News: Optoelectronics
7 December 2020
Emcore’s revenue grows 23% in September quarter
Emcore Corp of Alhambra, CA, USA – which provides mixed-signal products for the aerospace & defense and broadband communications markets – has reported revenue of $110.1m for full-year fiscal 2020 (to end-September), up 26% on $87.3m for fiscal 2019.
Fiscal fourth quarter 2020 revenue was $33.5m (the largest quarterly revenue since December 2014), up 23% on $27.3m last quarter and 37.9% on $24.3m a year ago (and above the $29-31m guidance).
Aerospace & Defense (A&D) segment revenue was $14.5m, up just 3% on $14m last quarter, driven by increased revenue for Quartz MEMS (micro-electro-mechanical system) navigation products – acquired through buying Systron Donner Inertial (SDI) of Concord, CA, in June 2019 – and Defense Optoelectronics product lines.
Broadband segment revenue was $19m, up 44% on $13.3m last quarter, driven by robust demand for Cable TV optical transmitters and components as multi-service operators (MSOs) continued to expand their networks to break bottlenecks created by bandwidth demands for work-at-home and stay-at-home entertainment. “More and more MSOs are demanding linear EMLs [linear externally modulated laser],” notes CEO Jeff Rittichier. “We are the only people in the world that can make them,” he adds. “Linear EMLs are the largest part of our cable TV business.”
“From an operational standpoint, the supply chain and operations teams were well ahead of the COVID-19-driven shortages that required a lot of work to overcome in previous quarters [specifically, shortages of custom linear components that were in short supply because of COVID breakouts in packaging operations in Taiwan and in Malaysia]. We experienced only a modest number of challenges with our supply chain throughout Asia,” says Rittichier. “Nevertheless, the pandemic continued to increase the general level of friction in ongoing business activities, particularly with customer development schedules and new programs, forcing us to adjust our plans.”
On a non-GAAP basis, full-year gross margin grew significantly to 33% in fiscal 2020 (up from 23% for each of the two previous fiscal years), driven partly by cost reductions, improved production yields and better inventory management. Inventory levels remained similar to last year’s, even though revenue was up.
Fiscal Q4 gross margin was 38%, up from 34% last quarter due to the combination of revenue growth and operational improvements. Driven by a less favorable product mix, A&D’s gross margin fell back somewhat to 32%, from last quarter’s spike of 36% (which had been boosted by non-recurring credits). However, this was offset by Broadband gross margin rising from 33% to 42%, driven by the Cable TV revenue growth, over-absorption of production overhead costs, and a favorable product mix.
“The transition of our CATV manufacturing operations to [Shenzhen-based electronics manufacturing services (EMS) provider] Hytera’s Bangkok facility has made significant progress, although the move of the last laser module line continues to face a fluid schedule… in the fourth fiscal quarter, we were still largely an in-house operation,” notes Rittichier. “Transmitter yields in Bangkok are at target, but we need to see some improvement in laser module yields to get them to the Beijing standard before we finish the move,” he adds. “Our working capital efficiency continued to improve with production increases in Bangkok.”
Operating expenses have been cut further, from $12.4m (51% of revenue) a year ago and $10.1m (37% of revenue) last quarter to $9.7m (29% of revenue). This was due to selling, general & administrative (SG&A) expenses falling (largely a result of ongoing expense management activities), as R&D expenses were flat sequentially.
“Solid execution in Q4/20 resulted in revenue growth of 23% sequentially and continued gross margin expansion, enabling us to achieve positive GAAP earnings and very strong non-GAAP profitability metrics,” says Rittichier.
Operating income was $2.9m (operating margin of 9% of revenue), an improvement from a loss of $0.7m (-3% margin) last quarter. “Not only was this our first positive result since the fiscal 2018 first quarter, it was also a $3.6m or a 12% swing from just the quarter before,” notes chief financial officer Tom Minichiello.
Likewise, net income was $2.9m ($0.10 per share), compared with net losses of $0.7m ($0.03 per share) last quarter and $7.7m ($0.27 per share) a year ago.
Cash from operations was $1.6m (up from last quarter’s $0.7m of operating cash flow), while cash from financing activities was $300,000. Capital expenditure (CapEx) was $1.1m. Free cash flow was hence $800,000. During the quarter, cash (net of the $6.5m loan payable) therefore rose by $0.8m, from $23.2m to $24m.
For fiscal first-quarter 2021 (ending 31 December 2020), Emcore expects revenue of $32-34m. “We’re expecting to see a strong performance from Cable TV, QMEMS and our Defense Optoelectronic product lines,” says Rittichier. In particular, Defense Opto’s new millimeter-wave Q- and V-band products are gaining traction in the market across military and commercial applications. “However, we continue to be cautious about annual slowdowns that we see with various customs authorities, which have delayed shipments over quarters and in the past,” he adds. Operating expenses should again be under $10m (and $9.5-10m per quarter going forward).
Gross margin should be similar to fiscal Q4/2020’s. “There’s not a wholesale movement in Q1 of product being built in Thailand. So that effect, which really happens as the primary facility for manufacturing becomes Bangkok, that’s when it really manifests itself,” says Rittichier. “Transmitters will virtually all be over there in some point in the March quarter and then laser modules early in the June quarter.”
“Looking ahead, despite the ongoing challenges of the COVID-19 pandemic, we expect to continue to execute well in all areas of the business, including Broadband where we see orders for our Cable TV products extending well into the June 2021 quarter,” says Rittichier.
“The strong Cable TV demand is continuing to require us to maximize total production output and minimize potential losses to that volume from yield fallout,” says Rittichier. “The Thai government is starting to allow foreign workers back into the country after negative COVID tests at a 2-week quarantine,” he adds. “We’re beginning the process of getting our engineers in EA [Emcore Asia, in Beijing] set up to travel to Thailand for 3-month assignments, which will strengthen our Thai team and allow us to finish the job sometime in early in the June quarter. Our Thai manufacturing engineering team continues to get stronger and improve their effectiveness, but adding the highly experienced EA engineers into the mix will have a positive impact.”
“There is sufficient product demand to justify parallel operation at both facilities, enabling us to hedge the risk of a switchover before we’re ready,” continues Rittichier. “Our customers expect certainty in their ship dates, and a two-facility operation provides that. As more operations move from Beijing to Thailand, we expect to see upward pressure on gross margins in Cable TV,” he adds.
“While we don’t know the MSOs’ calendar year 2021 spending plans in their entirety until January, Emcore’s Cable TV products had a strong order book well into the June quarter. Although we remain cautious of the ultimate duration of the upgrade cycle, we’re confident that we’ll complete our move to variable-cost manufacturing while orders are strong,” Rittichier says.
“On the demand side, there are no major architectural changes in the Cable TV networks that are imminent, as MSOs continue to rely on proven linear optics technology to meet their needs,” notes Rittichier. “Any migration to DAA [distributed access architecture] Remote PHY keeps pushing further out to the right. In the meantime, development work continues at Emcore on Remote PHY Shelf products, which are built on a proven linear optics backbone.”
Emcore shipping Optiva Q/V-band fiber-optic links
Emcore grows revenue 14% in June quarter, despite COVID-19-related constraints
Emcore’s cost cutting limits quarterly loss
Emcore hits adjusted EBITDA break-even two quarters ahead of schedule, aided by OpEx cuts
Emcore completes sale and leaseback of Concord facility, generating $12.8m
Emcore sells CATV production assets to Shenzhen-based Hytera for $5.5m
