1051627--3/30/2006--AXT

related topics

{customer, product, revenue}

{product, market, service}

{operation, natural, condition}

{operation, international, foreign}

{property, intellectual, protect}

{stock, price, operating}

{condition, economic, financial}

{system, service, information}

{financial, litigation, operation}

{tax, income, asset}

{regulation, change, law}

{control, financial, internal}

{cost, regulation, environmental}

{provision, law, control}

{investment, property, distribution}

{product, liability, claim}

Risks Related to Our Business Our operating results depend in large part on further customer acceptance of our existing substrate products manufactured in China. Defects in our products could diminish demand for our products. If we fail to comply with environmental and safety regulations, we may be subject to significant fines or cessation of our operations; in addition, we could be subject to suits for personal injuries caused by hazardous materials. Existing or future litigation could result in significant judgments against us, or cause us to incur costly settlements. Decreases in average selling prices of our products may reduce gross margins. The loss of one or more of our key substrate customers would significantly hurt our operating results. We may incur claims or other liabilities or obligations related to our failure to follow requirements for testing of products and provision of testing data and information relating to customer requirements. Additionally, customers may cancel or reduce future shipments in response to these failures, or require re-qualifications. Problems incurred by our joint ventures or venture partners could result in a material adverse impact on our financial condition or results of operations Intellectual property infringement claims may be costly to resolve and could divert management attention. The semiconductor industry is cyclical and has experienced a downturn which has adversely impacted our operating results. Our results of operations may suffer if we do not effectively manage our inventory. The impact of changes in global economic conditions on our customers may cause us to fail to meet expectations, which would negatively impact the price of our stock. If we have low product yields, the shipment of our products may be delayed and our operating results may be adversely impacted. If we do not successfully develop new products to respond to rapidly changing customer requirements, our ability to generate revenue, obtain new customers, and retain existing customers may suffer. Intense competition in the markets for our products could prevent us from increasing revenue and sustaining profitability. Demand for our products may decrease if our customers experience difficulty manufacturing, marketing or selling their products. The financial condition of our customers may affect their ability to pay amounts owed to us. We purchase critical raw materials and parts for our equipment from single or limited sources, and could lose sales if these sources fail to fill our needs. We have made and may continue to make strategic investments in raw materials suppliers, which may not be successful and may result in the loss of all or part of our investment. Our substrate products have a long qualification cycle that makes it difficult to plan our expenses and forecast our results. If we are unable to protect our intellectual property, we may lose valuable assets or incur costly litigation. We derive a significant portion of our revenue from international sales, and our ability to sustain and increase our international sales involves significant risks. Because of power shortages in China, we may have to temporarily close our China operations, which would adversely impact our ability to manufacture our products, meet customer orders, and result in reduced revenues. We need to continue to improve or implement our systems, procedures and controls and may not receive a favorable attestation report on our internal control systems by our independent registered public accounting firm. Legislative actions, higher insurance costs and potential new accounting pronouncements are likely to cause our general and administrative expenses to increase and impact our future financial position and results of operations. If we fail to manage periodic contractions, we may utilize our cash balances and our existing cash and cash equivalent balances could decline. Changes in China s political, social and economic environment may affect our financial performance. We may face additional risks as a result of the revaluation of the Chinese currency. A reoccurrence of Severe Acute Respiratory Syndrome (SARS) or the outbreak of a different contagious diseasesuch as the Avian Flu may adversely impact our manufacturing operations and some of our key suppliers and customers. The effect of terrorist threats and actions on the general economy could decrease our revenues. If any of our facilities is damaged by actions such as fire, explosion, or natural disaster, we may not be able to manufacture our products. Unpredictable fluctuations in our operating results could disappoint analysts or our investors, which could cause our stock price to decline. Our stock price has been and may continue to be volatile. We have adopted certain anti-takeover measures that may make it more difficult for a third party to acquire us.

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1051627--3/30/2006--AXT_INC