12 August 2014

Rubicon grows for fifth quarter, with 4-6-inch wafers compensating for decline in 2” cores

For second-quarter 2014, Rubicon Technology Inc of Bensenville, IL, USA (which makes monocrystalline sapphire substrates and products for the LED, semiconductor and optical industries) has reported revenue of $14.5m, up slightly on $14.3m last quarter and up 37% on $10.6m a year ago (rising for a fifth consecutive quarter).  

Fiscal	Q2/2013	Q3/2013	Q4/2013	Q1/2014	Q2/2014
Revenue	$10.6m	$11.1m	$11.5m	$14.3m	$14.5m

Revenue from 2- and 4-inch cores fell by $1.8m, down 16% from $11.4m last quarter to $9.6m, of which two-thirds was 2-inch ($6.5m, down from $8.5m in Q1). The decline was due to more crystal production being directed into wafer products and because the firm had exhausted its excess boule inventory in Q1/2014.

The average selling price (ASP) for 4-inch cores rose about 10% sequentially due to strong demand from the LED market and the result of LED chip makers moving from 2-inch to 4-inch substrates in order to increase throughput from their existing facilities. However, consequently, there were declines in both 2-inch volumes and pricing (by 2%). “Now that MOCVD utilization rates are high, many LED chip manufacturers are looking for ways to increase throughput from existing operations, and moving to a larger substrate is one of the most effective ways to do that,” notes president & CEO Raja Parvez. “We view the recent move to 4-inch substrates as validation of our belief that we will soon see greater adoption of 6-inch and even 8-inch substrates. This is important for Rubicon because of our strength and expertise in larger diameters,” he adds.

Revenue from polished and patterned wafers rose from $1.1m last quarter to $2.9m. Of the $1.8m increase, $1.1m was from 4-inch polished wafers, $500,000 from 6-inch polished wafers, and $200,000 from patterned wafers. The increase for 6-inch was primarily from the LED market, although shipments also resumed to the silicon-on-sapphire (SoS) market (worth about $100,000).

Both 4-inch polished and 4- and 6-inch patterned sapphire substrates (PSS) are new products. “A significant development in the introduction of our PSS product came this quarter with the initial qualification of our 4-inch and 6-inch PSS wafers at three customers, two of which are major, international LED chip manufacturers,” Parvez says. “These customers plan to expand their use of patterned wafers in their production and they have chosen Rubicon because of our vertical integration and our strong capability in both polishing and patterning large-diameter wafers,” he adds. “Orders will likely be limited in the second half of this year, as we continue to work on spec alignment and additional testing.” However: “We believe these customers have the potential to contribute significant revenue next year,” he continues.

“We had our first volume order of 4-inch polished wafers in the quarter and began producing 4-inch PSS wafers for our first qualified PSS customer,” says chief financial officer William Weissman. “We expect a steady flow of orders from this customer. This will not likely be a high-volume user. However, we received initial qualification of our PSS product at several new accounts which do have a potential to be significant volumes through polishing and PSS operations next year,” he adds. “We also continue to make good progress on qualification of PSS with other major LED chip manufacturers,” Weissman continues. “While we are behind where we had hoped to be from a revenue perspective, we are pleased with the level of interest in the product and the qualification process.”

Crystal growth operations continued to run at full capacity throughout the quarter. Utilization for polishing and patterning operations remained low, but that began to improve during the quarter (from 20% to 30-35%) due to the increased wafer volumes. Idle plant cost fell from $2.4m last quarter to $1.9m.

Operating expenses were $2.9m, down from $3.4m last quarter, due mainly to lower legal fees and reduced headcount. Wafer costs continued to be higher than normal due to the large number of PSS samples produced and the cost of establishing a 4-inch polishing line.

Net loss was $10m ($0.39 per share), cut from $10.9m ($0.43 per share) last quarter but up from $5.9m ($0.26 per share) a year ago. During the quarter, Rubicon used about $5m in cash: $2m in operations ($4m last quarter) and $2.7m in capital expenditure (up from $2m last quarter). Cash and cash equivalents fell from $27.7m to $24.7m.

“While idle plant and development costs at our wafering facility continued to be a drag on earnings in the second quarter, we are making progress in continuing to improve our overall cost position,” says Weissman. “Utilization of our wafer operations is improving and we expect wafer costs to decline as we move from development to production in our new product lines,” he adds.

“We expect continued progress in growing the wafer business in the third quarter, with additional volumes in both polished and PSS wafers,” says Parvez. “However, we are seeing very limited demand for 2-inch core in the third quarter as our polishing customers currently have excess inventory. In addition, we believe that recent capacity additions in the sapphire market, which are primarily targeted at the developing mobile device market, are temporarily impacting the 2-inch market,” he adds.

For third-quarter 2014, Rubicon expects revenue to fall to $8-12m, with a loss per share of $0.39-0.44. This relatively wide range of expected revenue is due to the near-term uncertainty in the 2-inch market. “We expect 2-inch inventories at our polishing customers to be reduced over the course of the third quarter and for demand for that product to improve in Q4,” says Parvez.

“We continue to execute on our vertical integration strategy and are making good progress with the wafer business,” says Parvez. “The recent initial qualification of our PSS product at three new customers this quarter was an important step in the introduction of that new product line and qualification efforts continue with a number of other major LED manufacturers,” he adds. “With increasing volume and experience, and as customer specifications become better defined, we will reduce our idle plant costs and our wafer product cost. Furthermore, while pricing for certain product groups may take a step back from time to time for various reasons, we believe the general pricing trend for sapphire will continue to improve for some time.”

See related items:

Rubicon's revenue up 24% in Q1

Rubicon grows for a third consecutive quarter, driven by LED general lighting and non-LED mobile applications

Rubicon launches first commercial large-diameter patterned sapphire substrates for LEDs

Rubicon’s revenue rebounds further, up 4.7% in Q3 to $11.1m

Rubicon's revenue rises 28% in Q2, driven by strengthening LED market

Tags: Rubicon Sapphire substrates

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