In its "World Economic Outlook Update" (January 2023), the IMF forecasts global economic growth of 2.9% for 2023. Central bank interest rate hikes to combat inflation and Russia's war in Ukraine continue to weigh on economic activity. The rapid spread of COVID-19 in China dampened growth in 2022, but the recent opening-up has paved the way for a faster-than-expected recovery. Global inflation is expected to decline in 2023 to 6.6% in 2023, still above pre-pandemic (2017-19) levels of around 3.5%. At this point in time, AIXTRON does not expect the general global economic environment to have any significant impact on business development. The industry and sector-specific conditions for the demand for AIXTRON systems are still intact, although an impact from negative macroeconomic developments cannot be ruled out.
Market observers see the development of production systems in the semiconductor industry as positive in the coming years. According to a study by the leading global industry association SEMI from December 2022, the overall market for investments in so-called wafer fab systems, which also include AIXTRON's deposition systems, will grow from an all-time high of around USD 95 billion in 2022 to around Contract USD 79 billion in 2023, to increase again to c. USD 92 billion in 2024. A large part of the market is still in Korea, Taiwan and China. According to SEMI, the market for wafer fab equipment is currently burdened by difficult macroeconomic conditions and conditions in the semiconductor industry. However, emerging applications in numerous markets are expected to ensure significant growth in the semiconductor industry again this decade, which should necessitate further investments to expand production capacities.
Regardless of the market development of the entire semiconductor industry, the market segments on which AIXTRON focuses are determined by megatrends, the development of which will be decisive for the future development and size of AIXTRON's markets.
The sale of GaN power semiconductors is largely driven by the need to increase energy efficiency in the global IT infrastructure and in data centers in order to slow down the rapid increase in energy consumption. The electric mobility of the future is expected to lead to an increased use of SiC components in the drive train and in the charging infrastructure in order to be able to better meet the requirements for range and efficiency.
The increasing demand for lasers manufactured on AIXTRON systems is due to the rapidly growing need for fast and energy-efficient optical data communication (cloud computing, video streaming, etc.). Likewise, 3D sensor technology in consumer electronics (smartphone, TV) and in the areas of access control, as well as the progress of industrial digitization and a growing number of vehicles that use 3D sensor technology, contribute to an increased demand for lasers.
Finally, additional new markets for AIXTRON are determined by the spread of new types of displays in smartwatches, TVs, smartphones and notebooks: Micro LED displays, whose self-luminous LED pixels can be produced on AIXTRON's MOCVD systems, are aimed at replacing today's LCD or OLED display technology through innovative, energy-saving alternatives with better luminosity, contrast, color fidelity and resolution. Commercial dissemination of these innovative display technologies will significantly determine the size of these additional new sales markets for AIXTRON.
For the 2023 fiscal year, the Group again expects revenue growth compared to the previous year. Customer demand continues to span all areas of technology. The Executive Board is optimistic about both the short- and long-term positive prospects, both for the demand for MOCVD systems for the production of lasers, in particular for optical data transmission, as well as for Micro LED-based display applications and GaN power devices. With regard to the demand for systems for the production of SiC power components, the Executive Board expects an increasing contribution to revenues in the 2023 fiscal year compared to 2022.
Based on the current group structure, an estimate of the order situation and the budget exchange rate of 1.15 USD/EUR (2022: 1.20 USD/EUR), the Executive Board expects for the 2023 fiscal year order intake on group level in a range between EUR 600 million and EUR 680 million With revenues in a range between EUR 580 million and EUR 640 million, the Executive Board expects to achieve a gross margin of around 45% and an EBIT margin of around 25% - 27% in the 2023 fiscal year.
As in previous years, the Executive Board assumes that AIXTRON will not need any external bank financing in the 2023 fiscal year either. In addition, it is assumed that the Group will be able to maintain a solid equity base for the foreseeable future.
AIXTRON's systems enable the production of power semiconductors for highly efficient energy conversion in the area of power supply for data centers or consumer electronics or electric vehicles and their charging infrastructure (GaN and SiC components). Lasers manufactured with the help of AIXTRON systems are key components in fast optical data transmission (cloud computing, Internet of Things), in 3D sensors and increasingly in complex vehicle assistance systems. AIXTRON technology also enables the production of high-frequency chips for 5G mobile networks and key components for the production of the latest generation of displays (fine pitch displays, mini and micro LED displays).
Due to AIXTRON's proven ability to develop, manufacture and market innovative deposition systems in a flexible number for several customer markets, the Executive Board is convinced of the positive future prospects for the group and its target markets.
As of December 31, 2022, AIXTRON did not have any legally binding agreements on financial investments or the acquisition or sale of parts of the company.
AIXTRON's risk management system is controlled centrally and includes all of AIXTRON's key organizational units in the process. The Corporate Governance & Compliance department, headed by the responsible CFO of AIXTRON SE, is responsible for setting up a risk management system and informs the entire Executive Board and the Supervisory Board of AIXTRON SE at regular intervals or ad hoc if necessary.
The primary goals of the risk management system support the achievement of strategic business goals and early detection of potential risks compared to the applicable corporate planning that could negatively affect the achievement of strategic business goals and business activities. The risk management system supports the Executive Board in the systematic, effective and efficient management of identified risks by defining, prioritizing and tracking risk-reducing measures. In order to meet the extended requirements of IDW PS 340, the conformity and meaningfulness of AIXTRON's risk management system were examined and essential instruments were further optimized in terms of presentation and meaningfulness. The subject of this consideration was the further development of the framework specifications for the risk management system, the risk assessment scheme, the risk-bearing capacity and the resulting overall risk position in the AIXTRON Group. The results and resulting adjustments were integrated into the risk management process and risk reporting, used in the quarterly risk inventory and documented in the Group-wide risk management system manual. In order to further optimize the risk management system, new software for the risk management system was introduced in the fourth quarter of 2022.
All members of the senior management team and other key employees have been trained in the use of the new risk management software.
The regular, quarterly risk inventory is initiated, carried out and monitored by the central risk manager. All risk managers from the operational and administrative areas, all general managers of the AIXTRON subsidiaries and the Executive Board are asked about the current developments in already documented risks and measures to reduce them, as well as possible new risks. The results are collated at central level and discussed in a risk committee before the Supervisory Board is informed.
AIXTRON uses risk management software to support the risk management process. All risk owners have access to the software. This ensures that abrupt changes in the risk situation or newly identified risks are reported by the risk managers and integrated into the risk portfolio and reported promptly.
At AIXTRON, all individual risks and risk aggregates are evaluated and classified according to a defined scheme. The assessment of the probability of occurrence can be specified in four levels or as a fixed value. The possible extent of damage if the risk occurs can also be recorded in four stages or as a three-point analysis. The amount of damage relates to the impact on the operating result (EBIT) of the AIXTRON Group. If the risk is significant for relevant risks, a possible outflow of cash is also used as the amount of damage.
The four levels for the probability of occurrence of the risks, in addition to the possibility of a fixed value, are divided into:
The potential net loss (measured as a percentage of equity) is used as a criterion for evaluating the possible financial impact of a risk on the earnings (EBIT) of the AIXTRON Group. The four possible levels in addition to the three-point view were calculated as follows:
The risk effects are presented both in terms of possible gross/net effects and in different observation periods (up to 12 months, 13 – 24 months and longer than 24 months). The gross loss represents the loss potential in the event of a risk occurring without taking into account other effects such as risk reduction measures. The net loss describes the loss potential in the event of a risk occurring taking into account the effects resulting from the risk reduction measures such as insurance, provisions, budget- and forecast recording of risks. A risk matrix is derived from this assessment, which divides the risks of the AIXTRON Group into the following four risk classes (see chart for color scale):
The risks classified as substantial are the main risks in relation to a threat to the continued existence of the AIXTRON Group within the meaning of the German Accounting Standard (DRS 20).
The internal control system (ICS) is part of the corporate governance organization. The aim of the ICS is to ensure that business activities are carried out properly, that financial reporting is reliable and that legal, regulatory and internal requirements are met. To achieve this goal, potential operational, financial and compliance risks are identified, assessed and internal controls implemented when deemed necessary. The effectiveness of the control measures is checked at regular intervals by the Corporate Governance and Compliance department. To ensure functional and disciplinary independence, the ICS reports to the Chief Compliance Officer. The ICS has no direct operational responsibility and/or authority for the processes within the ICS.
The internal control system in the accounting process of the AIXTRON Group includes both the accounting process of AIXTRON SE and the group accounting process. It defines controls and monitoring activities, which are measures aimed at ensuring the proper handling of business activities, reliable financial reporting and compliance with laws and guidelines. A control system that is appropriate for the size of the group and business activities is the prerequisite for effectively controlling operational, financial and other risks.
In the accounting process, controls are defined at risk points that help ensure that the annual financial statements and the consolidated financial statements are prepared in accordance with the regulations. A separation of functions that is adequate for the size of the group and the application of the four-eyes principle reduce the risk of fraudulent activities.
A global IT system is used to prepare the annual financial statements, the consolidated financial statements and the consolidation, which ensures a uniform and consistent approach and data security. Central system backups are regularly carried out for the relevant IT systems in order to avoid data loss. In addition, defined authorizations and access restrictions are part of the security concept.
The corporate function Finance of the AIXTRON Group is technically and organizationally responsible for the preparation of the annual financial statements and the consolidated financial statements. In the decentralized units, local employees are responsible for preparing the local financial statements. Uniform group accounting is ensured by group-wide specifications in terms of content and deadlines, as well as accounting guidelines and valuation principles. The Compliance department regularly checks compliance and effectiveness of the controls and is therefore involved in the overall process.
In the opinion of the Executive Board, these coordinated processes, systems and controls ensure that the Group accounting process is in accordance with IFRS and the annual financial statements are in accordance with HGB and other accounting-related regulations and laws and are reliable.
The internal audit is part of the corporate governance organization and is set up by the audit committee of AIXTRON SE on behalf of the Supervisory Board of AIXTRON SE. Internal Auditing reports directly to the Audit Committee and the Executive Board. Internal Audit's annual plan is discussed with and approved by the Audit Committee and the Board of Directors. Internal Audit aims to provide independent and objective auditing and consulting services to improve the organization and add value. Internal Audit follows a systematic and disciplined approach to assessing the effectiveness and efficiency of organizational processes and tools. The follow-up to internal audit findings and progress is regularly discussed with the Audit Committee and the Board.
In addition, the annual internal audit plans are prepared on the basis of a risk-based methodology, which takes into account findings and risks in the area of compliance risk management and the internal control systems. Based on the risks and findings, a recommendation for the annual internal audit plan is submitted to the Audit Committee for review and approval. In addition, the findings and risks are reviewed on an ongoing basis and, if necessary, ad hoc reviews are recommended to the Audit Committee.
The design of the risk management and internal control system described is based on the legal framework and international standards – such as the German Stock Corporation Act, the German Corporate Governance Code or the auditing standard "IDW PS 340 n.F." issued by the Institute of Public Auditors. Based on the information made available to the Executive Board of AIXTRON SE, it is not aware of any circumstances that could impair the appropriateness and effectiveness of the risk management system (RMS) or the internal control system (ICS). 1
1 The information in this paragraph (overall statement on the effectiveness of the risk management and internal control system) was made in accordance with the new requirements of the German Corporate Governance Code 2022. They are to be classified as "not related to the management report" because they go beyond the legal requirements and are therefore not part of the substantive audit by the auditor.
The following risks could possibly have a significant negative impact on AIXTRON's results of operations, net assets and financial position, net assets, liquidity and the stock market price of the shares as well as on the actual outcome of matters to which the forward-looking statements contained in this combined management report are based relate. The risks explained below are not the only ones faced by the AIXTRON Group. There may be other risks that AIXTRON is currently unaware of, as well as general corporate risks such as political risks, the risk of force majeure and other unforeseeable events. In addition, there may be risks that AIXTRON currently considers immaterial, but which ultimately could also have a material negative impact on the AIXTRON Group. Please refer to the “Forward-Looking Statements” section for more information on forward-looking statements.
In terms of the German Accounting Standard (DRS 20), the following risks were considered material as of December 31, 2022:
AIXTRON's target markets are distributed worldwide, with a regional focus on Asia, Europe and the USA. AIXTRON is therefore subject to global economic cycles and geopolitical risks such as the trade conflict between the USA and China, which could adversely affect the business of the AIXTRON Group. Such risks cannot be influenced by AIXTRON.
The markets addressed by AIXTRON are cyclical and can therefore be volatile. The timing, length and intensity of these industry cycles are difficult to predict and influence through AIXTRON. In order to spread market-related risks, AIXTRON therefore diversifies and offers products in different target markets.
In each of these markets, AIXTRON is in competition with other companies. It is possible that new competitors will appear on the market or that established competitors will adopt strategies or launch products that may negatively impact market expectations overall or of individual key customers of AIXTRON.
Market developments are continuously observed and assessed by AIXTRON. In order to reduce the risk of dependence on individual markets and their fluctuations, AIXTRON has implemented a management system designed to ensure that market developments are identified early and used optimally.
AIXTRON's market and competition risks are classified as significant risks, since the extent of damage in the event of a risk occurring would have a significant impact on the Group's high revenue and profit expectations in the medium to long term.
Some of the technologies that AIXTRON offers enable new, disruptive application options. This often means long development and qualification cycles for AIXTRON products, since demanding technical and/or other customer specifications have to be met (sometimes for the first time) before a business deal is concluded.
Due to the predominantly long development and qualification cycles of AIXTRON's products, there is a possibility that AIXTRON's technologies and products are developed for markets or application areas in which the framework conditions of the end markets or the strategic planning of potential customers change fundamentally in the course of the development cycle.
The ongoing focus on research and development activities in the past fiscal year and the intensive involvement of external technology partners are still considered by AIXTRON SE’s Executive Board to be suitable measures to reduce this risk.
AIXTRON's technology risks are classified as significant risks, since the extent of damage in the event of a risk occurring would have a significant impact on the Group's high revenues and profit expectations in both medium and longer term.
If it turns out that a technology risk has materialized and the introduction of a new technology cannot be implemented as planned, this can result in the planned and forecasted revenues being exposed to the risk of being postponed or omitted, and thus development activities being refinanced later than planned or not not at all.
In AIXTRON's risk management system, the following risks are not considered significant for the Group:
AIXTRON defines IT and information security risks as breaches of integrity, confidentiality and liability.
The Group has invested in extensive technical and organizational measures to increase information security and protect information from unauthorized access, unwanted modification or deletion. The information security measures taken are subject to regular monitoring and continuous improvement and are supported by targeted awareness and training concepts. Accordingly, the overall risk classification could be reduced.
As part of the risk management system, the effects, measures and prospects in relation to the current COVID-19 pandemic situation and possible resulting effects on global material availability and supply chains are recorded, discussed, evaluated and reported in our regular quarterly risk inventory.
Compared to the 2021 fiscal year, the overall risk situation remains unchanged for the 2022 fiscal year, with the exception of the changes described above in the AIXTRON Group. The further focusing of research and development activities with a focus on the renewal and expansion of the product portfolio tightens the risk portfolio and thus improves the use of opportunities and the avoidance of risks in AIXTRON's target markets.
Neither in the 2022 fiscal year nor at the time of writing of this management report has the Executive Board of AIXTRON SE identified any risks for the company that could threaten its continued existence as of December 31, 2022.
AIXTRON's core competence is the development of the latest technologies for the precise deposition of complex semiconductor structures and other functional materials. Here the group has developed a leading competitive position worldwide. In order to maintain or expand these positions, AIXTRON continuously invests in corresponding research and development projects, e.g. for MOCVD systems for the production of semiconductors for applications such as micro LEDs, lasers or power electronics. The Executive Board will maintain the focus on AIXTRON's core competence in order to successfully work on existing as well as to successfully open up new markets.
Important market segments for power electronics based on wide-band gap materials such as gallium nitride (GaN) and silicon carbide (SiC) are the automotive industry, energy industry, telecommunications and consumer electronics. The development of energy-efficient solutions for AC/DC converters and inverters as well as high-frequency power amplifiers is becoming increasingly important. The trend towards the electrification of vehicles and their charging infrastructure using SiC-based components plays an important role here. GaN-based components, e.g. for fast charging of mobile devices, are becoming increasingly popular. The demand for energy-saving GaN-based power supply in IT, such as data centers or servers, is currently increasing rapidly and is expected to continue to increase over the coming years through the development of additional market segments. GaAs or GaN-based high-frequency components, which are used for signal transmission in 5G networks or for the WLAN 6 standard, also make a contribution to revenues.
Important market segments in optoelectronics are consumer electronics, data communication and display technology. The trend towards optical data transmission over shorter distances, e.g. in data centers or when connecting households to a fiber optic network, as well as the worldwide expansion of fiber optic networks for fast data transmission, is causing increasing demand for systems for the production of edge and surface emitting lasers (EEL and VCSEL). AIXTRON expects demand to increase over the coming years, especially when demand for 3D sensors increases due to virtual reality applications or LiDAR in the automotive sector. Demand for equipment manufacturing red, amber and yellow (ROY) LEDs is currently subdued, also impacted by weaker consumer demand. Further growth potential lies in the increasing commercialization of micro LED displays, which would be accompanied by additional significant demand for systems for these demanding applications. These display technologies have high potential in various consumer electronics end-use applications.
AIXTRON expects that the following market trends and opportunities in the relevant end-user markets can have a positive impact on further business development:
As part of the assessment of our business opportunities, investment opportunities or development projects are reviewed and prioritized in terms of their potential value proposition to ensure an effective allocation of resources. We focus specifically on growth markets that are positively influenced by global megatrends such as increasing electromobility, electrification, energy efficiency, digitization and networking, in order to make the best possible use of the opportunities that arise for the Group's ecologically and economically sustainable business development.
If identified opportunities are deemed likely to materialize, they are incorporated into business plans and short-term forecasts. Trends or events going beyond this, which could lead to a positive development for the net assets, financial position and results of operations, are observed and can have a positive effect on our medium to long-term prospects.
Alan Tai
Taiwan/Singapore
Christof Sommerhalter
USA
Christian Geng
Europe
Hisatoshi Hagiwara
Japan
Nam Kyu Lee
South Korea
Wei (William) Song
China
AIXTRON SE (Headquarters)
AIXTRON 24/7 Technical Support Line
AIXTRON Europe
AIXTRON Ltd (UK)
AIXTRON K.K. (Japan)
AIXTRON Korea Co., Ltd.
AIXTRON Taiwan Co., Ltd. (Main Office)
AIXTRON Inc. (USA)
Laura Preinich
Recruiter
Tom Lankes
Talent Acquisition Expert- Ausbildungsleitung
Christoph Pütz
Senior Manager ESG & Sustainability
Christian Ludwig
Vice President Investor Relations & Corporate Communications
Ralf Penner
Senior IR Manager
Christian Ludwig
Vice President Investor Relations & Corporate Communications
Prof. Dr. Michael Heuken
Vice President Advanced Technologies