10 August 2011

Emcore quarterly revenue rises 5% to $49.5m

For its fiscal third-quarter 2011 (to end-June), Emcore Corp of Albuquerque, NM, USA, which makes compound semiconductor-based components, subsystems and systems for the fiber-optics and solar power markets, has reported revenue of $49.5m (up 6% on $46.6m a year ago and 5% on $47.2m last quarter). Of total revenue, 72% is from North America, 22% from Far East Asia, and just 5% from Europe.



Fiber Optics revenue was $33.3m (67% of total revenue, up from 64% last quarter). This is up 11% on $30m last quarter, due to broadband business being driven by robust demand for cable TV equipment, plus telecom business seeing sales of 40/100Gbps tunable lasers and ITLAs (integrable tunable laser assembly) grow more than 20%. Growth from $31.5m a year ago was just 6%: revenue from broadband products rose 23% year-on-year, whereas revenue from digital fiber-optics products fell 14%. The latter is due mainly to parallel-optics devices shrinking $4.9m as a result of the ruling in July 2010 by the US International Trade Commission (ITC) banning Emcore from importing parallel-optical modules (made by contract manufacturer Fabrinet Co Ltd in Thailand) that were found to infringe patents belonging to Avago Technologies.

Photovoltaics revenue was $16.2m (33% of total revenue, down from 36% last quarter). This is down 6% on $17.2m last quarter (in line with Space Solar products business falling by about $1m), but up 7% on $15.1m a year ago. In particular, revenue rose 8% year-on-year for space solar cells and CICs (covered interconnected cells) and 67% for service contracts, although revenue fell 28% for long-term space solar panels.

Gross margin has fallen further, from 27.5% a year ago and 22.4% last quarter to 19.1%. This was due mainly to a significant drop in Photovoltaics gross margin, from 30.7% a year ago and 30.2% last quarter to just 18.6% (due partly to higher startup expenses on new products that should improve margins eventually). Fiber Optics gross margin was 19.4%, down from 25.9% a year ago but up from 18% last quarter, due mainly to higher revenue. In particular, the telecom and datacom division is experiencing a shift in product mix as customers move towards newer technology platforms. This evolution should boost margins while new products begin to ramp in the latter part of calendar 2011.

As new products are moved into full production and capacity is increased, there is an increase in startup costs including non-recurring engineering expenses (NREs) and capital expenses. Although down on $21.2m a year ago, operating expenses have hence risen from $14.8m last quarter to $20.7m. In particular, R&D expenses were $9.5m (19% of revenue), up on $8m (19% of revenue) last quarter and $7.1m (15% of revenue) a year ago. However, excluding litigation settlements, overall operating expenses rose just $1.9m from $17.4m last quarter to $19.2m, due mainly to the higher R&D investment.

Net loss has risen by $1.9m on a year ago and $5.9m on last quarter to $11.1m, including $0.3m of non-operating expense related to the Suncore Photovoltaic CPV joint venture and $4m related to the change in legal settlement.

During the quarter, cash, cash equivalents, and restricted cash rose from $17m to $21.1m. In May, Emcore completed an equity private placement transaction involving selling 4,407,603 shares of common stock to Shanghai Di Feng Investment Co Ltd, raising $9.7m. In June, it paid its $8m remaining capital contribution obligation to the Suncore JV. The firm is not required to contribute further funds in excess of its initial $12m investment, and does not anticipate contributing any additional funds to Suncore.

During the quarter, order backlog rose by 31% from $50.5m to $66.2m. This included $26.6m for Fiber Optics (up 10% on $24.1m, driven mainly by higher backlog in Broadband, mostly for cable TV) and $39.6m for Photovoltaics (up 50% on $26.4m, due mainly to new contracts, including the Space Systems/Loral contract signed in May). Photovoltaics included Space Photovoltaics order backlog up from $25m to $29.6m. “This business will grow over the next couple of quarters,” comments chief financial officer Mark Weinswig.

For fiscal fourth-quarter 2011 (to end September), Emcore expects revenue to grow 3–11% sequentially to $51–55m. Due to successful qualification in California of a new Tunable XFP product plus repeated growth of more than 20% in 40/100Gbps tunable laser and ITLA sales, Fiber Optics revenue should grow sequentially again (unlike most other companies that are more exposed to the Chinese telecom market, says Hou, since less than 10% of Emcore’s revenue comes from China). In particular, targeted Tunable XFP revenue is now $1m. Emcore’s 2–3000 units per quarter run-rate capacity at its San Francisco Bay Area facility in Newark, CA was completed by the end of the June quarter, while capacity at Fabrinet is being built up to 10,000–12,000 units per quarter by the end of September.

Photovoltaics gross margin is expected to improve significantly after completion of last quarter’s major shift in Solar product mix (to Emcore’s latest, most advanced designs, which led to higher-than-expected material and labor costs and lower overall yield in fiscal Q3). Overall gross margin for the firm should be flat to slightly up.

“This quarter will begin to illustrate our new product line ups and the results of our business strategy and strong execution,” reckons Hou.

See related items:

Emcore quarterly revenue falls 2% year-on-year

Emcore’s revenue falls 4% due to ITC parallel-optical module ruling

Emcore’s net loss slashed to $0.9m as quarterly revenue grows 16%

Emcore revenue shrinks 3% as it concludes accounting review

Emcore losses slashed as revenue grows 14%

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