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24 December 2009


Emcore revenues rebound by 5%, driven by broadband fiber optics

For its fiscal 2009 (to end September), Emcore Corp of Albuquerque, NM, USA has reported revenue was $176.4m, down 26% on fiscal 2008’s $239.3m (with Photovoltaics revenue of $62.2m down 8.5% on $68m, and Fiber Optics revenue of $114.1m down by a third on $171.3m). Gross margin was 10%, an improvement from negative 6.3% last quarter.

However, though down by a third from $60.6m a year ago, fiscal fourth-quarter 2009 revenue of $40.5m is up 5.3% on $38.5m the prior quarter, rebounding from an 11% decline that quarter.

In particular, fiscal Q4’s Photovoltaics revenue was $16.4m (40% of overall revenue, up from just 24% a year ago). This is up 2% on $16.1m last quarter, due mainly to greater demand for terrestrial concentrated photovoltaic (CPV) products. However, Photovoltaics gross margin was 28.5%, down from a record 33.9% last quarter due mainly to product mix and one-time yield excursion for certain products.

Fiber Optics revenue was $24.1m (60% of overall revenue), up 8% on $22.4m last quarter (58% of overall revenue), due mainly to the broadband division’s CATV product lines. Broadband fiber optics revenue was up more than 15%. Fiber Optics gross margin was negative 2.5%, up from negative 35.2% last quarter due mainly to a lower loss on firm inventory purchase commitments and lower inventory excess and obsolescence charges.

“For the first half of the year the demand for telecom and Ethernet components dropped significantly,” says president & CEO Hong Hou. “We were stranded with massive amount of excess inventory and purchase commitments liability in our fiber-optics business. This created a huge liquidity challenge early in the year,” he adds. “For product evolution in the new environment, we had to put a concerted effort together to monetize the inventory [the main contributor to lower average selling prices and gross margins]. During the last couple of quarters, inventory throughout the entire supply chain has bled down to a minimal level.”

“Cash flow management became a key focus,” continues Hou. “Measures taken throughout the year (including headcount reductions, temporary reduction of salaries, reduction of capital expenditures, and other discretionary spending, along with a substantial improvement in market conditions especially in the space photovoltaics and broadband fiber optics) led to a significant improvement in operating results and liquidity.”

Fiscal Q4 net loss was $13.5m, an improvement from $45.3m last quarter and $41.2m a year ago.

Nevertheless, Emcore generated $0.9m in cash from operations due to the combination of a lower cash operating loss and the continuation of improved working capital management. This was the second consecutive quarter that Emcore has been cash flow positive from operations and the third that Emcore has generated cash from reductions in both inventories and accounts receivable. For fiscal 2009, Emcore generated $32.4m in cash from lowering both inventory and accounts receivable levels while paying down $27.4m in accounts payable.

During fiscal Q4, cash, cash equivalents, and restricted cash rose from $9.8m to $15.5m. In particular, in fiscal first-half 2009 Emcore consumed $30.6m in cash from operation, but in second-half 2009 it generated $1m.

The firm maintains a $14m credit facility with Bank of America and, immediately after the end of the fourth quarter, it closed a two-year $25m committed equity line of credit facility with the Commerce Court Small Cap Value Fund Ltd.

“We can focus on our business instead of fighting for our survival,” says Hou. “We will return our business development effort from defensive mode, namely protecting our market share, to offensive and gaining market share.”

Booking activity continuing to improve, with recent customer demand trending towards 2008 levels, says Hou. During the fiscal second-half 2009, order backlog more than doubled, from $30.8m (concentrated among large customers) to $62.6m (very broad based among a large number of customers and programs).

In particular, during fiscal Q4, order backlog rose 26% from $49.6m to $62.6m, with Photovoltaics up 32% from $36.2m to $47.7m and Fiber Optics up 11% from $13.4m to $14.9m, including broadband product lines up 25% (the second consecutive quarter where order backlog for both segments has increased).

This increase is demand is primarily due to infrastructure operations and the new build up to service small- and mid-sized businesses of multi-service operators. This sector of business will continue to experience robust growth throughout next year, believes Emcore.

Meanwhile, despite the economic environment, satellite photovoltaic revenues have grown year-on-year, with more than $120m of orders and purchase commitments for satellite solar products and service contracts (many of which are multi-year in duration) received since the beginning of this calendar year. Profitability (which has improved significantly due to improvements in engineering and manufacturing processes) is sustainable, believes Emcore.

In addition, in the terrestrial solar power business, Emcore is completing product quality testing and certification of its Gen-III CPV systems. While its cost structure is competitive compared to competing technology, Emcore expects competitiveness of the design to increase after ramping up manufacturing capacity in the firm's China facility for packaging the solar cells and manufacturing the CPV modules. In fiscal Q4, Emcore was awarded three demonstration programs in the Middle East and the USA, and these orders will be fulfilled with Gen-III products. “We are committed to a successful launch of our Gen-III CPV products and business in fiscal second-half 2010,” says Hou.

For fiscal first-quarter 2010 (to end-December 2009), Emcore expects revenue to rise to $41–43m, with increases in both the Fiber Optic and Photovoltaic segments.

*While management has instituted a series of initiatives aimed at conserving and generating cash, Emcore continues to pursue and evaluate other capital-raising alternatives, including product joint venture opportunities and a potential separation of certain portions of the business. “Due to significant differences in operating strategy between the fiber optics and photovoltaics businesses, they would provide greater value to shareholders if we were operated as two separate business entities,” says Hou. Updates on this initiative will be given in the near future, he adds.

See related item:

Satellite deals boost Emcore amid $27m write-down

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