6 August 2010


Rubicon’s sales grow 37% in Q2 to record $15.8m

For second-quarter 2010, 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 record revenue of $15.8m (far exceeding the forecast $14m). This is up 37% on Q1’s $11.5m (driven by strong demand from the LED market) and up on just $3.2m a year ago (which followed the low of $2.3m in Q1/2009).

In particular, revenue from the LED market rose 46% from Q1’s $9.6m to $14m, as the adoption of LED back-lighting for medium to large displays (such as LED LCD TVs, desktop monitors and notebook and netbook computers) continues at a rapid pace and general lighting applications for LEDs continue to advance, comments president & CEO Raja Parvez.

The trend among the major LED chip makers towards using larger-diameter substrates continues: only 28% of substrate revenue came from 2-inch material, with 72% coming from greater than 2-inch material (up from 64% in Q1).

“We reduced the volume of two-inch core sold in order to sell more large-diameter material, particularly 6-inch polished wafers,” says chief financial officer Bill Weissman. Revenue from 6-inch polished wafers rose 140% (from $1.8m in Q1 to $4.4m), due entirely to the LED market, as several customers make progress on development efforts using 6-inch substrates.

Given that Rubicon has been operating at full capacity in its crystal-growth operation, overall revenue growth came mainly from the shift in product mix and increased average selling prices (ASPs). The firm says that the imbalance between sapphire supply and demand for the LED market led to it raising ASP on its substrates (across all diameters) by 16% over Q1 (on top of Q1’s 20% rise over Q4/2009). “We have been ramping our polishing operation in Illinois in response to the demand for 6-inch wafers, and that operation is now close to full utilization,” says Weissman.

“We continued to dramatically increase gross margin and earnings per share in the quarter through increased pricing, improved product mix, and operational efficiency,” says president & CEO Raja Parvez. Gross margin has risen from 36% last quarter to 46%. Diluted earnings per share has risen from $0.07 last quarter to a record $0.18 (far exceeding the forecast $0.14).

Cash generated from operations was $5.6m. However, capital expenditure was $15.8m (due to purchase a building in Batavia, IL to house new crystal growth operations plus payment of a significant portion of the construction cost of Rubicon's new Malaysia factory).

“We see an even stronger pricing environment in the third quarter and expect our substrate prices to increase by at least 20% on average sequentially,” says Weissman. Together with a continued shift in product mix to large diameters, for Q3/2010 Rubicon hence expects revenue to grow 23% to $19.5m, gross margin to reach the low 50% range, and diluted earnings per share to rise to $0.28.

Also, an existing customer (one of the world’s leading LED chip makers, it is claimed) is now moving into production using 6-inch substrates (which Rubicon has been supplying to them in significant quantities from its Chicago facility since January). Rubicon has hence now entered into an agreement (worth about $71m) to supply 6-inch polished substrates from November 2010 (after Rubicon’s current purchase order with the firm completes in October) through to the end of 2011. “This is the first LED chip manufacturer to move into volume production on this size material,” reckons Parvez. “This continued migration to larger-diameter substrates by the world’s leading chip makers is an important trend for Rubicon, because our high-volume capabilities in both larger-diameter crystal growth and large-diameter wafer polishing uniquely positions us to serve this growing segment of the market,” he adds.

“We expect continued strong growth in LED backlighting for the next several years, with LED backlighting for TVs and large displays achieving at least 75% penetration by the end of year 2012,” says Parvez. “In addition, LEDs used in general lighting applications continue to develop, with industry reports indicating that LED sales in this market are expected to be up 30% in 2010 over the previous year, with continued strong growth over the next several years,” he adds. “Existing LED chipmakers continue to add significant capacity and there are many new entrants into LED chip manufacturing, particularly in China where local governments are providing subsidies for the purchase of MOCVD reactors.”

“We also see significant opportunity in the two other markets we serve, the RFIC market and the optical market. Demand is strong in both,” says Parvez. “However, we have limited sapphire to sell into this market at the moment. Margins are higher in LED sales and it is strategically important for us to provide as much material as possible to those LED customers that are leading the effort to move to larger-diameter substrates,” he adds. Due to allocation of materials to the LED market, revenues from the optical market and from sapphire-on-silicon (SoS) for the RFIC market in Q2 were hence down slightly on Q1: from $900,000 to $800,000 and from $1m to $900,000, respectively. “Once our additional capacity begins to come online, we’ll be in a better position to take advantage of this growing market as well.”

“Central to our ability to capitalize on these exceptional market opportunities is the successful completion of our expansion plans,” notes Parvez. Rubicon is currently adding two new high-volume manufacturing facilities to expand both crystal-growth and post-crystal-growth capacity. “Our new crystal growth facility in Illinois will house larger furnaces, giving us even greater ability to serve the growing demand for large-diameter substrates,” says Parvez. “Our Asia facility will significantly expand our capacity to process large-diameter wafers and reduce our current crystal-growth costs.” Both facilities continue to be on schedule to open by year-end, with capacity starting to coming online in Q4/2010 and fully operational by the end of 2011.

In June, Rubicon completed a follow-on share offering that raised $61.5m (boosting cash and short-term investments to $94m). The funding will help to finance the remainder of the expansion project and allow “a smooth transition into the next phase of expansion, when the time comes”, the firm says. “Based on the continued growth of the LED industry and different sectors in it, the supply–demand imbalance will continue for quite some time,” reckons Parvez. “There is such a strong demand from our customer from all regions, from all applications and all diameter sizes that I don’t see any change, at least in the short term.”

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