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5 November 2009


Sapphire substrate maker Rubicon aims to double capacity

For third-quarter 2009, Rubicon Technology Inc of Franklin Park, IL, USA, which makes monocrystalline sapphire substrates and products for the LED, RFIC, semiconductor and optical industries, has reported revenue of $5.7m.

This is higher than the expected $4.5m, but still less than half $11.8m a year ago, due to declines of $1.3m in R&D revenue and $2.4m in silicon-on-sapphire (SoS) revenue. In particular, SoS revenue has dropped from $2.9m a year ago to $479,000 in Q3, due to the high level of inventory at key RFIC-making customer Peregrine Semiconductor Inc of San Diego, CA.

However, total revenue is up from $3.2m in Q2 and a low of $2.3m in Q1/2009, driven by increased sales into the LED market as inventory levels cleared. In addition to demand for other LED applications beginning to improve, the main driver remains the rapid adoption of LED backlighting units (BLUs) for notebook/netbook computers as well as LCD TVs, as the price differential with fluorescent backlighting has become negligible.

LED applications represented 83% of Q3 revenue, after more than doubling from $2.2m last quarter to $4.7m. However, while this is also up on a year ago in terms of unit volume, it is down on Q3/2008’s $6.7m due to declining average selling prices (ASPs) as well as the product mix.

Most chips for LED BLUs are made in Taiwan, where most manufacturing capacity still uses 2-inch wafers. Taiwanese LED chip makers now represent about 60% of Rubicon’s revenue. The proportion of total revenue from such low-margin 2-inch substrates has therefore risen from 53% a year ago to 67%, with just 33% coming from higher-margin large-diameter (4- and 6-inch) substrates, presenting a ‘short-term margin challenge’. Operating results were hence still impacted by product mix and weak pricing, as well as under-utilization of Rubicon’s slicing and polishing infrastructure due to the low SoS sales.

Despite operating expenses being cut from $3m a year ago to $1.8m, net loss was $2.1m compared to net income of $1.6m a year ago. Nevertheless, net loss has been cut from $2.9m last quarter, and is better than the expected $2.5m. Consequently, including $1.6m in capital expenditure during Q3, cash, cash equivalents and short-term investments fell by just $2.1m, from $47.5m to $45.4m.

In addition, as the LED market continued to strengthen during Q3, substrate pricing stabilized as global sapphire production capacity began to tighten, says president & CEO Raja Parvez.

Due to the improving demand, Rubicon expects pricing to begin to increase in fourth-quarter 2009 (by 7% overall, and 10% for certain products).

In addition, as a result of the current high level of investment by LED chip makers worldwide in processing equipment for large-diameter substrates (as well as in R&D on migrating from smaller diameters), in Q3/2009 Rubicon saw a corresponding increase in orders. The firm therefore expects the proportion of its revenue from such higher-margin large-diameter substrates to rise, starting in Q4/2009 and reaching about 50% of revenue next year as demand grows steadily through 2010 and 2011.

For Q4/2009, Rubicon expects its total revenue to grow further, by 23% to $7m. “Based on the expected pricing and product mix, gross margin should turn positive,” says chief financial officer William Weissman.

“We are at the beginning of a long-term growth cycle in the LED industry,” believes Parvez. In addition to automotive and signage applications strengthening as the economy improves, he cites forecasts that the penetration of LED backlighting into TVs will grow rapidly from less than 3% this year to more than 40% in 2013 (as adoption spreads next year beyond early-adopter Korean TV makers and Taiwanese BLU chip makers, as well as penetrating the desktop PC market from 2010). He also cites the progress in adoption for illumination applications such as street-lighting.

In addition, Rubicon expects qualifications with new silicon-on-sapphire customers to be completed within 6-9 months, leading to extra orders by mid-2010. This should drive demand for 6- and 8-inch substrates and provide a further boost to ASPs as well as utilization of Rubicon’s substrate polishing equipment.

Rubicon is already ramping crystal growth capacity at its existing facilities, building out the remaining furnaces over the next few months to reach a maximum annual revenue-generating capacity of $30-35m in Q1/2010.

The firm is therefore now also in the process of finalizing a two-part expansion plan:

  • a new second-generation crystal growth facility (near its existing plant in Bensenville, IL), with larger furnaces able to service the demand for larger-diameter substrates (as well as providing extra annual revenue-generating capacity of $35m);
  • a new plant in Asia to expand post-crystal-growth processing operations including slicing and polishing (for which land has already been bought).

“These expansion initiatives would be designed to ensure Rubicon maintains its global leadership in high-quality, large-diameter sapphire substrates and ensure our pricing remains competitive while maximizing our revenue and margins generated from our existing and new manufacturing facilities,” says Parvez.

The firm’s most recent crystal growth facility cost $25m and was opened in July 2007 just 6-9 months after deciding its location (more than doubling the firm’s capacity at that time). Rubicon is therefore confident that both new facilities will open within 12 months and be fully operational within 24 months.

See related item:

Rubicon banks on LED displays boom to push larger wafers

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