12 May 2011

Emcore quarterly revenue falls 2% year-on-year

For its fiscal second-quarter 2011 (to end-March), Emcore Corp of Albuquerque, NM, USA, which makes compound semiconductor-based components, subsystems and systems for the fiber-optics and solar power markets, has reported revenue of $47.2m, down 2% on $48.2m a year ago and 9% on $52.1m last quarter.

Fiber Optics revenue was $30m (64% of total revenue). This is down about 1% on $30.2m a year ago (despite Telecom business seeing revenue double for 40–100G tunable lasers and ITLAs, and Broadband business continuing to experience robust demand for cable TV equipment, particularly video transport products). It is also down 4.5% on last quarter’s $31.8m (due mainly to the discontinuation of some legacy products and lower revenue with a certain Asian customer).

Photovoltaics revenue was $17.2m (36% of total revenue), down 4% on $18m a year ago and 17% on last quarter’s record $20.3m (due mainly to completion of a few major programs in space solar power generation products over the last couple of quarters delivering record revenues in the September and December quarters).

Gross margin has fallen further, from 32.7% a year ago and 24.3% last quarter to 22.4%, due mainly to Photovoltaics gross margin falling from 46.6% a year ago and 33.3% last quarter to 30.2%. Fiber Optics gross margin has fallen from 24.4% a year ago and 18.4% last quarter to 18% (due to lower revenue and a $1.2m inventory reserve related to the end-of-life legacy product, offset partially by better product margin — otherwise Fiber Optics gross margin would have been 22%).

Net loss has continued to rise, from $1.7m a year ago and $3.6m last quarter to $5.2m, despite a $2.6m litigation settlement gain related to a patent infringement award associated with the Fiber Optics segment. However, net loss included $0.6m from the first non-operating expense related to Suncore Photovoltaics (the firm’s CPV component- and system-making joint venture with San’an Optoelectronics Co Ltd in Xiamen, China). After excluding certain non-cash and other adjustments, adjusted EBITDA was a loss of –$2.3m, compared with a profit of +$843,000 last quarter and +$3.3m a year ago.

During the quarter, cash and cash equivalents and restricted cash fell from $25.4m to $17m, driven mainly by being significantly back-end loaded on shipment, the pay-down of payables, and the firm’s first capital contribution of $4m to Suncore, partially offset by the $2.6m litigation settlement gain.

In April, Emcore announced a private placement of 4.4 million shares of common stock (4.9% of its total shares outstanding) at $2.19 per share, yielding $9.6m. Net proceeds will be used primarily for capital expenditure and increases in working capital necessary to support a production ramp up in the second half of calendar 2011 for the firm’s Tunable XFP product line (which a few telecom customers are qualifying as a replacement for 300-pin transponders in metro and long-haul applications).

During the quarter, order backlog fell from $57.3m to $50.5m. Photovoltaics backlog fell from $36.1m to $26.4m. In contrast, Fiber Optics backlog rose from $21.2m $24.1 m, driven mainly by Tunable Laser business, which continues to gain strong traction in the 40G and 100G markets.

Since the end of the quarter, Emcore has seen strong bookings in both Fiber Optics and Photovoltaics, boosting order backlog significantly. In particular, on 5 May Emcore received its second-highest-value contract ever (a third long-term purchase agreement with Space System/Loral, worth “tens of millions of dollars”, to deliver satellite solar cells over the next couple of years). Loral was Emcore’s first ever Space Solar customer, and Emcore continues to be its sole supplier for solar cells and panels. “We are in active discussion on a long-term purchase arrangement with another major aerospace customer, even though we are today already a primary supplier to them,” says Weinswig.

“Because of the significant investment in new products, we are seeing some very positive traction in the Fiber Optics business,” says president & CEO Dr Hong Hou. For fiscal third-quarter 2011 (to end June), Emcore expects revenue to rise to $48–50m, driven mainly by 10% growth in Fiber Optics, despite revenue for legacy products falling off by more than $1m (due partly to revenue from the Tunable XFP growing to about $1m, after two design wins from top-5 telecom equipment manufacturers, as well as good growth for video transport products). Photovoltaic revenue will be a little flat. However, although revenues in any given quarter are lumpy and program-specific, the Space Solar business will continue to experience year-on-year growth, believes chief financial officer Mark Weinswig.

“We are continuing to move into the end-of-life stage on a few products. We expect to see another $2–3m reduction in these products from this evolution,” says Weinswig. “We expect future revenues from the new products will be more than enough to offset the decline of the legacy product,” he adds.

“The Telecom and Datacom division is experiencing a product mix shift as customers begin to move towards newer technology platforms,” continues Weinswig. “This evolution will cause margins in this division to improve when our new products begin to ramp in the latter part of this year.” Due to the better product mix, Emcore aims to increase Fiber Optics gross margin to 25–35% within the next few quarters.

Regarding terrestrial concentrating photovoltaics (CPV), the Suncore joint venture is currently manufacturing Emcore’s Gen-III CPV system in a temporary facility in Xiamen. After gaining a certification at the end of April, Gen-III products are now officially qualified for the Chinese terrestrial solar market. “We do not expect running at this volume without automation for the module assembly to be very cost competitive,” says Hou. Losses from it will hence continue, but at slightly lower levels (less than $500,000), for the next few quarters until Suncore’s permanent 200MW per annum CPV module-making facility in Huainan City is up and running (after receiving its business license and relevant regulatory approvals in January, construction began in February and should be completed by mid-July, with production starting in September for shipments by the end of this calendar year). Currently, Suncore has a firm order backlog of 5MW (worth about $5m), to be delivered by mid-2012, plus an order for another 10MW ($10m) to be finalized in the next month or so, says Hou. “From the first calendar quarter 2012, this joint venture should be at break-even or generating a slight profit,” he reckons.

See related items:

Emcore’s revenue falls 4% due to ITC parallel-optical module ruling

Emcore’s net loss slashed to $0.9m as quarterly revenue grows 16%

Emcore revenue shrinks 3% as it concludes accounting review

Emcore losses slashed as revenue grows 14%

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