Good afternoon, everyone, and welcome to AXT's First Quarter Results Conference Call. Today’s call is being recorded. Leading the call today is Dr. Morris Young, Chief Executive Officer. My name is Vicky, and I will be your coordinator today. I would now like to turn the call over to Leslie Green, Investor Relations with AXT Inc. Please go ahead, ma’am.

Thank you, Vicky, and good afternoon, everyone. Before we begin, I would like to remind you that, during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company and our ability to control costs and improve efficiency, increase orders in succeeding quarters, improve our competitive position as the market improves, as well as other market conditions and trends. We wish to caution you that such statements deal with future events are based on management's current expectations and are subject to risks and uncertainties that could cause actual events or results to differ materially. These uncertainties and risks include but are not limited to overall conditions in the market in which the company competes, global financial conditions and uncertainties, market acceptance and demand for the company's products, the impact of delays by our customers on the timing of sales of products. In addition to the factors that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission and available online by link from our website for additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at axt.com through April 30, 2015. Also, before we begin, I want to note that shortly following the close of market today, we issued a press release reporting financial results for the first quarter of 2014. In addition, we will discuss highlights of our first quarter results on today's call, but we refer you to our press release and financial summary, as well as the SEC filings for a complete discussion of our first quarter results. This information is available on the Investor Relations portion of the company’s website at axt.com. I would now like to turn the call over to Morris Young for a brief review of the first quarter results as well as a full market update. Morris?

Thank you, Leslie. Revenue for the first quarter of 2014 was $19.3 million, of this total gallium arsenide substrate revenue was $8.5 million, indium phosphide substrate revenue was $2.2 million, germanium substrate revenue was $3.2 million and raw material sales were $5.4 million. Gross margin in the first quarter decreased to 14.1% from 15.1% of revenue in the first quarter of 2013, the decrease in the quarter was primarily the result of sales mix. Net loss in the first quarter of 2014 was $2 million or a loss of $0.06 per diluted share. And finally cash and cash equivalent at March 31, were $46.8 million down from $47.6 million at December 31, 2013. Cash management then continues to be a priority for AXT as we navigate through the current challenging environment. Now let’s turn to a review of our markets. Factoring in the effect of normal seasonality we had expected our revenue to decline in the first quarter from the fourth quarter of 2013. However, our actual result came in better than expectations led by higher than anticipated revenue in semi conducting gallium arsenide and indium phosphide substrate revenue, as well as the strains in the raw material sales. In addition to revenue growth, we began to see a benefit of cost saving measures, implemented during the quarter, which contributed to the improvement in our earnings per share. Semi insulating gallium arsenide revenue was down in the quarter as expected, in keeping with normal seasonality in the wireless markets. Still overall growth trend in this market particularly those for the mid range handset market present incremental opportunity for AXT. Technology transition through SOI will continue to be a headwind for us but we are hopeful that we will see growth in our business in 2014 over the prior year. In…

(Operator Instructions) We’ll go first to Avinash Kant with DA Davidson & Company. Avinash Kant - D.A. Davidson & Company : Just a few questions here, the first one about impact of the one-time item that you had in the quarter. Could you explain a little bit what was that about and what would have been the post tax impact of this on EPS?

Yes, the $90,000, I think you are mentioning the one time item is our restructuring charge. Avinash Kant - D.A. Davidson & Company : Okay, and what was the post tax impact on that, taken out basically, if that was not the case what would EPS have been.

Well then basically you have to take all bar the $0.03 or benefiting, right. Avinash Kant - D.A. Davidson & Company : Okay, yes.

But however we had some impact benefitting in fact in the last month. Avinash Kant - D.A. Davidson & Company : And what is that?

In other words we had a restructuring of our work force in China so we took a $900,000 restructuring charge but because of the lower labor cost and SG&A we can enjoy into the following month, so the March month was the first month that we had benefit from that. Avinash Kant - D.A. Davidson & Company : Okay. So, let me put it this way, for the second quarter Morris, you are guiding pretty much to similar revenues, 18 to 19.5 million. Now, what is your assumption at that point on the SG&A for second quarter? The EPS guidance that you have for the second quarter, what's the SG&A assumption in that?

4.6. Avinash Kant - D.A. Davidson & Company : 4.6 million?

Yes. It’s an average from our year 2013 number so, basically we use that as a base to calculate that because we are not sure now our cost saving plan, what’s the impact of cost saving plan, and we just implemented in March so it’s not all that time, we still don’t know, so we actually put that, more conservative way to calculate to our model, so, Avinash Kant - D.A. Davidson & Company : Okay so in the Q2 guidance the SG&A number that you have at the midpoint of the guidance is 4.6 million, right?

You mean Q2 guidance, or you’re asking,… Avinash Kant - D.A. Davidson & Company : Yes, Q2 guidance.

Q2 guidance? I can say actually, I still don’t know, accommodates (ph) our cost saving in that number. So you are estimating that cost saving maybe around [Indiscernible]. Avinash Kant - D.A. Davidson & Company : So from third quarter onwards 250k..

Yes. Avinash Kant - D.A. Davidson & Company : What do you see onwards?

No Q2, starting about Q2.

Yeah. Avinash Kant - D.A. Davidson & Company : Okay. So what I am, may be I am not getting my question across, I am saying for Q2 numbers that you just guided to 18 to 19.5 million in revenues in loss of $0.04 to $0.06 in earnings on32.4 million shares, what’s the assumption of SG&A in there?

4.5 million. Avinash Kant - D.A. Davidson & Company : 4.5 million?

Yeah. Avinash Kant - D.A. Davidson & Company : Okay. Got it, got it. And Morris, did you break down the semiconducting and semi-insulating revenues in the quarter?

Yeah. 43% and 57% for SC.

57% for semiconducting and…

Semi insulating 43%.

Semi insulating 43%. Avinash Kant - D.A. Davidson & Company : Okay. 57% is semiconducting and semi insulating 43%.

Right. Avinash Kant - D.A. Davidson & Company : Okay. And did you give CapEx and depreciation numbers?

Yes. 1.4 million for depreciation and 0.3 million CapEx. Yes, actually we control our capital expenditures and we do well. Avinash Kant - D.A. Davidson & Company : So 1.4 million for depreciation right?

Yes, right. Avinash Kant - D.A. Davidson & Company : And what was the CapEx number?

0.3 million. Avinash Kant - D.A. Davidson & Company : 0.3 million right.

Yes. Avinash Kant - D.A. Davidson & Company : And what's your expectation for the full year in terms of CapEx, 2014 CapEx?

We are hoping that we can control it within $4 to $5 million right for the whole year.

Yes. Avinash Kant - D.A. Davidson & Company : 4 to 5 million.

Yes. Avinash Kant - D.A. Davidson & Company : Okay. And Morris you talked about, you know, higher material sales, now prices of gallium have been stable, do you see a positive momentum on the pricing too now or not?

Well, it is always difficult to predict the pricing going forward, I mean I have been wrong I see in the past so I really hate with this to call it’s going to go up and I think the good thing is you can see the factors that the volume of this material obviously are very strong. We especially our joint venture has been able to sell everything they can make. However, the pricing you can see from the Gallium 45 is not going up yet. So we just have to wait patiently. As I said in our conference call we expect our gross margin to pick up slightly going forward is because all our joint ventures have implemented their own cost savings bias. So hopefully we can do better because of that, but if raw material price pick up that will be just welcome to that, but we’re not counting on it. Avinash Kant - D.A. Davidson & Company : And the final question, any color you can give you on the qualification activity at the customer, especially now that you have had some time to look at the consolidation happening in your customer base?

Well, Avinash I think it’s a consolidation is actually throwing other monkey wrench into the works. I think, and you know, we use to working on it, so far as I know that our material has already qualify we’re not the large device makers but pay just, because of the consolidation they are working slow on taking raw material here.

We’ll go next to Richard Shannon with Craig Hallum.

Morris how are you doing?

Very good, Richard.

Excellent. And hi to you May as well. Let's see, a couple of questions from me, I think on the last quarter's conference call you've talked about a breakeven level of roughly 25 million a quarter on the top line supported by a 20% gross margins. At the restructuring actions you have taken and you talked about some cost savings plans at JV's, have those -- if that change that break even model?

Yeah.

Where does that look like now?

As the May is telling me that we can, our model is around $22.5 million revenue and 20% margin.

Okay. And Morris you made a comment you expect to be profitable this year, is that meaning in any quarter this year or a year-end total?

No, I think it’s toward the end of the year, we hope to breakeven.

Okay. That's what I thought. Okay, very helpful. Let's see here, can you characterize the margin profile in some of the semi-conducting business that you have been able to generate? I was a little bit worried that that would be lower, that it seems to have been a decent gross margin overall for the quarter given the strength there. Can you give us a sense of what the incremental looks like as you continue to learn in more there?

Yeah. You know Richard, I think in gallium arsenide business, If the business is a very large scale customer with a semi-insulating or semi-conducting the margin is not good, I can tell you that, I mean just about everything, you know, we’re working so hard to get ourselves into HBT but that margin is not good, however it presents a great opportunity to load up our factory, you know our factory utilization right now is low, so we need good business as well as the not so good business but with very large volume, so the same thing with semi-conducting business, you know we have some business which is really great in margin however the volume is relatively small, they are developing their volume but however you know there’s a large volume business then it has a characteristics of very low margins, so you know how can I say I think what we need as we working very hard towards the model is you know if we can get a large customer to share some of the fixed overheads and variable overhead for us we can breakeven quickly, or we can gain higher priced more niche market however the margin is good but then the volume is small.

Okay. Are you suggesting that you're in engagement and discussions with someone to help you share some of that, that overhead in this business, maybe you can elaborate on that a little bit?

Oh well. We always do, just like while we’re trying to get into some of the wireless large customer base as well as some of the large customer in LEDs, those business, the price is very low, very competitive, let’s put this way, so we will not have very good margin, but because they come in this year some of the fixed overhead and the variable overhead that helps us overall, I think our factory utilization as I said is somewhere around 60-65% so if we can update utilization by 10%-15% that would really kick us into much better shape.

Okay, that's fair enough. It makes sense. And maybe last question for me on the indium phosphide business, you talked a little bit about silicon photonics and this is not the first quarter that you have mentioned that. You mentioned Intel, are you implying or stating outright that your partnering somehow with Intel or in the ecosystem that Intel was driving silicon photonics or can you characterize who you are working with and when that might be more material?

Richard we don’t usually comment on specific customers but as we said you know the silicon photonics I just don’t want to get everybody confused a lot of, some analysts think it’s silicon photonics means again it’s a siliconating compound semi-conductoring business but because it needs a 1.3 micron laser to connect between racks and within racks within data center it needs to have 1.3 micron laser, and indium phosphide material just serves that 1.3 micron laser perfectly so that way participating in this market.

Okay. Fair enough, I think that's all my questions for now, I'll jump out of the lines guys. Thank you.

We’ll go next to Edwin Mok with Needham & Company. Edwin Mok - Needham & Company: Hi, thanks for taking my question, congrats on a great quarter. So Morris, first question is related to your guidance in the midpoint, it’s actually down a little bit sequentially, but I, could you help us all understanding which part of your business is declining and is it some place some of them are recovering like semi-insulating gas right, you can color on directionally.

Well you know I think germanium substrate we definitely think it’s going to be down, as I said one of our major customers adjusting their inventory so we’re going to second quarter they still not done by a whole lot of material, but the silver lining out of all these is that germanium because of the high material cost is presenting a great margin pressure on us, so if we have less business it’s not going to affect our bottom-line too much. I think on some of the raw material we had a great quarter last quarter Q1 so we are positioned ourselves to be a bit more conservative on raw material sales, within the substrate we are hoping that the rest of the substrate will grow slightly in the second quarter, yes. Edwin Mok - Needham & Company: Great, that’s good color for the call direction and then in terms of margins, speaking of company someplace, some of the restructuring is also helping your gross margin as well, right so do you and obviously the low factory utilization has a impact on your gross margin right, do you need to bring the revenue back to the low $20 million range that you mentioned on a breakeven. For your gross line you’d get to 20% or if pricing remains relatively stable on the raw material side as you had suggested do you think even at the current revenue which is 20 or below you can actually your gross margin back to that 20% range?

Well Edwin you know, that’s a great question, I think it’s also depending on the product mix, you know some of the product, you know even within gallium arsenide for instance, some customers because of the product mix they may be paying a lower price and the other may be paying a higher price because they are most stringent requirement for specifications. So, the answer to that question is, yes, it’s possible. But I think overall I think we are modeling somewhere around, $20, $21 million revenue to first to get to 20% margin. And don’t forget that, as May said before I think we’re modeling 3 percentage point gross margin improvement for the restructuring charge we took, right. So you know if he takes 14% which they improve 3% that will be 17 already and so I am hoping for some more efficiency a little bit better revenue will kick us at better gross margin as well. So I think, well model is somewhere around $20 million or 20%, $22 million revenue for 20% margin they say a good assumption. Edwin Mok - Needham & Company: Great. That’s actually a helpful color there. Fourth question I have is one the semiconducting cash business right. So this quarter do you guys see some growth and recovery for the market right? And I think you mentioned migration is six inch away for as kind of longer term driver, right. You know actually come beyond this quarter, right. What you know beyond seasonality which we typically see some seasonal pickup at this point a year-end anywhere right. Do you see audit drivers that could be driving industrial end market? What are the [Indiscernible] do you think is driving the growth in that area or is it mostly is migration and then also in terms of timing on this migration is it a long migration cycle side, I think for some modern application we’ve seen the migration losses as long as like one or two year period. How do you can’t see this kind of long migration cycle for the wafers as well?

I don’t think well my estimation is going to be a two years, I think it’s, you’re right about one year, I think they will take at least a year to migrate. And but also the migration is dependent on how do you look at it, I mean some of them are kind of say that I am moving to two inch to four and if some at least [Indiscernible] for four to six, so I’d say if you modeled in the next five quarter it will be a good timeframe for you to migrate. Edwin Mok - Needham & Company: Okay, great. Helpful. And then lastly on the raw material side, you’ve talked about cost reduction on the raw material side that is helping and like you said pricing has been stabilizing taking the market as it comes, especially for gallium, do you think the market is counting which as near term echo in the terms of supply demand, you know typically when we get there and we’ll revolve much capacity seen in the add at some point you lot of see pricing actually improve, right. Do you see any kind of a little product?

I hope you are right. But you know I certainly want you to go and buy the future of gallium price and lose money and blame me for it. But I do see if you look at some of our, even our Chinese competitors I think know a factory just recently closed they had a capacity of 20 ton that’s because they can make it at this price level and I know some of our competitors are position himself to buy more aggressively on the future of gallium so I do think it’s about reaching their point but you never know I think let’s face it one another important factor I think is playing perhaps into this equation is the fact that the switch pocket the PM market is having a devastating de-shrink compare to as I say 2012 or 2011 so that is negatively impacting it. But however, you know the overall general economies improving as well as LED’s growing at very, very robustly through general elimination that will helps the utilization of gallium. Edwin Mok - Needham & Company: I see. Great. I think that’s all I have. Thank you.

We have no further questions at this time. So I turn the call back over to our speakers for any additional or closing remarks.

Okay. Thank you for participating our conference call as always, please stay free to contract me of let ring directly if you would like to meet with us, we look forward to speaking with you in the near future.

That does include today’s conference we thank you for your participation.