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11 August 2008


Emcore grows 70% year-on-year

For its fiscal third-quarter 2008 (to end June), Emcore Corp of Albuquerque, NM, USA, which makes components and subsystems for the broadband, fiber-optic and solar power markets, has reported revenue of $75.5m, up 70% on $44.4m a year ago and 34% on last quarter’s $56.3m.
Fiber Optics revenue was $53.6m, almost double $27.6m a year ago and up 43% on last quarter’s $37.6m, due mainly to increased demand for parallel optical transceivers and February’s acquisition of Intel’s Optical Platform Division (for which revenue exceeded internal expectations). Demand for legacy datacom products continued to strengthen, growing 144% year-on-year and 46% sequentially to record revenue.

Photovoltaics revenue was $21.9m, up 30% on $16.8m a year ago and 18% on last quarter’s $18.6m, due mainly to the launch of new concentrator photovoltaic (CPV) component and system products for commercial and utility-scale applications, despite delays in installing the CPV receiver manufacturing line. Satellite-related revenues fell sequentially due to the delay in a customer’s program for solar panel products (forecasted in May to fall from $14.2m to about $10m).

Fiber Optics gross margin has risen from 24% last quarter to a record 27%, due mainly to increased revenue, lower manufacturing costs from the ramp-up in the China manufacturing operations, the implementation of cost-reduction initiatives, and improved efficiencies driven by facility consolidation.

Photovoltaics gross margin was -3%, up from -12% last quarter. The division increased manufacturing capacity for its CPV components, but equipment up-time was less than planned, so production volume was insufficient to absorb the extra overhead costs from the new CPV receiver lines entering service. Also, CPV system projects lost $1.8m, due mainly to higher-than-expected freight and installation costs.

Nevertheless, overall gross margin improved from 12% last quarter to 18%.

Operating expenses rose from $19.6m last quarter to $25.3m ($7.2m from the acquisition of Intel’s Optical Platform division, including $3.2m related to transitional services provided by Intel). However, with integration ahead of schedule, Emcore expects transitional services expense to drop by about 50% this quarter and to terminate by the end of September.

Operating loss has been cut from $13.5m a year ago to $11.6m (or $8.4m excluding Intel charges), about half due to the initial commercial deployment of Emcore’s CPV system and half due to Intel’s charges. Net loss has been more than halved from $17.5m last quarter to $7.7m (or just $2.8m, excluding Intel charges and stock-based compensation expense).

During the quarter, cash reserves fell by $7m to $23.5m, due mostly to capital expenditure of $5.5m (mainly for Photovoltaics CPV component and system businesses), Intel charges, and an investment in South Korean contract manufacturer Lightron Fiber-Optics Devices Inc.

In July, Australian customer Green & Gold Energy said that it was negotiating the sale of its business and could not commit to further purchases under its $79m of CPV-related orders (which include a $39m follow-on order at the end of February). The acquirer aims to negotiate a new purchase agreement. Hence Emcore has cancelled production slots reserved for Green & Gold Energy and has accordingly adjusted the order backlog, which has consequently shrunk from $158m at the end of last quarter to $109m at the end of June (including $53m of CPV-related backlog).

However, backlog does not include previously announced terrestrial solar power agreements in Canada, South Korea, and the USA (since contract terms, production requirements and delivery dates are still being worked out) as well as orders announced after the end of June.

The CPV business will be in a market development phase for the next six months, Emcore reckons. “Demand continues to be significant as the company continues to sign long-term CPV-related supply agreements with a much more diverse customer base for both land-based and commercial rooftop applications across different geographic markets,” says CEO Dr Hong Q. Hou. “While there is some uncertainty of incentives and subsidies in some of our end solar power markets, we are seeing increased market acceptance and continued growth in our terrestrial CPV business,” he adds. Emcore has three CPV receiver lines fully operational in Albuquerque, and a fourth at Emcore-China will be operational by the end of August. This capacity will be able to serve market demand for the next 12 months, so capital expenditure should slow significantly.

Regarding satellite-related photovoltaics, while Emcore experienced a drop in demand in the June quarter, it expects a rebound in revenues over the next few quarters. Government business tends to be ‘lumpy’, says Hou, but Emcore products are baselines in a number of new satellites programs (with some contracts awarded and some delayed due to Congressional funding). However, the firm expects new program wins in second-half 2008. Also, the commercial satellite business should grow more than 10% year-on-year as Emcore expands its customer base and applications.

Despite the recent uncertainties, Emcore says that it is still on track for an initial public offering of its Photovoltaics business in mid-2009.

Regarding the Fiber Optics division, Emcore says that it has a very robust new product pipeline. “We are addressing the fiber optics business sectors where the rapid growth is,” says Hou. The business should grow more than 20% year-on-year. “This segment can be a stand-alone profitable business going forward, barring significant adverse market development,” he concludes.

Overall, with the significant increase in revenue over the past few quarters, and having controlled operating expenses (which is positioning Emcore for profitability in 2009), the firm expects continued improvement in its financial results in its fiscal fourth-quarter 2008.

See related items:

Emcore wins orders worth $40m for CPV solar cells and receivers

Emcore wins CPV receiver orders worth $29m

Emcore sells shares in WorldWater

CPV sales boost Emcore, but start-up costs widen losses

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