million, primarily from pond and data center applications. Gallium arsenide was $6.7 million. Germanium substrates were $0.6 million. Finally, revenue from our consolidated raw material joint venture companies in Q1 was $8.3 million based on continued healthy demand. In the first quarter of 2025, revenue from the Asia Pacific region was 83%, Europe was 11%, and North America was 6%. The top five customers generated approximately 35.9% of total revenue, and no customer was over the 10% level. Non-GAAP gross margin in the first quarter was a negative 6.1%, compared with 17.9% in Q4 2024, and 27.3% in Q1 of 2024. For those who prefer to track results on a gap basis, gross margin in the first quarter was negative 6.4% compared with 17.6% in Q4 and 26.9% in Q1 of 2024. The magnitude of the decline in gross margin was a disappointment in the quarter and primarily the result of three factors. First, we had significant yield issues and our semi-insulating gallium arsenide wafers as we worked quickly to scale our output for sizable wireless opportunity. I think the lesson for us is that while the opportunity is compelling, the sophistication of the product specs require us to move in a more measured way to ensure that we can execute cost efficiently. Revenue in the mix also played a role in our gross margin deficit. Due to the current trade restrictions, substrate sales were down meaningfully in the quarter, our joint venture sales were higher than normal as a percentage of our revenue as a manufacturing company this resulted in under absorbed factory overhead that was greater than expected and finally we were expecting to see a little bit higher gross margins across the board from our joint ventures from gallium arsenide and from germanium sales morris will talk more about gross margins and our plans for improvement shortly moving to operating expenses which is better than expected in holding OpEx down in Q1. Total non-GAAP operating expense in Q1 was $8.5 million compared with $10.5 million in Q4 of 2024 and $8.7 million in Q1 of 2024. On a GAAP basis, total operating expense in Q1 was $9.0 million compared with $10.6 million in Q4 of 2024 and $9.4 million in Q1 of 2024. Our non-GAAP operating loss for the first quarter of 2025 was $9.6 million compared with the non-GAAP operating loss in Q4 of 2024 of $5.4 million and a non-GAAP operating loss of $2.5 million in Q1 of 2024. For reference, our GAAP operating line for the first quarter of 2025 was a loss of $10.3 million compared with an operating loss of $6.2 million in Q4 of 2024 and an operating loss of 3.3 million in Q1 of 2024. Non-operating other income and expense and other items below the operating line for the first quarter was a net gain of 0.4 million. The details can be seen in the P&L included in our press release today. For Q1 of 2025, we had a non-GAAP net loss of 8.2 million or 19 cents per share compared to the non-GAAP net loss of 4.3 million or $0.10 per share in the fourth quarter of 2024. Non-GAAP net loss in Q1 of 2024 was $1.3 million or $0.03 per share. On a GAAP basis, net loss in Q1 was $8.8 million or $0.20 per share. By comparison, net loss was $5.1 million or $0.12 per share in the fourth quarter. And GAAP net loss in Q1 of 2024 was $2.1 million or $0.05 per share. The weighted average basic shares outstanding in Q1 of 2025 was 43.6 million. Cash and cash equivalents and investments increased by 4.4 million to 38.2 million as of March 31st. By comparison, at December 31st, it was 33.8 million. Depreciation and amortization in the first quarter was 2.2 million. Total stock comp was 0.6 million. Net inventory was down by approximately 4.7 million in the first quarter to 80.4 million. This continues to be a focus for us, and we expect to bring it down further in quarters to come. Okay, this concludes the brief discussion of quarterly financial results. Turning to our plan to list the subsidiary in China, Tang Mei, on the star market, we continue to keep our IPO application current. Tang remains an in-process category. as part of a much more selective and smaller group prospective listings than a few years ago. While we're not insensitive to the current geopolitical environment, Tang Mei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. Okay, with that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets. Morris?

Thank you, Gary. I want to begin with an update on the export restrictions because I know that is top of mind for many of you. Then I will discuss current market opportunities and our plan for growth margin improvement. As many of you know, on February the 4th, the China government imposed trade restrictions on the export of Union Phosphate material. Similar to 2023, restriction of gallium arsenide substrates. These regulations explicitly seek to restrict the export of material used for military applications. Therefore, we are now undertaking an export permit process for emu phosphide, similar to what we have done for gallium arsenide over the last two years. We were disappointed that the portal to accept export applications did not open until April. That said, we were well prepared when it did open. And we have submitted comprehensive applications on behalf of all major Indian Pospite customers outside of China. In our experience, we typically hear back initial applications within 45 business days, and repeat applications are often processed faster. As such, we do not expect to be able to ship any phosphide to customers outside of China before mid-June at earliest. As we have mentioned previously, we do not believe that any of our any phosphide sales go to military applications. So we feel that we are in a good position to realize a backlog of sales once we can navigate the permit process. While the current geopolitical environment presents a near-term headwind for our business, we are also discovering some unique opportunities. The cloud and data center of connectivity market in China is accelerating. And in an effort to promote innovation and reduce dependency of foreign suppliers, we're seeing a significant effort to develop domestic source of EML, and silicon photonics-based lasers. We estimated that the Chinese data center optical interconnect market is currently around one-third of the global market. However, most of the optical devices for these interconnects are sourced from outside of China, and applications for indium phosphide within China remain focused upon today. Further, laser manufacturers in China are developing an appreciation for the critical benefit of very low EPD material in high-speed interconnect devices, both in the traditional power market and in the new data center market. As a result, our sales of EMD phosphide within China are increasing. The time for data center market remains small at this moment, but we do expect to see significant growth over the next few years as the power laser providers expand their portfolio of market to include EML and silicon photonics solutions. That said, in Q2, we expect healthy double-digit growth for our revenue from data center applications in China of a Q1 level. We also have significant Indian phosphate backlog from customers outside of China that is ready to ship. We're working diligently to support the need of our customers globally, and we are hopeful that Tongmei can begin to secure permits for initial geography soon. Turning to gallium arsenide, we continue to see recovery, particularly in China and Taiwan, across a number of applications like high-power industrial lasers, wireless filters, and Wi-Fi. We believe there is a sizable opportunity for our gallium oxide substrate HPT devices for the wireless market. This represents exciting potential for which we believe our technology and products are well-suited for. With the cost of performance breakthroughs, we achieved our 8-inch product, as well as strong relationship building with one of our largest Asian-based EPI providers, wearing a great position for growth. But this is a competitive and sophisticated market. We were excited in Q1 to have the opportunity to compete for a large share, but we stumbled in trying to scale too quickly. We continue to view this as an exciting space, but are taking a more measured approach to market, to this market share expansion, to ensure that we can execute effectively as we increase our production levels. We're also seeing a notable increase in design activities and qualifications for Yaliastan-based LiDAR for the autonomous vehicle market in China. With the growing adoption of autonomous vehicles and high precision sensing technologies, gallium arsenide has become a critical material due to its superior electronic properties and ability to operate effectively in high frequency applications. Chinese manufacturers are increasingly investing in the development of LiDAR system for the EV market that leverage gallium arsenide. recognizing their potential to enhance resolution and accuracy in object detection and navigation over the competing camera-based solutions. Similar to what we are seeing in the data center market, there seems to be a push in China towards reducing dependency on foreign suppliers and fostering domestic innovation. As a result, we believe that the demand for LiDAR is poised to grow. And that this is a market in which our low EPD gallium arsenide substrates are showing tremendous value in device performance. Over the last 12 months, we have aggressively enhanced the technology, technical capability of our material to help our global customer base solving complex next generation challenges. The material we supply are being used in highly sophisticated applications, such as the ones that we have mentioned today, where our breakthroughs in delivering extremely low EPD give us a distinct competitive advantage in both Ne-phosphate and gallium arsenide. I'm extremely proud of our team for the rapid progress we have made. For that reason, I cannot allow growth margin setbacks in our substrate business to cloud achievement that we're making in our technology. We strongly believe over the coming quarters we can drive meaningful improvement in our growth margin. In the near term, we're taking a more measured approach in the HPG market to ensure that our gallium oxide production and yield can right themselves. This is a now among the highest priority here in China and the top priority for our manufacturing leaderships. We expect to see improvement beginning this quarter and continuing throughout the balance of 2025. This is an issue that is very much in our control and we are laser focused on fixing it. It is also worth noting that the decrease in substrate sales as a result of trade restriction, has also impacted our gross margin performance, as Gary noted. We feel good about our ability to begin secure Indian phosphide permits, which should help our overall sales volume in the back half of the year and contribute to a healthy revenue and product mix. Both of these will help us in a gross margin list for our business. Before I conclude, I want to say a few words about our raw material joint ventures. Sales in Q1 were strong, and we have been trending up over the past year. We continue to invest in expanding our capability and have built an impressive portfolio, which today includes gallium, arsenic, PBN crucibles, quartz, indium, and germanium. The strategic value of these materials is not only that we can more cost-effectively supply all of our critical materials needed to manufacture our products, but we also benefit from the additional revenue stream generated by our joint ventures to sales of these products on the open market. The asset value of this portfolio has grown substantially over the last 20 years, and we will continue to expand our opportunity in 2025 through the development of new markets. There is a new and greater awareness of the importance of Earth's material, and we are ahead of the curve in developing this unique integrated supply chain. In summary, while the geopolitical environment is creating undeniable challenges we are focusing our energies where we can drive positive return today. We're uniquely positioned to optimize growth opportunities in China, such as high-speed data center connectivity and sensors for autonomous driving, and we're pursuing these and then other opportunities with success across key markets for Indian phosphide, baryosinide, and Germanic substrates. We're also working tirelessly on behalf of our global customer base to ensure that we can continue to support their need across all our products. We recognize this is a challenging time for our customers, our investors, and our employees, and we are deeply committed to working diligently on your behalf. With that, I will turn the call back to Gary for our second quarter guidance.

Thank you, Morris. In keeping with our comments today, we believe Q2 revenue will be in the range of 20.0 million to 22.0 million. This guidance range excludes any contribution from Indian Phosphide for our customers outside of China in Q2. Once we do receive permits, we have several million dollars of Indian Phosphide backlog that we would be able to ship, most likely in Q3. We do feel encouraged that even without these shipments, we are in a good position to grow our business sequentially. As Morris mentioned, this is due to our success in optimizing emerging opportunities to grow our business in China across all of our product categories. While we don't normally give gross margin guidance, we do believe that we can see a recovery on a gross margin to around 10% in Q2 based on manufacturing improvements. We also believe that production volume growth in the second half, coupled with continued yield improvements this year, will allow us to drive continued gross margin recovery for the rest of the year. Based on our revenue range, we believe our non-GAAP net loss will be in the range of 12 to 14 cents in Q3, and GAAP net loss will be in the range in Q2, and GAAP will be a loss in the range of 14 to 16 cents. Share count will be approximately 43.7 million shares. Okay, this concludes our prepared comments, and we'd be glad to answer your questions now. John, operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have dialed in and would like to ask a question, as a reminder, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Thank you. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Ross Cole with Needham & Company. Please go ahead.

Thank you for taking my question on behalf of Charles Shee. I was wondering if you could maybe dive a little deeper into the yield issues you're seeing for the semi-insulating gallium arsenide and maybe, you know, when do you expect to see these yield issues resolved? And is there any change to your market opportunity as a result of this? Thank you.

Sure. As we said, I think we were excited about the opportunity for HPT market for wireless because it's a Existing market and we have a good relationship with good customers in Asia. We thought we can penetrate that market with the immune phosphate permit restriction on our revenue. So we were taking on that market a bit too aggressively. So we encountered a yield problem. But we think that is solvable, and we have been in manufacturing business for years, and we have a yield glitch, and we already find the source of the problem. As Gary mentioned, that although this quarter's margin was negative 6%, but we do expect a very quick recovery to about 10% next quarter. So that is a good sign. and i think you know we are we we we get into this market a little bit more too aggressive so that hurts our ability to to achieve a good margin but we think we have the solution in hand but we will take a more measured approach to this market but this market is there so uh we'll just approach it more carefully but we we think the opportunity is there for us to uh to get into you know, once we get our yielding order and our manufacturing line more effectively producing this product.

Great. Thank you. That was very helpful.

Next question comes from the line of Richard Shannon with Craig Helms. Please go ahead.

Well, hi guys. Thanks for letting me ask a question here as well. Since we just talked about yields, why don't I ask another question on this topic here? And I guess, Morris, I guess I'm curious why it's going to take more than a quarter or two to fix the yields here. I mean, is this an entirely new product? I guess I thought this was kind of an existing product that you could just go back to the way you were doing it before, maybe just at a slower pace, so you could get back there fairly quickly, or am I misunderstanding the situation?

Richard, you're correct. I mean, it is a product that we have worked on for many years. But as you know, when you are dealing with a commercial volume of tens of thousands, I mean, thousands of wafer per month, and the customer specification from time to time will change. But if you're not laser focused into supplying them consistently, any little change can require a recalibration of our production line without our customers' need. So I think that is perhaps one of the reasons which hit our yield. And it's that we thought we delivered this product to them for many years before we can re-enter this market so we can go quickly, you know, change our manufacturing slightly. But you know, manufacturing is something which you don't change very quickly. So I think we want to make sure that we are approaching this problem more measurely so that we can protect our gross margin and our profitability. And... And so we can get back to the 10% gross margin from negative six in the next quarter, in Q2. And also, as Gary mentioned, that the gross margin hit not only coming from this manufacturing yield loss, yield lower, but also is coming from the product mix As well as the third point, Gary, remind me, what was the third one? So it's a mixed product of, you know, for instance, evening phosphide for the first quarter, we had one month of evening phosphide revenue of January. You know, the restriction was coming on February the 4th and that we cannot deliver any after that. and the Q2 guidance taking into account that we don't have any outside of China, any classified permit. And that will hit our margins as well compared to Q1. But if we can secure any permit on any classified, then that can improve our gross margin. But we're taking more conservative view of making that estimate of what our product mix will be in Q2.

Okay. Fair enough for that, Morris. Maybe let's touch on indium phosphide here. And I guess, as you said last quarter with this permitting process, since you've already done it with gallium arsenide and it's been, you know, other than the delay factor you had initially, it seemed like it was mostly seamless here. Have you been given any assurances that you're expecting a similar process here? Do you have any worries that we're going to have a delay beyond what I think you said is a mid-June timeframe to hopefully start shipping to the backlog you have there?

Well, you know, to getting a permit, it's dealing with bureaucrats and, you know, a bureaucracy is always very difficult to predict, but given that China announced that they want to make sure these are not for military applications, and many of our customers, we believe, are using FOSTA for military applications, so we think that a permit should have no restriction for our customers to get permits, but On the other hand, there are geopolitical struggles between countries. So, you know, it's hard to say, but I think in our prediction, we think we can get our permits soon. I mean, the normal 45 days, once we submit the application into the Commerce Department of China.

Okay. So... Playing this forward here, like you said, assuming you get the permits here by the middle of June, you can ship out, I think your words were several million dollars. I guess if we, I guess maybe give us a little better quantification of what exactly that means. Is there any timing dynamics here would prevent all that, you know, quote unquote, several million dollars being able to be shipped and recognized in the second quarter?

Yes, we are actually making especially large customer orders. We're making them in our production line just ready for shipment, or some of them we make it into stages that we can finish up by the final clean or the final polish so that we don't leaves the freshness of these wafers to our customers. So we do believe if we can get permits, we can ship these very quickly. And, you know, honestly, our customers waiting patiently for this product to be delivered to them, too. They're giving us orders. So I think we're confident we should be able to ship them within... let's say a week to 10 days after we get the permits.

Okay. So again, relate any phosphide that's stretching out the timeframe to calendar 25 here. Going back to your last call, and I can't remember if it was you, Morris, that said this, or maybe it was Tim. There's a question asked about what kind of growth do you expect from any phosphide? And the answer given was something in the 20% growth range. Let's assume that the permitting process isn't onerous enough such that you can't get anything done this year, which hopefully will be the case where we've got real big problems. But is that growth outlook still roughly intact here?

So maybe I can give this question to Tim. Maybe Tim answered that 20%. Tim?

Yeah, I think that growth outlook is still there. The market dynamics are still – pushing towards what we would see as a growth of 20%, given that, obviously, we can ship bases outside of China. I just want to make a quick comment about that, too. As I said, and Norris commented, we feel like we're in a good position to get permits to ship outside of China, Indian phosphide, that is, outside of China. But from a timing perspective, we see that the first permits come through end of Q2, as we've said, But for a guidance perspective, we haven't included Indian phosphide shipment outside of China in our Q2 numbers. And we believe it's better to be conservative until we have more clarity on this timing. So what you'll see is you'll see, we still see that market trend going, increasing to about 20%. We believe we'll be able to capture that fully in 2026.

In 2026, I think last last conference that was related 25. So just want to make sure that we're citing the correct year. Is that what you mean, Tim? 2026?

Sorry, yes, so so we'll be more conservative on 2026 or 2025. Sorry, just because of a timing perspective on these permits. So what we're looking at here is just say Q2 numbers. We believe We've not included any of the permits. We still believe this market is growing at 20% in terms of indium phosphide, and we'll be able to capture that beyond Q2 in 2025, beyond Q2, second half, and then into 2026.

Okay. Perfect. I think that's all the questions I have for now. I will jump out of line, guys. Thank you.

Your next question comes from the line of Matt Bryson with Ledger Securities. Please go ahead.

Hey, guys. Thanks for taking my questions. I'm going to kind of follow on Richard's last question. With Indian Fosside, is there any risk at all that you're not being able to ship the customers, end up with customers going with another supplier? Or something's business doesn't come back to you?

That's it. Good question. I think we are a major indium phosphide supplier. We believe we have perhaps between 40% to 50% worldwide market. And indium phosphide material is not the easiest material to make. We believe there are only two major competitors worldwide. and get any phosphide material to be qualified with a customer takes a very long time because they are lasers. The device is increasing in terms of current density as well as the size of the lasers. So all that requires very careful qualification of the good low EPD material. So we believe that those shoes are not very easily to be filled. But, of course, I mean, with this market demand out there, we believe it's, you know, everybody wants to get more in the phosphide team. Maybe you can help. What do we hear from the marketplace? Is any of our lost order being taken by our competitors?

Yeah, thanks, Maurice. Yeah, I agree. We don't believe that it's the case so far. We're still seeing orders coming in from all of our customers. We're building up a backlog within those orders or from those orders. And if we can begin to see permits late this quarter, early next, we're pretty much ready to ship through Q3, Q4. This market's growing too fast. And As Maurice said, we're a major supplier into this market. The other players both cannot keep up with capacity, nor can they meet our quality performance that our customers are starting to demand from us now. So at the moment, we're really not seeing people move away, but we're seeing people kind of hang in there, continue to place orders, and wait for permits to get approved.

got it so then best guess is that once you get your permits uh approved um that your customers end up resuming orders um there's there's inventory refill and you possibly see a almost a period of over shipment versus end demand just as customers catch back up is that is that fair that's absolutely fair yes we would

we would see a rebuild of inventory as those permits come through. So we should see a pretty healthy bump, yes.

Got it. Next question, I think, Gary, when you were talking about the factors weighing on gross margin, it was lowering the phosphide shipments, problems with – the HPT, and then I think the third factor was just lower gross margins on a couple products.

When we made our plan for the, you know, once we learned about the February 4th announcement from China, you know, we knew that was going to hurt both our top line and our gross margin line, but we had We had expected maybe that the rest of the product lines, including raw materials, would have some at least mitigating lifting effect. And had a little bit of that, but it probably wasn't quite as robust as I had hoped. But that was the third factor.

Got it. So it's more you didn't see a lift as opposed to there was lower pricing or anything else going on in the other product lines? Yeah, no, there's not.

Not really an ASP issue in this story. The real story is, you know, indium phosphide dropped in revenue. And at the same time, we were trying to make up for that revenue drop by accelerating some gallium arsenide work. And as Morris said, maybe we were a little bit too aggressive there. So that's our understanding, yeah.

Yeah, but there's nothing going on with pricing across all the markets. No, there's always pricing.

Go ahead.

Sorry. Okay. Just with the material shipping to China, if there's more material shipping to China, does that have any impact on pricing at all?

I'll let Tim take that one.

So some of the traditional GON markets are seeing some price pressures as we go into that, and we see some growth this year into those markets. But generally, as we look at other markets, of course, we're always under some kind of price pressure, but we're not seeing anything out of the ordinary that I would say at this moment in time.

Got it. And then last one for me. I don't think you ship a lot of product to North America, but can you just talk to any ramifications from the substantial tariffs that the U.S. is placing on China? Is it affecting your business at all?

Go ahead, Tim.

Yep, so for context, revenues to the US in 2024 were about 8%. They'll probably be less in 2025 as a result of these trade restrictions and the timing of the permitting process. But anything that we ship to the US will likely have a tariff on it. The amount of this tariff is still a little unclear, and it still seems to be under discussion between the US and China. Yes, we expect that we're going to have to deal with this tariff. Again, revenues in 2024 are about 8%. So it's not something that gives us real great heartburn at the moment. Got it. Thank you so much.

Thanks, Matt. Next question comes from the line of Dave Gann with B Riley. Please go ahead.

Yes, thank you. Good afternoon. My question is regarding that last statement about your sales to U.S. My understanding is that semis are exempt, so your products, wouldn't they be exempt as well?

Yes, they're exempt from the reciprocal tariff. But they're not fully exempt from all tariffs at the moment. But as we say, this tariff situation is still under discussion. There still seems to be some negotiation going on between the US and China. So I think once the permit process opens up and we start shipping again, we'll get a clearer understanding of what our position is in terms of tariffs.

So what happened in first quarter, I mean, can you just tell us the facts, like how much was, how much if you can quantify tariffs? And you didn't mention that in your three factors we got in gross margin, but then tariffs didn't impact your gross margin as well?

You know, again, Boris, did you want to comment?

Yeah, I think perhaps Dave's question is, you know, our gross margin impact from tariffs, since in Q1, we have shipped at least one month in January. I think our product shipped in January did pay tariffs, okay? But that was the old tariffs. What was the percentage, Tim? I think it's around 25%, correct?

Yeah, correct. The Section 301 tariff is 25%.

And now it has changed. So what percentage of tariff is going to be? I think we're watching very intensely how it's going to be resolved. And as you mentioned, it could be exempt. And I also heard China, on the web actually, China is going to exempt some of the imports from the United States are certain material that China wants to import from the United States, such as semiconductors. So could that play into, you know, reciprocal tariffs from the United States? Because, you know, these Indian phosphorus products, none of them can be made in the United States anyway, and our customers in the United States need this material. So You know, we don't know at this point. I mean, but, you know, let's get the permit problem solved first. But we believe that the tariff issue can be navigated. We have a plan to resolve this tariff issue, right, Tim?

Correct. We do have some plans to navigate around this. It's too early to say anything about them yet, though.

You know, some of the component vendors told me that their customers, not all, but some customers are willing to pick up tariffs at least temporarily. I mean, it sounds like you guys are paying the tariffs, not your customers?

Well, we've been faced with this situation before, and there's no easy answer to it, right? Some customers will pick up the tariff. Some customers will pick up some of the tariff. We've dealt with it with gallium arsenide for the past 18 months. And we'll deal with the tariff as we go case by case. I'm sorry, with indium phosphide for the past 18 months. And we'll deal with this for the case by case basis as we move forward. And we have to get a better understanding of what this tariff really means.

Got it. And my last question is regarding the wireless HPT. along with yield issues. Just wondering if you got that business, I mean, can you kind of quantify as far as the revenue, and is it because of your stumble, is it a lost opportunity, or are you still in the derby, I guess? And is it just one customer or multiple customers?

Well, it's one specific customer. It's a fairly large customer. And I think we have not lost the opportunity. I mean, we're still working on it. And as I said, we will take a little more measured approach to trying to gain more market share. But I mean, once we got our, you know, actually it's not a yield issue per se, but it's a matching of specification from what we can make and the customer demand. Once we got it sorted out, I think we should be able to get back to it. And Morris, can you kind of quantify? Let's see. It's probably around $2 million.

Per quarter?

No. A little bit more than $1 million per quarter. Yeah, for the quarter.

Got it. Thank you.

And it seems that we have no further questions today. I would now like to turn the call over back to Dr. Morris Young for closing remarks.

Thank you for participating in our conference call. Later this month, we will be participating in the B Reilly Security 2025 Annual Investor Conference. As always, please feel free to contact me Gary Fisher or Leslie Greene, if you would like to set up a call. We do look forward to speaking with you in the near future.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.