Good afternoon, ladies and gentlemen, and welcome to AIXTRON’s First Half and Q2 2019 Results Conference Call. Please note that today’s call is being recorded. Let me now hand you over to Mr. Guido Pickert, VP of IR and Corporate Communications at AIXTRON, for opening remarks and introductions.

Thank you, operator. Let me start by welcome you all to AIXTRON’s presentation of our HI and Q2 2019 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 expressed permission. Your participation in this call implies your consent to this recording. As with previous results conference call, I trust that all participants have our results presentation slides, Page two of which contains the usual Safe Harbor statements. 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, which includes additional information on AIXTRON’s market and its technology and is available on our website as well. 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 Dr. Bernd Schulte for opening remarks. Bernd?

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 in the first half of 2019. Charles Russell will then go into more detail on the financials. This will then be followed by Felix Grawert who will give an update on OLEDs and Power Electronics as well as a wrap-up. In Q2, revenues came in at €63.3m which meant that we generated €132 million in the first half of the year, which was substantially better than the €118 million we generated in the same period last year. We also generated solid gross margins of 40% in the first half of the year with EBIT totaling roughly €19 million and net income of €16 million. These results and our €110 million backlog, backlog gives us a good basis for the rest of the year and as a result we can confirm our full year guidance which we gave you earlier in the year. With our ongoing cost reduction measures, the expected product mix going forward and the positive US Dollar exchange rate we now expect to end the year at the upper end of our margins guidance. We had also a second quarter which was a reflection of the expected reluctance by some of our customers, particularly in the area of opto-electronics, to invest in new production capacities. On top, this was influenced by a geo-political economics such as the U.S. ban towards Huawei, a major global player in telecommunication hardware including network devices or mobile phones. With that, Q2 order intake was comparably low at just under €45 million with the major contribution by power electronics. However, we see inquiry levels suggesting an order pick up in the second half of the year in particular from Asia. Despite the weak market environment in the first half, which is being caused by the situation mentioned earlier, we still see three 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 the 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. At this point; let me now hand you over to Charles for a more detailed overview of the first half 2019 numbers.

Thanks, Bernd, and hello to everyone. Starting on Slide four, our income statement. Total revenues for Q2 2019 were €63 million compared with €69 million in the previous quarter. Gross margin was 41% in the quarter compared to 39% in Q1. The continuing strong dollar added just under 1 percentage point to the improved margin, with the remainder coming from a better sales mix which included a lower proportion of shipments for LED compared with Q1. Operating expenses in the quarter were €16.6 million, slightly below Q1’s €17 million. G & A expense in the quarter returned to more normal levels, Q1 included reduced project related costs. R&D expense at €12.5 million was similar to the previous quarter; the small reduction is coming from lower project material spend. Other Income is mainly R&D grant income and Exchange gains. Overall, EBIT for Q2 was €9.3 million compared with €9.7 million in Q1. Net profit for Q2 was €7.3 million compared with €8.5 million in Q1. The tax expense for the quarter includes a routine tax adjustment of €0.7 million. We continue to expect the effective tax rate for 2019 to be in the range 15% to 20% for the Group. Turning to the balance sheet on the next slide, inventories of €82 million include around €10 million of prototype systems, which includes systems at customer sites. Receivables stand at €28 million which is 32 days sales outstanding. Advance payments from customers are €39 million, down from €53 million at the end of 2018. The change reflects the low order intake in the first half of the year. Advance payments are 35% of the order backlog. Moving to slide six, which shows our cash flow statement. We had a healthy free cash flow of €13 million in the quarter and we expect this to continue into second half to meet our guidance of a positive free cash flow between €15 and €25 million. We ended the quarter with €259 million in cash. With that, let me hand you over to Felix.

Thank you, Charles. I would like to give you some perspective on recent developments in OLED and Power Electronics before concluding with the outlook for the rest of the year. Turning to the update on our development projects on slide seven. With regards OLEDs, our Gen2 tool had been installed in the customer facility earlier this year. The tool is jointly operated by a team of engineers of our customer and of our subsidiary APEVA. The tool is running stable and its process performance is currently being fine-tuned. It is undergoing an in-depth evaluation with respect to OVPD technology and the performance of OLEDs produced on that tool. As a result, we are making good progress in the qualification of our technology. In the Power Electronics area, we continue to gain momentum. In Gallium Nitride power electronics, we have a solid and growing customer base. We have been able to win new customers, and we see orders both driven by the 5G buildup in GaN RF and from capacity expansions in GaN Power Markets. In Silicon Carbide, we make good progress with our fully automated high-throughput system. We have obtained orders for this tool from several customers already and performance demonstrations to additional customers have been scheduled. Market feedback is very positive which gives us confidence that we are on track to successfully address the multi-year market opportunity in power electronics. Let me now come to our outlook for 2019 on slide eight. We have had a slow start to 2019 in terms of orders, but we are seeing a broad customer interest in our technology offerings and especially our solutions around lasers for telecoms and 3D sensors as well as for power electronics. Despite the weak market backdrop, we can re-confirm our guidance for 2019 that we initially issued at February and confirmed in April. We remain confident that we can achieve our goal of between €220 million and €260 million in new orders for 2019 with an expected increase in demand, particularly from Asia. However, we do have to recognize that there remains an element of risk around those anticipated orders given the current environment. We expect revenues to be between €260 million and €290 million. We now expect gross margin to be around 40% of revenues, and EBIT margin to be around 13% of revenues, both being at the top end of the originally guided ranges. Additionally, we expect to generate between €15 million and €25 million of free cash flow this year. Finally, let me assure you that although there is weakness in some of our markets, we have an excellent product portfolio with growing interest from a broad range of customers all of which give us confidence around our strategy, business model and the growth opportunities in front of us. With that, I’ll pass it back to Guido before we take questions.

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

Thank you. [Operator Instructions] And the first question comes from Andrew Gardiner calling from Barclays. Over to you.

Good afternoon gentlemen. Thank you for taking the question. I just had one on the points you were making there in terms of the order outlook. Felix, you mentioned the -- you're sticking with the guidance for 220 million to 260 million in new orders for 2019, and just the increase in demand that you're seeing from Asia. Can you give us any sense as to what segments that's coming in LED, optronics? And then just sort of I can understand sort of customer interest in the technology but what's giving you the conviction that they're going to come through and indeed place the orders given the backdrop that you've talked about at a particular discussions particularly advanced and you're close to closing them, just trying to gauge the level of conviction around that? Thank you.

Yes, Andrew, this is Bernd. Let me give you an answer to your question. What gives us the confidence? It's indeed the discussions we are having with customers with quotations and basically ongoing negotiations about contracts. That gives us confidence. And what is the driver? Well I mean we have said clearly that the reason for the reduced order intake in second quarter has been really the backdrop in optoelectronics, mainly in 3D sensing but also some telecommunication related. This seems to be now coming back in particular some countries in Asia namely China, Taiwan.

Thanks very much.

Thank you. [Operator Instructions] And the next question for today comes from Veysel Taze calling from Bankhaus Lampe.

Yes. Hi. Thank you for taking my questions. First one would be on the VCSEL business you mentioned in Asia. But as far as I see in Q2 your VCSEL shipments have increased Q-on-Q. So the question is how much capacity is really needed for the H2 ramp up or higher penetration of 3D sensing in smartphones? Or are there any other points which needs to be considered here?

Veysel it's Bernd speaking. I think the main driver for basically return – moderate return of demand for VCSEL tools really comes still from the cellphone market. I think it's expected that we would see the android came really now in 2020 coming in the use of 3D sensing devices either face ID but also maybe on the work side and also speculated that there would be new models from Apple which also offers more 3G sensing applications. And I think the supply chain is starting to preparing to offer this potential additional demand.

Would you say that the overcapacities in VCSEL are now fully digested?

This is hard to say on the global. I think its really depending from customer to customer. There might be customers still having some over capacity and others who had additional RAM strategy, maybe still additional capacity.

Okay. Thanks. And then on -- a follow-up on the power business. The shipments in Q2 were still maybe one tool more than in Q1. But I guess, it's more in the backlog, right, the power business. Any chance to get a split for the backlog in terms of the different applications and products like you do that for the sales?

Well, I don't have a number for the backlog for you but in Q2 the power order intake was very strong. It was close to 50% of the order intake. So we clearly see that is rising at a growing demand on the power side.

And then a brief update on our tool. It's supposed to be in the market end of this year, right? So is it still on track?

You mean the silicon carbide tool, correct?

Yes.

Yes. The silicon carbide activities are fully on track. We have tools for beta testing at the ground to several customers. We're making good progress. We have received additional firm orders from other customers beyond the betas and our lab is very busy doing demos for additional customers. We have plenty on track.

Okay. And then, I don't know if you can actually give any color around the recovery you expect in the orders for the second half of the year. I mean, what type of recovery would that be? Is it more the 70-plus quarterly run rate we have seen in 2017? Or is it rather 60-plus range for -- in 2017? Any insight there would be really very helpful.

Veysel, I mean certainly the numbers have to support our guidance figure which is to be much more detail. I think we are not prepared yet now to do this.

Okay. And then final one, on the other operating income, so it's FX and plus the subsidies you receive. H1 was already above the level what we have seen for the full year of 2017. Any split there what drives exactly that between FX and subsidies?

No, not really. I think it's an increase in both.

Okay. Good. Thank you very much.

Thank you. [Operator Instructions] Next, we have Uwe Schupp calling from Deutsche Bank. Over to you.

Yes. Thank you and very good afternoon to you all. Just two questions for me. Firstly, on the trade war and really rephrasing a question from Andrew earlier the potential implications for you here. If I remember back at the conferences and also road shows that you did in May and June timeframe, you actually pretty cautious back then on the business development because you saw some nervousness on the back of the Huawei ban. And today you come out and say basically that business would be picking up materially from year whether it would be 60 or 80, I mean, I guess, it remains to be seen. But is it correct to say that the nervousness has finished mostly and you are still or you're by now a net beneficiary maybe even from this whole trade conflict because China is building up an unknown supply chain? And then secondly just for Felix. Did I get you correctly, the power was 50% that's 50 of the mix in Q2 would be interested if that is not related to the new silicon carbide. It must be ready to gallium nitride. And then the follow-up would be whether that is for some initial fast-charging business that one of the U.S. semiconductor companies has been talking about apparently potentially supplying to a major smartphone launch in this coming autumn? Thank you.

This is Bernd speaking. I mean, definitely what is potentially happening is that due to the political threats which is going on that there are now more interest inside of China to develop a local supply chain. Certainly this doesn't come overnight. This takes time. But I think it's quite – it not unlikely that this is going to happen. And on the other side we see definitely increasing demand for telecom laser tools as well as VCSEL tool from that region, I would say for Greater China. But whether this has a one-to-one relation we suddenly don't know. But everybody can draw his own conclusion. But we seeing definitely increase in quotation activities and customers discussions and contract negotiations from that area.

And with that let me come to the second part of your question relating to the power electronics. So that 50% of the order intake power electronics was a mixture of different factors. First of all, it was a combination of orders relating to the established gallium nitride tool, but also orders for the new silicon carbide automated tool. And within gallium nitride once again a divert mix, part of that related to the 5G build out, again very diverse from multiple regions around the world. And the other pod within the GaN related to power electronics and also that diverse picture some repeat customers, some new customer, someone on high voltage, some low voltage, but I would put it it's a relatively broad diversified takeout -- take up or pick up of the order intake rather than a one particular, one specific segment driver.

Just briefly follow-up, Felix, on the gallium nitride low power is in your pipeline do you see a bigger order or potentially bigger orders coming from fast charging opportunity?

Not from a particular single opportunity. It's rather a broad trend across the entire market.

Thank you.

Thank you. The next question comes from Harald Schnitzer calling from DZ Bank. Over to you.

Yes. Hello. I've got a question on the OLED project. How has it developed since Q1 in terms of likelihood that you will receive the order in the second half maybe? And secondly on the silicon carbide you mentioned that you would have some new orders from customers. Are there completely new customers for AIXTRON? Thank you.

Thank you for the question. So, on the OLED topic first; our tool is currently being operated by our engineers and engineers of our customer. They are together execute test run. They they're producing OLE in a small laboratory format on the tool to compete all OLED devices which are then being rigorously tested for specifications like brightness, lifetime, color saturation, all kind of type of technical parameters. We expect that evaluation to be lasting throughout summer early fall. And once those tests are being fully completed and all the technical and engineering result of those tests are available, and of course testing always means also some fine tuning and some optimization of finding the right set points of such a brand new tool. Then when that is completed, we would really know about the technology potential and then we can talk about the customer order. So in a nutshell at this point in time it would be too early to comment or to give any directional input. But I think we are well on track with respect to executing this testing phase. Maybe that gives you an idea what the status of that project is. And with that being said I would like to turn over to the silicon carbide topic. Yes in fact some of the orders that I was mentioning come from completely new customers, yes, for AIXTRON and of course also silicon carbide. So we have been able to broaden our customer base here, which is a very positive result.

Thank you.

Thank you. The next question comes from Janardan Menon calling from Liberum. Over to you.

Hi. Good afternoon. Thanks for taking the question. I just want clarification on the silicon carbide. You said you've recorded some orders for customers beyond the beta tools. Are these are for additional beta tools or have you taken orders for a production tool at this stage already?

So, some orders could be on beta tool, but some orders about the tools and the automation capability then later to be proven once the betas are completed.

Okay. So I mean just to know how we can sort of figure out how your progression of silicon carbide order will go through. I mean is it that getting one or two orders now but the ones your -- the largest silicon carbide chip companies out there finish that qualification you will see a substantial pickup in orders and that could be by around Q4. Is that the way we should think about this?

I would not want to give an exact timing on this. It's clear that all the customers are first getting one tool on their shop floor, be it in form of a beta, bet it in form of some order. The tool is then being brought into all the full specifications being tested. Then the tool is being run for a certain period of time by the customer where the customer is gaining full experience what the tool can deliver not only in the laboratory test environment but really in a regular high volume production environment. And once that phase within our customers is completed then we are targeting to expect larger volume orders from the customer. I think if you add these steps, I think some maybe there in Q4, other maybe in 2020. It really depends on the high volume qualification process of the customer.

Understood. And just going to 3D sensing, AMS in their results talked about strong momentum that they're seeing from the Android side on 3D sensing, both front and world facing, they we're talking about. I was just wondering, I mean, so far your -- the customer base of 3D sensing especially at Apple has been quite consolidated. IQE has being a major customer of yours as well. Are you seeing a fragmentation of the Android side? Are you seeing many Chinese, Taiwanese companies get into that market? Or is it being fairly – is it remaining quite consolidated even as the Android momentum picks up? I have a last follow up, if I may.

I don't think we can call its fragmented. I think the players here providing a fee the 3G sensing applications, the known prospects and you can imagine that most of them AIXTRON customers. So I think the customer base has not changed significantly in particular for the well known supply chain over the last 12 months. However, we're seeing certainly new players. We still seeing new players starting developing VCSEL products in terms APEVA particular in Asia and particularly in China. But I would say for the time being and when we speak about potential product trends next year I think it's very likely to be the known suspect.

Got it. And last question is on the LED side. The date for when we might see an order for a larger Gen X system has slipped a little over the last year or so there was an expectation that that could have come earlier. You're now saying before the end of the year. Can you give us some a feel for where you are in that process? Is there an ongoing negotiation on the size of the machine and the price which could be paid et cetera that has already started or is that something that is yet to start at this point in time and will depend on the ongoing testing that the customer is indulging in?

The latter is correct. As I mentioned it's first about evaluating and completion -- completing the technical performance evaluation and fully understanding the capabilities of the tool. And if that is positive then after that it comes to the discussion about the customer. It's true. Although our program as you know has been delayed, but now we are on track, nevertheless what exactly the date for that is that would be-- it's not clear. If that's really the steps mentioned and after that steps, the next phase of customer discussion and negotiation will start.

Understood. Thank you very much.

Thank you. The next question comes from Charlotte Friedrich calling from Vermont.

Hello. Just one follow-up. I think we've covered most of my questions by now. Could you tell us how much in R&D expenditure you had in the second quarter towards APEVA and how you see this going forward? Also, as you said, you are going for the testing phase, you may receive the order. How should we think about that? Thank you.

Thank you. As you know in the last year in 2018 we spend about – the OLED activity had a bottom line impact on about €25 million. As we comment earlier in 2019 we expect to see bottom line impact of OLED activity to be less. We would not comment exactly how much that breaks down by individual P&L items, but it will be a little softer and have an impact on the P&L. And the exact number, of course, determine or depend largely on the discussed timing sequence of the technical evaluation, the starting point of a project for the Gen X and therefore it would be too early now to give out exact numbers. But the overall trend decline is intact.

Okay. And then one more question. You said that 50% of the order intake in Q2 was power related. Could you give us a split very roughly of how much of that was done and how much of that was the beta and silicon carbide tools?

I don't have the numbers exactly in front. Just by a difference maybe two-third, one-something between that -- something in that range.

Okay. So that will be two-third GaN, one-third silicon carbide, right?

Somewhere between two-third and one-third and 50/50 somewhere in between.

Okay.

Don't have the numbers in front of me.

Thank you.

The next question comes from Malte Schaumann calling from Warburg Research. Over to you.

Good afternoon. The first one is on carbide again. How long does it take for your customers to tune or quantify their process on your tool? How many months are required for them customers -- new customers could place more volume like orders?

Very significantly. We have some customers would have -- will take on a very diligent, very rigorous qualification and quality control approach where you can say, it can be a process of five, six, seven months. Yes, very diligent. We also do have some customers which follow a much more aggressive risk taking approach, running some stress tests within literally a single digit number of weeks and then starting to come to tool decision in order to be aggressively grab market share. That's a very diverse pattern. So therefore, if you think about potential order, follow up order it would be a mixed picture, vary by type of customer. And you can imagine some of the established German automotive supply chain lean much more towards the one side, other customers then of course on the other end of the spectrum.

Okay. And then do you see other customers new customers in your company to be close to also place orders within the next month. So, would you expect to maybe have kind of relations to all these major players within a few quarters?

We are in discussion – we are currently in discussions with all the big players of the market and we are in demonstration in our laboratory. And it's clearly our target, our objective to win a major share of this customer base. At this point we cannot comment yet because the demos has been outstanding with many of them, which of them will eventually win over for our tool.

Okay. And any of your customers provide some kind of indications for potential ramps schedules? So do you have some kind of idea how potential ramp in 2020 might look like will it be one by one or they are the potential for multiple orders or multitude of orders?

Sure. But it would be too early to discuss here at this stage. The technical mass production experience of our customer comes first and then we enter the ramp phase. This would be too early to discuss.

Yes. Sure. Okay. Thanks.

Well, thank you. Thank you everyone. This would conclude today's call. Thanks for your interest and your participation in this call. You know where to find us and me, in case you still have any questions for that. Thank you all, and bye-bye.