Participants

Leslie Green; Investor Relations; AXT Inc

Gary Fischer; Chief Financial Officer, Vice President, Corporate Secretary; AXT Inc

Morris Young; Chairman of the Board, Chief Executive Officer; AXT Inc

Tim Bettles; Vice President of Business Development; AXT Inc

Richard Shannon; Analyst; Craig-Hallum Capital Group LLC

Matt Bryson; Analyst; Wedbush Securities

Dave Kang; Analyst; B. Riley Securities

Presentation

Operator

Good afternoon everyone and welcome to AXT's first quarter 2025 financial conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Gary Fischer, Chief Financial Officer. In addition, Tim Bettles, VP of Business Development, will be participating in the Q&A portion of the call. My name is John, and I will be your coordinator today.
At this time, all participants are in a listen-only mode. (Operator Instructions)
I would like to turn the call over to Leslie Green, Investor Relations for AXP.

Leslie Green

Thank you, John, 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, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions including trade tariffs and export and import restrictions, our ability to increase orders and succeeding quarters to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity.
We wish to caution you that such statements deal with future events are based on management current expectations and are subject to risks and uncertainties that could cause actual events and results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to the financial performance of our partially owned supply chain companies, increased environmental regulations in China, and COVID-19 and other outbreaks of contagious disease.
In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by links from our website and contain additional information on risk factors that could cause actual results to differ materially from our expectations.
This conference call will be on our website through May. 2026. I also want to note that shortly following the close of market today we issued a press release reporting financial results for the first quarter and fiscal year 2025. This information is also available on the Investor Relations portion of our website. I would now like to turn the call over to Gary Fischer for a review of our first quarter 2025 results.

Gary Fischer

Thank you, Leslie, and good afternoon to everyone. Revenue for the first quarter of 2025 was slightly above the midpoint of our guidance at $19.4 million compared with $25.1 million in the fourth quarter of 2024, $22.7 million in the first quarter of last year 2024. To break down our Q1 2025 revenue for you by product category, Indium phosphide was $3.8 million, primarily from paw and data center applications.
Gallium arsenide was $6.7 million, germanium substrates were $0.6 million. Finally, revenue from our consolidated raw material joint venture companies in Q1 was $8.3 million based on continued healthy demand.
In the first quarter of 2025, revenue from the Asia Pacific region was 83%, Europe was 11%, and North America was 6%. The top five customers generated approximately 35.9% of total revenue and no customer was over the 10% level.
Non-GAAP gross margin in the first quarter was a negative 6.1% compared with 17.9% in Q4 2024 and 27.3% in Q1 of 2024. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 6.4% compared with 17.6% in Q4 and 26.9% in Q1 of 2024.
The magnitude of the decline in gross margin was a disappointment in the quarter. And primarily the result of three factors. First, we had significant yield issues and our semi-insulating gallium arsenide wafers as we worked quickly to scale our output for sizable wireless opportunity.
I think the lesson for us is that while the opportunity is compelling. The sophistication of the product specs requires us to move in a more measured way to ensure that we can execute cost efficiently. Revenue net also played a role in our gross margin deficit due to the current trade restrictions. Substrate sales were down meaningfully in the quarter, and our joint venture sales were higher than normal as a percentage of our revenue.
As a manufacturing company, this resulted in under absorbed factory overhead that was greater than expected. And finally, we were expecting to see a little bit higher gross margins across the board from our joint ventures, from gallium arsenide and from geranium sales. Morris will talk more about gross margins and our plans for improvement shortly.
Moving to operating expenses, we did better than expected in holding OpEx down in Q1. Total non-GAAP operating expense in Q1 was $8.5 million compared with $10.5 million in Q4 2024. And $8.7 million in Q1 of 2024. On a GAAP basis, total operating expense in Q1 was $9.0 million compared with $10.6 million in Q4 of 2024 and $9.4 million in Q1 of 2024.
Our non-GAAP operating loss for the first quarter of 2025 was $9.6 million compared to the non-GAAP operating loss in Q4 of 2024 of $5.4 million and a non-GAAP operating loss of $2.5 million in Q1 of 2024. For reference, our GAAP operating line for the first quarter of 2025 was a loss of $10.3 million compared with an operating loss of $6.2 million in Q4 of 2024. And an operating loss of $3.3 million in Q1 of 2024.
Non-operating other income and expense and other items below the operating line for the first quarter was a net gain of $0.4 million. The details can be seen in the P&L included in our press release today. For Q1 of 2025, we had a non-GAAP net loss of $8.2 million or $0.19 per share, compared with the non-GAAP net loss of $4.3 million or $0.10 per share in the fourth quarter of 2024.
Non-GAAP net loss in Q1 of 2024 was $1.3 million or $0.03 per share. On a GAAP basis, net loss in Q1 was $8.8 million or $0.20 per share. By comparison, net loss was $5.1 million or $0.12 per share in the fourth quarter, and GAAP net loss in Q1 of 2024 was $2.1 million or $0.05 per share. The weighted average basic shares outstanding in Q1 of 2025 was $43.6 million.
Cash and cash equivalents and investments increased by $4.4 million to $38.2 million as of March 31st. By comparison on December 31st, it was $33.8 million. Depreciation and amortization in the first quarter was $2.2 million, total stock comp was $0.6 million.
Net inventory was down by approximately $4.7 million in the first quarter to $80.4 million. This continues to be a focus for us, and we expect to bring it down further in quarters to come.
Okay, this concludes the brief discussion of quarterly financial results, turning to our plan to list the subsidiary in China, Tongmei on the star market. We continue to keep our IPO application current. Tongmei remains an in-process category as part of a much more selective and smaller group perspective listings than a few years ago. Well, we're not insensitive to the current political op geopolitical environment.
Tongmei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates.
Okay, with that, I'll now turn the call over to Dr. Morris Young for a review of our business and markets.

Morris Young

Thank you, Gary.
I want to begin with an update on the export restrictions because I know that is top of mind for many of you. Then I will discuss current market opportunities and our plan for growth budget improvement.
As many of on February 4th, the China government-imposed trade restrictions on the export of Indium phosphide material. Similar to 2023 restriction on gaming oxide substrates, these regulations explicitly seek to restrict the export of material used for military applications.
Therefore, we are now undertaking an export permit process for Indium phosphide similar to what we have done for [gao] over the last two years. We were disappointed that the portal to accept export applications did not open until April, that said, we were well prepared when it did open.
And we have submitted comprehensive applications on behalf of all major Indian [Oified] customers outside of China. In our experience, we typically hear back initial applications within 45 business days and repeat applications are often processed faster. As such, we do not expect to be able to ship Indium phosphide to customers outside of China before mid-June.
And as we have mentioned previously, we do not believe that any of our Indium phosphide cells go to military applications, so we feel that we are in a good position to realize a backlog of cells once the once we can navigate the permit process.
While the current geopolitical environment presents a near term heading for our business, we are also discovering some unique opportunities. The cloud and data center of connectivity market in China is accelerating. And in an effort to promote innovation and reduce dependency of foreign suppliers, we're seeing a significant effort to develop domestic source of EML and silicon photonics-based lasers.
We estimated that the Chinese data center optical interconnect market is currently around one-third of the global market. However, most of the optical devices for these interconnects are sourced from outside of China. And applications for Indium phosphide within China remain focused upon today.
Further, laser manufacturers in China are developing an appreciation for the critical benefit of very low EPD material in high speed inter interconnected devices. Both in the traditional power market and in the new data center market.
As a result, our sales are in the phosphate within China are increasing. The tend for data center market remains small at this moment, but we do expect to see significant growth over the next few years as the power laser providers expand their portfolio of market to include EML and silicon photonics solutions.
That said, in Q2, we expect healthy double digit growth for our revenue from data center applications in China of a Q1 level. We also have significant in phosphide backlog from customers outside of China that is ready to ship.
We're working diligently to support the needs of our customers globally, and we are hopeful that Tongmei, can begin to secure permits for initial geography soon. Turn into [gallons], we continue to see recovery, particularly in China and Taiwan across a number of applications like high power industrial lasers, wireless outs, and Wi-Fi. We believe there is a sizeable opportunity for our gallium oxides HPT devices for the wireless market.
This represents exciting op option potential for which we believe our technology and products are well suited for. With the cost of the performance breakthroughs, we achieved our age product as well as strong relationship building with one of our largest Asian-based [Afi] providers, we're in a great position for growth.
But this is a competitive and sophisticated market. We were excited in Q1 to have the opportunity to compete for a last year, but we stumbled in trying to scale too quickly. We continue to view this as an exciting space. But are taking a more measured approach to market, to this market share expansion.
To ensure that we can execute effectively as we increase our production levels. We're also seeing a notable increase in design activities and qualification for Yao asset-based liar for the autonomous vehicle market in China.
With the growing adoption of autonomous vehicles and high precision sensing technologies, dioxide has become a critical material due to its superior electronic properties and ability to operate effectively in high frequency applications.
Chinese manufacturers are increasingly investing in the development of lidar system for the EV market that leverage gallium oxide. Recognizing their potential to enhance resolution and accuracy object detection and navigation of the competing camera-based solutions.
Similar to what we are seeing in the data center market, there seems to be a push in China towards reducing dependency on foreign suppliers and fostering domestic innovation. As a result, we believe that the demand for lidar is poised to grow.
And that this is a market in which our low EPD gallium oxide substrates are showing tremendous value in device performance. Over the last 12 months, We have aggressively advanced the technology, technical capability of our material to help our global customer base solving complex next generation challenges.
The material we supply are being used in highly sophisticated applications such as the ones that we have mentioned today where our breakthroughs in delivering extremely low EPD give us a distinct competitive advantage in both Indium phosphide and gallium oxide.
I'm extremely proud of our team for the rapid progress we've made. For that reason, I cannot allow growth margin setbacks in our substrate business to cloud achievement that we're making in our technology. We strongly believe over the coming quarters, we can drive meaningful improvement in our growth margin.
In the near term, we're taking a more measured approach in in the HPG market to ensure that our asset production and yield can right themselves. This is now among the highest priority here in China and the top priority for our manufacturing leaderships. We expect to see improvement beginning this quarter.
And continue throughout the balance of 2025. This is an issue that is very much in our control, and we are laser focused on fixing it. It is also worth noting that the decreasing substrate sales as a result of trade restriction has also impacted our gross margin performance, as Gary noted.
We feel good about our ability to begin to secure in the phosphide permits, which should help our overall sales volume in the back half of the year. And contribute to a healthy revenue and product mix. Both of these will help us in a gross budget list for our business.
Before I conclude, I want to say a few words about our raw material joint ventures sales in Q1 was strong and we have been trending up over the past year. We continue to invest in expanding our capability and have built an impressive portfolio which today includes gallon, arsenic, PBM crucibles, quartz.
Indian and Germania The strategic value of these materials is not only that we can more cost effectively supply all of our critical materials needed to manufacture our products. But we also benefit from the additional revenue stream generated by our joint ventures to sales of these products on the open market.
The asset value of this portfolio has grown substantially over the last 20 years, and we will continue to expand our opportunity in 2025 through the development of new markets. There's a new and greater awareness of the importance of Earth material, and we are ahead of the curve in developing this unique integrated supply chain.
In summary, while the geopolitical environment is creating undeniable challenges, we are focusing our energies where we can drive positive return today. We're uniquely positioned to optimize growth opportunities in China, such as high-speed data center connectivity and sensors for autonomous driving, and we're pursuing these and then other opportunities with success across key markets for Indium phosphorus. [Day and German in subs].
We're also working timeless, tirelessly on behalf of our global customer base to ensure that we can continue to support the needs across all our products. We recognize this is a challenging time for our customers, our investors, and our employees, and we are deeply committed to working diligently on your behalf.
With that, I will return the call back to Gary for our second quarter guidance.

Gary Fischer

Thank you, Morris. In keeping with our comments today, we believe Q2 revenue will be in the range of $20.0 million to $22.0 million. This guidance range excludes any contribution from Indium phosphide for our customers outside of China in Q2.
Once we do receive permits, we have several million dollars of any phosphide backlog that we would be able to ship most likely in Q3. We do feel encouraged that even without these shipments, we are in a good position to grow our business sequentially.
As Morris mentioned, this is due to our success in optimizing emerging opportunities to grow our business in China across all of our product categories. While we don't normally get gross margin guidance, we do believe that we can see a recovery on a gross margin to around 10% in Q2 based on manufacturing improvements. We also believe that production volume growth in the second half, coupled with continued yield improvements this year, will allow us to drive continued gross margin recovery for the rest of the year.
Based on our revenue range, we believe our non-GAAP net loss will be in the range of $0.12 to $0.14 in Q3, and the GAAP in net loss will be in the range in Q2, and GAAP will be a loss in the range of $0.14 to $0.16. Share count will be approximately 43.7 million shares.
Okay, this concludes our prepared comments and we'd be glad to answer your questions now. John.

Question and Answer Session

Operator

(Operator Instructions)
Rosco we need him and company.

For taking my question on behalf of [Charles Shea].
I was wondering if you could maybe dive a little deeper into the yield issues you're seeing for the semi-insulating gallium arsenide and maybe, when do you expect to see these yield issues resolved and is there any change to your market opportunity as a result of this?

Morris Young

Sure. As we said, I think we were excited about the opportunity for HPT market for wireless because it's an existing market, and, we have a good relationship with good customers in Asia. We can, we thought we can penetrate the market with the phosphide permit restriction on our revenue. So we were taking on that market a bit too aggressively.
So we encounter a yield problem, but we think that is solvable, and we have been in manufacturing business for years, and we have a yield glitch, and we already find, the source of the problem as we, as Gary mentioned that although, this quarter's margin was 6%, but we do expect a very quick recovery. To about 10% next quarter.
So that is a good sign and I think, we are, we get into this market a little bit more too aggressive, so that hurts our ability to achieve a good margin, but we think we have the solution in hand, but we will take a more measured approach to this market, but this market is there.
So, we will just approach it more carefully, but we think the opportunity is there for us to get into, once we get our yielding order and our manufacturing line more effectively producing this product.

Tim Bettles

Great thank you that was very helpful.

Operator

Richard Shannon, Craig Callums.

Richard Shannon

Well, hi guys, thanks for letting me ask a question here as well. Since we just talked about yields, why don't I ask another question about this topic here, and I guess, Morris, I guess I'm curious why it's going to take, more than a quarter or two to fix the yields here?
I mean, is this an entirely new product. I guess I thought this was kind of an existing product that you could just go back to the way you're doing it before, maybe just set a slower pace, you could get back there fairly quickly or I misunderstanding this situation.

Morris Young

Richard, you're correct. I mean, it is a product that we have worked on for many years, but as when you are dealing with a commercial volume of tens of thousands, I mean thousands of per month. And the customer specification, from time to time will change, but if you're not laser focused into, supplying them consistently, any little change can require A recalibration of our production line with our customers need.
So I think that is perhaps one of the reasons which hit our yield, and it's that we thought we delivering this product to them for many years before we can enter this market, so we can go quickly, change our manufacturing slightly, but manufacturing is something which You don't change very quickly. So, I think we want to make sure that we are approaching this problem more measurably so that we can protect our gross margin and our profitability.
And so we can get back to the 10% gross margin from six in the next quarter in Q2. And also, as Gary mentioned that the gross margin hit not only coming from the manufacturing.
Yeah, yield loss, yield lower, but also it's coming from the product mix as well as that was the third point, Gary, remind me what was the third one.

Gary Fischer

So it's a mix product for instance, Indium phosphide for the first quarter, we have one month of Indium phosphide revenue of January, the restriction com was coming on February 4th, and that we cannot deliver any after that. And the Q2 guidance taking into account that we don't have any outside of China in phosphide permit. And that will hit our margins as well compared to Q1.
But if we can secure any, permit or any phosphide, then that can improve our gross margin, but we're taking more conservative view of making that estimate of what our product makes will be in Q2.

Richard Shannon

Okay, fair enough for that, Morris. Maybe let's touch on Indium phosphide here, and I guess, as you said last quarter with this permitting process since you've already done it with gallium arsenide and it's been, other than the delay factor you had initially seemed like it was mostly seamless here.
Have you been given any assurances that you're expecting a similar process here? Do you have any worries that we're going to have a delay beyond what I think you said as a mid-June time frame to hopefully start shipping to the backlog you have there?

Morris Young

Well, to getting a permit it's dealing with bureaucrats and, bureaucracy is always very difficult to predict, but given that, China announced that they want to make sure these are not for military applications and none of our customers we believe are using fast for military applications.
So we think That a permit should be should have no restriction for our customers to get permits, but on the other hand, there are geopolitical struggles between countries. So, it's hard to say, but I think in our prediction, we think we can get our permits soon. I mean, the normal 45 days state once we submit the application into the commerce department of China.

Richard Shannon

Okay. So, playing this forward here, I think you said assuming you get the permits here by the middle of June, you can ship out, I think your words were several million dollars. If we I guess maybe give us a little better quantification of what exactly that means and is there any timing dynamics here would prevent all that, quote unquote several million dollars being able to be shipped and recognized in the second quarter?

Morris Young

Yes, we are actually making, especially large customer orders that we're making them in our production line just ready for shipment, or some of them we make it into stages that we can finish up by the final clean or the final polish so that we don't lose the freshness of these wafers to our customers.
So we do believe if we can get permits, we can ship this very quickly. And, honestly, our customers waiting patiently for this product to be delivered to them too, they're giving us orders.
So, I think we're confident we should be able to ship them, within, let's say one week to 10 days after we get the permits.

Richard Shannon

Okay. So again, relate to any phosphide that stretching out the time frame to calendar 25 here, going back to your last call and I can't remember if it was you, Morris, that said this or maybe it was Tim. There's a question asked about what kind of growth do you expect from Indium phosphide and the answer given was something in the 20% growth range?
Let's assume that the permitting process isn't onerous enough that you can't get anything done, this year, which hopefully will be the case where we've got real big problems, but is that growth outlook still roughly intact here?

Morris Young

So maybe I can give this question to Tim. Maybe Tim mentioned that 20%.

Tim Bettles

Yeah, I think that growth outlook is still there. The market dynamics is still pushing towards what we would see as a growth of 20% given that you obviously, we can ships outside of China, so I just want to make a quick comment about that too, as I said, and Morris commented, we feel like we're in a good position to get permits to ship outside of China, Indium phosphide that is outside of China, but from a timing perspective, we see that the first permits come through, and the Q2, as we've said.
But for guidance perspective, we haven't included Indium phosphide shipments outside of China, in our Q2 numbers, and we believe it's better to be conservative until we have more clarity on this timing. So, what you'll see is we still see that market trend going, increasing to about 20%. We believe we'll be able to capture that fully in 2026.

Richard Shannon

In 2026, I think last quarter last conference call that was related to '25, so I just want to make sure that we're citing the correct year here is that what you mean 10, 2026?

Tim Bettles

So, yes, so we'll be more conservative on 2026, 2025, sorry, just because of a timing, perspective on these permits. So, what we're looking at here is, as I say, Q2 numbers, we've not included any of the permits. We still believe this market is growing at 20% in terms of Indium phosphide, and we'll be able to capture that beyond Q2, in 2025 beyond Q2, second half, and then into 2026.

Richard Shannon

Okay perfect. I think that's all the questions I have for now. I will jump on the line, guys.

Operator

Matt Bryson with Wedbush Securities.

Matt Bryson

Hey guys, thanks for taking my questions. I'm going to kind of follow on Richard's line of question and with, Indium phosphide, is there any risk at all that that you're not being able to ship to customers end up with customers going with another supplier or some of this business doesn't come back to you?

Morris Young

That's a good question. I think we, I think, we are a major in the phosphide supplier. We believe we have perhaps between 40% to 50% worldwide market, and any phosphide material is not the easiest material to make.
We believe there are only two major competitors worldwide. And get any phosphide material to be qualified with the customer, it takes very long time because they are lasers. They are, the device is increasing in in terms of current density, as well as the size of the lasers.
So all that requires very careful qualification of the good low EPT material. So, we believe that those shoes are not very easily. To be filled, but of course, I mean, with this market demand out there, we believe it's everybody wants to get more in the phosphide team, maybe you can help. What do we hear from the marketplace is any of our lost order being taken by our competitors?

Tim Bettles

Yeah, thanks, Morris. Yeah, I agree.
We don't believe that it's the case so far, we're still seeing orders coming in from all of our customers. We're building up a backlog within those orders or from those orders, and if we can begin to see permits late this quarter early next, we're pretty much ready to ship through Q3, Q4.
This market's growing too fast, and As Morris said, we're a major supplier into this market. The other players both cannot keep up with, capacity, nor can they meet our quality, performance, but our customers are starting to demand from us now. So, at the moment, we're really not seeing people move away, but we're seeing people kind of hang in there, continue to place orders, and wait for permits to get approved.

Matt Bryson

Got it. So, then the best guess is that once you get your permits, approved, that your customers end up resuming orders, there's inventory refill and you possibly see, almost a period of over shipment versus in demand just as customers catch back up. Is that fair?

Tim Bettles

That's absolutely fair. Yes, we would see a rebuild of, inventory, as those permits come through, so we should, we should see a pretty healthy bump.

Matt Bryson

Got it.
Next question, I think Gary, when you were talking about, the factors weighing on gross margin, it was lowering the phosphide shipments, problems with, the HPT, and then I think the third factor was just lower gross margins on a couple products.

Gary Fischer

When we made our plan for the, once we learned about the February 4th announcement from China.
We knew that that was going to hurt both our top line and our gross margin line, but we had expected maybe that the rest of the product lines, including raw materials, would have some at least mitigating lifting effect, and had a little bit of that, but it wasn't probably wasn't quite as robust as I as I had hoped, but that was the third factor.

Matt Bryson

Got it. So, it's more you didn't see a lift as opposed to there was lower pricing or anything else going on in the.

Gary Fischer

Yeah, no, there's no, not really an ASP issue in this story. The real story is, in the phosphide, dropped in revenue.
And at the same time, we're trying to make up for that revenue drop by accelerating in some gallium arsenide work and we, as Morris said, maybe we're a little bit too aggressive there and So, those are, that's our understanding.

Matt Bryson

Yeah, but there's nothing going on with pricing across the markets or there was no.

Gary Fischer

No, there's always like.

Matt Bryson

Okay, just with the, the material shipping to China, if there's more material shipping in China, does that have any impact on pricing at all?

Gary Fischer

I'll let Tim take that one.

Tim Bettles

So some of the of the traditional, yes, some of the traditional [GON] markets are seeing some, price pressures as we go into that and we see some growth this year into, those markets. But generally, as we as we see when we look at other markets, of course, we're always under some kind of price pressure, but we're not seeing anything out of the ordinary, that I would say at this moment in time.

Matt Bryson

Got it. And then I last one for me, just I don't think you shipped a lot of products in North America, but can you just talk to any ramifications from the substantial tariffs that, the US is placing on China? Is it affecting your business at all?

Gary Fischer

You like him.

Tim Bettles

Yes, so for context, revenues, to the US in 2024 were about 8%. They'll probably be less in 2025 as a result of these trade restrictions and the timing of the permitting process. But anything that we ship to the US will likely have a tariff on it. The amount of this tariff is still a little unclear, and it still seems to be under discussion between the US and China.
So yes, we expect that we're going to have to deal with this tariff. Again, Revenues in 2024 are about 8%, so it's not something that gives us real great heartburn at the moment.

Matt Bryson

Got it.

Operator

Dave King, B. Riley.

Dave Kang

Yes, thank you. Good afternoon. My, question is, regarding that the last statement about your sales to US. My understanding is that semis are exempt, so, your products would they, would they be exempt as well?

Tim Bettles

Yeah, they're exempt from the reciprocal tariff, but they're not fully exempt from all tariffs at the moment. But as we say, this tariff situation, is still under discussion. There still seems to be some negotiation going on between the US and China. So, I think, once the permit process opens up and we start shipping again, we'll get a clearer understanding of what our position is in terms of tariffs.

Dave Kang

So what happened in the first quarter, I mean, can you just tell us the facts, like, how much if you can quantify tariffs and you didn't mention that in your three factors we got in gross margin, but then tariffs didn't impact your course margin as well?

Tim Bettles

Morris, did you want to comment?

Morris Young

Yeah, I think perhaps Dave's question is, our gross margin impact from tariffs since in one, we have shipped at least one month in January. I think our product shipped in January did pay tariff.
Okay, but that was the old tariff. What was the percentage of the team I think it's around 25%, correct?

Tim Bettles

Yeah, correct. The section 301 tariff is 25%.

Morris Young

And now it's, it has changed. So, what percentage of tariff is going to be? I think we're watching very intensely how it's going to be resolved and as you mentioned, it could be exempt, and I also heard China, on the web actually, China is going to exempt some of the imports from United States, on certain material that China wants to import from the United States, such as semiconductors.
So could that play into, reciprocal tariffs from the United States because, these in the phosphide products, none of them can be made in the United States anyway, and our customers in the United States need this material. So, we don't know at this point, I mean, but let's get the permit problem solved first, but we believe that the tariff issue can be navigated. We have a plan to resolve this tariff issue, right?

Tim Bettles

Correct, we do have some plans to navigate around this. It's too early to say anything about them yet.

Dave Kang

Some of the component vendors told me that, they're, customers, not all, but some customers are willing to pick up tariffs, at least temporarily. I mean, but it sounds like you guys are paying the tariffs, not your customers.

Tim Bettles

Well, we've been faced with this situation before, and there's no easy answer to it, right? Some customers will pick up the tariff. Some customers will pick up some of the tariff. We've dealt with it with gallium arsenide for the past 18 months, and we'll deal with the tariff.
As we go case by case, sorry, with Indium phosphide for the past 18 months, and we'll deal with this, with a case by case basis as we move forward, and we have to get a better understanding of what this tariff really means.

Dave Kang

Got it. And my last question is, regarding the wireless [HBT], the one with yield issues. Just wondering if you got that, business. I mean, can you kind of quantify as far as, the revenue and is it, because of, your stumble, is it opportunity or are you still, in the derby, I guess and is it just one customer or two customers?

Morris Young

Well, it's one specific customer. It's a fairly large customer, and I think we have not lost the opportunity. I mean, we, we're still working on it and as I said, we will take a little bit more measured approach to trying to gain more market share.
But I mean, once we got our, actually it's not a yield issue per se, but it's a matching of specification from what we can make and the customer demand. Once we got it sorted out, I think we should be able to get back to it and more, can you kind of quantify. Let's see, it's probably around $2 million per quarter?

Gary Fischer

Okay.
No, a little bit more than $1 million per, yeah, for the Call.

Dave Kang

Got it. Thank you.

Operator

And it seems that we have no further questions today. I would now like to turn the call over back to Dr. Morris Young for closing remarks.

Morris Young

Thank you for participating in our conference call. Later this month, we will be participating in the B. Riley Securities 2025 Annual Investor Conference.
As always, please feel free to contact me, Gary Fischer or Leslie Green. If you would like to set up a call. We do look forward to speaking with you in the near future.

Operator

Ladies and gentlemen, this is because today's conference call. You may now.