13 May 2016

Rubicon's revenue rebounds, driven by 6" patterned sapphire substrates

For first-quarter 2016, 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 $4.3m, down on $8.9m a year ago but up on $2.45m last quarter.

Fiscal	Q1/2015	Q2/2015	Q3/2015	Q4/2015	Q1/2016
Revenue	$8.9m	$7.1m	$5.3m	$2.5m	$4.3m

The rise was due primarily to wafer revenue rising by $1.5m from $0.86m to $2.35m, mostly from 6-inch diameter patterned sapphire substrates (PSS) for the LED market rising by $1.1m from $0.4m to $1.5m, while polished wafers rose from $0.45m to $0.83m (though down on $1.4m a year ago).  

R&D revenue was steady at about $0.1m (down slightly on $0.14m a year ago). Although it is still down on $1.8m a year ago, optical revenue rose from $1m to $1.4m.

Revenue from core sales has fallen further from $5.1m a year ago and $0.48m last quarter to $0.44m. Apart from just $2000 of 2-inch cores (down from $10,000 last quarter and $4m a year ago), nearly all of this was from 4-inch cores for the LED market (down slightly from $0.47m last quarter and $1m a year ago). Despite the fact that the LED market continues to grow and some competitors have left the market, excess sapphire capacity continues to keep pricing at historically low levels, especially for 2- and 4-inch cores. Hence, in recent quarters, Rubicon has been limiting the amount of 2- and 4-inch core sold.

Crystal growth production is operating at 30% capacity, "a level at which we can retain our key crystal growth talent [and a certain number of furnaces running]. This talent is important for us to keep if we are to be able to respond to the new application opportunities we are working on," notes chief financial officer Mardel Graffy. "The crystals produced are primarily used for 6-inch wafers, optical parts and some relatively small-volume 4-inch core sold to a couple of key customers in that market to maintain the relationships," she adds. "If they ramp quickly we want to be able to respond to them accordingly," notes president & CEO Bill Weissman.

With the low crystal-growth utilization and under-utilized polishing operation in Malaysia, idle plant cost remained high at $2.3m, similar to both last quarter and a year ago.

However, operating expenses have been cut from $3.3m last quarter to $2.7m, due mainly to general & administrative expenses being cut from $2.3m last quarter to $1.8m including reduced professional fees and lower bad debt expense, as sales & marketing expenses remain about $0.4m and R&D expenses remain about $0.6m.

GAAP net loss was $7.3m ($0.28 per share), cut from $12.7m ($0.49 per share) last quarter,and $8.3m ($0.32 per share) a year ago.

Cash use remained relatively high at $5.7m, because it included the initial payment on the SapphirEX tool and a $900,000 payment for settlement of securities litigation that was previously expensed. During the quarter, cash and short-term investments hence fell further, from $30m to $25m. Capital expenditure was kept under $1m for the whole of 2015.

For second-quarter 2016, Rubicon expects revenue and loss per share to be similar to the first quarter. However, based on current customer projections, revenue growth is expected to resume in third-quarter 2016, driven by a significant rise in PSS wafer sales.

"While the organic light-emitting diode (OLED) is taking market share from sapphire-based LEDs in the backlighting segment, the general lighting market continues to grow," says Weissman. "There remains opportunity within that segment of the market for revenue and margin growth. Specifically, we believe that demand for 6-inch diameter PSS wafers will continue to grow, as the competitive landscape for providing that product is more limited," he adds.

"While PSS pricing is impacted by the macro sapphire pricing environment, it tends to be less volatile. We have a competitive advantage in being able to produce high-quality large-diameter PSS wafers in a vertically integrated process starting from powder aluminum oxide… few competitors have that capability. For customers that are very sensitive to potential disruptions in the supply chain and consistency of quality, that vertical integration is very important," Weissman believes. "We expect meaningful increases in 6-inch PSS sales over the course of this year because of our large-diameter capability and vertical integration," he adds.

"The customer qualification process of these wafers can be quite lengthy, which we believe can lead to greater customer loyalty... However, despite the limited number of capable competitors for 6-inch PSS wafers, current pricing is also weak because the demand for these 6-inch wafers today is fairly limited. Therefore, it is essential that we continue to expedite cost reductions in our polishing operation, so that we can optimize the potential of our vertical integration model particularly as it relates to PSS opportunities," says Weissman. "We made progress in the first quarter and we are continuing to implement improvements. One challenge in reducing wafer cost has been the limited volumes processed in our Malaysian facility. The expected increase in volumes in the third quarter, which is based on customer projections, should also help to reduce wafer costs," he adds.

"In addition to pursuing our PSS potential, we are targeting high-margin optical applications [that fit particularly well with Rubicon's unique set of sapphire knowledge and capabilities] and developing new products. We are making significant strides in building a valuable optical business like cultivating new customers, expanding our product offerings and completing the development of two new technologies, our LANCE and our SapphirEX technologies," says Weissman. Both the LANCE large window growth and SapphirEX coating technologies (patents pending) met additional key milestones during Q1, and both should move into production this year. "Over the next several months, we expect to see meaningful developments in some of these new market opportunities, as well as developments in our new technologies and further progress in product cost reductions," he adds.

"We continue our efforts to reduce both wafer and crystal growth costs and keep support cost as low as possible," says Weissman. "While we will have the remaining balance of the SapphirEX tool to pay in the second quarter [about $700,000], we expect cash used for capital expenditures to be minimal for the remainder of the year and expect to see a reduction in cash used in operations as we further reduce cost."  

See related items:

Rubicon's revenue halves in Q4 due weak demand and delayed ramp-up at PSS wafer customer

Rubicon's Q3 revenue hit by LCD TV backlighting slowdown and customers' excess inventory

Rubicon's revenue falls 20% in Q2, as 2-inch sapphire core sales and pricing hit by weak mobile market

Rubicon's Q1 growth in sapphire revenue for mobile devices balanced by weakness in LED market

Tags: Rubicon Sapphire substrates

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