27 February 2012

Emcore’s quarterly revenue falls 28% due to Thailand flood

For fiscal first-quarter 2012 (to end-December 2011), Emcore Corp of Albuquerque, NM, USA, which makes components, subsystems and systems for the fiber-optic and solar power markets, has reported revenue of $37.5m, down 28% on $52.1m both last quarter and a year ago.

Of total revenue, 51% came from the Photovoltaics segment (up from 41% last quarter). However, revenue of $19.1m is still down 7% on $20.3m a year ago and 10% on last quarter’s record $21.2m.

Fiber Optics fell from 59% of total revenue to 49%: $18.4m is down about 40% on both last quarter ($30.9m) and a year ago ($31.8m). In October, flooding in Thailand caused primary contract manufacturer Fabrinet Co Ltd to suspend operations at its facility (which supports half of Emcore’s Fiber Optics revenue). Most of Emcore’s process and test equipment (as well as inventory) was submerged, severely impacting its ability to meet demand for three major product lines: telecom products such as integrated tunable laser assemblies (ITLAs) and tunable XFP modules; cable TV lasers, components and transmitters; and legacy products.

Despite this, thanks to the firm’s original tunable XFP manufacturing line in the San Francisco Bay Area, Emcore shipped $1m from this product for the first time, after qualifying three more telecom customers (boosting design-wins to 10). Also, revenue for unaffected product lines – such as video transport and specialty photonics, Fiber-To-The-Home (FTTH), and active optical cable (AOC) products - grew 25% sequentially. In particular, Emcore shipped more than 15,000 AOCs in its second quarter of product release, including the first commercial shipment of its 12x10Gb/s CXP AOC.

Due mainly to the flood, gross margin has fallen further, from 24.3% a year ago and 19.2% last quarter to just 9.3%. Photovoltaics gross margin of 22.7% is down from 33.3% a year ago but up from 21% last quarter (as manufacturing yield has been improving while new CPV products ramp up, and the more profitable Space Photovoltaics business continues to take up a vast majority of the solar product mix). However, Fiber Optics gross margin has fallen further, from 18.4% a year ago and 18% last quarter to -4.8%.

Lower fiber optics revenue due to the flood resulted in higher manufacturing overhead as a percentage of revenue. Manufacturing of certain fiber optics-related components was moved to Emcore-owned facilities, involving higher labor and other related costs. Instead of completely rebuilding all flood-damaged manufacturing lines, it was decided to realign the fiber-optics product portfolio and focus on business areas with strong technology differentiation and growth opportunities. Management identified $0.9m of inventory on order related to manufacturing lines for legacy products that were destroyed by the flood and will not be replaced. Also, there was $1.5m of additional expenses for excess and obsolete inventory. Together with other stock compensation charges, these reduced gross margin by more than 15 percentage points for the Fiber Optics segment, which otherwise would have been almost +10% rather than -4.8%.

Overall, Emcore recorded $5.7m in flood-related losses ($3.9m for destroyed inventory and $1.8m for damaged equipment). However, the firm also claimed damages and received proceeds of $5m under its insurance policy relating to business interruption.
Excluding these, operating expenses were cut by $1.9m from last quarter to $14.5m, due mainly to cost-reduction activities put in place after the flood, including temporary salary reductions and rotating furloughs.

A loss of about $1m was recorded related to the Suncore concentrated photovoltaic (CPV) component- and system-making joint venture with San’an Optoelectronics Co Ltd in Xiamen, China. During the quarter, Suncore increased its registered capital by recording a deemed capital distribution to Emcore of $14.8m which was reinvested back into Suncore. Emcore also received a cash dividend from Suncore totaling $1.6m, which funded foreign income tax expense incurred as a result of these capital distributions. As of end-December, net investment in Suncore totaled $0.2m.

Emcore’s net loss in Q4 was $14.2m, level with last quarter but up on $3.6m a year ago. Net cash provided by operating activities totaled $20.8m, but this was due mainly to an increase in customer deposits of $9.7m and a reduction in accounts receivable of $9.4m. During the quarter, cash, cash equivalents, and restricted cash rose from $16.1m to $23.8m.

As of end-December, Photovoltaics order backlog was $51.7m, up 19% on $43.5m last quarter, driven partly by a large order from Suncore for terrestrial CPV solar cells. Since Emcore is currently reviewing its manufacturing capacity and customer commitments for the Fiber Optics business, it is currently not disclosing backlog for this segment. However, reporting will resume once the manufacturing infrastructure is rebuilt.

“We have developed and implemented a solid plan to rebuild the impacted production lines at another location associated with our contractor manufacturer in Thailand as well as at our own manufacturing facility in China,” says Emcore. “We expect the rebuild of our CATV production line [including the high-volume tunable XFP line] to be completed by the end of March 2012 and the rebuild of our telecom-related production line to be completed before the end of May,” it adds. “We are working closely with our customers on our manufacturing recovery plan to be aligned with their needs.”

Due mainly to the partial recovery of Fiber Optics production capacity, for fiscal second-quarter 2012 (to end-March) Emcore expects revenue to rise to $38-40m. In addition, revenue from the tunable XFP product line should more than double to about $2m (internal capacity in the Bay Area is about $3m per quarter).

“Going into the June quarter, that’s where you should start to see more of a ramp up in our Fiber Optics revenues at that point going forward, as we start to have our other lines up and running [back to pre-flood levels by the end of the quarter],” notes chief financial officer Mark B. Weinswig.

See related items:

Emcore’s quarterly revenue grows 5% sequentially to $52.1m

Emcore quarterly revenue rises 5% to $49.5m

Emcore quarterly revenue falls 2% year-on-year

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%

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