Aixtron Se Unsp/Adr

Ladies and gentlemen, this is Christian Ludwig. A warm welcome on my side to Acron's Q2 2026 conference call. I am very sorry for the technical delays that we had experienced and that had to keep you waiting. We had some major issues with our external provider. We're working on this, so next time hopefully we'll have a smooth communication. With me in the room today is our CEO, Dr. Felix Grafath, and our CFO, Dr. Christian Dunningham, 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. Your participation in this call implies your consent to the 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 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 to our Q2 26 results presentation. And again, also from my side, from the board, apologies for the delay with our external provider. Thanks a lot for everybody who kept waiting. I will start now 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 developments of the second quarter on slide two. The key messages are we've received strong new orders of 215 million, predominantly driven by OptoElectronics. Revenues came out at 115 million in line with our guidance for the quarter, reflecting the ongoing ramp of the photonics business and coming out of the trough in power electronics in Q1. We also generated a very strong cash flow. Operating cash flow reached $119 million and free cash flow came in at $114 million. This was predominantly driven by higher customer advance payments reflecting the strong order momentum and supporting the upcoming production run. Despite the soft start into the year, we are fully on track to achieve the full year guidance with revenues of $560 million plus minus 30. We had a soft Q1 with revenues of $59 million. We achieved 115 million in Q2. We plan to further increase output in Q3 to 180 plus minus 20. And we target a very strong Q4 with a further increase in output beyond the Q3 level. As you can see, we are ramping up our production with a steep ramp rate and significant increase of output every quarter of this year to serve the growing demand in optoelectronics. Finally, construction of our new site in Malaysia has started and is fully on track. Christian will now provide you a detailed look at our financials on the following pages before I take over again.

Christian. Thanks, Felix, and hello to you. Let me start with the highlights of our revenue development on slide four. Q2 revenues marked the next step in our planned production ramp, increasing 250 million euros from 59 million euros in Q1. This was fully in line with our quarterly guidance of 10 plus minus 10 million euros. Compared with the prior year quarter, revenues were 16% lower. For the first half, revenues amounted to 174 million euros. The revenue mix already shows the growing importance of Optor electronics. 54% of the equipment revenues came from Optor, 23% from LED and micro LED, 22% from GAN and SICK Power, and 2% from R&D Tools. Our after-sales business contributed €52 million and remained stable in absolute terms year over year. As a result, its share of group revenues increased to 30% from 21% a year ago. Now let's take a look at the financial KPIs of the income statement on slide 5. Gross profit in Q2 was €47 million, corresponding to a gross margin of 41%, unchanged from Q2 last year. This demonstrates a solid margin in performance as volumes began to recover. For the first half, gross profit was 58 million euros and gross margin was 33%, three percentage points below the prior year period. The H1 margin reflects the lower production volume, particularly in Q1. as well as a mid-single-digit Euro-million one-off expense related to the personal production in operations. Operating expenses in Q2 were stable year-over-year at €32 million. Higher R&D spending was offset mainly by increased R&D grants and significantly lower FX losses. The rise in R&D expenses primarily reflects higher depreciation in material costs As we continue to invest in our technology vote. For the first six months operating expenses were 65 million euros up 3% year over year. EBIT in Q2 was 15 million euros equivalent to an EBIT margin of 13%. This represents a clear turnaround from Q1 and reflects the higher revenue level and improved operating level. For the first half, EBIT was negative 8 million euros corresponding to an EBIT margin of negative 4%, mainly due to low Q1 volume and debt one-off expense already mentioned. Let me now turn to the key balance sheet and cash flow indicators on slide six. Working capital decreased by 184 million euros compared with the end of 2025. This was primarily driven by strong customer advance payments and the conversion of receivables from last year's fourth quarter revenues into cash. Trade receivables declined to 81 million euros at the end of June from 131 million euros at year end. Strong order momentum resulted in a substantial increase in customer advance The composition of current orders and individually agreed payment terms also provided a modest additional benefit. At the end of June, advance payments stood at 197 million euros, more than 150 million euros above year-end 2025. They represented around 43% of the equipment order backlog and provide meaningful funding for the upcoming production ramp. At the same time, inventories increased to €318 million from €284 million at the year end, mainly reflecting higher work in progress for shipments scheduled in the coming quarters. Trade payables rose to €49 million from €34 million as purchasing activity increased to support the ramp. Both developments are consistent with the planned increase in output in the second half. Overall, Operating cash flow reached 173 million in the first million euros in the first half, an increase of almost 90 million euros from 85 million euros in the prior year period. In Q2 alone, operating cash flow was 119 million euros. The key driver was the strong increase in customer advance payments, which supports the financing of the production line. Pre-cash flow was correspondingly strong at 160 in the first half compared with €74 million a year ago, including a loan-free cash flow amount of €240 million. CapEx in the first half was close to €11 million. For the full year, we expect CapEx of around €55 million, comprising our baseline investments and approximately two-thirds of the announced €40 million investment in the Malaysia expansion. The process to sell our site in Italy is ongoing. Our liquidity, comprising cash, cash equivalents and other current financial assets, increased to 816 million euros as of June 30th, 2026. After deducting the liability component of the convertible bond, net financial assets amounted to 460 million euros compared with 222 million euros at the end of 2025. Our equity ratio remains strong at 61%, despite the increase in total assets following the bond issue. With that, let me hand you back over to Felix.

Thank you, Christian. I would like to continue with an update on key trends in our different markets. Overall, the picture in Q2 was very much in line with what we described at the end of Q1. Optoelectronics remains very dynamic and is currently the clear growth driver for Extron. While the power electronics and LED micro-LED markets remain in different phases of recovery. I will start with optoelectronics. Momentum remained exceptionally strong in the second quarter. After the clear inflection point we saw in Q1, the market continued to accelerate in Q2, driven by strong demand from AI data center applications. In Q2 alone, OptoElectronics accounted for 75% of equipment orders, making it by far the most important contributor to our order intake. Based on our current visibility, we expect order momentum in OptoElectronics to remain at very high level in the second half of the year. The key driver remains the ongoing architectural shift in AI data center. From pop-up based connections and lower speed optical links, towards high-speed optical connectivity at 800 gig and eventually 1.6T and beyond. This transition requires a significant increase in the number and performance of optical links and therefore in the number of advanced lasers needed. In the near term, demand continues to be driven by indium-phosphate-based EMLs and CW lasers for data center applications. At the same time, customers are already working on photonic integrated circuits as the next step in technology roadmap. Importantly, the current investment wave is no longer limited to a few large players. We now see leading laser suppliers worldwide committing to capacity expansion, and the trend is also extending to smaller laser manufacturers. Based on the current pipeline and customer discussions, we expect this investment wave to remain at very high levels over the coming quarters. This gives us strong visibility and support our confidence in sustained momentum in optoelectronics well into 2017. As discussed previously, our G10 ASP platform is benefiting strongly from this trend. Customers are increasingly standardizing on this Extron platform for advanced photonic devices. The reason is that yield, uniformity, and cost of ownership are critical in this application. Many systems are initially configured for 4-inch wafers but are already prepared for a transition to 6-inch, giving customers the flexibility as the technology and supply chain evolves. Let me keep it, therefore, short on thick and gaunt power electronics, as there's not much new compared to the last quarter. In SIC, the installed base of equipment at customers remains underutilized, and customers remain cautious about new capacity investments. At the same time, the underlying demand for silicon carbide chips continues to grow, and we are seeing utilization rates gradually increase at our key customers. When this leads to new tool orders is difficult to predict at the current point in time. Also in gallium nitride, demand for power equipment remains moderate. Also here, customer utilization is gradually increasing. However, it remains too early to determine when this will translate into additional equipment demand. Strategically, our conviction around GAN remains unchanged. Recent announcements and discussions around Computex and PCIM have reinforced our view that gallium nitride has a strong opportunity to win designs in AI data centers, particularly for 800-volt DC-to-DC conversion. Over time, we also see the potential for GaN to move beyond the 48-volt level and into lower voltage point-of-load applications. In such architectures, GaN could replace multiple stages of silicon MOSFET-based power conversion, enabling more compact and efficient power delivery for AI infrastructure. Extron remains very well positioned in GaN, yet we have not seen signals for the inflection point for significant new order momentum. Finally, a brief comment on LED and microLED. Both applications remain soft in the second quarter. We shipped systems for red, orange, yellow mini-LED in previous quarters, and these systems are currently being installed and ramped up. However, the broader investment environment for mini-LEDs remains limited as of today. For micro-LED, most of the demand we see today is driven by AR glasses. We continue to believe in the long-term potential of this technology. We see more and more focus of end customers on innovative products, such as the AI glasses of Meta Ray-Ban which may at some point generate stronger customer pull. The exact timing for such order uptake remains unclear as of today, but it may materialize as early as 2017. Let me now move to our footprint expansion. Our new site in Malaysia is set to become an important element of our global footprint and represents a key step in strengthening our manufacturing base. With the new facility in Penang, we are expanding our presence in one of the world's big semiconductor ecosystems. The project is running fully as planned and groundwork have already started. With that, let me now move on to our guidance. We confirm our increased guidance for 2026 as published in mid-April. We expect revenues to come in at 560 million in the range of plus minus 30. We expect a gross margin of about 42% and EBIT margin between 17 and 20%. The guidance for the gross margin and EBIT margin includes one of expenses in the mid single digit Euro million range related to the personnel reduction operations. The measures will lead to annualized savings of a similar magnitude in the future. For Q3 26, We expect revenues of 180 million plus minus 20. For Q4 26, we then target a further increase in output corresponding to the steep quarter over quarter ramp that characterizes our fiscal year 2026. We continue to monitor geopolitical developments closely, particularly in the Middle East. This includes potential impacts on energy prices, supply chains, financial markets, and investment and demand behavior. At present, we do not see a significant impact on our business, but we will respond appropriately if the situation changes. With that, I pass it back to Christian before we take questions.

Thank you, Billy. Thank you, Christian.

Operator, we are now ready to take questions.

Gentlemen, if you would like to ask a question, please press star, nine, and pound key on your telephone keypad. If you would like to revoke your question, press star three and pound key. You can also use the dial in function in the webcast and raise your hand if you would like to ask a question by phone. Repeat star nine and pound key.

I have the first question and I think we can start with the first. First, please.

question is from Aditya Matipu from HSBSC. The floor is yours.

Thank you guys. Thank you for letting me on. Two questions please. Firstly, just on optoelectronics demand, you talked about demand still accelerating. We've also seen similar commentary from your customers. I just wondered, based on your discussions, when do you see the supply-demand coming into balance in the indium phosphide laser landscape? That's the first question, and I've got to follow up.

What do you mean? Let me question back. What do you mean with the demand and supply coming into balance? I'm not sure I get the question.

Yeah, so if you look at your customers, if you take Lumentum's comments, They made some commentary around being 30% below demand, and they don't think they will be able to meet the demand that's out there in 27. So I just wondered, and that's clearly driving the investments which you're benefiting from. So when do you see their supply, which is tied to these machines you're producing, coming in balance with the demand that they're seeing from their customers? If that makes sense. Is it 28? Is it 29? What are your customers telling you?

Thanks a lot. I cannot comment on individual customers and also for us it is difficult to assess the situation, the demand-supply situation that our customers are in because I'm unable to see the pipeline, the demand pipeline that's behind my customers. So please understand I cannot comment on that particular aspect. What I can comment on is on the Extron side of things. And what we are seeing here is very clear that we see that the demand for laser, for tools for laser, for the optoelectronics is a very broad market momentum. It's not only two or three players, but rather we see a diversified set of, I would say, almost 15 laser companies. Many, of course, the big players from Europe and the US. Um, very big player also from Taiwan and from Japan. Yeah. Um, but also we see a very strong momentum from, uh, from China. Yeah. I think let's recall, we all know China has a very strong optoelectronics ecosystem and this whole industry, I think almost at a global breadth, um, uh, very well diversified. Yeah. As I said, about 15 players who make up, uh, we just analyzed that about 80% of our order intake. is taking up quite a strong momentum. The customers are communicating to us also their forecast when they would like to have the tools for their individual ramps. And that typically depends. They have some space left in existing factories. Customers start building new FAP construction projects. And then whatever the customer FAP is scheduled to get online, let's say in the second quarter of next year, Then we make sure that we reserve for them slots so that in the second or third quarter of next year, we can serve them. So we see here a broad and a continued long momentum ramping up and really building the capacity base that is needed. Now, this is what we see to describe the demand behavior on the customer side. Maybe that's a bit helpful.

Yes, of course. Thank you. And just as a follow up, I had a bit of a technical question. So my understanding from recent developments is that when you go to CPOs or any other architectures that use an external laser source, you have a significant amount of losses before the light is actually fed into the fiber. And so that means there is a need for a lot of amplification lasers, et cetera. So the question is, for a given optical link bandwidth, If you were to move from a pluggable to a CPO with an external laser source, do you see a significant increase in the indium phosphide dye or dye size that is needed? So, for example, if I take a 1 terabits per second transceiver and substitute that with a 1 terabits per second CPO, do you need more indium phosphide dye and more extron machines for that transition?

Se Unsp & Without without going too deep into into the technical details and also every of the customers has a different architecture behind it. Se Unsp & What we see is generally that with increasing speed we see increasing die size and increasing wafer capacity. Yeah, that comes simply as the speed goes up modulation gets more lossy and more die sizes. So the overall trend higher speed rates is driving also further wafer demand.

Got it. Thank you.

This question is from Mr. Martin Rand on OdoBHF. The floor is yours, Martin.

Hi. Thanks for taking the question. My first one is on the 26 guidance, just a clarification there. I mean, there was no upgrade to the guidance, but the order intake is very strong. So do you think, I mean, I assume that a lot of orders are going to 27. So would you say that the bottleneck for this year, it's more about execution than anything else? That's my first question.

That's a fair remark, yeah. So we feel comfortable in hitting the guidance. As you see, as we have outlined, we are steepening and ramping up our output quarter over quarter. Yeah, you saw the around 60 in the first quarter, 115 in the second, 180 always referring to the midpoints, right? And 180 for the third. And then if you just do the math around 200, a little over 200 for the third quarter. And we're not limited by orders. You see that also the pie chart we had in the deck. Yeah. But we are rather now really doing everything to to to to execute to make sure that with this laser boom that has just started early in March. Yeah, just not even three, four months out to to work to ramp up our own capacity to work very closely with our suppliers that we very good partners over the years. And of course the laser machines need some different parts and the power machines to ramp up the supply chain and you see this Steep quarter over quarter increase and that's really for the year the limiting factor. It's not not wrong And I think the good news is we are we are quite able quite well To satisfy our customers needs. Yeah To get the machines out as they need it But you can imagine such a steep ramp from 60 to 200 and 3x within within a year in terms of output That's quite some work behind it

The second question is on the photonics orders. You mentioned that the momentum is very strong and will continue to be very strong. Looking at the run rate today, it implies that sales could be around 900 million euros next year. Do you think we are kind of at a high plateau in terms of orders? Do you think we'll go higher or should we expect a little bit of volatility quarter to quarter for these orders?

Good question. Honestly, I think around 200 what we have seen now as an order intake is for the next quarters as much as we have visibility what we are looking at. So we think that's a fair assumption to see. And then, of course, with a bit of a delay time, the lead times for equipment shipment, we will then see that also translate into revenues. So I think your guess is approximately right.

And the last one, if I may, on GAN adoption in data centers. I understand that it's not in the order intake yet. So what the discussion with customers are looking like at the moment? I mean, is it normal that that we don't see it yet? Or do you think the timeline for mass adoption has somewhat moved?

I wouldn't say the timeline has moved. I think the market, the capital market in particular, has misunderstood the timeline and is now just realizing how long it takes. So let's recap. We saw the new 800 volt architecture. Se Unsp& In all the implementation of that architecture is going to come in steps, the first stage where we where we see a silicon to switch to white band gap is going to be on the on the very high voltage side for the silicon carbide front end yeah. Se Unsp& When you do the down conversion from the overland line from whatever 10 kV 13 kV all the way to 800 volts yeah there's going to be silicon carbide and that part is coming first. Se Unsp & And then second the down conversion from 800 volt DC all the way to one volt yeah whether the switching of the cpu or gpu is happening, the gallium nitride part that will come later and. Se Unsp & I think the industry, especially the capital market has has overestimated how fast such a transition is going yeah. Se Unsp & And the thing we gradually see now the transition starting on the silicon carbide side and then with a bit of delay coming on on also on the gallium nitride side. It's a massive change in architecture and this takes time.

Okay, but would you say that gallium nitride is still coming, you know, early 27 or in 27 at least?

As we said in the prepared remarks, it's too early to predict and to forecast. We see very clear technical discussions and we see around trade shows like Computex and discussions. that there is a hot momentum ongoing. We have not seen that yet translate into orders. And on our side, we don't have visibility and indications yet.

But we have no doubt that it is coming. I hope you could see that also from my remarks.

Yeah.

And just the last question, just to clarify, if the orders, let's say, would come in early 27, would you know already by now? Or is it normal that sometimes you don't have this kind of visibility and you know about it a bit later?

I think it would be normal that we get notification relatively short term. Please recall that our systems are the tools of record across the whole market for the gallium nitride power. So all the development work, all the pilot work, all the sampling and pre-production work of all the customers has been done on our systems, either the older Series G5 Plus or the newer Series G10 Gun. So all the customers work with our system, which is they don't need us now to support in the preparation. And at some point, I expect the customers to come along with multi-dozen tool orders and say, Extron, how fast can you ship, please?

OK, exactly. Thank you very much.

You're welcome.

Next question is from from Brandberg.

Good afternoon. Thank you for taking my questions as well. Two and a half, if I may. Firstly, just on Opto and the orders in Q2, very strong, obviously. But is it correct to assume that the rest of the business is kind of stagnated or declined a little bit in Q2 versus Q1? Or another way of asking it, do you have a sort of base level view of orders, excluding the extra order intake you're getting from the up cycle in Opto at the moment that we can think about as a sort of space level run rate, if you like? That's my first question. And then second, last quarter we talked about 80 to 120 tools needed for the OptoMarket per year. It seems you're pretty much already there for H1. So I want to know in a little bit more detail if this preliminary view that you gave in Q1 has changed or if you're simply hitting that number a little bit sooner than you thought you would.

Thank you. Two very good questions, Gustav. Hello. So I think the first question on the remainder of the business, I think, as we have indicated, the power business continues to be stable at a low level. Silicon carbide, pretty slow because of the underutilization and overcapacity still in the market. The gallium nitride, here there are some orders, but still on a lower level before the next wave of investment kicks in, as we just discussed along the question of Martin. Yeah, so I think I think these are the two power segments are stable on a low level. And at the same time, as I've indicated, we expect for the next quarter, the optimum momentum to continue to be strong and upbeat. And we see that from the pipelines and the inquiry pipelines, and sometimes in many cases with the big guys, big customers also very clear forecast. Yeah. So we have a very healthy confidence on the optimum momentum for the coming quarters. Now to your question about the tools, 80 to 120, that was our initial forecast. We currently see a stronger momentum than that. It's too early to predict where exactly that's coming from. Could be that the overall wave is bigger than we have expected. Let's see how it continues. But we are currently seeing a bit stronger momentum than these 80 to 120.

Okay, super. Very clear. Thank you.

Very well. The next question, Bank of America, Oliver Wong. Please go ahead, Oliver.

Hey, guys.

Thanks for taking my question.

First question is on capacity. So understand that I guess if you take the midpoint of the four-year guide and the Q3 guide, let's say Q4 at $220 million, and if this was to be stable going forward into next year, that would imply, let's say, $880 million in full-year capacity. Is that the right way to think about it?

So you should consider capacity, not as a limiting factor. Please recall the equipment business is relatively capex light. So for us, the situation is very different from that from our customers, right? Our customers need a fab, they need a clean room, and the customers need our equipment, luckily. Se Unsp& And for them, it's always, you know, they need all the cupcakes all the preparation with multiple months, if not several quarters of preparation time to create capacity. Se Unsp& For us, on our hand, we are relatively complex light, as you know, and and we have a decent flexibility. Se Unsp & And also to shift some of the assembly tasks. If you recall what we do at extra on is mostly assembly and tests in our old premises and our own yeah clean room environment and Se Unsp & We have a big flexibility in times of upside swings as well as we are now realizing to put some more of the work. Se Unsp & To our suppliers that say the suppliers in demand peak times then take Some more additional assembly steps and we get, for example, it will partially have assembled already when it comes to our shop floor means the tool is then not standing, whatever I put arbitrary numbers. Yeah, not taking whatever 10 weeks on our shop floor, but rather taking six weeks in our shop floor because six weeks of the work has been already at an outsourced assembly space. Yeah, just to shine light on why this is such. Yeah. So therefore, Capacities is not a limiting factor to us in itself.

Got it. But my understanding is, you know, lack of the full year raise in spite of strong orders. That was, I guess, somewhat related to some sort of supply or capacity constraints. Is that correct or not?

It's a rent rate. It's not a capacity. It's a good one. Good question to clarify that. Thanks for following up on that one. It's a ramping rate constraint. It's not the capacity, right? It's the question within the given machines, premises, buildings, clean room space. What I consider capacity is how fast can we hire people on board? How fast can our suppliers hire people to operate the machines which are then being used to manufacture the parts? So it's a purely limitation of the speed, how fast we can accelerate. So think about your car going on the highway. If you have no VMAX, yeah, but the question, how long does it take you to reach your travel speed?

Yeah, yeah, makes sense. So I guess like we can kind of run rate the, you know, let's say 220 million Q4.

Yeah, no problem. Once we are, once you are at travel speed, you can cruise easily and comfortably.

Okay, sounds good. Thank you very much.

Great. Next question is from Martin Jungfleisch.

Yeah, good afternoon. Thanks for taking my question. First one's on gross margin. I think the implied gross margin for the second half is around 46%. What is your view on phasing here? Should we expect more like 44%, 45% gross margin in the third quarter, maybe up to 47% in the fourth quarter? And with that gross margin level of around 46%, let's say, in the second half, is that sort of level you're kind of comfortable with for next year? Or would the Malaysian facility ramp have any impact on on that in the short term?

So honestly, we haven't done the math on the details. But what we clearly see is that the laser systems carry, of course, a bit of a better margin profile. Simply coming from the fact that this is a highly, highly, highly complex system with lots of and all our customers have their own differentiating features that their orders Se Unsp & They very differentiated recipes. So the laser systems are I think laser epi is some of the most complicated stuff that that customers make on our tools. Se Unsp & And given from these technical requirements of course that translates them into a bit healthier modern profiles and and from that. Se Unsp & From that onward, I would also expect in we would also expect in 27 So clearly see an uptick in terms of the gross margins, as you rightfully said. So it will be a good year 27 that we can already see ahead of us.

OK, but is there any ramp costs for the Malaysian facilities that you're seeing in 2027? And is that meaningful?

Some ramp costs, of course. There's also some fixed cost digression effects. The first order considered is the one.

Okay, thanks. And then the second one is really on opto. Can you disclose what kind of configurations you're mainly shipping today? Is that still mainly 4-inch and is it increasingly up to 6-inch? And then also, have you received any data on how the epi yields at the customers are progressing in both 4- and 6-inch? Thank you.

So majority of system is shipping on four inch. I think probably 70, 80% is on four inch, smaller one on six inch. All customers, of course, want to be ready for six inch for a conversion at a later point in time. And I think the yields that our customers achieve are probably some of the best kept secrets, I could imagine. And we don't have that transparency into those. I wish I had those.

No worries. Thank you.

So, next question is from Deutsche Bank, Michael Kuhn.

Good afternoon, thanks for taking my questions. Once more on orders, there was still, I think, around 95 million to be secured at phase one, and I think you secured those in the meantime. Still, let's say, if, let's say, ramp speed is the constraint, and not, let's say, the customer willingness to buy. Let's say, why, let's say, the hesitance of customers to, let's say, fill the remaining slots for this year?

Well, you know, a quarter is always an arbitrary cutoff line, right? I think, as you rightfully state, quite a decent amount of orders has already been received. We are already now one month into the quarter. And also, you know, we are we are at this point in time from the big guys also receiving my multiple multi tool orders. Yeah, so it is feeling quite fast. Yeah, so No, no concern on that one. All that coverage is good. And also we are we are well on track.

Thank you. And maybe on on order backlog. I think there should be something like 220 million now in already for Next year, you mentioned Opto is quite diversified, talking about around 15 customers. Would you be able to give like a rough indication what the biggest customers make up in that order backlog?

I don't have the data in front of me. That's a very, very specific question. But maybe let me shine a little bit light on the order backlog. Yes, some going into 27. There's already some going into 28, also, to give a light in there. Also, some part of the order backlog still relates to some power electronics where customers shifted something out. It's not all optoelectronics. There's also some small portion of gallium nitride left, small portion of silicon carbide left, where some customers had placed orders. And then at some point when the power wave collapsed, Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr

that the technological outperformance was confirmed. Maybe just to understand how that technological outperformance is, let's say, defined and where you stand with that tool in the qualification processes.

Honestly, I don't get your question. What do you mean by technical outperformance? Which part do you refer to? I'm not fully understanding your question.

Okay, are you still there?

Yeah, I'm still there. So there is one bullet point actually in your presentation under your Hyperion tool, which says technological outperformance versus 200 millimeter platform confirmed by a leading customer. I was interested in how you define that technological outperformance. This is not my phrasing. This is actually from your presentation.

Oh, now I get it. Thanks. That was important to point to the right point. So you're not referring to the update we have, but to some of the slides later on. My team helped me find it.

So what we mean is we are able, as the 300 millimeter tool is a single wafer tool,

We are able, compared to the 200 millimeter tool, which is a batch tool, as you can expect from the single wafer tool, where all metrology, measurements, temperature, optimization target towards a single wafer, all the effort kind of is geared to one wafer instead of spread over five wafers, we are able to achieve an even better Unsp Unsp Unsp Unsp Unsp

And can you share with us, let's say, how many qualification processes or with how many customers you're currently running with the tool?

More than a handful.

More than a handful. Very clear. Thank you very much.

The next question is from Greg McDowell from JP Morgan.

Hi, good afternoon. Thanks for letting me on. My first question is on Opto orders and I think the Opto order for Q2 is around 160 million euro and I understand that you do not recognize Chinese orders without a corresponding export license. I was wondering whether you could give a color on what is the sort of additional Chinese ordering in Opto on top of that 160 million? Is it an additional 20%, 30%, 40% on top that's not recognized in that Q2 optical order number?

Thank you. A minor topic. So export licenses are no longer an issue. We get them relatively quick these days. So in terms of when we receive the customer order and the export license, Timing delay is marginal. So not a significant topic.

OK.

Understood. Thank you.

And my second question. Just on the helium nitride business, I would look back, and I think it was Q3, Q3 24, so nearly two years ago that you first indicated a gallon market, maybe 3x-ing in the medium term, indicating around 450 million euros of total revenue. I mean, that was two years ago. I'm just wondering whether that view is still valid. I understand that orders aren't yet on the books, but whether your confidence has grown on that or you think that forecast is still valid. Thank you.

That view fully holds. We can confirm. So on the midterm strategic value of the gallium nitride, we are fully convinced. So that hole that's fully intact, it's just a question now, when is this next wave for the gallium nitrate really starting after we see utilization rates increasing? And at some point then, installed capacity is fully utilized, and then the next wave and the next momentum is starting.

Thank you.

And just to follow up on the utilization rates, I think previously you were talking about utilization in your GAN installed based on 60% to 70%. Is that still an accurate number? Is it edged up towards 70% at all?

I think it's gradually increasing, not a major shift as of now. So I wouldn't expect this is now 90 or so.

Understood. Thank you very much.

The next question is from . Please go ahead.

Thanks for letting me on. Just had a question on capacity and pricing. So if we were to look ahead, and I know that at the moment you're not getting any signals on a GAN inflection, but if GAN was to inflect along with OPTO within the next 12 months, and then you were able to deliver, of course, the order run rate of the past $250 million, and then in that case, within 2027, you'd be fully utilized on that $1 billion for the year, do you see there could potentially be scope and pricing if you become fully utilized in 2077?

Well, as I mentioned again, you shouldn't think about capacity limits. I would be very happy to get additional orders, and I would then simply just chip more. So I'm not concerned of hitting any ceiling and then selling off a remaining slot at a premium, as I understand your question a bit. I'd rather say I take all the orders and chip all the orders and make sure that I fully benefit from the upswing. That's rather the strategy.

Got it. Perfect. And then just on gross margin evolution, sort of over the medium term, if we assume that at some point within the next one to two years, both Opto and Gantt's in the first question were to be very strong together. And again, about 250 million in revenues per quarter. And then again, now as customers are moving to higher diameter wafer sizes on their production line. And so then the G10 tool becomes increasingly part of the mix. Could we see your gross margins tending towards 50% over the sort of the mid to long term?

Oh, you're getting very bullish here. First of all, you get very bullish on the revenue side about projecting 250 per quarter. So clear message from my side, we have no capacity limit. I really want to say that. So from the capacity standpoint, I'm not concerned, also not concerned with your number. I think I've highlighted this several times in the call. However, I also want to clearly say that we don't see any signs as of today to go to 250 per quarter. I think to really reiterate, we have a good confidence to see around 200 per quarter now for the next few quarters. And then let's see what happens. To really clarify out the assumptions, The numbers are gradually getting bigger the longer the call continues. Regarding your question with 50% on the growth margin, please recall that we are today at 42%. Please also recall that getting a percentage point of cost margin is typically quite a decent amount of work. It just doesn't go so fast. There's many, many elements behind it. So what you're asking for is a very big step. And I don't know. This is quite a long way to go. But I would say from the 42 where we are, we will clearly see a couple of percentage points in next year overall in gross margin. That's going to help us. So I think the direction of gross margin increasing is clearly there. 50%, I think, is clearly too far. Yeah, maybe somewhere in between. Yeah, let's see where exactly we end up. And also we are we are we are not there yet. So we don't have detailed numbers, but just to give you an indication. And then of course, please also take into account, I see that you're trying to build the numbers. As we continue to grow as a company, we will also then of course, pull up the OPEX a bit. You know, we are very innovative company, we obviously have many ideas on the R&D side. And by investing in R&D, It was always good for us because the R&D investments made, I think, in the past have been quite pointed. And I think all the R&D investments we've made have led very nicely then a few years later to a nice revenue increase and overall company growth, value growth for our shareholders as an ultimate goal. So if we have more financial freedom, we of course will also continue to increase our R&D rate. And it will allow us to pull in some projects and to realize some ideas. Because as you can see, compound semiconductors are really at a very, very sweet spot now. The optical properties are great for the lasers for communication. And we need ever more communications with more data on the AI. Micro LED is coming back. There's some other optical applications lurking on the horizon, power electronics, and so on and so forth. Yeah, so the stronghold and the sweet spot we are in, we will continue to grow that. And I think we have demonstrated in multiple times that with our innovation ability, we can shape, we can create new markets and we will continue to do that.

Great, thank you.

The next question is from Rachel Case Metzler.

A question regarding your Opto business. There were recently speculations that co-packaged optics and TSMC's coop platform, there might be delays for the NVIDIA platform. co-packaged optics, potentially rather for 2020 and 9, and that NVIDIA might take a similar approach like Google using more optical circuit switching as a transition step, so to say. What would that mean for your business in opto?

Honestly, I think you're on a detail level for the different architectures. We do not see that those optical architecture nuances affect our demand. So what we rather see is that our customers are asking us to ship the tools, to provide the capability, and in the end, the tools and the wafers made on our tools can then be utilized in all sorts of different architectures, whether this is the pluggable optics, whether this is the co-packaged optics, or at a stage even after that, photonic integrated circuits, the PICs, whether this is a GPU-to-GPU rack-to-rack communications, and some customers are even experimenting, that's probably coming more towards the end of the decade, to go to optical interconnect, between the GPU and the high bandwidth memory. So I think the overall strategic direction, the strategic trend is very clear, which is more optical communication, more data, and going from long distance to medium distance to short distances to very short distances. So on our side, we do not look into the details of the architecture that our customer is using. But I'm not concerned that any of these architecture details that clearly our customers have to take into account has major impact on us because our tools are very versatile and the customers can use them for each of these architectures. So we are very robust in respect to that.

So got it. So an OCS type of architecture would not be negative for you, at least not at this stage. And then a second question regarding the GAN opportunity. I mean, you mentioned that you are quite confident that this will ramp in volumes. My understanding is the larger GAN opportunity in terms of number of dies is rather on the board level, right, when voltage regulators shifting to GANs or really the server board and then the GPUs and the compute there. Would you assume that with the 800 volt DC architecture that the board level voltage regulators would be fully based on GaN? Or are you assuming a kind of mix that it will be also silicon and still not fully GaN? What is your take there?

A very good question. So first of all, Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr And the higher the current, the more parallel devices I need to split the current over. So that's just basic physics. That's a good thing. So it will not be changed and also cannot be changed by any architectures relating to your first question on the opto. It's just what it is. So yes, the lower the voltage, the more dies are needed. Now to the second part of your question, what we get back as signals from our customers is that they say, look, Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr somewhere on the 650 volt, then extending to the 100 volt, and later on, then going down to the 20 volt, 12 volt, 6 volt devices. And the penetration speed of gallium nitride displacing and pushing out silicon will likely depend, first of all, on the cost down curves that our customers are able to realize. The customers are working heavily on die size shrinks. They work on devices which are 30% smaller, other customers are working on devices which are 50% smaller so that out of the given wafer you can get more dyes and a dye gets cheaper. And then always, this is how the semiconductor industry works, as cost goes down your market grows bigger because you can displace another technology, in this case silicon. This is roughly the perspective that we have on this market.

Got it. And then really a very quick one on the down payments. I'm not sure if I have the right number for Q1, but my impression is down payments have shifted quite in second quarter and my understanding was You require from Chinese customers a much higher down payment, right, for the orders they are placing. So would that imply that in Q2 you had a decent or a high number of orders in opto placed from Chinese customers? Or would that be an assumption?

No, no, this is not. There's a misconception. So we don't request a higher down payment from Chinese customers. So what the down payments and the payment terms vary strongly application segment by application segment and region by region. And now given that from, especially now with the OptoBoom, from many customers, we have received multi-tool orders stretching over an extended period of time. Excuse me, please. We've been able to ask quite a number of our customers for a higher percentage of down payment. But this extends all across the globe.

Got it. OK. Thank you.

So the next question is from Mr. Nigel Van Putten from Morgan Stanley. Nigel, the floor is yours.

Good afternoon. I have a question, a bit of a two-parter. From your commentary, I get the sense that historically the first quarter has been 10% to 20% of revenue. There's no real expectation that will continue. So would it be fair to say that directionally we should look at the first quarter in 27 as sort of a sequential increase relative to the fourth quarter, or at least Se Unsp & You know, at a similar level, not necessarily a big drop as we've seen before. And, and the second part of that question would be Se Unsp & I can imagine that gross margins benefit from, you know, more stable or more predictable loading. So is that a major driver when you say 27 gross margins look good. I mean, on the other hand, there's more detail in the mix. So just trying to get a sense of what are the drivers of the gross margin to next year.

I think both good assumptions. Yeah, so historically for everyone here on the call that you want that from last I think three, four years has been always a very, very slow start of the year, then we've always finished at a super high record towards the end of the year. And looking towards 27. I mean, we can't see the full year of 27 yet. That's clear. But we have a visibility also now in the beginning of 27, of course, and we expect a very strong Q1. Yeah, probably somewhere on the level of what we can see right now for the for the Q4. Now to your second question on the gross margin as mentioned and discussed a bit earlier right we expect clearly an uptick from the level where we stand yeah clearly not the 50% that we had earlier yeah so please that number is I think that will take a bit of work and I think it will be a mix of things coming together and Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr

Understand. Maybe a quick question switching gears a little bit. We've been talking, obviously, CW and the other high-power lasers are clearly the big opportunity. But what about VIXL? Do you see any demand from customers for those tools? And my understanding is there's quite a bit of capacity built already. So if we see, let's say, a VIXL growth as well for some applications, would that potentially benefit you? And what would be sort of Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr Se Unsp-Adr

Some customers work on Vixels for the communication as an alternative because you can just take an optical fiber and bump it onto the Vixel, right? Note fiber and then collect the light of it. Some customers are working on that, on the gallium arsenide systems, so Vixels like we used in the same type of systems that we used for the 3D sensing a few years back. Interestingly, some customers are also experimenting with Vixels on the gallium nitride systems. We talk about blue LEDs, if you want to say so, and see whether they can use that for doing die-to-die communications in heterogeneous integration, for example, to couple a GPU to a high bandwidth memory on a silicon-carbide interposer and see whether they can replace a copper interconnect by optical interconnect. So I would say at this stage, this is still research, but it gives us a good level of confidence that the trend of optical communication not only is a way for now 2026, 2027, 2028, but rather also has some technical ideas, new innovation ideas, which probably are kicking in towards the end of the day.

Very interesting. Thanks so much.

With that, we have the last question from HSBC.

Please go ahead. Actually, my last question was on Vixels about substituting indium phosphide in certain use cases, but that's been answered. So thank you.

Perfect. And it sounds we are done. Apologies from our side for this little hiccup. We all had to wait for 15 minutes. And I hope we could make that up with a good discussion. It was a pleasure.

Yes, thank you all from my side as well. Most of you, I guess, will be going into the summer break. We will be starting Hitting the Road end of August, a lot of conferences with different participants. So hopefully we'll meet a lot of you before we meet again for our Q3 results, which will be out end of October. Until then, have a great summer break and hope to see you soon. Thank you and goodbye.