Aixtron Se Unsp/Adr

Ladies and gentlemen, welcome to the Extron's Analyst Conference Call, Q1 2026. Please note that today's call is being recorded. Let me now hand over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at Extron for opening remarks and introductions.

Thank you, Anna. A warm welcome to Extron's Q1 2026 results call. My name is Christian Ludwig. I am the VP of Investor Relations and Corporate Communications at Extron. With me in the room today are our CEO, Dr. Felix Rabat, and our CFO, Dr. Cassandra Dunningham, who will guide you through today's presentation and then take your questions. This call is being reported by Exron and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of the disclaimer that you find on page two of the presentation document, as it applies throughout the conference call. This call is not being broadcast via webcast or any other medium. However, we will make a transcript available on our website 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 Q126 results presentation. I will start with an overview of the highlights of the quarter 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 guidance. Let me start by giving you an update on the key business development of the first quarter on slide two. The important messages from Q1 are strong new orders of 171 million driven by OptoElectronics, revenues of only 59 million due to seasonality, but also limited demand for both power electronics segments. Nevertheless, this was expected as revenues came within our guided range of 65 million plus minus 10. The gross margin came out at 18% impacted by negative operating leverage and low volume, as well as a mid-single-digit Euro million one-off cost item related to our announced personnel reduction. Despite the weaker start into the year, we confirm our new fiscal year guidance released mid-April with revenues of 560 plus minus 30 million Euros before 520 plus minus 30. We announced a new greenfield site in Malaysia. With investments of approximately 40 million euros in the next years, we will be ready for production by middle of 2017. Also, after the reporting date, we successfully placed our first convertible bond in April at very attractive terms, enhancing our financial flexibility. Christian will now provide a detailed look into our financials on the following pages before I take over with an update on our markets. Christian?

Hello to everyone. Let me start with the highlights of our revenue development on slide four.

We had a weak quarter due to seasonal effects with revenues at 59 million euros down 47% compared to the 113 million euros last year. But this was not unexpected as we are fully in line with the quarterly guidance of 65 million euros plus minus 10 million. The breakdown per application shows that 52% of equipment revenues come from optoelectronics, 31% from LED micro-LED, and 17% from GAN and SIG power, and a 1% contribution from R&D tools. The after-sales business contributed to a total revenues with 24 million euros. If this business is much more stable, it only declined by 4% year-over-year, Thus, its share of revenues increased to 40% up from 22% a year ago.

Now let's take a closer look at the financial KPIs of the income statement on slide 5.

I already talked about the revenue line. Gross profit in Q1-26 was 11 million euros. That implies that our gross margin in Q1 decreased by 12 percentage points versus Q1-2025 to 18%. But please recall, this is mainly due to two factors, the negative operating leverage of the revenue decline year-over-year and the one-off expense of a missing million euro amount in connection with the announced personnel reduction in the operations area, both burden gross profit. OPEX in the quarter went up 7% to 33 million euros, primarily driven by higher R&D spending compared to the previous year. The increase in R&D cost is mainly due to higher depreciation and higher material cost.

For the full year, we expect R&D cost to be about 10 million euros higher than in 2025. EBIT for the quarter was at negative 22 million euros.

The decline in the operating result compared to the previous year is mainly due to the lower cross-profit as already described. Now to our key balance sheet indicators on slide six. Working capital was down by more than 76 million euros since end of 2025. Several balance sheet items contributed here. After the strong revenue number in Q4 last year, we now collected the outstanding payments and turned trade receivables into cash. At the end of March, trade receivables were down to 84 million euros compared to 131 million euros at the end of 2025. Advanced payments received from customers at quarter end were 79 million euros, up about 35 million euros from end of 2025, primarily driven by the increase in water intake. Advanced payments now represent about 22% of water backlog. Inventory levels were at 295 million euros, slightly up from the 284 million euros at the end of fiscal 2025. Trade payables have stabilized at 36 million euros, slightly up from 34 million at the end of 2025. Adding it all up, our operating cash flow improved in Q1 to 54 million euros, up by more than 18 million euros. versus last year's 35 million. On the back of the improvement in operating cash flow, free cash flow also improved. Came in at 49 million euros compared to 30 million euros last year. CapEx in Q1 was fairly stable year over year at around 5 million euros. For the full year, we expect about 55 million euros of CapEx. This consists of our baseline investments plus about two-thirds of the announced 40 million euros for the Malaysia expansion. At the same time, we have started the process of selling our site in Italy. Our cash balance, including other current financial assets, as of March 31st, 2026, increased accordingly to 270 million euros, compared to 225 million at the end of December 2025.

our equity ratio continues to be at a very healthy level of 85%. Now, an update to the convertible bonds.

Subsequent to the reporting date, we successfully complete the issuance of our inaugural convertible bonds in mid-April.

We placed 450 million euros with a five-year maturity and a 0% coupon.

This transaction is a cricket to earnings from day one, as the proceeds can currently be invested in low-risk money marketing instruments at yields of around 2%. We intend to use the proceeds for general corporate purposes, which may include investments into organic growth potential M&A, and also, when appropriate, fair buybacks. With that, let me hand you back over to Felix. Thank you, Christian. I would like to continue on slide 8 and give you an update on key trends in our different markets. I will start with optoelectronics, which clearly was the most dynamic and decisive market for Extron in the first quarter, before we briefly touch Gantik and LED micro-LED. In optoelectronics, Q1 marked a clear inflection point for the company. We saw exceptionally strong order momentum, with optoelectronics accounting for well over two-thirds of total order intake during the quarter. This performance was primarily driven by laser-related datacom applications, where customer demand exceeded our expectations. The catalyst for this is a fundamental shift in the data communication architecture of AI data centers. Until now, data in these systems have largely been transmitted via copper cables and owned sporadically via optical connections, and if so, with comparatively low data rates, such as 100 gig. Now, the industry is making a technological leap. In the future, optical connections with the highest data rates, namely 800 gig and eventually 1,600 gig, will increasingly be used there. This is not a gradual advancement, but a genuine architectural shift. And it is precisely this shift that is leading our customers in optoelectronics to massively expand their capacities. A huge number of additional razor starts are required for this new type of connectivity, and this, in turn, triggers significant investments in new and expanded manufacturing capacities. Recent multi-billion dollar investments made by NVIDIA and other ecosystem players are accelerating capacity investments across the Datacom value chain. This, in turn, is enabling laser manufacturers to expand their epitaxy capabilities, directly benefiting extras. Therefore, we expect this wave of investment to continue over several years, extending well into 27 and beyond. In the first step, copper connections in the AI data centers will increasingly be replaced by cyber optics and slower optical connections get replaced by faster ones. The so-called scale-ups. In the next step, the industry plans to significantly increase the number of connections within these data centers once again to enable even more powerful and intelligent AI systems. The so-called scale-out. And finally, data traffic between data centers will also increase sharply the so-called scale-across. This too will require additional optical connections and more later. At product level, our G10 ASP platform continues to see very strong market acceptance and represented the majority of volume orders received in Q1. Customers are renting aggressively to support the growing demand for EML and SIG-based lasers used in AI-driven data center infrastructure. From a technology perspective, most systems ordered today are initially configured for 4-inch wafers, but are already equipped with 6-inch conversion kits. This enables customers to transition rapidly as soon as larger wafers become available. Datacom lasers are a performance-driven application where yield is absolutely critical. These devices require multiple architectural growth steps, meaning that even marginal improvements at wafer level can have significant multiplied impact on final yields. This is where we clearly differentiate. Our systems controlled uniformity at wafer level rather than at batch level, leaving consistently superior results layer by layer, a key reason why customers increasingly standardize on our tools for advanced photonics devices. Overall, with many multi-tool orders extending beyond 26, we are confident that we are seeing the beginning of a new structural growth phase in optoelectronics. Now let me turn to gallium nitride. In Dan, demand remains stable but soft in the first quarter, contributing just under 10% of total order intake. While near-term growth remains limited, we see customer utilization gradually improving, and we expect demand to pick up again at some point. This may be later in the year or in the first half of the next year as FAB utilization increases. Strategically, Actron remains well positioned across 150 and 200 mm and increasingly also 300 mm gallium nitride, with systems installed at multiple customers. In silicon carbide, market conditions remain soft in Q1, reflecting ongoing underutilization across the industry. Customer utilization rates in silicon carbide, however, are gradually improving, when exactly the increasing utilization converts into additional volume demand is too early to predict as of now. Importantly, industry analyst data confirms that Exxon tools remained the number one choice in silicon carbide epitaxy during 2025, even in a difficult market environment. This once again underlines that, during periods of underutilization, customers prioritize tools with the lowest cost options. Looking ahead, new device architectures, such as superjunction silicon carbide, are expected to significantly increase effectual complexity and layer count, a trend that clearly plays to the strength of our batch reactor technologies. Finally, LED and microLED applications had no material impact on order intake in Q126. Investment activity remained cyclical and at low levels. with spending largely driven by Chinese end users, primarily focused on AR and smart glass applications. Several customers are also working on devices for Datacom short-link applications, and we may see incremental orders later in the year or in 27, depending on the success of this technology. During the first quarter of 26, we also took an important strategic step to further strengthen EXPROM's global footprint, by deciding to establish a new manufacturing facility in Malaysia. The site in the Penang region will focus on assembly and testing of selected 100, 150, and 200-millimeter systems for our Asian customers and will allow us to leverage a highly developed local semiconductor ecosystem. This investment of around 40 million euros with start of operation planned for 27 enhances our competitiveness improves supply chain resilience and brings us closer to our customers in Asia, while fully maintaining our strong R&D and production bases in Europe. Importantly, this move has no impact on our financial guidance for 26. With that, let me now move to our guidance. We confirm our increased guidance for 26 as published mid-April. We expect revenues to come in at 560 million in a range of plus minus 30 million. At the midpoint, this is an 8% increase to our previous guidance. We expect gross margin of about 42% and an EBIT margin between 17 and 20%. The guidance for the gross margin EBIT margin includes one of expenses of a mid-single-digit million euro amount in relation to the announced personnel reductions in the operations area. The measure will lead to an annualized savings of a similar magnitude in the future. For Q126, we expect revenues of 110 million euros and a range of profits. Again, as stated before, the implications of the dual strategic term oil are unclear. We continue to closely monitor the developments worldwide in the Middle East and particularly in connection with the conflict in Iran. Potential impact on energy prices, supply chains, financial markets, as well as investment and demand behavior are continuously analyzed. If necessary, we will respond appropriately to risks that could negatively affect our business performance. And with that, I will pass it back to Christian before we take questions. Christian?

Thank you very much, Felix. Thank you very much, Christian. Anna, we will now take questions, please. And for fairness reasons, I would like to ask everybody to limit himself or herself to two questions so that we get a chance to get everybody who wants to ask a question also to ask a question. Thank you.

Thank you very much. So, dear ladies and gentlemen, we are looking forward to your questions. If you are dialed in to the conference call, please press 9 and then the star key to register your question. I repeat, the combination is 9 star. If you wish to cancel your question again, please press 3 and then the star key. But for now, please press 9 star. There are a few questions already incoming. The first question is from Martin Merenden-Kallheim .

Hi, thanks for taking my question. My first one is on OPTO. I understand that you have a very good visibility, and you already talked about visibility beyond 26, but I think at the last earnings call, you did not fully commit to growth on that division in 27, considering the very high comps in 26, so I guess maybe it has changed. but also more broadly when customers like Lumentum or Coherent talk about more or less doubling capacity again next year. Is there any reason why that will not translate proportionally in terms of orders due to improving yields or the transition towards six-inch wafers, for instance? And I have a follow-up.

Thank you very much for the question, Martin. In fact, so the transparencies from customers now who are 26 and also 27 significantly has improved. I think the key point was the announcement of NVIDIA to make those investments into Coherent and Lumentum, which we saw early March. And since then, literally many of our optimal customers, not only the two names, but also the other big names, have been in very close contact with us. With orders, multi-tool orders, multi-tool orders for 26, also multi-tool orders extending well into 2027, and others sharing forecasts in 26 or across 26 and 27. So the transparency, as you're assuming, has in fact significantly increased over the last, I think, literally eight weeks. And it really started only early in March. Yeah. And now, as we have this transparency, we have, as you hear from us, a high confidence for the 26th. We've been able, thanks to the booming market on the opto side, to increase our guidance. The power market remains soft, as I just highlighted, yeah, but the opto market is really, really increasing. And that also gives us at least a very positive feeling for 27. with the dual customer forecast and from custom customers already literally orders going into 27.

Okay, and I know you don't give precise forecast or anything, but is it fair at this stage to assume growth in 27 or is it maybe a bit too early to say?

You're asking very early about the question. I think we're seeing a good momentum of optoelectronics extending well into 2027. We can clearly say that. So that leads me to believe that we have already a solid base for 2027 from the optoelectronics. And as mentioned earlier, at some point, but we are too early now to predict the exact timing, at some point we expect the market for GaN power and silicon carbide power to come back. We don't know exactly when this is happening, whether this is at the end of 2026, with revenues and orders in 27 or early 27. But I think at least there's a good probability that the power market is also coming back in 27. And if the power market comes on top in 27, if that really does materialize, then we would see the growth in 27 on top.

Okay, thank you very much. And the second question is on the convertible bonds. I mean, can you give maybe a bit more color on what do you think you would do with most of the 450 million euros? You talked about M&A, so what do you think would be the ideal target? What can it look like for Extron? Is it to complement your existing MOCVD markets? or potentially going to different materials and so on. And also, when you talk about share buyback, do you aim for this to be quite a regular policy, or do you anticipate to be more opportunistic about it?

Very good questions. To be honest, it wasn't really planned, the convertible. We just saw

a really great opportunity over the last weeks that we couldn't resist. We all lived together through heavy volatility over the last years, which we not always liked, but now we have been able to leverage that volatility for a really great deal. So, I mean, overall, that gives us additional financial flexibility for basically no cost and Direct earnings is directly equity to earnings. And that's basically what it is. So it was just an opportunity, the ball laying there that we had to kick into the goal, to be honest.

So there's not too much more behind it. So there's no direct other opportunities that we are pursuing here.

Thank you very much.

On the share-by date, maybe to complete that, I mean, that is something that might become an issue in the future, probably not at the share price level right now. Okay, got it.

Thank you. Thank you very much. The next question is from Gustav Froberg from Barenberg. Please, serve it to you.

Hi, everyone. Thank you for taking my questions as well. I'm just trying to understand the magnitude of the opportunity on the equipment side and also a bit better. And I wanted to ask, do you have a sense of the installed base of iXtron machines used in data center and optical networking applications today if you completely exclude anything that goes into consumer VIXL applications? That's my first question.

Honestly, that's a very difficult question. And also, I don't know whether that question is helpful if you're trying to triangulate something and correlate that to demand. Let me explain to you why. The optoelectronics market is a market which is characterized by a very high technical complexity, many layers being done. And there is many, many, many old systems of XCOM out there. Some systems are running at customer sites for something like 30 years because the customers, if you think about optical communication for like an undersea cable across the ocean, very long qualification and a huge hesitance by customers to change. So there's many tools out there which may be just running, let's say, once a week for like a day or something like that. just to produce a few devices to keep a certain design for a certain customer running. So the installed base of tools which is out there is not really an indicator about what could be filled up. I think a certain part of the installed capacity, I would say of the more recently installed capacity, let's say capacity from the, I don't know, last five years, last eight years, may now be filled and may be utilized for the current volume and for the current boom. But I think systems, there may be many, many, many, many, many systems from the last 20, maybe not even 30 years out there, but they will not be used now for the newer generations. Also on the laser devices, the complexity of designs has significantly increased, sophistication has increased. So I would say, yes, there is a certain set of tools which now still be used and filled in terms of capacity, but also what I hear from customers in terms of demands, I would say to a very fast order approximation, a lot of the capacity which needs to be brought online needs to be also newly installed. Sorry for the long answer. I tried to give you a bit of the background of what's going on.

No, that's super helpful. Thank you. And then just the last follow-up for me. Based on what you know today, how much do you think the tool and equipment market needs to grow in order to meet the upcoming demand for the next couple of years? Are we talking about a doubling of the number of equipment needed, a tripling of the number of equipment needed? Just anything ballpark wise would be very helpful to understand. Thank you.

That's a very good question. I think in the end it depends. It's unfortunately in our area always a bit difficult to say, right? Because there's questions of yield, of wafer size, and many other variables, right, which go well beyond what we can influence or what we do influence directly with our equipment, but many elements which lie more in the hands of our customers and their processes and process flows after our tools, and things which are not in our hands. We can only take the guesses, yeah. I would say if you assume a market on the optoelectronics side, somewhere in the range, my guess, 80 to 100 tools for the laser communications, I think that might be a good approximation of order. Maybe it's one-third less or one-third more, but it's to give you a house number.

But 80 to 100 needs to be installed or it's already installed? It needs to be installed every year. Super. Thank you very much.

Thanks a lot, Mr. Frohbach. Next question is from Aditya Mituku, HSBC. Over to you.

Yeah, good afternoon, guys. Thank you. Thank you for taking my questions. Firstly, just a clarification on the previous answer you gave, 80 to 100 tools that need to be installed. Are you talking about G10 tools or are they G4 equivalent? If you could just clarify that. That would be helpful, and then I've got a question.

I was talking about G10.

G10, okay. So essentially, you know, give or take 4 million, so that not alone, you know, you're looking at 300 to 400 million opportunity per year. Is that the right way to think about it?

Not too far off.

Okay. Okay. Then maybe just following on from another question that was asked previously, You said earlier that your order intake from OptoElectronics was 118 million and a quarter. Visibility is rising. Clearly, you know, if you listen to Lumentum, Coherent, Applied Opto, and the others out there, they'll all be deploying more next year than what they're going to take this year. So if I take the 118, call it 120, nice round numbers, I can work my brain around easier mathematics, 120, If you assume it stays flat, is there any reason why your up to electronics revenue next year can't be at 480 million next year? What would be your pushback to that argument?

Honestly, you're thinking further into the future and in more precise detail than I have been. Thanks for asking the question. Honestly, my thoughts haven't evolved so far that I could give you a credible answer.

Okay. And then just a quick clarification. On the second quarter, when I think about the Q on Q increase, you talked about Opto coming in and contributing. But would Opto be the biggest driver of the sequential increase in revenue, or is there a significant chunk also coming from GAN?

I think for the year 2026, what we see at this point in time, Opto is clearly the driver. Please also take into account OPPO has many sub-segments, right? We are currently talking about the lasers for the data communication. We also still have some customers doing some work on VIXs. As I mentioned in my prepared notes, we have some customers playing at this point in time on the lower level on LED, micro-LED, which now has turned more to AR glasses, right? You know, very small displays, also with the vision to say, let's use the AI, not just voice input. rather than keyboard input, right, and use the AR glasses. There still is a market on plain vanilla and red LEDs, which also typically takes quite a number of tools, like the wafer area. This is set on gallium arsenide. So, you know, the opto overall is the biggest part. Lasers is a sub-segment of that. Currently, the booming and fast sub-segments, but the other markets are also there. Let's not forget that. So, very clear, come back to your question. In 26, opto is by far the strongest. Yeah, very, very clear. And as I said before, also the question of margin earlier on, gallium nitride and silicon carbide will come back on top of that at some point. We don't know exactly at which point in time, and also we don't know exactly in which order of magnitude. And this was also the reason for us to add the strategic flexibility with our plant in Malaysia. At some point, big volumes may be coming. And then we want to be ready with a flexible supply chain to really catch the wave when the next wave is coming. And our strategy is we always want to prepare for a wave. We want to be ready to catch the wave in full. We want to catch a good market share. We don't want to disappoint any customers. We really want every customer who wants to order to give the customer a tool when exactly he wants it. This is also a big and important capability. And therefore, you know, we cannot predict the future. We can just prepare to be ready when the future comes.

Got it. Very clear. Since you mentioned micro-LED, can I ask a follow-up or I can rejoin the queue if you want me to?

Please, to rejoin the queue, be fair to the others. But you will have a question at the end again. Thank you. Thank you.

Thank you very much. We are moving on to the next question. It's from . Over to you.

Hi. Thanks for letting me on. My first question was on valium nitrate. And specifically, you mentioned that utilization rates have been improving in the quarter. And so, I was wondering, have you been getting any sort of feedback from Dallium Nitride customers as to, you know, if the timings have improved? Because you mentioned sort of second half this year, first half next year on orders. So, are you getting any increased visibility on that end from your customers?

Unfortunately, not yet, yeah. As I said, we see some tools and utilization improving. But we don't know exactly. The one thing is we see how tools are filling. But the question is then, is it just the capacity installed at the customer good enough? Or is the customer preparing for a rent? Because the customer of our customer is coming with big orders where the customer needs an expansion. Normally, things don't just linear improve. But normally, we know in our industry, at some point, somebody has a big design win. So somebody then has a big contract to fulfill. And then it's such a big design when a contract has to fulfill that the trigger point for the next stage of a capacity extension. So this is kind of how it works. And our transparency and visibility into this dynamic, which happens, again, besides our customers, on their customer, customer of customer side, so to say, is quite limited. So we don't know.

That's super helpful. And then my follow-up is on, you know, sort of your inventory level. So, you know, in the previous up cycle in fluid and carbide, we saw that your inventory in 2023 increased by roughly 150 million. And as you mentioned, you're sort of now preparing for the growth that you're expecting to come in the medium term from both Opto and GAN. And so as we look through 2026, do you think that you'll be then taking the steps to increase your inventory levels through the year so that you're ready for the growth in 2027 and 2028?

No, we are changing our model. We have done a lot of work on operations in the soft years, in the last two soft years. And the last upturn we were not prepared for. We've done now in the last two years done a lot of work on our operations side. We've improved our internal processes. We've closer worked with our suppliers. Yet at some point when our shop floor is full of machines because we are shipping more in a quarter, Due to the simple width, there may be some increase. But we have changed our operations from a bills to inventory, bills to stock, to a bill to order model by reducing throughput times, reducing bill times, and so on and so forth. So the next ramp, I don't want to go to such high inventory levels as we have seen in the past. This was not healthy. and we rather want to work with a stronger, more streamlined operations on this side. It's too early to quantify the effects in the details, but from the direction, I do not want to repeat the mistakes of the past.

Okay. Thank you.

Thank you very much. Next question is from Andrew Gardiner, Citi. The floor is yours.

Thank you very much for taking the question. I have one related to that last point and it's just around your production capacity as things sit today, what you're preparing for over, you know, the second half of this year and into the first half of next year and in particular as the Malaysia site starts to ramp, what will that mean in terms of the incremental capacity, you know, if you're at, mid 500 to 600 million euros of revenue for this year. What is the, given the change in business model that you've just described, Felix, and the new site being added, what's the theoretical uplift in terms of your annual revenue capacity?

Oh, it's very, very far up. Think of us the first order from where we are today, that capacity is not a limit.

Okay. And, well, that's good to hear. I suppose, you know, maybe asking it another way, what the catalyst for the Malaysian site, was this something that had been in the works for some time and it's just a coincidence that the announcement is happening just as we're also seeing this huge ramp in terms of opto-demand or have you been able to react quite quickly to the change in market dynamics and find the site and get moving in terms of the capacity expansion?

Thanks a lot. Very good question. Well, the trigger point for the Malaysia side is not the up-to-demand or the spike in up-to-demand is not the trigger point for the Malaysia side. This is uncorrelated, if you want to say so. So what we have seen is rather we have seen and got signals from customers that they see over the next two, three, four years more on a strategic level that that they see potential upsides for the power electronics in particular, but also for some segments on the optoelectronics. And customers came and said, look, Extron, if you're able to serve markets at a lower price point, well, there could be much, much, much and very significant upsides on this one. We've been asking ourselves, well, how could we? We clearly want to take those upsides in terms of additional volumes. how can we come to price points that the customers have been asking us, that they said, well, this is what they need, such that they can address these and open up these new market segments. And we have then looked around the globe what we could do, what we need to do in order to meet such price points, and we found the answer in the very strong Southeast Asian ecosystem, which allows, on the one hand, lower costs for the assembly of the products, but also has a very strong supply chain, a very cost-efficient supply chain, especially for more mature and older components. And that was for us from a strategic point, not from a short-term tactical point, the reason to say let's open this plant in Malaysia in order to fully participate in the upcoming probably two, three, four-year wave of power electronics volumes that is also set to come, as I mentioned, on top of what we see on optoelectronics now. It's a strategic move.

Understood. Thank you for that detail, Felix.

Thank you very much. Next question is from Michael Kuhn, Deutsche Bank. Please, over to you.

Thank you for taking my questions. Starting with a shorter-term one, you still need 185 million of orders for the midpoint of your guidance, and that essentially to be in the second quarter. And you're also talking about longer-term contracts, obviously. So that sounds like order intake in Q2 might be 200 plus or even well above 200. Is that a realistic way to think about it?

Honestly, I didn't do the math and the numbers yet when exactly the orders are coming in.

Okay. But let's say the logic 185 that is still needed in terms of orders to get to this year's guidance and that this should happen in the second quarter, I think that logic is right. Or let's say until early Q3.

Exactly. I think roundabout you could say so. Yeah.

All right, understood. And then once back to capacity, because you just said capacity is not a limit. I mean, my understanding always was that there is still some limit. Still, let's say you're, let's say, getting flooded with orders now, north of 200 each and every quarter. So would you be able in today's setup without having Malaysia yet, be able to, let's say, generate sales of 800 or well above 800? Or let's say, where is the physical limit right now in terms of how many tools you can ship in a certain quarter, for example?

So we always need a little bit of time to prepare our supply chain and to prepare everything and get ready for it. Yeah. So, you know, we cannot go from 59 million in the first quarter to 200-something in the second quarter, right? Something like that would not work overnight, because, you know, it would be just inefficient to have people sitting around and waiting for the orders to come. However, as I mentioned, it's not the premises or the stays or whatever that is limiting. Out of our... footprint, manufacturing footprint with enough renting time. We are currently, for example, working out of a one-shift model. We can go to a two-shift model. We can go a three-shift model. We can go to a three-shift model for Saturday work, three-shift for Sunday work, yeah? So, you know, we could significantly increase the working hours, yeah, the effective working hours out of our existing premises if then the orders are there, yeah? So coming back to your concrete question, 800 million euros in a year means 200 per quarter. No problem. We have demonstrated 200, I think, 220, 230 or something like that recently in the fourth quarter, I think, of 24 was the last time we did it, yeah. So if you just say, well, EXPROM can do 250 in a quarter, yeah, multiplied by four, then you add 1,000, yeah, but that's still all in a one-shift model. So, you know, if you then go to a two-shift model or would include weekends and so on, then you understand very easily why I say it's not a limit, yeah? And so with a bit of rambling time, we can also, out of today's production footprint and facilities, generate significant upswigs. Maybe that gives a little bit of light on that question.

Absolutely. Very clear. Thank you.

Thank you very much. Then the next question is from Oliver Wong, Bank of America. The floor is yours. Mr. Wong, please check if you're muted. We cannot hear you yet.

Operator, Anna will take the next question then.

But Mr. Wong is here, I think.

Okay, sorry.

Yeah, go ahead. Sorry about that. Thanks for giving the question. I wanted to circle back on the 80 to 100 G10 optimal tools Felix gave. How should we frame that exactly? Is this something, is this sort of, you know, the demand that you're seeing coming deeper? Should we think about it as in, you know, perhaps in, you know, this or next year, we're closer to the lower end of that, and perhaps toward 28, we're at the higher end of that, and is there upside to that number? Thanks, Lawrence.

So the line quality was very bad. Let me try to repeat the question as I've gotten it, and then you please correct me if I've mistaken the question. What I've understood is that you were asking about the 80 to 100 tools, how we should see it, what needs to happen more on the upper versus what needs to happen more on the lower. Is that the question? Is that question correct? Correct?

Yeah. Yeah. Interesting. Thanks.

Yeah, okay. So, honestly, I think you ask for a level of precision that we do not have. I think 80 to 100 somewhere is a ballpark number, and please, as a market, and please also take that I said the number is – Yeah, maybe a third less, maybe a third more. Yeah, so you could say also 90 plus minus 30%, yeah, so you could say 60 to 120, yeah, if you want to say so. I could really be clear what I said earlier, yeah. So, just to give a rough indication of the size of the opportunity. Now, to your question, what needs to happen whether this comes more to the lower end or what needs to happen for this to come out more on the higher end? Honestly, we don't know and also our customers don't know. The interesting point is we have many discussions now in the last eight weeks with all the major laser producers and many say that even they don't know how much volume output is needed because there's still many architectural questions of the network evolution which are not so clear. We see now that Argentic is shifting the model again a lot, with much more CPUs needed in front of the GPUs of the network. Also, Argentic creating much more data traffic. On the other hand, the predictions of the industry apparently have been wrong until now. One customer explained to me that he said, look, all the data points have been derived essentially from the FACE, where all the LLMs were just being trained. And now we are seeing now that the AI is so good that people really start using the models at scale. And now as the models are being used, we see that's a completely different loading pattern of the network compared to the training phase. So I think there's a very big error bar, as I understand, also from our customers. And I have customers that look on our long-term plans, I need 30, 40 additional tools. But honestly, Felix, I don't know whether I need them in the first half of 27 and the second half of 27 or maybe only in the second half of 28. That's the answer I get from the customers. I'd like to pass that on for you. There is a big market. We give you a rough quantification on it. But I think anything for detailing it out, at least when I talk to my customers and ask them, hey, give me a precise forecast, my customers tell me, Felix, I would like to, but I don't know it myself.

That's very helpful. Thank you. My second question is I was wondering if you could give a bit more color on the mix of your customer base for Optos. Obviously, you have the two major Indian classified players in the U.S., uh they're wrapping up capacity significantly do you see sort of a broadening um out of the customer base and optos uh you know perhaps you know we've been hearing about perhaps chinese uh major manufacturers that they they're also wrapping up capacity just wondering kind of you know how you see that good question um so as always we never give names right we always preserve customer confidentiality i think that is clear but what i can share is that

Today already, from the orders that you have seen and the market opportunity that I was describing, our customer base is truly widespread and truly global. Let me give you some examples. There's multiple big names from the United States. I think throughout this call, many of those names have been put out. We have very big names of the opt-to-demand from Europe, from U.S. players producing in European sites. We have a very strong demand with many big multi-tool orders, multi-year multi-tool from Japan. We all know that there's a very strong, very innovative electronics industry grown over many, many years in Japan. The same holds true from customers very well established, customers and producers from Taiwan. We know Taiwan has a very strong ecosystem and, in fact, And also, as you have indicated in your question and earlier in this call, China has a very strong optoelectronic production base, and we have also strong multi-tool orders from China. So we can say at this point in time that the optimal demand that we are seeing is truly global. I think it happens also truly global in all parts of the world at the same time. That's not like a a wave staging or one wave, one part has started, the others are behind. I think the whole industry at the same point is now waking up and starting the rep. This is the view, the picture that we have.

Got it. It's very clear. Thanks so much.

Thank you very much, Mr. Wong. Next question is from Craig McDowell, JP Morgan. Please, have a seat.

Hi, good afternoon. Thanks for taking my question. Just the first one on OptoElectronics. Just wondering, from your discussions with customers, what are the main bottlenecks or constraints that they're talking about to receiving your tools? Are they talking about clean room capacity and so on? And how do you see sort of facility or clean room capacity through the next couple of years? And then the second question I had was just from the middle line for T&L, obviously talking about pretty huge revenue numbers coming through from Opto, I'm just wondering what needs to go into the middle lines of the P&L to capture that opportunity and to service that opportunity. What kind of degree of operating leverage should we expect from this large revenue number you've put up? Thank you.

Let me take the first question and pass the second then to Christian. So in terms of that bottleneck, I think it really varies customer by customer. So some customers have existing SAP capacity and clean room space. So these guys can go directly, order tools, install the tools and start a ramp. We see from other customers, and as I've highlighted with the previous question from Oliver, right, some customers, it's global, it's truly global. Some customers don't have enough clean room space. So some customers are now, chasing cleanroom space or building new greenfield cleanrooms or buying brownfield sites and retrofitting them. It's a truly diverse, yeah, on that one. The other topic is what we hear across all customer base is wafer supply is a shortage. I think the topic is very well known across the industry. Indian phosphide wafers are scarce because nobody was expecting this. However, of course, as always, the semiconductor industry, once there's a bottleneck, takes a lot of resources and resolves the bottleneck. So I'm not concerned that this is going to cut off the boom or anything. I think investments are being made, money is available there, and we know that a lot of activities are ongoing. And I think that's the two main topics, literally, cleaning space and waste of supplies. Apart from the normal challenges of growth, right? Ramping significantly. I mean, I think everybody is quite busy and also the operations team of our customers are very, very, very, very busy these days, I think. But that's clear. That's normal in a ramp in our industry.

Understood.

Thank you.

And then taking over the question to the margins, the optimal tools are in general running at the upper end of our margin profile. um all of that development is fully reflected in our guidance and in the bandwidth of the guidance that we have that we have put out so fully reflected no surprises coming from there yeah and please don't forget yeah uh in the guidance uh is reflected the one of expense um so that's about one percentage point you know that is raining down the margin we have repeated that several times

So just on the middle line for the P&L, maybe you're not expecting so huge amounts of investment needed to sort of capture this opportunity?

What do you mean with the middle line?

So like SG&A, R&D, et cetera?

No, no, no, no, no, no, no. There's no impact on the OPEX, of course. I mean, we are running the R&D in the SG&A anyway, not in the R&D. We are running our program. We've given you the number of around the 90 million.

That's the number that we expect this year. Low additional expenses now expected from the optimal. It's fully reflected in that.

Thank you.

Thank you very much. The next question is from Martin Jungfleisch, BNP Fariba.

Yeah, good afternoon. Thanks for taking my question. I just have two quick ones. The first one is also on Opto. I mean, based on your new guidance, your Opto business is probably more than double this year. Can you just disclose what it's coming from tool sales and how much it's coming from AFP or price? And should this AFP effect also last into 2027 if you grow the share of G10 tools in the mix? That's the first question.

I didn't get it in full because the complete upswing comes from tool sales. I didn't get it with ASPs. Can you repeat?

Yeah, I guess my question is basically what is the mix between G10 and G4 and basically what is driven by sales price this year and next year, so by ASP mix. I see you sell more G10 than G4 tools.

I would say probably around 70% G10, 30% G4, maybe something like that. Some of the G4s go into the laser segment because laser customers are still producing on the UIDA series. Some of the G4s go into the, what I mentioned earlier, red LED segment, which is a very cost-sensitive segment. So the G4s can have very different margin profiles, and you can have the G4s which is kind of, let's call it minimum and base configuration. If you open it up, yeah, it's almost empty. And then you can have a laser G4 and it's just full. So think of a whatever, put a 150 horsepower versus a 400 horsepower into a car. It's a different look, different in the car. So a bit of a variety on that one. In terms of mixed effect, I think going forward, it will have a positive mix effect, but again, right, the G4s going into the LED segment, they are quite a drag, because that's a margin-weak segment. So, honestly, I don't have the full transparency to answer the question. Real granularity, I just recognize.

Okay, no worries. And maybe just a follow-up on competition, right? I mean, given there's a quite a strong growth in the offshore area, What's your view on competitors? I think Beko has recently announced a few orders for the MOCVD tools for indium phosphide. And I guess, like, sort of that kind of market number you mentioned, the 18100 tools, what is your expected market share there over the next couple of years? Do you see any players getting stronger, maybe also from China?

Yeah. So we take competition always very serious, and we make sure that we watch all the steps of competition. In the orders being placed in the starting of the boom, we have not seen the competition yet. We are aware of two competition tools that got ordered. We are not aware of more orders. So we take them serious, but we really take care of our customers to make sure that we have a high market share. Okay, got it. Thank you.

Thank you very much. The next is the follow-up from Aditya Mithubu again, HSBC. Here with you.

Thank you, guys, for fitting in. Just one question, really. Felix, you always give very technical answers, which I like. You talked about Datacom applications for micro LEDs. Can you talk a bit about what the use cases will be for micro LEDs as opposed to lasers? Where will lasers be used? Where do you see micro LEDs being used? And how does this affect tool demand from your perspective? If you were to sell, let's say, for a 1.6 terabits per second link, I don't even know if micro LEDs can be used, but assuming they can be used, does it mean one machine, you sell an equal number of micro LED machines, and if the laser was replaced by micro LEDs when compared to... laser machines, and any color around what it means for you from a tool perspective would also be very helpful. Thank you.

Yeah, I'm very happy to take the question. So, I mean, as always, technical evolution and innovation continues and things change over time. I think that's part of our industry. But I think in the first order, I would see micro-LED and the lasers, what we are seeing now, the EMLs and the pixel and the co-packaged optics, I would see it as complementary. Let me explain why. Right now, what we are seeing for the scale up and for the scale across is that we see the lasers being used to connect multiple GPUs, multiple racks in a data center, yes, multiple servers in a data center. So we talk about slightly longer lengths of kind of optical cables, if you want to say so, yeah? You can all imagine that, yeah? We know the picture of how it looks inside and, you know, the hundreds of thousands of cables going to the backside of the rack, yeah? Now, to our understanding, and in fact, and also these EMLs and PICs are being used, it's indium phosphide what we are talking, indium phosphide wafers, it's arsenide phosphide tools, the G10ASP that's being used for that. And the micro-LED efforts for data communications that we are involved with is mostly gallium nitride-based, so completely different material system, completely different tools. So we talk about the G5+, for example, not the G10ASP. And what we see is that some customers, multiple startups are working on this micro-LED communications comma, however, for very short length. We are not talking about connecting one rack to another, let's say a couple of meters away or a couple of hundred meters in the data center away, but we rather talk about connecting, let's say, high-bandwidth memory with the GPU. So literally things that are co-packaged on an interposer with some, for example, a glass substrate or Some people also are trying to put 300 millimeter silicon carbide substrate to etch some waveguides into this. Literally like, you know, semiconductor manufacturing techniques that's being deployed here. Co-packaged things, yeah, for the very short, short range. In the end, to have a higher bandwidth connect, for example, from a high bandwidth memory to the GPU, yeah, higher bandwidth means more speed. or also benefit less energy consumed because the connection by optical can have less energy than if you do it by copper. But to a false order, I would say the aspiration for micro-LED in this is the very shortfall versus what we talk now, the indium phosphide is rack-to-rack, server-to-server, data center-to-data center. It's longer hauled in meters, hundreds of meters, kilometers through optic cables. Again, I think that's the starting point, and we all know that then over time innovation continues and boundaries blur and boundaries get shifted and things change, but I think at least that's the activities that we are aware of now in the first quarter of 2016.

Understood. And do you have any timeline around when this might happen, micro-related connections?

No, it's exploratory. It's exploratory. I think, unfortunately, it probably is going to happen like it happened now. Sometime it happens overnight, and then we have a ramp. I'm afraid it's going to happen like that. But I think it's not going to happen within this year.

Of course. Great. Thank you very much.

Thank you very much. Last question in the queue so far from Nigel Van Putten, Morgan Stanley. Please go ahead.

Hi, good afternoon. Thank you. I hate to say, but I also want to follow up on the OptoOutlook and the 80 to 100 tools or 60 to 120. I can imagine that, you know, that range being quite wide on an annual basis, but Perhaps it's then good to talk about some of the underlying assumptions like I guess in terms of form factor, is there any difference between EMLCW? I think we've discussed this before, but it will be good to just, you know, get your latest views. And maybe more important, I can only imagine that these numbers include like a full scale-up opportunity rather than sort of the situation where we're in today. So, I guess, maybe to add to that, I can imagine that 80 to 100 numbers to be maybe not completely applicable yet to the very near term, but more towards the end of the decade. I'll leave it there because there's a couple questions in there already.

Yeah. I do get your question, but unfortunately, I can only repeat and shine some more light on what we've indicated earlier on that it's too early to predict, yeah, because it depends on so many factors, yeah. The one factor we've all outlined is, yeah, what happens on the scalar versus the scalar cross, right? The other factor is on the tool side, literally, what speeds are the linkages happening, right? If you go to higher speeds, for example, you need stronger lasers, yeah, because then the modulation consumes more energy, yeah? And that consumes more energy. You need to pump more light in. To pump more light in, you need a bigger laser chip. For a bigger laser chip, you need more wafers. Look, there are so many variables. So I think we are probably just aware of a number of these variables. But in order to – the error bar on each of these variables is adding up. I think we can only guess, make a rough assumption, to give an order of magnitude. That's my attempt to give an order of magnitude. but to put it in precise numbers, I think it's too early. It depends on too many factors.

No, I totally get that. That's why I was a bit surprised because 80 to 100 is actually a pretty narrow range, but this makes sense, so I guess, you know, Yeah, scale up environment, scale across, and the speeds necessary. I guess those will be the most significant drivers from an in-market perspective. And then on the supply side, it's more about yield, et cetera. So I think you've said before that the industry is really good at solving bottlenecks. Today it's more, as you said, clean room and especially the wafer substrates. So have you been doing a lot of work over the last, I guess eight weeks and then maybe beyond that I can imagine of sort of working with customers or customers coming to you to see how they can improve yields in the process. Is that something you can provide a little bit more visibility on in terms of, you know, in the past I think there were a few that yield are quite low in that space. There's a few that those can improve, but has there been sort of a push relatively recently where you guys are involved to make that happen?

Not so much. I think in the end, the processes that our customers run have many, many, many, many, many, many steps. Sometimes not only one EPI process, but sometimes multiple EPI processes. And I think at this point in time, most of our customers are really focused on getting the ramp done to really achieve that. I think at some point, the additional work will go at doing yields. But I think the yields are less a topic of the epi tools. I mean, our tools are helping our customers to produce the best yields that's available in the industry. That's the reason why they choose the extra tools. But I think when you talk about the yields or the line yields, which is all the process that's one after another, that's not only about the epi tools. but that's literally the connection of all the hundreds of process steps that are running within a customer factory. And normally, especially in the Opto side, customers are running very different recipes. They all have their process secrets, why they differentiate. So I would say especially our Opto customers are very, very secretive and are very keen on preserving their process recipes for themselves.

Thank you very much.

Thank you very much, ladies and gentlemen, also from my side. As we have no more questions in the queue, I'm handing the floor back over to the host.

Thank you very much, Anna. Thank you all for listening and for the very good questions. If there are any questions still open, the IR department is at your disposal. Please give us a call. We will be on the road in the next couple of weeks, so hopefully I'll see a lot of you in person. And for those we do not see, we'll talk to you at the latest on our Q2 call, which will take place end of July. Have a great weekend. For those, at least, we have the first of May holiday. And for the rest, a nice Friday. Goodbye for now.