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Why Shares of AXT Inc. Dropped Today

By Timothy Green - Mar 16, 2017 at 11:49AM

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A fire at a manufacturing facility has shut down production, reducing the company's expected revenue for the first quarter.

What happened

Shares of semiconductor substrate manufacturer AXT Inc. ( AXTI 6.92% ) slumped on Thursday after the company disclosed that a fire at one of its facilities halted all wafer substrate production. Guidance was lowered as a result, sending the stock down 16% by 11:15 a.m. EDT.

So what

A fire at AXT's Beijing manufacturing facility occurred on the evening of March 15, located in the gallium arsenide and germanium crystal growth production area. All production in that area has been stopped. The fire caused no injuries or structural damage, but the processing of all wafer substrates has been halted, even in unaffected areas.

The AXT logo.

Image source: AXT Inc.

AXT is working with the fire department and other regulatory agencies in an effort to find the source of the fire. The company provided no estimate for when production would resume. First-quarter revenue guidance was lowered as a result of the shutdown, with the company now expecting revenue between $18.0 million and $18.5 million. The previous guidance range was $19.5 million to $20.5 million.

Now what

The market reacted harshly to what appears to be a temporary situation. AXT stock nearly tripled from the beginning of 2016 to market close on Wednesday, so volatility isn't surprising, especially given that the stock traded for 35 times forward earnings prior to Thursday's drop. But the loss of a few million dollars of revenue due to a one-time incident doesn't seem very meaningful in the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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