AIXA.DE FY2025 Q2 Earnings Call Transcript
Date: 2025-08-01
Source: Financial Modeling Prep

Operator: Ladies and gentlemen, welcome to AIXTRON's Analyst Conference Call regarding the Half Year Results 2025. Please note that today's call is being recorded. Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communications at AIXTRON, for opening remarks and introductions.
Christian Ludwig: Thank you very much, operator. A warm welcome to AIXTRON's Q2 2025 Results Call. My name is Christian Ludwig. I am the Head of Investor Relations and Corporate Communications at AIXTRON. With me in the room today are: our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies consent to this recording. Please take note of the disclaimer that you find on Page 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other media. However, we will place the transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours.
Felix J. Grawert: Thank you, Christian. Let me also welcome you all to our Q2 '25 results call. I will start with an overview of the highlights of the quarter and half year and then hand over to our CFO, Christian, for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an update on the key business developments of the second quarter on Slide 2. The important messages for Q2 are: we have delivered a robust Q2 '25 in a soft market environment and recognized solid new orders of EUR 119 million, which lead to an equipment order backlog of EUR 285 million. We concluded the quarter with revenues of EUR 137 million. With that, we came in at the upper end of our guided range of EUR 120 million to EUR 140 million. The gross margin reached 41% in Q2 and averaged 36% in H1. This figure includes a one-off expense related to our implemented personnel reduction. Adjusted for this effect, the gross margin in H1 came out at 38%, slightly above previous year's 37%, mainly due to a better product mix. With these results, we confirm our '25 full year guidance published in February '25. A key contributor to our success remains the G10 product series. The G10-AsP has firmly established itself as the tool of record in the laser market, while the G10-SiC has been instrumental in winning and fulfilling a major silicon carbide volume order from China. The Optoelectronics market shows very strong momentum, while the power electronics market stayed soft with orders coming mostly from Asia, namely China. Christian will now provide a detailed look into our financials on the following pages before I take over with an update on our markets. Christian?
Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the highlights of our revenue development on Slide 3. We had a good quarter in a soft market environment with revenues at EUR 137 million, slightly up compared to the EUR 132 million last year and at the upper end of our guided range of EUR 120 million to EUR 140 million. For the first half, revenues came in at EUR 250 million, virtually flat year-over-year. A breakdown per application shows that 71% of equipment revenues in H1 come from GaN and SiC power, 16% from LED, 9% from Optoelectronics and 4% contribution from R&D tools. The aftersales business well contributed to total revenues with EUR 52 million. The aftersales share of revenues in H1 was stable year-over-year at 21%. Now let's take a closer look at the financial KPIs of the income statement on Slide 4. I already talked about the revenue line. Gross profit increased year-over-year in Q2 2025 to EUR 56 million. Gross margin came in at 41%, up 4 percentage points versus the prior year. For the first half, gross profit was EUR 90 million, slightly below last year's figure. At 36%, our gross margin in H1 was 1 percentage point lower than in H1 2024. But please recall, as stated in our Q1 release, this includes a one-off expense of a mid-single-digit million euro amount in connection with the implemented personnel reduction in the operations area. Adjusted for this effect, the gross margin in H1 would be above the previous year at around 38%. The 1 percentage point increase year-over-year is mainly due to a better product mix. The personnel reduction measure has been completed in Q2 and will result in an annualized improvement of a mid-single-digit million euro figure. This cost reduction was partially effective in Q2 and will be fully effective from Q3 '25 onwards on a pro rata basis. Please note that we will see the effects in the headcount figures slightly later than the cost effects due to the notice period of the affected employees. OpEx in the quarter was reduced to EUR 32 million, primarily driven by lower R&D spending compared to the previous year. For the first 6 months, OpEx came in at EUR 63 million, a reduction of 10%, driven primarily by around 24% lower R&D expenses. The R&D expenses were down mainly due to reduced external contract work and consumables costs. This will revert to some extent in H2. So please do not take the Q1, Q2 numbers as a run rate for the next quarters. For the full year, we expect R&D costs still to be slightly lower than in 2024. OpEx was also impacted by strong FX rate changes, which have led to expenses from FX rate valuations in the amount of EUR 3.9 million in Q2 2025 and EUR 4.6 million in H1 2025 compared to EUR 1.9 million in H1 2024. As FX rates are currently very volatile, we have decided not to adjust our budget rate at this time. To give you some color on potential impacts, we see the following: An average USD-Euro exchange rate of 1.2 in the second half of fiscal year 2025 would reduce -- could reduce the full year gross and EBIT margin by around 1 percentage point. EBIT for the quarter is EUR 24 million, a significant improvement versus Q2 2024. The main drivers in addition to the operating leverage effect resulting from higher revenues were a more favorable product mix, which led to improved gross profit and the above-mentioned lower R&D expenses. The strong performance in Q2 led to an EBIT of EUR 27 million for the first half, an increase of 18% year-over-year. This translates into an EBIT margin of 11%. Again, please recall that the one-off expense in connection with the personnel reduction in the operations area is included in this figure. Adjusted for this effect, the H1 EBIT margin would be around 13%. Now to our key balance sheet indicators on Slide 5. Working capital was down by EUR 65 million since end of fiscal year '24. Several balance sheet items contributed here. We continue to decrease inventories to EUR 328 million compared to EUR 369 million at the end of 2024. Year-over-year, inventories have now been reduced by EUR 120 million as we continue to optimize our working capital. And as stated before, we expect further inventory reductions to materialize throughout 2025. Trade receivables at the end of June were at EUR 130 million compared to EUR 193 million at the end of '24. The reduction versus year-end is mainly the result of the collection of the payments related to the very large shipments end of [ 2024. ] Advanced payments received from customers at quarter end were EUR 52 million, down about EUR 30 million from end of 2024, primarily driven by some cutoff date effects and some regional shifts in the order book. Advanced payments represent about 18% of our order backlog. And the fourth key element of working capital, trade payables has now come down to EUR 22 million from EUR 34 million at the end of '24. This well reflects the now fully adjusted supply chain situation with significantly reduced purchasing levels. Adding it all up, our operating cash flow improved in H1 to EUR 85 million a strong improvement of more than EUR 70 million versus last year's EUR 13 million. On the back of the improvement in operating cash flow, free cash flow improved even more, came in at EUR 71 million compared to negative EUR 56 million last year. The improvement was even more pronounced as our CapEx in H1 at EUR 14 million was significantly lower than last year's number of EUR 69 million. This is primarily due to the now completed investments in [ the new facilities. ] Our cash balance, including other financial assets as of June 30, 2025, improved to EUR 115 million. This equals an increase of EUR 50 million compared to EUR 65 million at the end of fiscal year '24 despite the dividend payment of about EUR 17 million in Q2. As stated before, our top priority for the use of cash will continue to be the implementation of our strategy. We'll apply our core competencies and abilities to markets high-growth differentiation and margin potential in order to sustainably increase the value of the company. And with that, let me hand you back over to Felix.
Felix J. Grawert: Thank you, Christian. Let me continue with an update on key trends in our different markets, starting with Optoelectronics as this is currently our most dynamic market. In Optoelectronics, AIXTRON continues to lead the market, maintaining a clear leadership position with a strong and sustained market share over many years. Our technological edge and earned customer trust has enabled us to secure additional top-tier engagements for our G10-AsP platform. Recently, a major global customer has expanded its G10-AsP order to also include their operations in the United States. Besides this, as communicated in the PR in April, we have won Nokia as a customer. Beyond this, we are seeing strong traction among other top 10 industry players as well as a growing number of customers across Europe, the U.S., Japan and Taiwan. The increasing demand in Optoelectronics is primarily driven by the rising need for laser technologies in datacom and telecom applications. This momentum is supported by several key industry shifts. The rapid growth in data demand driven by AI, data center and 5G is causing bandwidth needs in transport networks to double roughly every 2 years. In hyperscale data centers, this trend is accelerating the shift towards co-packaged optics to support AI workloads. As data links become more parallelized, the demand for datacom chips and lasers is expected to surge, prompting increased investment in optical infrastructure. At the same time, photonic integrated circuits, PICs are gaining traction over traditional discrete laser setups. By integrating lasers, modulators and detectors on a single chip, PICs offer better performance, reduced size and lower energy consumption. This transition is closely tied to the adoption of 150-millimeter indium phosphide substrates, where our G10-AsP system delivers industry-leading yields. The PIC market is forecasted to reach USD 41 billion by '31, growing at an annual rate of around 16%. As PICs incorporate over 100 components, manufacturing precision becomes now critical. Epitaxial processes must be tight -- must meet tight specifications across wafers and production cycles, while back-end manufacturing must adapt to higher volumes and complexity, further reinforcing the move to 150-millimeter indium phosphide substrates. Overall, we expect lasers to account for approximately 1/3 of our full year order intake. This growth is fueled not only by the demand for data center lasers to support AI workloads, both intra-data center and interconnect, but also by the increasing adoption of multi-junction VCSELs for LiDAR applications in the automotive sector, mainly in China. Silicon Carbide Power. The silicon carbide market is currently undergoing a longer digestion period, particularly in Western-oriented regions. As a result, decisions for new fab investments are not on the agenda these days. However, in the first half of the year, we saw continued momentum in Asia, namely in China, where demand remained robust and investment activity continued at a decent level. In the first half of 2025, silicon carbide shipments totaled up to 45% of our equipment revenues. However, this strong momentum is not expected to continue in the full year. Overall, we expect to be roughly flat year-over-year in silicon carbide revenue. Despite the soft market, AIXTRON's G10 platform benefited significantly from this environment, gaining strong traction due to its outstanding performance and cost efficiency. In H1 '25, AIXTRON has received the order and completed shipment of a major volume order for its G10-SiC system for a China customer. This order supports both 6-inch and 8-inch production capacity, underscoring the flexibility and scalability of the G10 platform. This major deal reflects the continued demand seen in China during H1. For the second half of '25, we expect slower demand also from Chinese SiC customers, while customer qualifications and strategic planning for future capacity expansions are ongoing around the world. Whenever the SiC market will recover, AIXTRON is well positioned to benefit strongly from new investment activity, thanks to its proven technology leadership and strong customer relationships. With that, let me come to GaN Power. The GaN market remains soft in the near term in the Western world as far as we can judge. However, the regional dynamics have changed significantly. Western markets remain largely soft with investment decisions continuing to be postponed. In contrast, China demonstrated strong momentum in the first half of the year, driven by sustained demand and active investment behavior. This regional strength has helped to balance out weaker activity elsewhere, resulting in an overall year-on-year GaN pool shipment performance that is roughly flat. Despite these headwinds, AIXTRON has secured a significant volume order in the GaN Power segment from a Tier 1 customer from Asia. The order underscores the continued trust in AIXTRON's technology leadership. The market is currently facing a moderately oversaturated installed base, requiring time to absorb existing capacities. This digestion phase is expected to continue for some quarters before a broader recovery is expected to settle. Nevertheless, AIXTRON maintains a clear #1 position in the GaN power market, supported by its proven performance, strong customer relationships and readiness to scale once market momentum returns. One of the drivers for the expected market recovery, which will come at some point, is the GaN and AI power supply opportunity. We had already highlighted this as a potential major market driver in our past calls. At the time, this opportunity was not included in market researchers models. Recently, we have seen quite some news flow on this topic. The expected rapid growth of AI data centers using NVIDIA's new 800-volt high-voltage DC HVDC architecture is creating a significant opportunity for GaN power technologies. Companies like Infineon, Navitas and others are leading the charge by integrating GaN and silicon carbide semiconductors to enable high-efficiency and high-density power supply; reduced copper usage and infrastructure complexity; and finally, improved energy efficiency and lower cooling and maintenance costs. The shift to 800-volt HVDC and centralized power architecture demands advanced GaN devices for both primary and secondary power conversion stages. We believe that our role in enabling high-performance GaN device manufacturing makes us a key enabler in the AI power revolution in the future. The timing of that wave, nevertheless, is very difficult to predict as of now as the architecture was just released and now the design-in cycle and the device manufacturing has to start. With that, let me finally come to the market of micro LEDs and LEDs. As most of you are certainly aware, AIXTRON continues to hold a clear #1 position in the market for red, orange, yellow, ROY LEDs, underpinned by consistently strong market share. However, also in this market segment, demand is currently weak. Last but not least, micro LEDs. The market has not yet materialized at scale. In 2025, order activity in this segment is limited with no signs of meaningful volume adoption. The few orders AIXTRON has secured this year are all focused on R&D and pilot lines rather than commercial production. While interest in applications such as TVs and augmented reality AR devices persist, the transition to high-volume manufacturing continues to be held back by unresolved cost and process challenges. In summary, taking the sum of all markets, we can say that the soft market period continues in almost all markets apart from the laser market, driven by a hunger for data from AI applications. In all the other market segments, AIXTRON remains very well positioned, and we use this soft market period for very close engagement with customers on preparing the next level of technical innovation and next-generation products. Once the market demand will pick up again in the future, AIXTRON will benefit from these activities. Timing for the next uptick, nevertheless, cannot be predicted yet. Let me finalize the update with a look at the U.S. tariff situation. The U.S.-EU framework has been signed on July 27, just shortly, in which semiconductor equipment is being declared as a strategic product with 0 tariff percentages imposed. Although the full legal tax has not been published yet and details need to be worked out, it appears highly likely that the semi equipment exemption as of today will stay. With that, let me now move on to our guidance. Based on the current market development, the current tariff situation and the budget rate of USD 1.10 per EUR 1, we confirm our guidance for the full year '25 as published in February. We expect revenues to come in at a range of EUR 530 million to EUR 600 million. We expect a gross margin of 41% to 42% and an EBIT margin between 18% and 22%. The guidance for the gross margin and EBIT margin includes a one-off expense of a mid-single-digit euro amount related in relation to the implemented personnel reduction in the operations area. The measure will lead to annualized savings in the mid-single-digit euro range in the future, which corresponds to an improvement in the gross margin and EBIT margin of around 1 percentage point. As Christian explained before, there could be some potential impact from FX effects. An average USD per euro exchange rate of 1.20 in the second half of the fiscal year '25 could reduce the full year gross and EBIT margin by around 1 percentage point. As previously stated, we expect our tools to remain exempt from U.S. tariffs. However, we continue to closely monitor the impact of U.S. trade policies on the global economy and stand ready to implement any necessary measures to ensure the best possible outcomes for our customers and stakeholders. For the third quarter in the year, we expect revenues in the range of EUR 110 million to EUR 140 million. This range is slightly wider this quarter because of an unusually high number of shipments scheduled right at the cutoff date between Q3 and Q4. They will, for sure, all ship in 2025, but the exact timing, whether Q3 or whether Q4, of some of these units is not so easy to predict as of today, hence, the slightly wider range compared to the normal range that we are giving. And with that, I'll pass it back to Christian before we take questions.
Christian Ludwig: Thank you very much, Felix. Thank you very much, Christian. Operator, we are now ready to take the questions from the audience.
 Operator: [Operator Instructions] And first up is Martin Marandon-Carlhian from ODDO BHF.
Martin Marandon-Carlhian: My first one is on Optoelectronics or photonics. What do you think this year is the level of incremental tool demand that is coming from AI and photonics ICs. I mean when -- I think in the last call, you talked about 20% of sales this year to be linked to Optoelectronics -- 20% of equipment sales. How much do you think of this is linked to this photonics trends that we see today?
Felix J. Grawert: That's a very good question. I think the number of about 20% for the full year revenues is a decent number for Opto, Telecom, Datacom altogether. I think that number still holds. If you then add the LEDs for the datacom, I think we may come up all the way up to 30% for the full year. And I would say rough indication, maybe 1/3 to 1/2 being linked to the datacom opportunity.
Martin Marandon-Carlhian: Okay. That's clear. And I think in the last call, you said you expect this to grow again next year. Is it still the expectations there?
Felix J. Grawert: I think that's a very -- that's a billion-dollar question. It's very difficult to predict for us. We have seen a very, very strong onset right now of this market. We are really seeing, as we had written also in the press statements that the G10-AsP is almost captively taking the market. It's a beautiful situation. The tool is really has been designed for this market and is delivering fully against the expectation we had on that one. Now the question, how big is our customers' market going to grow? I think this will, to a very large extent, depend on how is the further rollout of AI data centers continuing. It could be that there is a further growth momentum. It could be also that it comes to a new steady level, and it continues to be on a much higher level, but on a steady for us year-over-year. Let's not forget, right? AIXTRON, the equipment is always the first derivative of the overall market growth. So if the market is just linearly growing, that means a flat revenue line for us. We always say flat, but flat is something. And only when the market is undergrowing and end market is growing through an exponential growth, that means for us a further growth year-over-year. So -- and to predict exactly how is the rollout of data centers in the year '26, '27, '28 and '09 going for AI, that's a bit difficult.
Martin Marandon-Carlhian: Okay. And the last one on photonics. How should we think about the end products which are driving the demand? Is it the vast majority pluggable transceivers? Or is there -- start to build some capacity for co-package optics, switches, et cetera? How should we think about it?
Felix J. Grawert: It's all of it. You can think of it as a mixed bag. I think that's the best description. Sorry for the highly imprecise thing. But in the end, it's literally all of that. Some customers still for long-haul communications, make edge emitters lasers, then some guys make VCSELs, some make even super advanced VCSELs. We see now 8 multiple regrowth steps, some are even doing 10 multiple regrowth steps. We see the VCSELs, not only like we know them all from the iPhone, right? We see the VCSELs now going heavily into sensing devices for the car in China. I mentioned that also in my speech. We're seeing massive -- some massive efforts in self-driving cars there and cars being equipped with multiple long-range VCSELs, longer wavelengths, higher power levels. Then we see the datacom opportunity, which to a large part is becoming photonic integrated circuits, PICs. We see the co-packaged optics. So it's all of it. It's an extremely diverse market. It's a very broad group of customers. And typically, we like a broad market because the broad market means that it's very diversified for us. We see the market both unfolding. I think we see the market unfolding in all regions of the world at the same time. We have demand from multiple customers in Europe, multiple customers in the U.S., multiple customers in Japan, plus many customers in China. So yes, it's a broad market momentum. But it stays a mixed bag on the level of each individual application, I have to say.
Martin Marandon-Carlhian: Okay. And maybe the last one for me, and I will get back in the queue, is just a clarification on how you gave your guidance because I was, let's say, slightly surprised of the mix on the guidance, let's say, if we think about you getting to the midpoint, the order that you communicated at the midpoint was around EUR 110 million, EUR 120 million in Q3. If we add services, that means EUR 150 million of orders, that seems like an acceleration versus Q2. But at the same time, on the backlog included in the guidance, it seemed quite low. I mean it's only not even 50% of the backlog that is included in the guidance for the year. So yes, a clarification on if you see maybe the backlog more coming into next year for silicon carbide, I don't know, gallium nitride and acceleration of orders in the short term for other applications. Yes, just to understand the mix there.
Felix J. Grawert: Let me try to clarify. Maybe we were not clear enough. Let me try to sort that out now based on your question. It's good that you shine some light on it. So in relation to the Q3, we have given a revenue guidance, a full quarter, full revenue guidance for the Q3 of the EUR 110 million to EUR 140 million. That's revenue. That's not order intake. And also, for revenues for the full year, we have confirmed our full year guidance of EUR 530 million to EUR 600 million. And I think best guess is we are shooting at the midpoint of that range. If some positive effects come along, we may be more closer to the high end. The high end very much is still well possible. That's why we are not narrowing down. If we face some headwinds or some customer discussions that are getting a bit more delayed or the customer order comes in, but customer only wants the system in Q1 of next year, then also it could be towards the lower end. And so the full revenue range of EUR 530 million to EUR 600 million is fully possible. Our best guess and probably also your best guess is literally at the midpoint to clear that out. We have, as of now, not given any guidance for the order intake for the year. Nevertheless, what I tried to bring out in my speech when I was speaking about the high first half of the year silicon carbide revenue shipments, revenue in the first half, silicon carbide was 45%. I wanted to accelerate or to bring out the point that we are not expecting in the second half, again, to have 45% of revenues to come from silicon carbide, but the second half will be much more dominated, for example, by Optoelectronics. I think the big part of the revenue silicon carbide we have seen in the first half. Maybe that was a bit confusing. Apologies for that.
Operator: The next question comes from Gustav Froberg from Berenberg.
Gustav Froberg: Two, please, on demand. First, on China. You talked a little bit about silicon carbide growth in China, perhaps softening a little bit towards the second half. But how does the build in China or Asia on the silicon carbide side compare in your eyes relative to real demand? And could you maybe draw some parallels between the build you're seeing there now versus what we saw that resulted in overbuild on the Western side a couple of years ago? It's really a question on the runway for growth in China and Asian markets. Then the second question on demand more broadly. You're talking about muted demand -- muted end market demand for most of your applications, bar Opto, for example. But I'm wondering, from your point of view, do we need a new killer app or something to get the market to reaccelerate again? Or do you think that the reacceleration to come that you talked about as well can be achieved based on current markets, current technology, and no killer app?
Felix J. Grawert: Perfect. I think very good questions. Thanks for posing the 2 of them. Let me come first to silicon carbide in China. I think what your question was underlining your question already is, I think, very, very well true. So in China, we have seen over the last 2, 3 years, a massive build-out in silicon carbide wafer production capacities. I think China today has 6-inch wafer production capacities, which is probably good enough to serve 2x or 3x the world market demand. So in 6-inch, we have in China a massive, I say truly massive overcapacity. There's literally entire factories filled with tools, and they're all standing idle and being turned off and companies starting to scrap tools. Now you wonder why in this situation, there is any demand at all. Well, this additional demand is coming solely and purely from the transition to 8-inch wafer size and particularly from the technological advancements that have been made with 8-inch wafers. You can buy today 8-inch wafers with a much better surface quality than you could ever have it on 6-inch wafers. This better surface quality allows you -- and at the same time, we are seeing that the silicon carbide chips are getting much, much larger than it was the case in the past. So just to give you some numbers, we started off 3, 4 years ago with silicon carbide chips typically having a size of 2x2 millimeters, so 4 square millimeters. Most recently, the chips were shipping mostly on 5x5 millimeters, already 25 square millimeters. And we are now seeing most customers and customer demos running on 10x10 millimeters, so 100 square millimeters. So you can see a chip size going from 4 square millimeters to 100 square millimeters. That's a massive movement. And this massive movement allows you when you put a power module for a car together that inside of your module, you no longer need to have 6, 7, 8 chips that you all have to connect with bonding and wires and so individually, but you rather have a single -- 1 single chip or maybe you have 2 single chips and all the power can run through it. So you have a lot of packaging cost reductions by going to a single chip. And the single chip is enabled by the fact that on 8-inch, you get a much better surface quality as it was never, never been the case in 6-inch. So that was the technological improvement and advantage -- advancements that have been made. And at the same point, as the chips are getting much larger, on 8-inch, a chip is square, a wafer is round. On an 8-inch wafer, you just can put more chips and have a better utilization of the surface area. So sorry for the long technical explanation, but I wanted to bring out the point that there is clear drivers towards 8-inch wafer size. And this is now in China also driving the market towards an 8-inch silicon carbide wafers. And this is the reason why there is an additional demand or new demand, despite the fact that there's a lot of dead 6-inch capacity in China. I hope that explains it a little bit. Now to your other question about the demand. And yes, you picked it up very well. We wanted to give a very clear message about, I think, the view we have on the market, most of the market segment, except from the Opto market, it is, I think, I call it a U, it went down from the demand high. Now it's kind of flat. And the question is when does it pick up again? What's the signal when the pickup happens again? A clear answer, we don't know it yet. And especially, we don't know the timing yet. But it's very clear, with a very clear view that the market will come back. I think one of the topics at some point, the silicon carbide capacity, which is out in the market will have been digested. The switch to 8-inch wafer size is ongoing also in the Western side. All the customers in the Western markets are not qualifying super junction devices, which need also a better quality -- wafer quality. And by the time the existing capacity is being digested. And I think we are seeing now, I call it the classical Gartner Hype Cycle, where the initial phase is a total overswing and total overinvestment in silicon carbide, then the market collapsed. And at some point, now the market will come back in a much more long term, much more healthy, much more steady way in silicon carbide. And I think over the next 1, 2 years, we will see electric vehicles gradually gaining traction around the world, battery technology, allowing now, I think, driving ranges, which meet the expectations of consumers, somewhere in the realistic 600, 700-kilometer range. Costs for battery technology coming down, silicon carbide and the whole value chain getting cost effective and mature. So we expect some decent -- an uptake from that market. And then also, there's new markets on the horizon. We've been shining some light on the power transmission value chain for AI. And if you read the chart that we have in the presentation, the one from the NVIDIA, Infineon, Navitas architecture quite in the details, you see that there is no word of silicon anymore at all on the entire chart. You literally come in from the high voltage from the power plant to your overland line, then you are at a multiple kilovolt, 6,000 volts, 3,000 volts, you convert it down to the 800-volt DC, then you do the conversion inside of the data center. And all of this will be driving both silicon carbide demand on the very high voltages and gallium nitride demand on the high voltages and on the low voltages. That's going to be a major driver. And furthermore, in the long term, but that's further out, there's a bunch of new applications for silicon carbide in the making, additional applications that, again, no analyst or analyst report has on the radar. It's more like innovation topics, where the whole transmission architectures, which today is made out of transformers and the stuff, which you see on the next to the highway when driving, where the -- where overland lines are crossing, all these things are being put now into power devices being made out of silicon carbide. So at some point, this entire switching architecture goes to silicon carbide. So there's new applications in the making. And again, the enabler for that is that the wafer sizes are getting bigger, the wafer surfaces are getting better and the cost points are coming massively down. I think everybody is aware of the massive price drop on silicon carbide wafers. And as always, in our semiconductor industry, when the prices are dropping 2x to 3x, then that allows that completely new applications are opening up. Sorry for the slightly long answer, but maybe that gives a bit of a perspective of what's coming in the midterm.
Operator: And the next question comes from Didier Scemama from the Bank of America.
Didier Scemama: I just wanted to ask you your early thoughts about 2026, because I mean it feels like your order intake in the second half is not going to be particularly exciting outside of datacom based on your commentary about sluggish demand and overcapacity in SiC and GaN. So I just wondered how you -- if you can run us through sort of the puts and takes for '26. I think you've highlighted some, let's say, long-term positive trends in datacom, but you're a bit hesitant to extrapolate the strength. And I think you also said that SiC and GaN wasn't clear as to when you would turn. So you just run us through the puts and takes for next year? And I've got a follow-up.
Felix J. Grawert: Thanks a lot. A very good question. But I think you have filtered the essence of our message already out from what we said earlier. And unfortunately, the message is we don't know yet. I think that's the best we can give you because there is no clear indicator on a tipping point yet. As your question is indicating, at some point, it will pick up clearly. The midterm horizon is very clear, and there will be the demand coming. But we are still in the point where our customers have a decent amount of idle capacity, unused capacities, both in the silicon carbide and in the gallium nitride. And now it really depends on when is the end markets that our customers are serving taking up again such that gradually the capacity utilization of our customers is rising and our customers then gain the confidence by themselves to say, okay, now whatever we are an 80%, 85% utilization level, let's push the trigger button for new purchase orders for equipment. And then, of course, it will come to us. But we simply don't know as of now when that's coming. And as we don't know, we also cannot unfortunately shine any precise light on the year '26.
Didier Scemama: No, that's completely fair. I mean it's difficult, obviously, to know what's going to happen in the next 3 to 6 months. So hard to know what's going to happen in the next 12 months. But, okay…
Felix J. Grawert: I hate to give the message, but it's just the truth. I hate to say it, but it's just as it is.
Didier Scemama: No, no. I think it's -- listen, no one really knows what's going to happen tomorrow. So my follow-up is on sort of my favorite question is on working cap. So -- just going back to the question I asked last quarter. So your payables are down to 25 days, which is roughly half the levels they were before, while your DSOs are sort of stable to slightly higher than they used to be. So how should we interpret that as it seems like your inventories are progressively coming down?
Christian Danninger: You were -- if I understood correctly, Christian here, you were talking about the payables, right? Yes. I mean the payables level is down...
Didier Scemama: Payables are coming down a lot versus history. Your inventories are coming down, I understand that.
Christian Danninger: Yes. Yes.
Didier Scemama: And your receivables, let's say, are not increasing, but they are a bit higher than normal. So I just wondered why the payables are so low.
Christian Danninger: The payables are just so low because we are buying much less material because we are still consuming the too high inventories that we have. So we've slowed down our current purchasing, placing of orders to the absolute minimum, basically components we need because we do not have them in the inventory. And that is just with a little bit of a delay then going into the payables level. So the payables level should remain at a lower level for quite a while until we reach the normalized levels of our inventory, and then we need to see where they develop. Maybe at some point, we need to increase the sourcing level and then payables could also go up again. But for sure not...
Didier Scemama: I guess that's consistent with your -- with the uncertain outlook for '26.
Christian Danninger: Clear. I mean, so far, we are really limiting additional sourcing to what we do not have in stock, like customer-specific items and focus completely on using up our existing inventories.
Operator: And next in line is Madeleine Jenkins from UBS.
Madeleine Denyse Jenkins: Apologies if it was asked already, I dropped off for a bit. But I just have a question on your full year guide 2025. The new orders you kind of -- published that you need in H2 to reach this guide look significantly higher than they have done in the last few years. I -- just kind of wondering kind of what's changed? And also what gives you the confidence that you'll receive these given obviously the market conditions you're talking about?
Felix J. Grawert: Thanks a lot. Yes, I think as I mentioned, we are shooting towards the midpoint of the guidance, yes. That's what -- where we are clearly aiming with some potential deviation to the low side or some potential deviation to the high side. Let's see where it comes out. But if you take that, we're expecting once again a very strong Q4 as we have seen it also in the previous years. I think you know the seasonality that we have in AIXTRON and have had in many, many years in AIXTRON. And as you see in the chart that we have published also on the Page 11 of the presentation, you see that we are expecting still to ship between EUR 80 million and EUR 150 million of new equipment orders in the year. And we are expecting the order intake on a level as we are, potentially a bit higher, potentially the level where we are, but we are not expecting the order intake to collapse or anything. I think we're on a stable level right now where we are. And based on that, you see EUR 80 million to EUR 150 million of orders to come in, in Q3 and/or early Q4 and then still shipping until the 31st of December is very well in range with what is possible. So we feel well with that number. And there is, of course, a very clear pipeline and named pipeline with individual customers, individual orders and projects behind it, not just a guesswork, of course, yes. So that's the number what we are shooting for.
Madeleine Denyse Jenkins: Okay. Makes sense. And then just on the commentary about kind of overcapacity for silicon carbide in 6-inch, but we're also seeing the incremental demand for 8-inch. Just -- to help me understand how -- why are customers not reusing your tools from 6-inch to 8-inch if they just sat there idly? Or is there a slightly different configuration? Yes, it'd be interesting to get your color on that.
Felix J. Grawert: Well, customers who have from AIXTRON, the G10 series can nicely switch the tool from a 6-inch configuration to an 8-inch configuration and use it and get all the benefits of that and produce in what I have illustrated a bit like the increased technical demand. That's very well possible. And however, old generations of equipment in the market had only been suitable for 6-inch, both our own very first generation, it was called G5 longwall, but also there's still generations of -- you may remember at the onset of the 6-inch ramp, the initial tools were all from Tokyo Electron from TAL. This was 6-inch tools only. And there's a bunch of other tools in the market, which were made for a 6-inch configuration and are usable only for a 6-inch in decent performance. That means there is a bunch of equipment out in the market from the previous waves, which cannot really be used on the 8-inch production means for the coming years, it's not really usable and it needs to be replaced.
Operator: The next question comes from Michael Kuhn from Deutsche Bank.
Michael Kuhn: Essentially follow-ups. The first would be on currency. Thanks for providing this H2 scenario with 1.20 and the 1 percentage point potential margin headwind. Maybe looking further out into the future and into next year, let's assume we have a permanently weaker U.S. dollar. What would that mean for your profitability? And what, let's say, mitigating measures could you take?
Christian Danninger: Great question. Thanks, Michael. Yes, somehow expected that question from you. It makes a lot of sense. Honestly, we've highlighted this exposure for this year explicitly because this year is a little bit higher. Why is that? Because normally, we are selling revenues in U.S. dollar between like 20%, 25%. That range always changes a little bit. And normally, we have a fairly good natural hedge from sourcing in U.S. dollars. However, this year, that natural hedge is not working that well. Why is that? Because we are still sitting on quite some inventory levels from the past where we have bought material in U.S. dollar at higher U.S. dollar rates, which we are working down now. So the sourcing level is a little bit lower, and that gives us a slightly higher FX exposure to the U.S. dollar this year. And also, we are -- we have scheduled slightly higher shipments in the second half of the year, and we just wanted to highlight this. Going forward, once that inventory is worked down, our sourcing level in U.S. dollar should also increase again and the natural hedge should work better again. So beyond this year, I would expect a lower exposure. Is that clear?
Michael Kuhn: All right. Yes, that was very clear. And one more as you spoke about, let's say, tipping points and what could trigger better orders again. If you, let's say, want to track the market, for example, in EV, but also in the area of data center, is there, let's say, good indicators to track. So in the car space, for example, number of cars with SiC components shipped or in data center, let's say, any qualification milestones that we should be aware of that could trigger a new, let's say, wave of orders for your equipment as well?
Felix J. Grawert: I think that's a very good question. I think it's silicon carbide due to the idle capacity and the wafer size change from 6-inch to 8-inch it's very difficult to foresee right now because there's these multiple effects ongoing, which I think we've been discussing here in the call a little bit. I think that's quite difficult. I think on the gallium nitride side, the key topic is going to be when this AI value chain, which we have spoken about in this call, which is now kind of just being agreed as an architecture. You can think of now the companies have agreed on, let's say, on a blueprint, I would say. And now everybody inside of their companies now is working on various projects to do their part and make their part of this blueprint a reality. So it's going to take some time until this blueprint materializes. But I think by the time the first one or the first multiple players of these -- who are part of this alliance, give signals that they are really seeing volumes and shipments. I would expect now that this alliance also jointly and publicly has made announcement that this is the architecture. Of course, they want the whole industry aligned according to what they've agreed to. I think by the time we see first announcements from players of this alliance that real projects are coming on that one. I think that could be a good point to say, well, now it's really starting, not only like as a handshake between the architecture, but in terms of dollars, business and P&L values.
Michael Kuhn: All right. Understood. And probably the most difficult to answer, but you mentioned in the context of micro LED once more the technical challenges that the customers are still facing that are running the pilot lines. Any updates there? Maybe also on what ams OSRAM ultimately did with their tools that they received?
Felix J. Grawert: Honestly, no very -- no clear picture. I think, unfortunately, again, I hate to say it, I don't like those things, but it's the reality. I think we see continued activity, as I've indicated a bit in my speech. We do see that customers continue to work on the topics in many very diverse directions, I have to say. So it's not just one mainstream direction and everybody follows that, but multiple directions and multiple end applications that's in the focus. We hear from customers -- multiple customer projects that they make some nice progress. But again, then my typical question, of course, also to my question -- my customers, when does it translate into orders. So far, I have not been getting a satisfactory answer, which I could be passing on to you here in this call. I would say it's too early to tell, unfortunately. But the work in the segment goes on. And I think now we have to wait and to see which of the many segments, one segment being AR glasses, AR/VR glasses, quite an interesting one. Some work continuing to go in the direction of televisions, other projects to go in the directions of wearable devices. Automotive as a smaller, yet a very high dollar for our customers, high dollar end market being another application. So all this is being worked on. But when it translates into orders and of how big of an amount of orders does it translate to, I think there's 2 scenarios possible. It stays a premium, sophisticated high-end expensive niche market where our customers potentially can charge a premium value on some displays, high-value displays because it has a super unique feature that goes into a high-end car; great, nice, good for our customers, but in the end, a very small number of tools for us or there is a breakdown and it comes really into one of the volume segments, let's say, televisions or, let's say, smartphones, that, of course, would translate into high volume of wafers means a high volume of tools. It's too early to say, yes, it can take any of these directions.
Operator: And next up is Ruben Devos from Kepler Cheuvreux.
Ruben Devos: I just had a follow-up on this year's guide. I actually just that I have that fully understood. I think the backlog is about EUR 280 million. Half of it will be out in the next 6 months, and I assume the other half will go out next year. And with regards to the EUR 80 million to EUR 150 million from new orders, so my understanding was always that because of a high inventory on stock, you could be able to assemble much quicker than your usual lead time. So what is sort of the latest, let's say, point at which you could accept an order and could still ship it this year? And I understood you were saying that there's some likelihood you could still reach the high end. If that were to happen, just curious whether based upon your utilization rates or just your customer engagement in general, whether you would think that's likely coming from your Eastern customers or your Western customers?
Felix J. Grawert: Thanks a lot. I think very good. So I think, first of all, the understanding of the situation that you have depicted is very much correct. I think I can confirm Nevertheless, one minor adjustment. Yes, we expect to ship, as we have indicated, around EUR 140 million out of the equipment backlog still in this year. Nevertheless, I want to clearly point out that some of the backlog is both for 2026, meaning next year, but also some backlog already for 2027. I think it's a minor part of it, but I just want to be correct because you were only mentioning one of the years. So that upfront. In terms of what is the latest point in time when we are able to ship, well, that really depends on which of the products. So we have some products where essentially we are on an inventory level where I would say an order may come in pretty, pretty late, I would say, even beginning of Q4, and we would still be able to ship it out. If it's a standard configuration, if it's a tool where most of the parts are available, plain vanilla. And nevertheless, there is other parts of our portfolio where essentially if an order comes in, we need to secure almost the entire tool through our supply chain. So it really varies. That's also what we give to our customers. And of course, we've given to our sales teams around the world now in this particular situation, very clear indications which of the product series in our portfolio is shippable with which lead time. So I think it varies. But very clear, we do expect that some orders still coming in beginning Q4 are still possible to ship in the December time frame for some of the series, mostly the older series, which is more like a plain vanilla kind of stuff, while in general, the newer series is more sophisticated and less of an inventory. I think there was another part of your question. Did I get it all? Or was there still something left?
Ruben Devos: Yes. Just it sounded a bit like you did not rule out, let's say, the high end of the range. So what is, I guess, a bit your feel of the indication from which this demand could come from if you hit the high end? Is it rather Eastern based or Western-based?
Felix J. Grawert: I think honestly, I don't have the information in front of me. It's literally -- it's a pipeline of customer opportunities named each individual. But honestly, I don't have it in front of me which it's more left or right. And I think mostly, it's going to be less a question of, is the demand coming? Or is the demand not coming? I think it's mostly a question of is it coming on a point of time and does the customer also want to have the shipment still in December? Or does the customer say, come on, I take it whatever in February because my facility isn't ready or what is my ramp plan. You typically can plan on a time line of 1 or 2 quarters, but the exact date and the cutoff line is always a bit difficult to predict.
Ruben Devos: Okay. Great. Just a final question. I was thinking about your growing installed base of G10 systems. I assume that your recurring revenue from service and spares should become more important. Yes, could you provide some metrics maybe on this business? What is the attach rate for service contracts on these new tools? Or maybe what percentage of your gross profit do you expect to come from service in the next, let's say, 3 years, given the installed base on G10?
Felix J. Grawert: Yes. I think, in fact, you name it. The aftersales business has been growing quite nicely. Now in this year, 2025, that's, of course, a bit muted because of the low utilization of tools. So the tools which are installed, but currently not running, they're not consuming anything. And we expect next year, when the markets are hopefully coming back and at least the utilization, first of all, is growing up. And when the utilization is high again, then at some point, of course, new orders for new equipment are coming back, then the aftersales market is going to grow again. I think, Christian, where are we now, I think 120, 150 per year, right, something like that?
Christian Danninger: 120
Felix J. Grawert: 120, yes, something like that. I think next year probably is more than 150, 160-ish, I would guess, yes, if the utilization comes up, let's see, let's see.
Christian Ludwig: Before we continue, just because of the time, please keep your questions to 2 per analyst because otherwise we'll not make it. We still have a long list of questions in the queue.
Operator: So next in the line is Martin Jungfleisch from BNP Paribas.
Martin Jungfleisch: I just have 2 questions. First one is really on the silicon carbide market share in China. Like what do you estimate is your market share for 8-inch tools there? And then how do you think about local competition in China given that AMAG has recently brought a tool to the market? So is it -- so have you seen local competitors pop up more often? Or are those still more on the 6-inch side? That is the first question.
Felix J. Grawert: So I think market share is -- in silicon carbide in China is always a bit difficult to predict because the transparency is not so high. I would clearly get our market share as of now north of 50%, maybe 50%, 60% in China as of now on the 8-inch market because our tool has -- is getting a very good traction on that one. Now as it comes to local China competition, I think it's no surprise that China is driving heavily an effort to localize equipment. I think it is a strategic initiative led by the government. We are watching that very carefully. And -- but we don't have a picture yet how that's going to shape the market shares and how good the local competition is going to be. We first have to watch that before we can seriously comment on that.
Martin Jungfleisch: Okay. Makes sense. And the second question is on gross margins. I mean it looks like to reach the low end of the gross margin guidance, you'd need to print around 45% gross margin in the second half or maybe even close to 50% in Q4. First of all, is that the right way to think about it? And also what would drive this given that the share of silicon carbide is most likely lower in the second half? So would Opto also have a similar margin than Power to make up for it?
Christian Danninger: Yes. Clearly, if you just run the math and compare to what we achieved in the second half of last year, it's a similar performance. Of course, a little lower revenue, of course, yes. But we expect clearly a better product mix. I mean the Opto business, G10-AsP driven is running at high margins. So -- and then, of course, there's also some operating leverage effects with a larger second half, similar effects than we've seen in the last years. If you just take a look at Q3, Q4 last year, nothing out of the extraordinary that we expect now for this year. I mean the exact shift between Q3 and Q4, we will see depending on the shipments. But overall, that is what it is.
Operator: Next up is Janardan Menon from Jefferies.
Janardan Nedyam Menon: My question -- well, first question is on GaN and specifically on the TSMC decision to back out of the GaN foundry market. Over the years, I think this has been a significant customer for you on the GaN side. So how do you see the effect of that on your GaN customer base? Is that good for you because other people will have to step in and therefore, order equipment? Or will TSMC be selling that equipment out, and therefore, that doesn't -- that is more of a headwind than a tailwind for you? And I have a shorter follow-up.
Felix J. Grawert: Well, I think, of course, we all have monitored this topic, right? We are very much informed of TSMC pulling out of the GaN market. I think it's simply an individual company decision, right? I think TSMC is extremely busy by building out $1 billion [ tab ] after the other, right, with super high revenue opportunities. I think it's just a portfolio pruning and taking off. I think they're not only pulled out of the GaN market, but of multiple smaller market segments as we are aware. So I think it was just a portfolio pruning exercise and the market is the market, yes, the volumes will go somewhere else. And we are supporting the market, no big deal.
Janardan Nedyam Menon: And on another market, which is a red, orange, yellow market, this has been a lumpy market, and it sort of comes once every couple of years and then goes off. Is there any signs, any increase in discussions with Chinese customers, et cetera, which suggests that this could be a market which could come back in 2026?
Felix J. Grawert: We have some volume also running in that market in '25. So it's not bad. There's some volume in it. But as you say, it's lumpy and suddenly a customer comes around the corner and wants 20 tools; 20 tools and converting to a high double-digit million amount, right? So difficult to predict. We do see the market is not dead. The market is going. And here and there, a customer makes a capacity expansion or like a fab renewal decision. Sometimes it's also renewals now of old capacity being taken out, being replaced by newer, more productive tools. We take it as it comes.
Operator: And the next question comes from Andrew Gardiner from Citi.
Andrew Michael Gardiner: I'll keep them brief because they are follow-ups. Just firstly, on the 2025 guidance, Felix, you mentioned that the top end of the range is still within sight. I'm just wondering sort of which end markets need to come through for you to achieve that. As you said, Opto has been the most dynamic. Maybe that's some of it. But given its relative size within the mix, it would seem to me like you would need some of the other end markets to come back. And yet at the same time, you're saying you don't have great visibility. So can you help me understand sort of what the driver would be to see the top end of the range? And then just following up on Janardan's question on TSMC. Is there any risk of that GaN equipment coming back into the market as secondhand or sort of like you described with the Chinese SiC equipment is because TSMC were early in GaN, is that equipment fairly old and not really upgradable?
Felix J. Grawert: Okay. Let me answer your first question first. So I think what do we expect for the second half? Let me phrase it rather like that. So as I've indicated, we had -- in the first half, we had a very, very strong revenue share from silicon carbide power. We do not expect that to repeat, as I've indicated before. So we expect silicon carbide to be weaker in the second half. Nevertheless, in the first half, on the other side, the gallium nitride was a bit weaker, and we expect gallium nitride to come out in terms of revenues stronger than in the first half. And also in the second half, we expect that many of the laser orders, which we've been speaking about broadly in this call, which were orders in the first half to ship and convert into revenues in the second half. So that's what we're clearly expecting for the second half of the year to come as revenues. And also some of the other -- we call it other Opto segments, we also expect some -- to come some of those. So I think it's just the cyclicality, all our markets, and we are happy to have multiple end markets. Some are going down, some other going up. And in the end, then the question about do we reach the upper half of the guidance or the -- even the upper quartile of the guidance or is it rather at the lower quartile, that depends less on markets or dynamic of end markets. It's more individual customer discussions and it's more the cutoff line effect at the end of the year for individual customer orders. But maybe that gives you a little bit of light on what we expect for the second half.
Andrew Michael Gardiner: And then just the potential for used tools from TSMC?
Felix J. Grawert: Yes, from TSMC, I mean, first of all, the tools are in use. So I think the question is, will they continue to be in use? Or will they be obsoleted and be replaced by brand-new tools. So in the base case, it stays as it is. In an upside case, it's a new tool revenue opportunity for us.
Operator: Next up is Adithya Metuku from HSBC.
Adithya Satyanarayana Metuku: Two questions, please. Firstly, just maybe a slightly technical question looking at the transition from pluggables to CPOs. I just wondered if you go on a -- if you take a single fiber and you go from using a pluggable to plugging the fiber and straight into a CPO, does your content grow materially? Does the indium phosphide die size actually increase in that scenario? Or is the opportunity for PICs really coming from CPOs driving a significant increase in fiber usage? Any color you can give around that would be helpful. And I've got a follow-up.
Felix J. Grawert: Well, I mean, today, what we have is you have a communication of an electronic connection between a CPU and a transceiver module -- and the transceiver today is bundling a lot of the electrical signals. If you would go and directly have an optical connection to a CPU, you would be connecting to many more points in the CPU and you would be connecting to many more points. As you cut out the electric intermediate layer, I would expect the overall content for indium phosphide and compound to go up. That would be my expectation.
Adithya Satyanarayana Metuku: Understood. So for a single fiber, when you go from pluggable to a CPO, you get more content.
Felix J. Grawert: I would that expect, yes.
Adithya Satyanarayana Metuku: Understood. And then just as a follow-up, I noticed your revenues from the Americas were up year-on-year. I just wondered if you could give any clarity on what drove this?
Felix J. Grawert: Honestly, I think that must be just individual customer orders. It's not like a dedicated market segment. I mean we clearly see that in America, we have many laser customers. Datacom, I think it's a good market segment. We have quite a decent customer base there. But honestly, I haven't looked -- it's going to be a mixed topic of mostly customer dependent, I would say.
Christian Ludwig: Okay. Due to the time, we will close the call today. I know there's still some follow-up questions in the queue, but we have to move on. So please contact the IR department. Afterwards, we're happy to help you out. Thank you very much for listening in. I wish you all a great summer break. Talk to you in the conferences and the road shows in the September, October time frame. And otherwise, we'll hear you in our October call for Q3 results. Thank you very much, and goodbye.