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Edited Transcript of AIXA.DE earnings conference call or presentation 24-Oct-19 1:00pm GMT

Q3 2019 Aixtron SE Earnings Call

Aachen Oct 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Aixtron SE earnings conference call or presentation Thursday, October 24, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bernd Schulte

AIXTRON SE - President & Member of the Executive Board

* Charles Russell

AIXTRON SE - CAO

* Felix J. Grawert

AIXTRON SE - President & Member of the Executive Board

* Guido Pickert

AIXTRON SE - VP of IR & Corporate Communication

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Conference Call Participants

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* Charlotte Friedrichs

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Janardan Nedyam Menon

Liberum Capital Limited, Research Division - Technology Analyst

* Jürgen Wagner

MainFirst Bank AG, Research Division - Director

* Malte Schaumann

Warburg Research GmbH - Equity Analyst

* Uwe Schupp

Deutsche Bank AG, Research Division - Small and Mid-Cap Analyst

* Veysel Taze

Bankhaus Lampe KG, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to AIXTRON's First 9 Months and Third Quarter 2019 Results Conference Call. Please note that today's call is being recorded.

Let me now hand over to Mr. Guido Pickert, VP of IR and Corporate Communications at AIXTRON, for the opening remarks and introductions.

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Guido Pickert, AIXTRON SE - VP of IR & Corporate Communication [2]

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Thank you, operator. Let me start by welcoming you all to AIXTRON's presentation of our 9 months and Q3 '19 results. I'd like to welcome our Executive Board represented by Dr. Felix Grawert and Dr. Bernd Schulte; as well as our VP of Finance and Administration, Charles Russell.

As the operator indicated, 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 a consent to this recording.

As with previous results conference calls, I trust that all participants have our result presentation slide deck, Page 2 of which contains the usual safe harbor statement. I would like to point out that this applies throughout the conference call.

You may also wish to have a look at our latest IR master presentation with additional information on AIXTRON's markets and its technologies. It's also available on our website.

This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or a transcript on our website at some point after the call.

I would now like to hand you over to Bernd Schulte for opening remarks. Bernd?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [3]

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Many thanks, Guido, and a warm welcome from my side as well. As usual, I will give you an overview of AIXTRON's key developments on the first 9 months of 2019. Charles Russell will then go into more detail on the financials. This will then be followed by Felix Grawert, who will give you an update on OLEDs and power electronics as well as a wrap-up.

In Q3, revenues came in at EUR 52 million, which meant that we generated EUR 185 million in the first 9 months of the year. We also generated solid gross margins of 42% in Q3 and 40% in the first 9 months of the year, with EBIT in the first 9 months totaling EUR 25 million and a net income of EUR 20 million.

Q3 revenues have been low mainly due to a longer-than-expected duration of the process required to obtain export license for some of our customers. We are supporting the respective administrative bodies to expedite this process as much as possible.

Due to the uncertain timing of granting the export license as well as the potential OLED order and respective revenues having been shifted into next year, we have set our expectation on orders and revenues and, as a consequence of that also on the free cash flow, to the low end of the respective original ranges. At the same time, we remain confident to reach our gross and EBIT margin expectations. We will give you more details on our updated guidance at the end of this presentation.

Orders in the third quarter have picked up from Q2 trough levels, as expected, due to the demand mainly for datacom lasers as well as silicon carbide and gallium nitride power electronics. As suggested by our order guidance for the year, we expect order levels to pick up further during Q4. Based on customer agreed shipment schedules and despite the issues with the export license, we expect Q4 revenues to increase to the highest level for this year.

Based on an accelerating adoption of laser-based sensing or time-of-flight solution for smartphones, we believe demand for capacity expansions will increase again accordingly. However, the industry is still absorbing overcapacities. The trend towards faster optical data communication continues, so we see a healthy demand in this space.

In the development area of microLEDs, we see good progress being made in the industry to commercialize microLED displays, either very large displays or very small displays for wearables. In any case, we are well positioned to benefit from this development.

To reiterate what we have said before, we continue to benefit off strong growth drivers in the areas of lasers, power electronics and specialty LEDs. It is important to note that our equipment enables the development and production of key end products and components for major global mega trends, such as next-generation 5G mobile networks, 3D sensing for mobile phones and power electronics for electrical vehicles and renewables as well as next-generation microLED displays.

In order to secure our position in these end markets, I would like to use this opportunity to inform you about our new MOCVD product developments. After we have recently presented our new tool for silicon carbide power device manufacturing, we are working on the development of new MOCVD tools for the key applications of compound semiconductors, including lasers, microLEDs and gallium nitride-based power electronics. These developments are an evolution of our leading products and are based on our established platform.

All these new products will be fully automated with improved yield and throughput. This will help our customers to improve their cost of ownership further and consequently reduce their production cost and will enable them to address larger markets and broaden the demand of their products. We will launch our new MOCVD product in the course of 2020 with the target to consolidate our strong positions in our addressed markets. Felix will elaborate later on the current status of OLED and power business.

At this point, let me now hand you over to Charles for a more detailed overview on the 9 months 2019 numbers. Charles?

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Charles Russell, AIXTRON SE - CAO [4]

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Thanks, Bernd, and hello to everyone. Starting on Slide 4, our income statement. Total revenues for Q3 2019 were EUR 53 million compared with EUR 63 million in the previous quarter. Gross margin was 42% in the quarter compared with 41% in Q2. Despite the effect of the low level of sales in relation to fixed costs, margins improved because of the continuing strong dollar, a good sales mix with a lower proportion of shipments into display market and continuing cost improvements.

Overall, operating expense in the quarter remained level at EUR 17 million, SG&A expense quarter-on-quarter was also stable at EUR 7 million. R&D expense of EUR 15 million was higher than the previous quarters, this was due to higher project-related expenses. Other operating income of EUR 5 million in Q3 was mainly R&D grant income of EUR 2.2 million and currency gains. EBIT for Q3 was EUR 5 million compared to EUR 9 million in Q2, and net profit was EUR 4 million compared with EUR 7 million in Q2.

Turning to the balance sheet on the next slide. Inventories of EUR 88 million include around EUR 15 million of prototype systems and Brexit-related inventories. Receivables stand at EUR 33 million, which is 44 day sales outstanding. Advance payments from customers are EUR 44 million, up from EUR 39 million at the end of Q2. The change is a reflection of the higher order intake in Q3. Advance payments are 41% of the order backlog. We ended the quarter with EUR 260 million in cash.

Moving to Slide 6, which shows our cash flow statement. We had a free cash flow of EUR 2 million in the quarter. In Q4, assuming no further export delays, we expect to meet our guidance of a positive free cash flow of around EUR 15 million.

With that, let me hand you over to Felix.

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [5]

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Thank you, Charles. I would like to give you some perspectives on recent developments in the OLED and power electronics before concluding with the outlook for the rest of the year.

Turning to the update on our development project on Slide 7. With regards to OLED, our Gen2 tool is jointly being operated by a team of engineers of our customer and of our subsidiary APEVA. Together, they are optimizing OLEDs produced with our OVPD technology as well as the (inaudible) tool. This is an iterative process, meaning an OLED is produced, measured and analyzed. Then the process parameters are adapted and changes to the tool are being made. Finally, the next batch of OLEDs is being produced, insights are gained and used for the next iteration and so on.

With this process, we enhance the performance of our OVPD technology, which the customer then evaluate versus the incumbent VTE technology. As this procedure is still ongoing, we do not expect our customer to place a follow-up order for a larger tool by the end of this year. We, therefore, now expect such order to be placed during the first half of 2020.

Turning to power electronics. We continue to gain momentum. In gallium nitride power electronics, we continue to see solid momentum driven by the need for more efficient power management devices, both from consumer electronics and from IT infrastructure. We also continue to see orders driven by the 5G buildup in gallium nitride radio frequency devices.

In silicon carbide, we made very good progress with our fully automated high throughput system. The tool is running stable in fully automated mode in our laboratory and at customer sites. We continue to further fine-tune the process performance, which is already very good. We have obtained orders for this platform from several customers already and have made performance demonstrations to additional customers. We are confident to be on track to successfully address the multiyear market opportunity in power electronics ahead of us.

With this, let me now come to our outlook for 2019 on Slide 8. We have had a slow start to 2019 in terms of orders, revenues and profitability, but we see orders picking up again from the trough levels in Q3. And as we see broad customer interest in our technology offerings across all applications, we are confident that we will reach the lower end of our guidance ranges for orders, revenue and free cash flow. Our profitability target, namely gross margin and EBIT margin, will remain the same.

Therefore, we today firm up our guidance for orders, revenues and free cash flow. For the reasons given before on export licenses and OLED as well as customer investment behavior still affected by the geopolitical environment, we now expect to secure total orders for the year of around EUR 220 million and to achieve revenues of around EUR 260 million. Mainly due to the revenue level at the lower end of the range, we now also see total free cash flow for the year at around EUR 15 million. Thanks to our cost control and the strength of the U.S. dollar, we continue to expect achieving a gross margin of around 40% and EBIT margin of around 13%, both being at the top end of the originally guided ranges.

Finally, let me assure you that although there is weakness in some of our markets, we have an excellent product portfolio, which will be completely renewed in the course of 2020, further enhancing our customers' productivity, supporting them to address higher volume market opportunities more efficiently.

With that, I will pass it back to Guido before we take questions.

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Guido Pickert, AIXTRON SE - VP of IR & Corporate Communication [6]

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Thank you very much, Felix, Bernd and Charles. Operator, we will now take the questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Janardan Menon calling from Liberum.

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [2]

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I just want to dive a little bit more into the silicon carbide side. So you've been qualifying this -- your new platform since late last year and you've said that you're starting to take some orders. But when I look at the market itself, the silicon carbide market seems to be seeing quite a lot of activity in terms of investment increasing of CapEx by many of the large players, mainly to serve the needs of the automotive market, the electric vehicle market, but also quite a lot into the industrial, solar, et cetera. I'm just wondering, when do we see your orders and revenues now begin to pick up significantly? Is that something that we can expect in the next couple of quarters because your machine is now -- your platform is pretty much ready and qualified and the market is quite hot? Or is it that it's likely to take more time because there is more qualification to be done, et cetera?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [3]

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Yes. Thank you very much for the question. Let me first comment on the timing and then later on -- the timing of our tool and later on the timing of potential CapEx investment by our customers. Relating to the timing of our tool, we brought it out in the spring time, summer time of this year to customers. It's not really the beginning of the year. It's more like the middle of the year, a couple of months. So it's not that there's anything wrong or not working or taking longer than expected. So everything is really on track, I can assure you, yes, on the first part of your question.

The second part, in fact, it's true all of the very large players in the power electronics space are currently announcing plans to build factory, to increase CapEx and to really build out the silicon carbide opportunity. I think over the last weeks, we heard multiple [announcement speech] simply here from players in Europe, also from U.S. players. And all those customers are currently in the decision process which tools to make or preparing the decision process. So that decision process is running throughout the fourth quarter, the first quarter of next year. We are part of that. In some cases, we have already been selected. Some other cases are open and, I think, unlike the LED opportunity a couple of years ago, though this will translate into orders in stages.

So typically, in the power electronics, the customer orders 1 or 2 tools, qualifies the tools, gains first experience, then orders a second batch, let's say, of the larger single-digit number of tools and then only build out the factory at the real order volume from customers coming. So we do not expect to see, at some point, orders of the, whatever, many tens or even hundreds of tools, but we would rather expect orders to come in bunches, in investment waves of our customers. And I think we will see that picking up and beginning throughout the year of 2020 and then be a multiyear opportunity '21, '22, '23, as the overall silicon carbide market is expected to raise. I think we all know the market analysts from automotive have cited that -- how that market is going to grow.

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [4]

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So if you look at your order expectation, I'm not asking for guidance here, but for 2020, clearly, 2 areas which should be at least on paper today materially higher than this year would be silicon carbide. And if you get the APEVA order, then that would be also increased year-on-year. Would that be a fair representation?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [5]

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Absolutely correct.

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [6]

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Okay. And then on the OLED side, there is this, I think, has been delayed to a certain extent through the course of this year because, initially, the order was expected earlier in the year. And you've said that it's because there is this iterative process going on with the customer where some OLED panels are being produced, et cetera. What is the confidence that it can happen in the first half of next year? What I'm trying to get at is, are you getting a feeling looking at the kind of changes that you asked, et cetera, that we are sort of reaching the end of that process? Or is this something where you don't really have visibility when the end is because the customer may keep on tweaking the requirements for quite a long -- lot more time to come?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [7]

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Very good questions from your side. Yes, it's true, we are delayed on the OLED project with respect to the initial schedule. And second, it is exactly as you have outlined, we do expect to reach the end of this qualification process. There is -- and we have a clear view that this is going to happen towards the first half of 2020, and it's not going to be the opposite, which is a, let me call it, dragging on forever.

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [8]

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Okay. Because the delay is also costing you in terms of -- you are continuing to spend a significant amount on R&D on this project as it drags on, right?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [9]

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That is absolutely correct.

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [10]

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Okay. Just a small last question. How many new OLED platforms -- is it one platform across 3D sensing, specialty, et cetera, that you're going to launch next year? Or is it different platform for each of them?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [11]

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Jana, you meant MOCVD, right?

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Janardan Nedyam Menon, Liberum Capital Limited, Research Division - Technology Analyst [12]

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Sorry, MOCVD, I'm sorry.

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [13]

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Yes. It's basically, we have a platform concept. So we have high degree of synergies in between the different applications. But basically we want to have a new product for all the key markets we're addressing, meaning for lasers, including indium phosphides, including VCSEL market; but also for microLED, both for gallium nitride and blue and green and for red for gallium arsenide; as well as for power electronics. So this is based pretty much on material system. So we have a high degree of synergy, although I'm speaking now, a lot of applications, there's a high degree of synergies amongst those platforms. But basically, we address all markets we are currently leading. And I think the motivation is very clear. We want to stay ahead of the market.

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Operator [14]

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The next question for today comes from Uwe Schupp, who's calling from Deutsche Bank.

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Uwe Schupp, Deutsche Bank AG, Research Division - Small and Mid-Cap Analyst [15]

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Two questions also from my side, firstly on the export licenses and then secondly a follow-up on OLED. Firstly, regarding the export licenses, I guess the big question is how concerned should we be really? The reason I'm asking is, obviously, I mean, your tools or some of them have been dual use for ages, but in the past, this was never mentioned as a big issue, as far as I can remember. So I was wondering what has changed here? Is that -- has that to do with the big Chinese customer that is kind of in the newspaper every day? Or is something else in the making? And do we expect this to be resolved in Q4?

Secondly, on OLED. Just on the numbers, how much was the impact from removing OLED from the guidance, particularly on orders, I guess, or maybe even on revenue? And then maybe also following on Janardan's question. How should we imagine the process with your customer? Are you working with the customer and, at the same point in time, telling that by 30th of June next year, we need an order or otherwise the project will be dying? Because I remember we have been here before a few quarters ago, where you basically already said, okay, this will be the last time we will be delayed and now it keeps on trading on.

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [16]

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Yes. I think, Schupp, let me start with the export license. I mean you're perfectly right. Our products are dual use, and we require export license to most of the countries we serve. I think the only exception is the European Union, U.S. and Japan. All other countries, we require export license. I think what we're currently seeing is that the process seemed to take longer to get an export license, more or less like a general theme. And we heard from other players in the market that they have similar observations. With that, we do not think it is a fundamental issue, it's more timing issues. But in general, every customer is an individual case and will be decided by the authorities on an individual basis. So it is, in general, very difficult to comment because also we do not have the visibility in depth, yes. But in general, I would say, it is -- that's our understanding, it's a timing issue.

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Uwe Schupp, Deutsche Bank AG, Research Division - Small and Mid-Cap Analyst [17]

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And that would be mostly related to China, I would guess?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [18]

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Well, we see this, as I mentioned, for every country. I mean certainly the process of checking out customers, particularly if you have new customers from China, is typically longer than you have an old established customer from other Asian countries like a big company from Korea. So you can imagine that it's a different process.

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [19]

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Let me come to your 2 questions on the OLED side. So your first question was how big the impact on the guidance was. So the impact on the guidance was about, let me say, a few tens of millions, yes? That we took out by now moving the OLED order from 2019 to 2020. And the second question I got is, is this a never ending story, yes, the OLED? So the answer to that is, it clearly has taken us longer than we had expected. This is why now the correction of that one, but we now clearly see light at the end of the tunnel, yes, and we plan how to get there. I would say no, it's not a never ending story, but we have a viewpoint where we want to end with it, yes, or where we come out of the tunnel in a positive way.

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Operator [20]

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The next question comes from Veysel Taze, who's calling from Bankhaus Lampe.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [21]

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I'm not sure if I got that correct with the export licenses. I mean is it specific to one product group? Or is it in general?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [22]

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No. It has not to do with the product. It is related to the customer and its application. So what -- the authority is checking whether the application of the customer has a -- what is the use case, what is really the end product doing.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [23]

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And which type of application are you talking about? Maybe I'm missing here something, but...

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [24]

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As I mentioned, because it is basically going through various applications, that makes us believe it is a timing issue. It's not that we're seeing there's a specific application which is affected.

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [25]

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Let me add to what Bernd has said. We do need -- we do not need an export license for Europe, the U.S. and Japan. For all other countries, we do need an export license for our MOCVD product. That is, for example, for MOCVD going to Korea or going to Taiwan, we do need that, [yes]? And we -- it is normal process to apply for that and then it's the question how fast are the authorities to grant that. And in the process, the authorities are checking, what is the end user doing with it. That's the whole thing, the standard process.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [26]

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Okay. And assuming that would have been on time, what was the impact then in Q3?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [27]

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I would say the impact in Q3 would be maybe a handful of customers.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [28]

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Revenue wise?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [29]

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I mean you know our ASPs. I think you can calculate.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [30]

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Okay. And then on the OLED, I think I didn't catch the exact number. Did you say EUR 10 million or -- the OLED order?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [31]

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I said a few tens of million, more than one ten.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [32]

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Okay. Okay. So basically, your base business was doing, in terms of order entry, not bad if you strip that out and then you still can deliver on the low end of your guidance. Can you tell which parts of the business were doing in Q3 better a split of the order backlog for Q3 for the different business areas?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [33]

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Yes, thank you very much. We actually fully concur with your statement that our MOCVD business is doing actually quite well, yes, given now that the OLED was a significant contribution, which has been taken out. Let me comment to the second part of your question. It was about -- roughly about 1/3 or so on power, and we see the power fraction increasing due to the drivers -- the larger mega trend drivers that we discussed earlier already in this call. About 20%, 30% from the LED-microLED area. So again, there, quite strong momentum, and a continuous large fraction, of course, the majority of the total from the laser area, be it laser for the telecom datacom, be it laser for the 3D sensing or lasers even for high energy welding metal working or metal cutting applications, very diverse field. So a very healthy mix across different and uncorrelated segment.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [34]

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Okay. And then on silicon carbide. I mean you have just 5 customers. I think you mentioned in the call or in your presentation that you on-boarded more customers. Still, if you look at your top 5 customers, et cetera, what are we talking about in terms of a potential project size that could come through over the next 3 to 5 years, let's say? What is the potential? Have you ever made a calculation for that?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [35]

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So let me first comment on the number of customers. You just mentioned the number of 5. It's actually quite a bit more than 5 customers that we have on-boarded by now for our new tool. I don't speak for all the legacy customers that have -- over the last decade, we would have for silicon carbide. For our new tools, it's clearly more than 5 customers that we have on board, which shows we are really getting nice and healthy traction. With respect to the size of the market or the potential, I think in the near term, it can be on the order of market size, speaking, 40, 50, 60 tools per year. But once again, this will heavily depend on the exact schedule of our customers to build up that factory. In the power electronics industry, that's typically done step-by-step rather than setting up, let's say, one big factory with 100 or 200 tools and then tying up or digging up the idle capacity for a couple of years. But that gives you an idea about the potential. So it can be a very healthy and very substantial fraction of our revenue going forward, and that's what we expect.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [36]

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A brief follow-up. You mentioned in this -- different phases before. I guess for the top 5 customers, let's say, I think you are beyond this first initial step, 1, 2 tools to test the process, et cetera? Would that be fair to assume that most of your top customers are -- already have done this process and next step would be rather production tools for real production?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [37]

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So the customers are in different stages. So we do have some of our customers who are completing now the device qualification and moving to the next step, as you were just indicating in your question. We have other customers who, so to say, at this moment as we speak get the first tool installed in their factory being hooked up to the gases and power electronics and power electricity and so on and get started with that. And we have other customers who have made the decision and placed the PO, let's say, the piece of paper with a signature just arrived. And others, as I just mentioned, who are still in the decision process and make the decision throughout Q4 and Q1, meaning within the next 6 months. So it varies really across the board. That's very much simply the stage in which the different players of the industry are making their factory buildup, which of course is not perfectly synchronized to the quarter. But I would say, overall, you can see the very big momentum, and it's unusual that an investment wave in the power electronics industry over so many players of such an order of magnitude is being so well synchronized within a small number of quarters.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [38]

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Okay. And then on your outlook, if I look at your -- or let's say this way. In your Q4 expectations for sales and order entry, what are the expectations for the different business areas? Which parts are going to drive Q4 in your view?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [39]

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Similar to Q3, but exact details, I can only tell you in our next quarterly call.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [40]

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And then final one. I was wondering on your EBIT outlook. I mean on a EUR 10 million sales drop, your gross margin improved. And now for Q4, you are expecting roughly EUR 75 million sales. We know that the LED product mix, the LED business, which is lower margin, will have a smaller impact, but you kind of guide a decline in your Q4 margin. I was wondering what's the background for this.

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [41]

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Veysel, you know that in the future, we're only forecasting with our budget rate for the dollar at $1.20.

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Guido Pickert, AIXTRON SE - VP of IR & Corporate Communication [42]

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And Veysel, can we have the next question here, please? We'll clarify more questions in the one-on-one call, if you like. Thanks.

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Operator [43]

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The next question comes from Charlotte Friedrichs, who's calling from Berenberg.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [44]

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The first one would be kind of tagging along from the previous question around order intake in the fourth quarter. You guided for roughly EUR 70 million, which is a material increase from last quarter. Is there any sort of big particular order in there? Or is this across sort of the end markets that we would normally expect for the fourth quarter now?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [45]

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It's across the end markets and different customers. It's not one single big order.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [46]

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Okay. Perfect. And in terms of sort of recent commentary from (inaudible) players such as ams were more optimistic about demand and also the progress that we've seen with microLED, how would you say has your outlook on those end markets changed? Is there more positive sentiment from your customers? Or how do you see that?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [47]

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I think for microLED, let me describe the situation. That in the, let's say, in the last 12 months, the customer activities and projects have been very much focused on the technical feasibility of the microLED device, which has now been moving to the manufacturing feasibility. So it's clearly a step up in terms of the development of the microLED devices. And we see this also clearly in discussions with customers. Besides having -- talking about one R&D tool, they're now talking about smaller amount -- smaller multiple amount of tools in order to test productivity and production capability for microLED. Ams, mainly, I guess you're targeting more to the 3D sensing application. Currently, I mentioned in my speech briefly that we're still seeing that right now the market has still some overcapacity and the demand for end products needs to further raise that customers' need additional capacity, but we are quite confident that this business will regain into order intake in the course of next year.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [48]

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Okay. And then if we look at your order guidance, and we strip out OLED, that is obviously one big factor, would you also say that any of your end markets remain behind your expectations and that you came down a little bit? Or would you say, excluding the OLED order, your expectations regarding order intake were pretty much satisfied?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [49]

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I mean more would always be better. That's clear, yes? So we are not satisfied with the EUR 220 million, yes, that upfront, but it's no particular market that is particularly weak, yes? So we do see the momentum across the market. We noted, nevertheless, as we all know that the VCSEL market is currently (inaudible) digesting some capacity, yes, but we knew that upfront.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [50]

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Okay. And final question would be around the export licenses. I appreciate you don't necessarily have a lot of visibility on the timing here. But sort of very roughly, is it something where we should expect the orders that didn't come or sort of the sales that didn't come in Q3, would they come in Q4? Or is this something that would rather slip into Q1, Q2?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [51]

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As I mentioned, it's very difficult to say. We are hopeful that we can clarify the situation in the course of this year, but we can't give a guarantee.

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Operator [52]

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The next question will be from Jürgen Wagner, who's calling from MainFirst Bank.

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Jürgen Wagner, MainFirst Bank AG, Research Division - Director [53]

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Actually, as a follow-up to previous question where you mentioned 3D sensing still has overcapacity in your current order book, how much is still related to 3D or VCSEL production? And you mentioned also you expect the market to come back next year. When would you expect this market for you to become more competitive, while you so far enjoyed more or less a very strong market position?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [54]

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Talking about the 3D sensing, I think we still have some orders in the backlog, but it is -- obviously, it's not very big. This is clearly a high -- I would say a high one-digit million euro number. Talking about the competitive landscape here, I mean, I mentioned about our new product initiatives. And one of the motivation here definitely is that we stay ahead of the game in coming in with products, which allows our customers to produce at lower costs because that's what we're expecting. Our customers will get more and more pressure to reduce costs also on these high-end devices like VCSEL, and we have to enable them to do so. And with that, we started already maybe 1.5 years ago to develop a new platform based on the current technology, which allows our customer and enables our customer to offer these products for these end markets at lower costs. And with that, we hope that even just the opportunity -- to further increase the market opportunity by lowering the cost. So in terms of competitive situation, we believe that the new products will be clearly ahead of our current product, which is leading. And with that, I think competition should be similar.

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Jürgen Wagner, MainFirst Bank AG, Research Division - Director [55]

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So you would expect when the market comes back to gain a similar share than you had before?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [56]

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That's our expectation, yes.

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Operator [57]

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And the last question for today comes from Malte Schaumann, who's calling from Warburg Research.

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Malte Schaumann, Warburg Research GmbH - Equity Analyst [58]

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The first one is again on the Q4 order levels. How strong is your confidence or visibility you have into your pipeline going then into 2020? Obviously, carbide will be, at one point of time, the clear driver, additional driver. But would you say that maybe in an elevated level around the EUR 70 million, give or take, would be kind of a base expectation then for Q1 next year already? Or is it too early to really kind of see a more sustained recovery?

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Felix J. Grawert, AIXTRON SE - President & Member of the Executive Board [59]

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I would not want to comment yet on the 2020. So we put full focus on our fourth quarter right now. We clearly expect -- as the numbers, as you can see, a further recovery towards the fourth quarter. And I think then in the next call, we'll then discuss the full year 2020.

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [60]

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But the driver is really like, Felix has mentioned -- Felix covered clearly is one of the growth drivers, but also microLED we see definitely as an opportunity going forward. Now going into the, let's say, in the next step of product development.

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Malte Schaumann, Warburg Research GmbH - Equity Analyst [61]

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Okay. And with respect to microLED, what do you see -- in which products are customers actually putting most of it and potentially still some smaller displays like in watches, et cetera? Or are first players already starting to target larger displays, high-resolution displays like smartphones, et cetera?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [62]

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I think the markets and the application, you can basically see in 2 camps. One is the camp you mentioned. It is more for wearables, small displays like watches, et cetera. And the opposite camp so to say is large displays. So large high-end TV applications. And I'm very confident that you will see big progress in product announcements at the next CES in January in Las Vegas.

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Malte Schaumann, Warburg Research GmbH - Equity Analyst [63]

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Okay. Then on your tool, when you're sort of speaking your platform, what's the focus point? Is it throughput capacity? Is it quality? Is it production efficiency? You mentioned to lower production costs clearly, but what are the driving factors here? And where do you see -- put most effort in?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [64]

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It's mostly yield and throughput. Yield is becoming dominantly important or really important as a cost driver. And what really drives the yield levels up is the automation because the automation leads to lower defect loads. Instead of a manual handling, you have an automated handling and that significantly reduces the defects caused by a human being. And secondly, it is certainly the process in the chamber itself further always can be improved and improved, improved. This is -- and throughput, it is mainly -- of course automation helps you in throughput, but also where we take specific attention to is to reduce the maintenance cycles. So to reduce the cost for the maintenance, but also the time. And with that, I think the throughput can significantly increase.

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Malte Schaumann, Warburg Research GmbH - Equity Analyst [65]

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Okay. And would you see then, because of that kind of an increase in ASPs as well, maybe kind of 30% increase in throughput and 15% increase in ASP? Something like that, along these lines?

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Bernd Schulte, AIXTRON SE - President & Member of the Executive Board [66]

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That certainly is our target. In particular, I mean, the automation adds a significant added value to the tool, and we are confident with customers. And we're seeing this with our automated tools today like in silicon carbide, the new tool, but also in gallium nitride, we're getting higher ASPs because the added automation has a significant value to the customer.

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Operator [67]

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Thank you. This concludes the question-and-answer session. Let me now hand back over to Mr. Guido Pickert for the concluding remarks.

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Guido Pickert, AIXTRON SE - VP of IR & Corporate Communication [68]

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Thank you very much. Thanks to all of you for attending. I hope to see some of you on the road soon. And we are also happy to do follow-up calls. Our next earnings call will be on February 24 for the 2019 full year results.

Thank you, and bye-bye.