News

12 May 2009

 

Emcore sees late-quarter pick-up in demand

For its fiscal second-quarter 2009 (to end March), Emcore Corp has reported revenue of $43.3m, down 23% on $56.3m a year ago and 20% on $54.1m last quarter.

Fiber Optics revenue was $28.4m (66% of the total revenue, down from 72% last quarter). This is down 28% from $39.2m last quarter, due mainly to the economic environment producing a broad-based decline in customer demand and continued pressure on product pricing.

Photovoltaics revenue was $14.9m (34% of total revenue, up from 28% last quarter). This is flat on last quarter, due to a decrease for concentrator photovoltaics (CPV) product lines and government service contracts negating growth for satellite solar power product lines.

Compared to 24% a year ago and minus 1.1% last quarter, Fiber Optics gross margin was negative 11.7%. This was due mainly to unabsorbed overhead expenses (as a result of the declining revenues), falling average selling prices, and inventory valuation write-downs of $2.2m (magnified by efforts to monetize older-generation product inventory while transitioning to lower-cost, more competitive design platforms).

Compared to minus 12.8% a year ago and 13.6% last quarter, Photovoltaics gross margin was minus 24.7%. This was due mainly to inventory valuation write-downs of $5.6m associated with earlier versions of CPV components and systems that have become obsolete due to the launch of newer, high-performance product platforms, as well as CPV-related product warranty accruals of $1.1m.

Excluding non-cash and other adjustments, non-GAAP net loss has risen from $8.9m last quarter to $14.3m.

Emcore says that, as a result of the continuation of the unfavorable macroeconomic conditions, in combination with adverse credit market conditions, it has continued to take steps to lower costs and conserve and generate cash. Over the last two quarters, Emcore has implemented a series of measures intended to align its cost structure with lower revenues, including several reductions in staffing, the temporary furloughing of employees, salary reductions, the elimination of executive and staff merit increases and bonuses, and the elimination or reduction in certain discretionary expenses.

Also, in January Emcore completed a two-step transaction involving the sale of its remaining minority stake in Entech Solar Inc (formerly WorldWater & Solar Technologies Corp) for $11.6m. It also significantly lowered its quarterly capital expenditure.

During the quarter, the firm generated $7.8m in cash from improved working capital management, and its satellite business generated positive cash flow from operations. In addition, the Fiber Optics segment generated positive cash flow from operations for the last two months of the quarter.

Nevertheless, cash, cash equivalents, and restricted cash fell further from $18.8m to $11.6m, while working capital fell from $75.4m to $57.5m. Loans outstanding totaled $6.2m.

Emcore has amended the terms of its loan and security agreement with Bank of America to provide additional borrowing capacity. “We think we will have enough cash to ride out this storm if the situation does not deteriorate,” says CEO Hong Q. Hou. “We continue to evaluate options for the capital raisings just in case the situation does not improve,” however. The firm therefore continues to pursue and evaluate capital-raising alternatives including debt or equity financing, product joint-venture opportunities, and the potential sale of certain assets. “We expect to finalize a definitive agreement within this quarter,” notes Hou.

“The decline in demand that we experienced in our Fiber Optics segment over the last several quarters continued into the second quarter,” says Hou. During the quarter, order backlog fell from $53.2m to $30.7m ($19.8m in Photovoltaics and $10.9m in Fiber Optics). “However, order activity began to pick up towards the end of the quarter [especially in March], indicating that industry conditions may be stabilizing... I think the market might have bottomed out and we might be on our way climbing out of this trough,” he adds.

“Despite the recent soft demand in the fiber-optics sector, we have continued to invest in developing new leading-edge products,” Hou continues. At the Optical Fiber Communications conference (OFC 2009) in late March, Emcore announced the introduction of the industry’s first full-band tunable XFP (TXFP) optical transceiver product, capable of replacing fixed-wavelength dense wavelength division multiplexing (DWDM) XFPs as well as high-performance tunable 300-pin multi-source agreed (MSA) transponders. Powered by Emcore’s field-proven tunable external cavity laser (ECL) technology, the TXFP can be optimized for low power consumption to comply with existing XFP designs or for high optical performance to meet the requirements of existing 300-pin designs. Emcore also announced plans to release a full-band tunable TOSA (transmit optical sub-assembly) product line, combining its tunable ECL technology with a co-packaged Mach-Zehnder modulator for next-generation ultra-high-density 10Gb/s tunable interfaces. With its low power consumption, the tunable TOSA is compatible with existing XFP module and line-card requirements. It also has optical performance similar to existing solutions using a discrete tunable laser and external lithium-niobate modulator, Emcore claims. Both the TXFP and the tunable TOSA can tune across more than 90 channels on the 50GHz ITU grid.

“In our Photovoltaics segment, we continue to see very favorable trends in our satellite business and are making solid progress in the development of our Gen-III CPV terrestrial solar power system with a very competitive cost structure,” says Hou. Over the last several months, Emcore signed several new long-term purchase agreements with increased selling prices. The firm also expects to sign a significant multi-year supply agreement (worth $70m) with a major aerospace company in the next month (expecting to begin shipping products this quarter).

Hou says that Emcore is making significant headway into some major European aerospace customers. The firm expects the performance advantage of its inverted metamorphic multi-junction (IMM) technology to eventually overcome the local geopolitical advantages of European solar cell suppliers to European aerospace companies. “This should result in substantial revenue growth through the extension of our customer base,” adds Hou. Efficiency levels of about 45% are expected when the IMM design platform is adapted for use under a 500-1500x concentrated illumination for terrestrial applications. “We expect to commercialize this technology through applications for space power first and then for terrestrial applications [in its Gen-III CPV system] by the end of 2009,” says Hou.

On the terrestrial side, Emcore deployed a new 50kW system in China, received three additional CPV system purchase orders from US and European customers, and continued to meet internal Gen-III cost and performance targets. The demonstration Gen-III CPV system is up and running in Emcore’s solar test field. “It looks like we can achieve module efficiency of 30% at a cost which would be very competitive with the future price of silicon and thin-film products,” says Hou. Production of Gen-III products is expected to begin in calendar second-half 2009.

For fiscal third-quarter 2009, Emcore will continue to focus on cost and liquidity management. Compared to fiscal Q2, the firm expects Fiber Optics revenue to decline moderately (by 5-10%) but Photovoltaics revenue to rise by at least 10%, and for gross margin to rise. It also expects the satellite business to be profitable on an ongoing basis, due to increased revenues, improved product pricing, and lower costs derived through engineering projects and more effective supply chain management.

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