Well, good afternoon, everyone, and welcome to AXT's Fourth Quarter and Fiscal Year 2013 Financial Conference Call. Leading the call today is Dr. Morris Young, Chief Executive Officer. Also joining the question-and-answer session is May Wu, Controller for AXT. My name is Kelsie, and I will be your coordinator today. I will now turn the conference over to Ms. Leslie Green, Investor Relations for AXT. Please go ahead, Ms Green.

Thank you, Kelsie, 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 and 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 February 25, 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 fourth quarter and fiscal year 2013. In addition, while we will discuss highlights of our fourth quarter results on today's conference call, we refer you to our press release and financial summary, as well as the SEC filings for a complete discussion of our fourth quarter and fiscal year results. This information is available on the Investor Relations portion of our website at axt.com. I would now like to turn the call over to Morris Young for a brief review of the fourth quarter results as well as a full market update. Morris?

Thank you, Leslie. Revenue for the fourth quarter of 2013 was $18.6 million. Of this, total gallium arsenide substrate revenue was $8.9 million, indium phosphide substrate revenue was $1.8 million, germanium substrate revenue was $3.6 million and raw material sales were $4.3 million. Gross margin in the fourth quarter increased to 15.1% from 11.9% of revenue in the third quarter of 2013. The increase in quarter was primarily the result of favorable sales mix. Net loss in the fourth quarter of 2013 was $1.2 million, or a loss of $0.04 per diluted share. During the quarter, we repurchased approximately 182,000 shares of the AXT common stock at an average price of $2.36 per share. And finally, cash and cash equivalents at December 31 were $47.6 million, down from $48.4 million at September 30, 2013. We are highly focused on cash management, and we are pleased that despite the challenging year, our December 31, 2013, cash balance was down only $2.5 million from December 31, 2012. Now let's turn to a review of our markets. 2013 was a tough year for our semi-insulating substrate business. With customers' consolidations and technology transition, we saw a sizable decline in our revenue from pHEMT devices as SOI encroached on many of the designs that we sell into. As we enter into 2014, we're focusing significant effort on ramping up our market presence in HBT devices. These designs have mostly been affected by SOI and will present new opportunities for us. We hope to see revenue growth from this application in 2014. I'm pleased to report that we have resolved the technical issue with one of our larger customers that also impacted our sales in 2013. And I'm hopeful that we're beginning to build back our revenue base this year. Despite the challenging year in…

[Operator Instructions] Our first question will come from Richard Shannon with Craig-Hallum.

I guess just a few questions for me. First of all, you talked about the potential in gaining new qualifications with the HBT customers. Curious, though when -- what are the odds of that when it might happen? And whether there's an impact coming from the proposed combination of the TriQuint and RFMD?

Yes, I think, I also took great interest in the big news happened to the RF industry yesterday, the combination of these 2 large companies. And we are working, obviously, on trying to get back into the HBT market. As you know that we have resolved the issue with our largest customer, IQE, in the last year. That should open up some doors for us. But unfortunately for AXT, that traditionally we have been strong in the pHEMT market in the previous product offering. So for HBT, it's a bit new for us, so we have to work through quite a few qualification hurdles. And I believe we're working on most of these accounts and I wish we can -- I hope we can have good news to report to you later on in the year.

Okay. So you think it's a possibility, even a strong possibility of happening in this current year?

It is a possibility, yes.

It is a possibility. Okay. Fair enough, second question, if you can help us quantitatively understand the resizing of your operations here, what the cost structure looks like and kind of getting into how we should think about constructing a model where you breakeven at some point in terms of revenue, not in terms of time frame, but in terms of revenues?

Sure. I think I do need a lot of help from May because I'm -- although I'm officially the CFO, but my numbers are not that great. So I think we saw the prepared is with May, and May has told me that with this force in reduction and the yield improvement we're looking for and the cost reduction, we should be able to gain somewhere around 3%-ish in gross margin and reduce our OpEx, operation expenses, by 5%. So in our model, we should look for somewhere around 20% gross margin and $25 million in revenue, and we are modeling we can achieve that by the end of the year.

Okay. Maybe I'll follow up a question on that one. So you're guiding for $16.5 million to $18 million in the current quarter, and you're hoping to get to $25 million exiting the year. I guess I'm kind of curious what -- where are you expecting to see the growth? Sounds like you're expecting some improvement from your largest customer in semi-insulating, maybe you can give us a sense of where the other incremental revenue adders come from?

Well, I think we do. I think the semi-insulating, we hope we have hit the bottom in 2013, we should be able to improve that despite the first quarter was a down quarter seasonally. And as we start to get into qualification with our major customers, we should improve our revenue, but that's provided that we've successfully done that in the second or third quarter. And we're also seeing quite a few good possibilities for semiconducting, which is feeding to LEDs. And LED is seeing fairly healthy market growth, and we believe that with our cost advantage, our competitiveness on our operating costs, we should be able to penetrate their market. Indium phosphide is a growth market, which last year, we grew around 19% and the year prior to that, we grew almost 30%, and this year we believe that's another growth year. For germanium, I am cautiously optimistic because of the raw material cost is sold high and there's no relief and if we cannot negotiate a successful sort of increase with our customers price offering, then we may not be able to aggressively seek revenue growth in those areas. For raw material, I believe that does depend upon whether the gallium price should improve or not, which I think is a very much in our model, we don't expect the raw material price to improve substantially. So we're projecting sort of flat to slightly up.

Our next question will come from Avinash Kant with D.A. Davidson & Co. Avinash Kant - D.A. Davidson & Co., Research Division: So the first question, of course, in the past, you've talked about the pricing environment in gallium and your materials sales were a bit low in the quarter despite gallium prices kind of being stable. So could you give us some idea about the volumes that you sold in terms of materials and how do you see it going from here?

First quarter, the volume of gallium delivery was down a bit. But I believe that was because towards the end of the year, the customer didn't want to take too much inventory. But I think that should resume normal growth revenue for this quarter. But the gallium price, as you can see it in the metal pages, it is still sort of hovering in the neighborhood of $240, $250 a kilogram for 4N gallium. Avinash Kant - D.A. Davidson & Co., Research Division: And how do you see that trending? Do you have some idea about...

Avinash, as I said, we don't model the gallium price to increase for our own model anyway. And so, but as far as whether it's going to go up or not, it's everybody's guess. I think the price is obviously stabilizing at the low end now, and I think the question is if the demand is going to pick up sufficiently, so that it will drive the price of the metal up slightly. But I don't think it's going to be a big increase from this point on until later on as the demand goes up substantially. Avinash Kant - D.A. Davidson & Co., Research Division: I see. And as far as the competition is concerned or the qualification, both on the HBT side that you are talking about, could you highlight like what's your advantage over the competition? Are you able to beat the lowest cost producer on the HBT side? Or what will be the advantage there?

Sure. As you know that gallium arsenide industry has gone through a very turbulent year last year. There's a substantial erosion of the market opportunity for pHEMT, SOI really launch [ph], so to speak. And every supplier in the gallium arsenide industry is probably being affected, and AXT is probably being affected a little bit more, because our market share in pHEMT was much bigger than our competition. But, as you know, that there's not a whole lot of supplier, namely the only 3, 1 in Japan, and 1 in Germany and we other way are American company listed in our NASDAQ, but our manufacturing is mainly done in China. So I believe, and our customers are also telling us that they view AXT has a competitive cost advantage overall competition. And right now, it's just how do we work ourselves into this equation. But as you know that, I think I will respect my competitor in their market being squeezed in pHEMT as well, so they are turning to be aggressive. So it's eventually, who can offer the best combination of quality, capacity and most importantly, price to our ever-demanding customers? Avinash Kant - D.A. Davidson & Co., Research Division: And the final question will be, where are you on your CFO search process?

Well, we're progressing well. I mean we have retained a professional search for him to help us to look for a CFO. But as you know that AXT's challenge ahead is we need to make our size, the right size for our market, and we have to cut our cost in such a way that we can be successful in the marketplace to offer the best product at the most affordable pricing. And so I would say when we get the most fit CFO, I'll come back and report to you. But we are making quite a bit of progress in that front. But we have not closed the search yet.

Moving on to Andrew Lee with Needham. Y. Edwin Mok - Needham & Company, LLC, Research Division: I'm speaking for -- Edwin Mok today. Actually, most of my questions have been answered by you and previous people asking. And actually, I just have one question about the germanium business. What do you see that trending towards for this quarter and also for the rest of the year?

I think this quarter is going to be down slightly. I think the trending for the rest of the year -- although we think -- the market opportunity should be there. I think there's a lot of interest in the CPV market and satellite market, as you know, is a very steady market, but the CPV market depending upon how the government of China is having a new program for the CPV program, as well as you know, French government is strongly supporting the CPV initiatives, working with SOI -- not SOI, Soitec. So I believe that germanium CPV terrestrial market is poised to grow. But I think we are very cautious about that market as such. You know the raw material price is so high that really is squeezing both our competition as well as AXT and our customer to make a profitable business endeavor out of it. So I think although we are well positioned, because we are only 1 of the 2 major supplier of this germanium substrate, but we have to work it out so that it will become a profitable endeavor for both of us, as well as our customer. Y. Edwin Mok - Needham & Company, LLC, Research Division: So would it be fair to say that you're cautious against seeing an upward trend for the rest of the year?

Yes, that's correct.

Moving onto Dave Kang with B. Riley.

Morris, if I can get some numbers first. What were your depreciation, amortization and CapEx, and also stock compensation?

May? CapEx is $1.6 million. Depreciation is $1.5 million.

Okay. And stock comp?

300.

300. And I'm assuming they'll be fairly comparable going forward?

Yes.

Yes.

Okay, all right, and then regarding your first quarter outlook, did you provide any color regarding gross margin, as well as OpEx? And also what should we use for tax rate?

Tax rate, 15% in China.

15%. Okay.

In China.

Anything on the gross margin or operating OpEx line?

I think the gross margin probably, it should be, well, I don't think we can provide that. But I think you can probably work it out from the...

Work backwards?

Yes.

Okay. And then I'm assuming that a loss of $0.11 to $0.13, that includes $900,000 charge, right?

Yes.

Okay. And the any other items between -- besides stock compensation between GAAP to non-GAAP besides stock compensation?

I don't think there's any, right?

No.

And then just a couple more. So you talked about HBT a little bit, just wondering if you can just quantify the situation a little bit? I mean, is it second quarter or third quarter? I think you told us way back, maybe like, certainly a first-half event, I'm just wondering, has that been pushed out or...

Dave, I think I'm still hopeful that we can still have good results in the first quarter, yes.

I mean, you have qualifications going on right now?

No, we have things going on, but we don't have any substantial volume.

And how long -- what's the qualification cycle?

Usually around 6 months.

Oh, then we're not going to see much HBT until second half then, at the earliest? Or third quarter will be the earliest period, right?

I think...

If you don't have any calls going on right now?

I think it will be the third quarter.

Third quarter, got it. Got it. And then you talked about silicon photonics. I mean, so how will you benefit from this silicon photonics? Won't there be a sort of cannibalization with existing platforms of -- I mean, do you come out ahead or actually is it a negative for you?

No. I don't think there's any product of ours which is supplying into the silicon photonics except, I think there's a new opportunity for us. As you know, from what I understand is silicon photonics is a silicon processing chip. Piggybacked onto it is a indium phosphide chip, which generates lasers you can see with fibre optic between different racks. So I think that indium phosphide uses indium phosphide substrate material.

Thomas Sepenzis from Northland has the next question.

Could you talk a little bit more about gross margins obviously were a little bit better in the quarter? What specifically was the driver there? I know you said product mix, but maybe if you could give us a little more color, that would be helpful.

Sure. I mean, there are many things which goes into the gross margin. I think as I remember, one of the factor which affect our gross margin was product mix for sure. We sold a little bit less germanium, which had lower margin and the favorable mix help us. I mean, we had less of a amortization. By the fourth quarter, we had consumed all the higher cost material in our inventory so that helped our gross margin a bit. Normally, I would expect gross margin to improve substantially when our volume increases. As you know, the first quarter, the volume actually did not increase. So that definitely didn't contribute. I think we have some other onetime item, which I think is a royalty payment, which was accrued and reversed, that helped us on the gross margin. So it's a combination of effects. So I will not celebrate grossly as of now. I think it's a good trend, at least it didn't deteriorate any further. But I think we have to work on it further to improve our gross margin, mainly the reduction force, I think, should help us, as well as some of the yield improvement I'm looking forward for our engineering to work on, as well as I'm looking forward to increase our revenue, especially towards the second half of the year. That should improve our gross margin.

So would you then expect them to be kind of in the same range here in the March quarter? Or do they take another dip before...

Well, as I said, we don't normally guide our gross margin, but you can work backwards from our loss per share guidance. As you know, our gross margin actually sometimes are affected one way or the other individual quarter, but we have to have some room for us to move.

Okay, great. I know that you like to buy inventory, the raw materials at the lower prices. But you've been doing that for well over a year now and the inventory has ticked up again here in the December quarter. Is there a point at which you kind of decide it's -- maybe you should let some of that go?

Yes. I think this quarter in particular, I think there's an inventory increase from our joint venture. Our joint venture has especially gallium facility has increased inventory, because towards the end of the year, customer don't usually want to take inventory, because they say overcapacity in gallium producing facility. So we didn't cost tremendously the inventory increase by our substrate division. And so I would expect inventory to decrease in first quarter as they deplete their -- our joint ventures to gallium holding.

Okay, great. And then last question, and then I'll get back in queue. Have you -- what are you hearing from your customers? Obviously, there's still quite a bit of challenge with gallium arsenide as amplifiers are increasingly showing up in CMOS. That obviously had an impact on you in 2013. What gives you confidence that that turns around even towards the second half of this year, and does it continue to just deteriorate?

Yes. And I think that's a very good question. I'll probably watch it as close as you do. And I think we are constantly in contact with our customers. And I think from what we hear, although CMOS has developed quite a few interesting solution for the low-end markets such as -- especially 2G phones, but I think when you require not only the power efficiency, but also the size of the device, as well as linearity, I think by far, still, gallium arsenide is the king of the hill. However, who am I? There are thousands and tens of thousands of people working on the CMOS device and they were announcement from you know who, from the CMOS new development of the HBT devices -- they don't call it HBT, I think power amplifier devices. So I think it's definitely a threat to gallium arsenide. But I think whether the battle is done with, and I don't think so at all. And so far as I know, the fact is that gallium arsenide is still on top for the high end and even the midrange. HBT still has the advantage over CMOS.

Steve Lococo with Footprints Asset Management has the next question. Stephen Joseph Lococo - Footprints Asset Management & Research, Inc.: Being seventh or eighth on the list you get lot of questions answered for you, so I don't have too many here. But, Morris, in your opening remarks, you'd mentioned your focus was going to be optimizing cash management. Maybe this question should be answered by itself. But you haven't really purchased too much stock since you announced your repurchase program early last year. I'm just curious, are you doing anything or do you see anything that could cause ATX (sic) [AXT] to change or be more aggressive? Or do you think that you still need to ride out the storm here?

Well, we still have our stock purchasing plan in place. But as you know that we're trying to optimize both the safety of our AXT's operation, that name [ph] we got to manage our cash very wisely to ride out the storm. And we also see a tremendous value at this level that we are trading somewhere around 60% of our book value. So I think it's a trade-off. Stephen Joseph Lococo - Footprints Asset Management & Research, Inc.: Is there any particular metric or catalyst that might change your opinion near-term to be more aggressive? Or is it just too difficult at this point?

Well, obviously, if I see customers giving us big orders. But then, we need to hold the cash to plan for expansion and buy inventory for the future business, as well as accounts receivables, which requires cash as well. So I think AXT's cash position, I'm very comfortable. I think we are very solid and you see the value of the stock is really, we think, is presented in a compelling value proposition that we should defend the stock price. So I think those are the 2 factors.

Well, ladies and gentlemen, there are no further questions. Gentlemen, I'll turn the conference back to you for closing or additional remarks.

Thank you for participating in our conference call. As always, feel free to contact me or Leslie Green directly if you would like to meet with us, and I look forward to speaking with you in the near future.

And again, ladies and gentlemen, that does conclude our conference for today. We thank you, all, for your participation.