Aixtron Se Unsp/Adr

Ladies and gentlemen, welcome to EXTRAN's analyst conference call regarding the half-year results 2025. Please note that today's call is being recorded. Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at EXTRAN, for opening remarks and introductions.

Thank you very much, operator. A warm welcome to EXTRAN's Q2 2025 results call. My name is Christian Ludwig. I am the head of Investor Relations and Corporate Communications at Extron. With me in the room today are our CEO, Dr. Felix Darvat, and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by Extron and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. The participation in this call implies consent to this recording. Please take note of the disclaimer that you find on page one of the presentation document as it applies throughout the conference call. This call is not being immediately presented by a webcast or any other medium. However, we will place the transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Thank you, Christian.

Let me also welcome you all to our Q2 2025 Revolt Call. I will start with an overview of the highlights of the quarter and half year and then hand over to our CFO 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 update on the key business developments of the second quarter on slide two. The important messages for Q2 are, we have delivered a robust Q2 25 in a soft market environment and recognize solid new orders of 119 million which lead to an equipment order backlog of $285 million. We concluded the quarter with revenues of $137 million. With that, we came in at the upper end of our guided range of $120 to $140 million. The gross margin reached 41% in Q2 and averaged 36% in H1. This figure includes a one-off expense related to our implemented personnel reductions. Adjusted for this effect, the gross margin in H1 came out at 38%, slightly above previous year's 37, mainly due to a better product mix. With these results, we confirm our 25th full-year guidance published in February 25. A key contributor to our success remains the G10 product series. The G10 ASP has firmly established itself as the tool of record in the laser market, while the G10 Zig has been instrumental in winning and fulfilling a major silicon carbide volume order from China. The optoelectronics market shows very strong momentum, while the power electronics market stays soft, with orders coming mostly from Asia, namely China. Christian will now provide a detailed look into our financials on the following pages. Before I take over with an update on our market, Christian. Thanks, Felix, and hello to everyone. Let me start with the highlights of our revenue development on slide three. We had a good quarter in the soft market environment with revenues at 137 million euros, slightly up compared to the 132 million last year, and at the upper end of our guided range, 120 to 140 million euros. For the first half, revenues came in at 250 million euros, virtually flat year over year. A breakdown per application shows that 71% of equipment revenues in H1 come from GAN and SIGPOWER, 16% from LED, 9% from optoelectronics, and 4% contribution from R&D tools. The aftersales business well contributed to total revenues with 52 million euros. The aftersales share of revenues in H1 was stable year-over-year at 21%. Now let's take a closer look at the financial KPIs of the income statement on slide four. I already talked about the revenue line. Gross profit increased year-over-year into two 2025 to 56 million euros. Gross margin came in at 41%, up four percentage points versus the prior year. For the first half, gross profit was 90 million euros, slightly below last year's figure. At 36%, Our gross margin in H1 was one percentage point lower than in H1 2024. But please recall, as stated in our Q1 release, this includes a one-off expense of a million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for this effect, the gross margin in H1 would be above the previous year at around 38%. The one percentage point increase year-over-year is mainly due to better product The personnel reduction measure has been completed in Q2 and will result in an annualized improvement of a mid-single-digit-million-euro figure. This cost reduction was partially effective in Q2 and will be fully effective from Q3 2025 onwards on a pro-rater basis. Please note that we will see the effects in the headcount figures slightly later than the cost effects due to the notice period of the affected employees. OPEX in the quarter was reduced to 32 million euros, primarily driven by lower R&D spending compared to the previous year. For the first six months, OPEX came in at 63 million euros, a reduction of 10%, driven primarily by around 24% lower R&D expenses. The R&D expenses were down mainly due to reduced external contract work and consumables. This will revert to some extent in H2, so please do not take the Q1, Q2 numbers as a run rate for the next quarters. For the full year, we expect R&D costs still to be slightly lower than in 2024. OPEX was also impacted by strong FX rate changes, which have led to expenses from FX rate valuations in the amount of 3.9 million euros in Q2 2025, in 4.6 million euros in H1 2025, compared to 1.9 million in H1 2024. As the fixed rates are currently very volatile, we've decided not to adjust our budget rate this time. To give you some color on potential impacts, we see the following. An average USD-Euro exchange rate of 1.2 in the second half of fiscal year 2025 would reduce could reduce the full year gross EBIT margin by around one percentage point. EBIT for the quarter is 24 million euros, a significant improvement versus Q2 2024. The main drivers, in addition to the operating leverage effect resulting from higher revenues, were a more favorable product mix, which led to improved gross profit, and the above-mentioned lower R&D expenses. The strong performance in Q2 led to an EBIT of €27 million for the first half, an increase of 18% year-over-year. This translates into an EBIT margin of 11%. Again, please recall that the one-off expense in connection with the personal reduction in the operations area is included in this figure. Adjusted for this effect, the H1 EBIT margin would be around 13%. Now to our key balance sheet indicators on slide 5. Working capital was down by 65 million euros since end of fiscal year 2024. Several balance sheet items contributed here. We continued to decrease inventories to 328 million euros compared to 369 million euros at the end of 2024. Year over year, inventories have now been reduced by 120 million euros as we continue to optimize our working capital. And as stated before, we expect further inventory reductions to materialize throughout 2025. Trade receivables at the end of June were at 130 million euros compared to 193 million euros at the end of 2024. The reduction versus year-end is mainly the result of the collection of the payments related to the very large shipments end of 2024. Advanced payments received from customers at quarter-end were 52 million euros down about 30 million from end of 2024, primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments represent about 18% of our order backlog. And the fourth key element of working capital, trade payables, has now come down to 22 million euros from 34 million at the end of 2024. This well reflects the now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow improved in H1 to 85 million euros, a strong improvement of more than 17 million versus last year's 13 million euros. On the back of the improvement in operating cash flow, free cash flow improved even more, came in at 71 million euros compared to negative 56 million euros last year. The improvement was even more pronounced as our capex in H1 at 14 million euros was significantly lower than last year's number of 69 million euros. This is primarily due to the now completed investment in the innovations. Our cash balance, including other financial assets as of June 30th, 2025, improved to 115 million euros. This equals an increase of 50 million euros compared to 65 million euros at the end of fiscal year 24, despite the dividend payment of about 17 million euros in Q2. As stated before, our top priority for the use of cash will continue to be the implementation of our strategy. We will apply our core competencies and abilities to markets of high growth differentiation and margin potential in order to sustainably increase the value of the company. And with that, let me hand you back over to Fik. Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with OptoElectronics, as this is currently our most dynamic market. In OptoElectronics, Exfront continues to lead the market, maintaining a clear leadership position with a strong and sustained market share over many years. Our technological edge and earned customer trust has enabled us to secure additional top-tier engagements or our G10 ASP platform. Recently, a major global customer has expanded its G10 ASP order to also include their operations in the United States. Besides this, as communicated in the PR in April, we have won Nokia as a customer. Beyond this, we are seeing strong traction amongst other top 10 industry players, as well as a growing number of customers across Europe, the U.S., Japan, and Taiwan. The increasing demand in optoelectronics is primarily driven by the rising need for laser technologies in datacom and telecom applications. This momentum is supported by several key industry shifts. The rapid growth in data demand, driven by AI, data center, and 5G, is causing bandwidth needs in transport networks to double rustle every two years. In hyperscale data centers, this trend is accelerating the shift towards co-packaged optics, to support AI workloads. As data links become more parallelized, the demand for Datacom chips and lasers is expected to surge, prompting increased investment in optical infrastructure. At the same time, photonic integrated circuits takes a gaining traction over traditional discrete laser setups. By integrating lasers, modulators, and detectors on a single chip, picks offer better performance, reduced size, and lower energy consumption. This transition is closely tied to the adoption of 150-millimeter indium phosphate substrates, where our G10 ASP system delivers industry-leading yields. The pig market is forecasted to reach 41 billion U.S. dollars by 31, growing at an annual rate of around 16%. As pigs incorporate over 100 components, manufacturing precision becomes now critical. Epitaxial processes must be tight, must meet tight specifications across wafers and production cycles, while back-end manufacturing must adapt to higher volumes and complexity, further reinforcing the move to 150-millimeter helium-phosphate substrates. Overall, we expect lasers to account for approximately one-third of our full-year order intake. This growth is fueled not only by the demand for data center lasers to support AI workloads, both intra-data center and interconnect, but also by the increasing adoption of multi-junction VIXs for LiDAR applications in the automotive sector, mainly in China. Silicon carbide power. The silicon carbide market is currently undergoing a longer digestion period, particularly in Western-oriented regions. As a result, Decisions for new FAB investments are not on the agenda these days. However, the first half of the year, we saw continued momentum in Asia, namely in China, where demand remained robust and investment activity continued at a decent level. In the first half of 2025, silicon carbide shipments totaled up to 45% of our equipment revenues. However, this strong momentum is not expected to continue in the full year. Overall, we expect to be roughly flat year-over-year in silicon carbide revenue. Despite the soft market, Extron's G10 platform benefited significantly from this environment, gaining strong traction due to its outstanding performance and cost efficiency. In H125, Extron has received the order and completed shipment of a major volume order for its G106 system for a China customer. This order supports both 6-inch and 8-inch production capacity, underscoring the flexibility and scalability of the G10 platform. This major deal reflects the continued demand seen in China during H1. For the second half of 25, we expect slower demand also from Chinese SIC customers, while customer qualifications and strategic planning for future capacity expansions are ongoing around the world. Whenever the SIG market will recover, Extron is well positioned to benefit strongly from new investment activity thanks to its proven technology leadership and strong customer relationships. With that, let me come to GAN power. The GAN market remains soft in the near term in the Western world as far as we can judge. However, the regional dynamics have changed significantly. Western markets remain largely soft, with investment decisions continuing to be postponed. In contrast, China demonstrated strong momentum in the first half of the year, driven by sustained demand and active investment behavior. This regional strength has helped to balance out weaker activity elsewhere, resulting in overall year-on-year Gantt pool shipment performance that is roughly flat. Despite these headwinds, Extron has secured a significant volume order in the GaN power segment from a Tier 1 customer from Asia. The order underscores the continued trust in Extron's technology. The market is currently facing a moderately oversaturated installed base, requiring time to absorb existing capacities. This digestion phase is expected to continue for some quarters, before a broader recovery is expected to settle. Nevertheless, Extron maintains a clear number one position in the GaN power market, supported by its proven performance, strong customer relationships, and readiness to scale one's market momentum return. One of the drivers for the expected market recovery, which will come at some point, is the GaN and AI power supply opportunities. We had already highlighted this as a potential major market driver in our past calls. At the time, this opportunity was not included in market researchers' models. Recently, we have seen quite some news flow on this topic. The expected rapid growth of AI data centers using NVIDIA's new 800-volt high-voltage DC, HVDC architecture, is creating a significant opportunity for gun-powered technologies. Companies like Exinion, Mavitas, and others are leading the charge by integrating GaN and silicon carbide semiconductors to enable high efficiency and high density power supply, reduced copper usage and infrastructure complexity, and finally improved energy efficiency and lower cooling and maintenance costs. The shift to 800-volt HVDC and centralized power architecture demands advanced GaN devices for both primary and secondary power conversion status. We believe that our role in enabling high-performance GaN device manufacturing makes us a key enabler in the AI power revolution in the future. The timing of that wave, nevertheless, is very difficult to predict as of now, as the architecture was just released and now the design in cycle and the device manufacturing has to start. With that, let me finally come to the markets of micro-LEDs and LEDs. As most of you are certainly aware, Exxon continues to hold a clear number one position in the market for red, orange, yellow, Roy LEDs, underpinned by consistently strong market share. However, also in this market segment, demand is currently weak. Last but not least, micro-LEDs. The market has not yet materialized at scale. In 2025, order activity in this segment is limited with no signs of meaningful volume adoption. The few orders Extron has secured this year are all focused on R&D and pilot lines rather than commercial production. While interest in applications such as TVs and augmented reality AR devices persists, the transition to high-volume manufacturing continues to be held back by unresolved cost and process challenges. In summary, taking the sum of all markets, we can say that the soft market period continues in almost all markets apart from the laser market, driven by a hunger for data from AI applications. In all the other market segments, Extron remains very well positioned, and we use this soft market period for very close engagement with customers on preparing the next level of technical innovation and next-generation products. Once the market demand will pick up again in the future, action will benefit from these activities. Timing for the next uptick, nevertheless, cannot be predicted yet. Let me finalize the update with a look at the U.S. tariff situation. The U.S.-EU framework has been signed on July 27th, just shortly, in which semiconductor equipment is being declared as a strategic product with zero tariff percentages imposed. Although the full legal text has not been published yet and details need to be worked out, it appears highly likely that the semi-equipment exemption as of today will stay. With that, let me now move on to our guidance. Based on the current market development, the current tariff situation and the budget rate, Of 110 US dollars per one euro, we confirm our guidance for the full year 25 as published in February. We expect revenues to come in at a range of 530 to 600 million euros. We expect a gross margin of 41 to 42 percent and an EBIT margin between 18 and 22 percent. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit Euro amount related in relation to the implemented personnel reduction in the operations area. The measure will lead to annualized savings in the mid-single-digit Euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around one percentage point. As Christian explained before, there could be some potential impact from SXSX. In average, USD per euro exchanged for 120 in the second half of the fiscal year 25 could reduce the full year growth and EBIT margin by around one percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. For the third quarter in the year, we expect revenues in the range of 110 to 140 million euros. This range is slightly wider this quarter because of an unusually high number of shipments scheduled right at the cutoff stage between Q3 and Q4. They will for sure all ship in 2025, but the exact timing, whether Q3 or whether Q4, of some of these units is not so easy to predict as of today, hence the slightly wider range compared to the normal range that we are giving. And with that, I'll pass it back to Christian before we take questions.

Thank you very much, Felix. Thank you very much, Christian. Operator, we are now ready to take the questions from the audience.

Yes, thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to withdraw your question, please press 3 and star. Please press 9 and star to register for a question. And one moment for the first question, please. And first up is Martin Morangan-Colin from AutoBHF. Over to you.

Hi, thanks for taking my question. My first one is on electronics or photonics. What do you think this year is the level of incremental tool demand that is coming from AI and photonics ICs? I mean, when I think the last call you talked about, 20% of sales this year to be linked to optoelectronics, 20% of equipment sales. How much do you think of this is linked to these photonics trends that we see today?

That's a very good question. I think the number of about 20% for the full-year revenues is a decent number for opto, telecom, datacom altogether. I think that number still holds. If you then add the LEDs for the Datacom, I think we may come up all the way up to 30% for the full year. And I would say rough indication maybe one-third to one-half being linked to the Datacom opportunity.

Okay, that's clear. And I see the last call, you said you expect this to grow again next year. Is this still the expectations there?

I think that's a billion-dollar question. It's very difficult to predict for us. We have seen a very, very strong onset right now of this market. We are really seeing, as we have written also in the press statements, that the G10 ASP is – almost captively taking the market. It's a beautiful situation. The tool really has been designed for this market and is delivering fully against the expectation we had on that one. Now, the question, how big is our customer's market going to grow? I think this will, to a very large extent, depend on how is the further rollout of AI data centers continuing. It could be that there is a further growth momentum. It could be also that it comes to a new steady level, and it continues to be on a much higher level, but on the steady for us year over year. Let's not forget, right, Extron, the equipment, is always the first derivative of the overall market growth. So, if the market is just linearly growing, that means the flat revenue line for us, we all state flat, but flat is something, yeah. And only when a market is undergoing, an end market is growing through an exponential growth, that means for us a further growth year over year. And to predict exactly how is the rollout of data centers in the year 26, 7, 8, and 9 going for AI, that's a bit difficult.

And the last one on photonics, how should we think about the end products which are driving the demand? Is it the vast majority pluggable transceivers, or is there, you know, a start to build some capacity for copackage optics, switches, et cetera? Yeah, how should we think about it?

It's all of it. You can think of it as a mixed bag. I think that's the best description. Sorry for the highly imprecise thing, but in the end, it's literally all of that. Yeah? Some customers do for long haul communications make edge emitter lasers. Then some guys make VIXELs. Some make even super advanced VIXELs. We see now eight multiple regrowth steps. Some are even doing ten multiple regrowth steps. We see the VIXELs not only like we know them all from the iPhone, right? We see the Vixels now going heavily into sending devices for the car, yeah, in China. I mentioned that also in my speech, yeah. We're seeing massive, massive efforts in self-driving cars there, and cars being equipped with multiple long-range Vixels, yeah, longer wavelengths, higher power levels. Then we see the Datacom opportunity, which a large part is becoming photonic integrated circuits, PICs, yeah. We see the co-packaged optics. So it's all of it. It's an extremely diverse market. It's a very broad group of customers. And typically, we like a broad market because a broad market means that it's very diversified for us. We see the market both unfolding. I think we see the market unfolding in all regions of the world at the same time. We have demand from multiple customers in Europe, multiple customers in the U.S., multiple customers in Japan, plus many customers in China. So it's a broad market momentum. But it stays a big stack on the level of each individual application, I have to say.

Okay. And maybe the last one for me, and I will get back in the queue, is just a clarification on how you build your guidance, because I was, let's say, slightly surprised of the mix on the guidance, let's say. If we think about you getting to the midpoint, the order that you communicated at the midpoint was around 110, 120 million euros in Q3. If we add services, that means 150 million euros of orders, that seems like an acceleration versus Q2. But at the same time, on the backlog included in the guidance, it seemed quite low. I mean, it's only not even 50% of the backlog that is included in the guidance for the year. So, yeah, a clarification of if you see maybe the backlog more coming to next year for silicon carbide, I don't know, or gallium nitride and acceleration of orders in the short term for other applications. Yeah, just to understand the mix there.

Let me try to clarify. Maybe we were not clear enough. Let me try to sort that out now based on your question. It's good that you shine some light on it, yeah? So, in relation to the Q3, we have given a revenue guidance, yeah, a full quarter, full revenue guidance for the Q3 of the 110 to 140. That's revenue. That's not order intake, yeah? For revenues for the full year, we have confirmed our full year guidance of 530 to 600 million euros. And I think best guess is we are shooting at the midpoint of that range, yeah. If some positive effects come along, we may be more closer to the high end. The high end very much is still well possible. That's why we are not narrowing down. If we face some headwinds or some customer discussions are getting a bit more delayed, you know, or the customer order comes in, but, you know, customer only wants the system in Q1 of next year, then all that could be towards the end of the year. So the full revenue range of 530 to 600 is fully possible. Our best guess and probably also your best guess is literally at the bit point. I have to clear that out. We have, as of now, not given any guidance for the order intake for the year. Nevertheless, what I tried to bring out in my speech when I was speaking about the high first half of the year silicon carbide revenue shipment, yeah, revenue in the first half, silicon carbide was 45%. I wanted to accelerate or to bring out the point that we are not expecting in the second half, again, to have 45% of revenues to come from silicon carbide. Yeah, but the second half will be much more dominated, for example, by optoelectronics. Yeah, I think the big part of the revenue is silicon carbide we have seen in the first half. Maybe that was a bit confusing. Apologies for that.

Okay, thank you.

The next question comes from Gustav Frohberg from Bernberg. Over to you.

Hi, everyone. Thank you for taking my questions as well. Two please on demand. First on China, you talked a little bit about silicon carbide growth in China, perhaps softening a little bit towards the second half. But how does the build in China or Asia on the silicon carbide side compare in your eyes relative to real demand? And could you maybe draw some parallels between the build you're seeing there and now versus what we saw that resulted in overbuild on the Western side a couple of years ago. It's really a question on the runway for growth in China and Asian markets. And then the second question on demand more broadly, you're talking about muted demand and market demand for most of your applications bar opto, for example, but I'm wondering from your point of view, do we need a new killer app or something to get the market to reaccelerate again, or do you think that the reacceleration to come, that you talked about as well, can be achieved based on current markets, current technology, no killer app? Thank you.

Perfect. I think very good questions. Thanks for posing the two of them. Let me come first to silicon carbide in China. I think what your question was underlining your question already is, is I think very, very well true. So in China, we have seen over the last two or three years, a massive build out in silicon carbide wafer production capacities. I think China today has six inch wafer production capacities, which is probably good enough to serve two times or three times the world market demand. So in six-inch, we have in China a massive, I say truly massive overcapacity. There's literally entire factories filled with tools, and they're all standing idle and being turned off, and companies starting to scrap tools. Now, you wonder why in this situation there is any demand at all. Well, this additional demand is coming solely and purely from the transition to eight-inch wafer size. and particularly from the technological advancements that have been made with 8-inch wafers. You can buy today 8-inch wafers with a much better surface quality than you could ever have it on 6-inch wafers. The better surface quality allows you, and at the same time, we are seeing that the silicon carbide chips are getting much, much larger than it was the case in the past. So just to give you some numbers, We started off three, four years ago with silicon carbide chips typically having a size of two by two millimeters, so four square millimeters, yeah. Most recently, the chips were shipping mostly on five by five millimeters, already 25 square millimeters, and we are now seeing most customers and customer demos running on 10 by 10 millimeters, so 100 square millimeters, yeah. So you can see a chip size going from 4 to 100 square millimeters. That's the message movement. And this message movement allows you, when you put a power module for a car together, that inside of your module, you no longer need to have six, seven, eight chips that you all have to connect with bonding and wires and so individually, but you rather have one single chip or maybe you have two single chips, yeah, and all the power can run through it. So you have a lot of packaging cost reduction by going to a single chip. And the single chip, yeah, is enabled by the fact that on 8-inch, you get a much better surface quality, as it was never being the case in 6-inch. So that is the technological improvement and advancements that have been made, yeah. And at the same point, as the chips are getting much larger, On 8-inch, yeah, a chip is square, a wafer is round, yeah. On an 8-inch wafer, you just can put more chips and have a better utilization of the surface area. So, sorry for the long technical explanation, but I wanted to bring out the point that there is clear drivers for what 8-inch wafer size, yeah. And this is now in China also driving the market towards an 8-inch silicon carbide wafer. And this is the reason why there is an additional demand or new demand despite the fact that there's a lot of dead capacity in China. I hope that explains it a little bit. Now, to your other question about the demand, and yes, you picked it up very well. We wanted to give a very clear message about, I think, the view we have on the market. Most of the market segment, except from the optomarket, is, I think, I call it EU. It went down from the demand highs. Now it's kind of flat. And the question is, when does it pick up again? What's the signal when the pickup happens again? A clear answer, we don't know it yet, and especially we don't know the timing yet. But it's very clear. We have a very clear view that the market will come back. I think one of the topics at some point, the silicon carbide capacity, which is out in the market, will have been digested. Yeah, the switch to 8-inch wafer size is ongoing, also in the western size. All the customers in the western markets are not qualifying super junction devices, yeah, which need also the better quality, wafer quality. By the time the existing capacity is being digested, and I think we are seeing now, I call it a classical Gartner hype cycle, where the initial phase is a total over-swing and total over-investment in silicon carbide. Then the market collapsed, and at some point now the market will come back in a much more long-term, much more healthy, much more steady way in silicon carbide. And I think over the next one, two years, we will see electric vehicles gradually gaining traction around the world, electric battery technology, allowing now I think driving ranges which meet the expectations of consumers somewhere in the realistic 600, 700 kilometer range. Costs for battery technology coming down, silicon carbide and the whole value chain getting cost effective and mature. Yes, we expect some decent uptake from that market. And then also there's new markets on the horizon. We've been shining some light on the power transmission value chain for AI. And if you read the chart that we have in the presentation, the one from the NVIDIA Infinium Navitas architecture, quite in the details, you'll see that there is no word of silicon anymore at all on the entire chart, yeah? You literally come in from the high voltage from the power plant to your overland line, yeah? Then you are at multiple kilovolts, 6,000 volts, 3,000 volts. You convert the down, yeah, to the 800-volt DC. Then you do the conversion inside of the data center, and all of this will be driving both silicon carbide demand on the very high voltages and gallium nitride demand on the high voltages and on the low voltages. That's going to be a major driver. And furthermore, in the long term, but that's further out, There's a bunch of new applications for silicon carbide in the making, additional applications that, again, no analyst or analyst report has on the radar. It's more like innovation topics where, you know, the whole transmission architecture, which today is made out of transformers and the stuff, yeah, which you see on the next to the highway when driving, yeah, where the overland lines are crossing. All these things are being put now into power devices being made out of silicon carbide. So at some point, this entire switching architecture goes to silicon carbide. So there's new applications in the making. And again, the enabler for that is that the wafer sizes are getting bigger, the wafer surfaces are getting better, and the cost points are coming massively down. I think everybody is aware of the massive price drop on silicon carbide wafers. And as always, in our semiconductor industry, when the prices are dropping 2x to 3x, then that allows that completely new applications are opening up. Sorry for the slightly long answer, but maybe that gives a bit of a perspective of what's coming in the mid-term.

Great. Good call. Thank you.

And the next question comes from from the Bank of America. Yes.

Thank you, gentlemen. Thanks for taking my question, and good afternoon. I just wanted to ask you your early thoughts about 2026 because it feels like your order intake in the second half is not going to be particularly exciting outside of Datacom, based on your commentary about sluggish demand and overcapacity in SICK and GAN. So I just wondered how you, if you can run us through sort of the puts and takes for 26. I think you've highlighted some, let's say, long-term positive trends in Datacom, but you are a bit hesitant to extrapolate the strengths. And I think you also said that Sikh and Gann wasn't clear as to when he would turn. So just run us through the puts and takes for next year, and I've got a follow-up. Thank you.

Thanks a lot. Very good question. But I think you have filtered the essence of our message already out from what we said earlier. And unfortunately, the message is we don't know yet. I think that's the best we can give you. because there is no clear indicator on a tipping point yet. As your question is indicating, at some point, it will pick up clearly. The mid-term horizon is very clear, and there will be the demand coming. But we are still in the point where our customers have a decent amount of idle capacity, unused capacities, both on the silicon carbide and in the gallium nitride. And now it really depends on when is the end market, yeah, that our customers are serving taking up again, yeah, such that gradually the capacity utilization of our customers is rising and our customers then gain the confidence by themselves to say, okay, now whatever we had in 80, 85% utilization level, let's push the trigger button for new purchase orders for equipment. And then, of course, it will come to us, yeah. But we simply don't know as of now, And when that's coming, and as we don't know, we also cannot, unfortunately, shine any precise light on the year 26. Yeah?

No, that's completely fair. I mean, it's difficult, obviously, to know what's going to happen, you know, in the next three to six months. It's hard to know what's going to happen in the next 12 months. But, okay.

I hate to give a message, but it's just the truth. I hate to say it, but it just .

Listen, no one really knows what's going to happen tomorrow. My follow-up is on sort of my favorite question is on working caps. So just going back to the question I asked last quarter, your payables are down to 25 days, which is, you know, roughly half the levels they were before. While your DSOs are sort of stable to slightly higher than they used to be. So how should we interpret that? as it seems like your inventories are progressively coming down.

If I understood correctly, you were talking about the payables, right?

I mean, the payables are coming down a lot versus history. Your inventories are coming down. I understand that. And your receivables, let's say, are not increasing, but are a bit higher than normal. So I just wondered why the payables are so low.

Well, the payables are just so low because we are buying much less material because we are still consuming the two high inventories that we have. So we've slowed down our current purchasing, placing of orders to the absolute minimum, basically components we need because we do not have them in the inventory. And that is just with a little bit of a delay then going into the payables level. sort of the payables level should remain at a lower level for quite a while until we reach the normalized levels of our inventory and then we need to see where they develop. We have maybe at some point we need to increase the sourcing level and then payables could also go up again. But for sure not.

I guess that's consistent with the uncertain outlook for 26.

Clear. I mean, so far, we are really limiting additional sourcing to what we do not have in stock, like customer-specific items and focus completely on using up the existing inventories.

Okay. Thank you so much, gentlemen. I would say thank you very much. Very clear, gentlemen. Great. Thanks, Didier.

And next in line is Madeleine Jenkins from UBS.

Hi, everyone. Thanks for taking my question. Apologies if it was asked already. I dropped off for a bit. But I just have a question on your four-year guide, 2025. The new orders you publish that you need in H2 to reach this guide look significantly higher than they have done in the last few years. I'm just kind of wondering kind of what's changed and also what gives you the confidence that you'll receive these given, obviously, the market conditions you're talking about. Thank you.

Thank you a lot. Yeah, I think, as I mentioned, we are shooting towards the midpoint of the guidance. Yeah, that's where we are clearly aiming with some potential deviation to the lower side or some potential deviation to the high side. Let's see where it comes out, yeah. But if you take that, we're expecting, once again, a very strong Q4, as we have seen it also in the previous years. I think you know the seasonality that we have in Extron and have had in many, many years in Extron. And as you see in the chart that we published also on the page 11 of the presentation, you see that we're expecting still to ship between 80 and 150 million of new equipment orders in the year, yeah. And we're expecting the order intake on a level as we are, potentially a bit higher, potentially the level where we are, yeah. But we are not expecting the order intake to collapse or anything. I think we're on a stable level right now where we are. And based on that, you see 80 to 150 million of orders to come in in Q3 and or early Q4 and then still shipping until the 31st of December is very well in range with what is possible. So we feel well with that number. And there is, of course, a very clear pipeline, a named pipeline with individual customers, individual orders, and projects behind it, not just the guesswork, of course. So that's the number of what we are shooting for.

Okay. Makes sense. Thanks. And then just on the commentary about kind of overcapacity, physical and carbide in six-inch, But we're also seeing the incremental demand for 8-inch. Just to help me understand, why are customers not reusing your tools from 6-inch to 8-inch if they're just sat there idly? Or, you know, is there a slight different configuration? Yeah, it'd be interesting to get your color on that.

Thank you. Well, customers who have from Extron the G10 series can nicely switch the tool from a six-inch configuration to an eight-inch configuration and use it and get all the benefits of that and produce in what I've illustrated a bit like the increased technical demands. That's very well possible. All generations of equipment in the market had only been suitable for six-inch, both our own very first generation, it was called G5 War Wall, but also there's still generations of, you may remember the onset of the six-inch ramp. The initial tools were all from Tokyo Electron, from TEL. This was six-inch tools only, and there's a bunch of other tools in the market. which were made for a six-inch configuration and are usable only for a six-inch indecent performance. That means there is a bunch of equipment out in the market from the previous wave, which cannot really be used on the eight-inch production, means for the coming years it's not really usable and it needs to be replaced.

Okay, that's helpful. Thank you.

The next question comes from Michael Kuhn from Deutsche Bank.

Good afternoon. Thanks for taking my questions, essentially follow-ups. The first would be on currency. Thanks for providing this H2 scenario with 120 and the one percentage point potential margin headwind. Maybe looking further out into the future and into next year, let's assume we have a permanently weaker U.S. dollar. What would that mean for your profitability and what, let's say, mitigating measures could you take?

Great question. Thanks, Michael. Yeah, somehow expected that question from you. It makes a lot of sense. Honestly, we've highlighted this exposure for this year explicitly because this year is a little bit higher. Why is that? Because normally we are selling revenues in US dollar between like 20-25%. That range always changes a little bit. And normally, we have a fairly good natural hedge from sourcing in U.S. dollars. However, this year, that natural hedge is not working that well. Why is that? Because we're still sitting on quite some inventory levels from the past where we have bought material in U.S. dollar at higher U.S. dollar rates, which we are working down now. So the sourcing level is a little bit lower, and that gives us a slightly higher FX exposure to the U.S. dollar. And also, we have scheduled slightly higher shipments in the second half of the year, and we just wanted to highlight this, yeah. Going forward, once that inventory is worked down, our sourcing level in US solar should also increase again, and the natural head should work better again. So, beyond this year, I would expect a lower exposure.

Is that clear? Yes, that was very clear. And one more as you spoke about, let's say, tipping points and what could trigger better orders again. If you, let's say, want to track the market, for example, in EV, but also in the area of data center, is there, let's say, good indicators to track? So, in the car space, for example, number of cars with sick components shipped or in data center, let's say, any qualification milestones that we should be aware of that could trigger a new, let's say, wave of orders for your equipment as well?

I think that's a very good question. I think it's silicon carbide due to the idle capacity and the wafer size change from six to eight inch. It's very difficult to foresee right now, yeah, because there's these multiple effects ongoing, which I think we've been discussing here in the call a little bit. I think that's quite difficult. I think on the gallium nitride side, the key topic is going to be when this AI value chain, which we have spoken about in this call, which is now kind of just being agreed as an architecture. You can think of now the companies have agreed on, let's say, on a blueprint, I would say. And now everybody inside of their companies now is working on various projects to do their part and make their part of this blueprint a reality. So it's going to take some time. until this blueprint materializes, yeah? But I think by the time the first one or the first multiple players of these who are part of this alliance give signals that they are really seeing volumes and shipments, I would expect now that this alliance also jointly and publicly has made announcement that this is the architecture. Of course, they want the whole industry aligned according to what they've agreed to, yeah? I think by the time we see first announcements from players of this alliance that real projects are coming on that one, I think that could be a good point to say, well, now it's really starting, not only like as a handshake between the architecture, but, you know, in terms of dollars, business, and P&L.

All right, understood. And probably the most difficult to answer, but you mentioned in the context of, you know, once more, the technical challenges that the customers are still facing that are running the pilot lines. Any updates there? Maybe also on what AMS Ostrom ultimately did with the tools that they received?

Honestly, no clear picture, I think. Unfortunately, again, I hate to say it, I don't like those things, but it's the reality. I think we see continued activity, as I've indicated a bit in my speech, yeah. We do see that customers continue to work on the topics, yeah, in many very diverse directions, I have to say, yeah. So, it's not just one mainstream direction and everybody follows that, but multiple directions and multiple end applications, yeah, that's in the . We hear from customers, multiple customer projects, that they make some nice progress. But again, my typical question, of course, also to my question, my customers, when does it translate into orders? So far, I haven't been getting a satisfactory answer, which I could be passing on to you here in this call. I would say it's too early to tell, unfortunately. But the work in the segment goes on. And I think now we have to wait and to see which of the many segments One segment being AR glasses, AR slash VR glasses, quite an interesting one. Some were continuing to go in the direction of televisions. Other projects to go in the direction of wearable devices. Automotive is smaller, yet a very high dollar for our customers, high dollar end market being another application. So all this is being worked on. But when it translates into orders and of how big of an amount of orders does it translate to, I think there's two scenarios possible. It stays a premium, sophisticated, high-end, extensive niche market where our customers potentially can charge a premium value on some displays, high-value displays, because it has a super unique feature that goes into a high-end car. Great, nice, good for our customers, but in the end, a very small number of tools for us. Or there is a breakdown, and it comes really into one of the volume segments, let's say televisions or let's say smartphones. That, of course, would translate to a high volume of wafers meets a high volume of tools. It's too early to say. Yeah, it can take any of these directions.

Thank you. Thanks for the detailed answers.

And next up is Ruben Divos from Kepler Sugar.

Yes, good afternoon. Thank you for letting me on. I just had a follow-up on this year's guide, actually, just that I have that fully understood. I think the backlog is about 280 million. Half of it will be out in the next six months, and I assume the other half will go out next year. And with regards to the 80 to 150 million from new orders. So my understanding was always that because of a high inventory on stock, you could be able to assemble much quicker than your usual lead time. So what is sort of the latest, let's say, point at which you could accept an order and could still ship it this year? And I understood you were saying that there's some likelihood you could still reach the high end if that were to happen. Just curious whether based upon your utilization rates or just your customer engagement in general, what do you think that's likely coming from your Eastern customers or your Western customers? Thank you.

Well, thanks a lot. I think very good. So I think first of all, the understanding of the situation that you have depicted is very much correct. I think I can confirm. Nevertheless, one minor adjustment. And, yes, we expect to ship, as we have indicated, around 140 million out of the equipment backlog still in this year. And, nevertheless, I want to clearly point out that some of the backlog is both for 2026, meaning next year, but also some backlog already for 2027. I think it's a minor part of it. I just want to be correct because you were only mentioning one of the years. Yeah? So that's that upfront. In terms of what is the latest point in time when we are able to ship, well, that really depends on which of the products. So, we have some products where essentially we are on an inventory level where I would say an order may come in pretty, pretty late. I would say even beginning of Q4, yeah, and we would still be able to ship it out. If it's a standard configuration, if it's a tool where most of the parts are available, you know, plain vanilla, And nevertheless, there's other parts of our portfolio, where essentially, if an order comes in, we need to secure almost the entire tool through our supply chain. So it really varies. That's also what we give to our customers. And of course, we've given to our sales teams around the world. Now, in this particular situation, very clear indications, which of the product series in our portfolio is shippable with which lead time. So I think it varies. But very clear, we do expect that some orders still coming in beginning Q4 are still possible to ship in the December time frame, yeah, for some of the series. Mostly the older series, which is more like a plain vanilla kind of stuff, while in general, the newer series is more sophisticated and less of an inventory, yeah. And I think there was another part of your question. Did I get it all, or was there still something left?

Yeah, just it sounded a bit like you did not rule out, let's say, the high end of the range. So what is, I guess, a bit your feel of the indication from which this demand could come from if you hit the high end? Is it rather eastern-based or western-based?

I think, honestly, I don't have the information in front of me. It's literally, it's a pipeline of customer opportunities, yeah, named each individual, yeah. But honestly, I don't have it in front of me, which is more left or right. And I think mostly it's going to be less a question of is the demand coming or is the demand not coming? I think it's mostly a question of is it coming on a point of time that the customer also want to have the shipment still in December or does the customer say, come on, I take it whatever in February because my facility isn't ready or what is my ramp plan. You typically can plan on a timeline of one or two quarters, but the exact date and the cutoff line is always a bit difficult to predict.

Okay, great. Thank you. Just a final question. I was thinking about your growing install base of G10 systems. I assume that your recurring revenue from service and spares should become more important. Could you provide some metrics maybe on this business? What is the attach rate for service contracts on these new tools? Or maybe what percentage of your cross-profit do you expect to come from services in the next, let's say, three years, given the installed base on G10?

Yeah. I think, in fact, you name it, the after-sales business has been growing quite nicely. Now, in this year, 2025, that's, of course, a bit muted because of the low utilization of tools. So, you know, the tools which are installed but currently not running, they're not consuming anything. And we expect next year when the markets are hopefully coming back and at least the utilization, first of all, is growing up. And when the utilization is high again, then at some point, Of course, new orders for new equipment are coming back, yeah, then the after-sales market is going to grow again, yeah. I think, Christian, where are we now? I think 120, 150 per year, right? Something like that. 120, yeah, something like that. I think next year probably is more than 150, 160-ish, I would guess, yeah, if the utilization comes up. Let's see. Let's see.

All right.

Thank you very much.

Before we continue, just because of the time, please keep your questions to two per analyst, because otherwise we'll not make it. We have still a long list of questions.

So next in the line is Martin Jungfleisch from BNP Paribas.

Yeah. Hi. Good afternoon. Thanks for letting me on. I just have two questions. First one is really on the silicon carpet market share in China. What do you estimate is your market share for 8-inch tools there? And then how do you think about local competition in China, given that AMAC has recently brought a tool to the market? So have you seen local competitors pop up more often, or are those still more on the 6-inch side? That is the first question.

So I think market share is in silicon carbide in China. It's always a bit difficult to predict, yeah, because the transparency is not so high. I would clearly get our market share as of now north of 50%, maybe 50%, 60% in China as of now on the 8-inch market because our tool has gotten a very good traction on that one, yeah. Now, as it comes to local China competition, I think it's no surprise that China is driving heavily an effort to localize equipment. I think this is a strategic initiative led by the government, yeah. We are watching that very carefully, but we don't have a picture yet how that's going to shape the market share, yeah, and how good the local competition is going to be. We first have to watch that before we can seriously comment on that.

Okay, makes sense. Thank you. And the second question is on gross margins. I mean, it looks like to reach the low end of the gross margin guidance, you would need to print around 45% gross margin in the second half or maybe even close to 50% in Q4. First of all, is that the right way to think about it? And also, what would drive this, given that the share of silicon carbide is most likely lower in the second half? So would octo also have a similar margin than power to make up for it?

Yeah, clearly.

Clearly, if you just run the math and compare to what we achieved in the second half of last year, it's a similar performance. Of course, a little lower revenue, of course, yeah. But we expect a clearly better product mix, yeah. I mean, the opto-business G10 ASP-driven is running at high margins. And then, of course, there's also some operating leverage effects with a larger second half, similar effects than we've seen in the last years. If you just take a look at Q3, Q4 last year, nothing out of the extraordinary that we expect now for this year. I mean, the exact shift between Q3 and Q4 we will see depending on the shipments. But overall, that is what it is. Okay, great.

Thank you very much.

Next up is Jana Ramanon from TechRace.

Hi. Thanks for taking my question. My first question on GAN and specifically on the TSMC decision to back out of the GAN foundry market. Over the years, I think this has been a significant customer for you on the GAN side. So how do you see the effect of that on your GAN customer base? Is that good for you because other people will have to step in and therefore order equipment, or will TSMC be selling that equipment out and therefore that is more of a headwind than a tailwind for you? And I have a short follow-up.

Well, I think, of course, we all have monitored this topic, right? We are very much informed of TSMC pulling out of the gun market. I think it's simply an individual company decision, right? I think TSMC is extremely busy. by building out $1 million after the other, right, with super high revenue opportunities. I think it's just a portfolio pruning and taking off. I think they're not only pulled out of the gun market, but of multiple smaller market segments, as we are aware, yeah. So I think it was just a portfolio pruning exercise, and the market is the market, yeah. The volumes will go somewhere else, and we are supporting the market, no big deal.

And on another market, a red, orange, yellow market, you know, this has been a lumpy market and, you know, it sort of comes once every couple of years and then goes off. Is there any signs, any increase in discussions with Chinese customers, et cetera, which suggests that this could be a market which could come back in 2026?

We have some volume also running in that market in 25, so it's not dead. There's some volume in it, yeah. But as you say, it's lumpy and suddenly customer comes around the corner and wants 20 tools, yeah, 20 tools and converting to a high double-digit million amount, right? So it's difficult to predict, yeah? We do see the market is not dead. The market is going, yeah? And here and there, a customer makes a capacity expansion or like a start renewal decision, yeah, sometimes about to renew it now of old capacity being taken out, being replaced by new and more productive tools. We take it as it comes.

Understood. Thanks.

And the next question comes from Andrew Gardiner from Citi.

Good afternoon. Thanks for taking the question. I'll keep them brief because they're follow-ups. Just firstly, on the 2025 guidance, Felix, you mentioned that, you know, the top end of the range is still within sight. I'm just wondering sort of which end markets need to come through for you to achieve that. As you said, Opto's been the most dynamic. Maybe that's some of it, but given its relative size within the mix, it would seem to me like you would need some of the other end markets to come back. And yet, at the same time, you're saying we don't have great visibility. So can you help me understand sort of what the driver would be to see the top end of the range? And then just following up on Janardhan's question on TSMC, is there any risk of that GAN equipment coming back into the market as secondhand or sort of like you described with the Chinese SIC equipment, you know, because TSMC were early in GAN, is that equipment fairly old and not really upgradable? Thank you.

Okay. Let me go through the first question first, yeah. So I think what do we expect for the second half? Let me phrase it rather like that. So as I've indicated, we had in the first half, we had a very, very strong revenue share from silicon carbide power. We do not expect that to repeat, as I've indicated before. We expect silicon carbide to be weaker in the second half. Nevertheless, in the first half, on the other side, The gallium nitride was a bit weaker, and we expect gallium nitride to come out in terms of revenues stronger than in the first half. And also in the second half, we expect that many of the laser orders, which we've been speaking about broadly in this call, which were orders in the first half to shift and convert into revenues in the second half. So that's what we're clearly expecting for the second half of the year to come as revenues. And also some of the other We call it other opto segments. You know, we also expect some to come, some of those. So I think it's just, you know, the cyclicality, all our markets, and we are happy to have multiple end markets. Some are going down, some are going up. And in the end, then the question about do we reach the upper half of the guidance or even the upper quartile of the guidance, or is it rather the lower quartile, that depends less on markets or dynamic of end markets It's more individual customer discussions, and it's more the cut-off line effect, yeah, at the end of the year for individual customer orders. But maybe that gives you a little bit of light on what we expect for the second half.

Thank you. And then just the potential for used tools from TSN? Yes.

Yeah, from TSMC, I mean, first of all, the tools are in use, yeah? So, I think the question is, will they continue to be in use, or will they be obsoleted and be replaced by brand new tools, yeah? So, in the base case, it stays as it is. In an upside case, it's a new tool revenue opportunity for us.

Okay, thank you.

Next up is Adita Metuku from HSBC.

Hi, good afternoon, guys. Two questions, please. Firstly, just maybe a slightly technical question looking at the transition from pluggables to CPOs. I just wondered if you go on a, if you take a single fiber and you go from using a pluggable to plugging the fiber and straight into a CPO, does your content grow materially? Does the indium phosphide dye size actually increase? in that scenario, or is the opportunity for PICs really coming from CPOs driving a significant increase in fiber usage? Any color you can give around that would be helpful, and I've got a follow-up.

Well, I mean, today what we have is you have a communication of an electronic connection between a CPU and a transceiver module. And the transceiver today is bundling a lot of the electrical signals. If you would go and directly have an optical connection to a CPU, you would be connecting to many more points, yeah, in the CPU. And you would be connecting to many more points, yeah. As you cut out the electric intermediate layer, I would expect the overall content for in your phosphate and compound to go up. That would be my expectation.

Understood. So for a single fiber, when you go from pluggable to a CPO, you get more content?

I would that expect, yes.

Understood. And then just as a follow-up, I noticed your revenues from the Americas were up year on year. I just wondered if you could give any clarity on what drove this.

Honestly, I think that must be just individual customer orders. It's not like a dedicated market segment. I mean, we clearly see it. that in America we have many laser customers, the Datacom, I think it's a good market segment with quite a decent customer base there. But honestly, I haven't looked. It's going to be a mixed topic of mostly customer dependent, I would say.

Understood. Thank you.

Okay, due to the time, we will close the call today. I know there's still some follow-up questions in the queue, but we have to move on, so please contact the IR department afterwards. We're happy to help you out. Thank you very much for listening in. I wish you all a great summer break. Talk to you in the conferences and the roadshows in the September-October timeframe, and otherwise we'll hear you in our October call for Q3 results. Thank you very much, and goodbye.