7 February 2011

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

For its fiscal first-quarter 2011 (to end-December 2010), Emcore Corp of Albuquerque, NM, USA has reported revenue of $52.1m, up 23% on $42.4 a year ago but down 4% on $54.1m last quarter.



On a segment basis, Photovoltaics revenue was $20.3m (39% of total revenue), up 21% on a year ago and up 3% on last quarter, driven by record revenue for space solar power generation products. However, Fiber Optics revenue was $31.8m (61% of total revenue), up 24% on a year ago but down 8% on $29.2m last quarter. The decline was driven mainly by lower shipments of digital products, particularly related to the US International Trade Commission (ITC) last July 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.

Gross margin has risen from 22% a year ago and 23.6% last quarter to 24.3%. This was due mainly to Photovoltaics gross margin rising from 22.1% a year ago and 29.3% last quarter to 33.1% (as a result of leverage from higher volumes and a positive product mix). However, Fiber Optics gross margin has fallen from 21.9% a year ago and 20.4% last quarter to 18.7%, due mainly to an unfavorable product mix shift and higher material costs associated with the Telecom and Datacom divisions as customers began moving towards newer technology platforms. “This evolution will cause margins in this division to be under pressure until our new products begin to ramp in the latter part of this year,” says chief financial officer Mark Weinswig.

Despite still being a big improvement on $12.1m, the net loss of $3.6m is up from just $0.8m last quarter. However, compared with cash consumption of $1.2m a year ago, Emcore generated $3.9m in cash from operations, due mainly to improved operating performance and strong working capital management. During the quarter, cash and cash equivalents and restricted cash rose from $21.2m to $25.4m. Also, last November the firm entered into a three-year $35m asset-backed revolving credit facility with Wells Fargo Bank, which can be used for working capital, letters of credit, and other general corporate purposes.

At the end of the quarter, order backlog was $57.3m, down 20% on $71.3m last quarter. In particular, Photovoltaics order backlog fell 32% from $52.9m to $36.1m due to certain contracts that are now complete. However, Fiber Optics order backlog rose 15% from $18.4m to $21.2m, driven mainly by higher backlog in tunable laser business (which continues to gain strong traction at customers due to its penetration into 40G and 100G markets).

For its fiscal second-quarter 2011 (to end March), Emcore expects revenue to fall back slightly to $46–49m. Fiber Optics revenue should be flat to slightly up as cable TV business continues to improve and as next-generation telecom products begin to ramp. Photovoltaic revenue will fall due to completion of a few large satellite orders over the last couple of quarters plus a delay from an international customer for a new program.

“While backlog decreased sequentially, we are confident that our business fundamentals are still very strong,” says president & CEO Dr Hong Hou. “Already in the past month after we closed the Q1 December quarter, we have added a couple of program wins into our backlog, and there’s been additional significant booking opportunities in the very near future,” he adds.

Also, Emcore believes that parallel-optical module business will recover over the next few quarters, as the firm begins to deliver new solutions to customers.

“We’ll continue to solidify our strong market positions in our more established satellite Photovoltaic and broadband Fiber Optics businesses,” says Hou. In particular, telecom Fiber Optics revenue has nearly doubled over the past 4–5 quarters, driven mainly by sales of tunable lasers and ITLAs (integrable tunable laser assemblies) for 40–100Gb/s applications. “In the meantime, we will be focusing on the capacity buildup of tunable XFP production [at both Emcore’s facility in Newark, CA, USA and at Fabrinet in Thailand], so that we’ll be positioned for a significant revenue ramp up in the second half of the year,” Hou adds. The tunable XFP product is currently shipping in small volumes to multiple tier-one OEMs for qualification. The targeted production output of the line in Thailand (starting in mid June) is 5000 parts per month. However, as the market for tunable XFPs is forecast to grow at nearly 120% year-on-year over the next four years, this will probably satisfy only about half or a third of demand, so Emcore is planning to expand with a third line, in either Thailand or Emcore’s facility in China.

Also, a few weeks ago Emcore’s Suncore Photovoltaics Co Ltd terrestrial concentration photovoltaic (CPV) joint venture with China’s San’an Optoelectronics Co Ltd received its business license and relevant regulatory approval to establish its manufacturing operation in Huainan City, China. “We plan to break ground for the new manufacturing facility later this month and expect the JV manufacturing alliance to be up and running for producing CPV components and systems in September,” says Hou. Emcore expects to make a $12m capital contribution to the JV this quarter, as per the contract.

Order backlog for CPV systems at Suncore is now 15MW. With the JV taking on the task of manufacturing CPV receivers, modules and systems as well as business development in the China market, Emcore can now focus on the development of its next-generation CPV product as well as solar business development activities in North America and Europe (including completing two projects in New Mexico and Arizona totaling 3MW this year, using CPV components made by Suncore).

“This year we expect to expand our solar project development capability as well,” says Hou. “This will drive additional sales of our CPV products and also remove margin backing by distributors and the project developers,” he adds. “We are in the process of adding necessary skill set to expand our business development,” Hou continues. “We are ramping up to win new project opportunities with competitively priced product from our joint venture in China. Terrestrial solar opportunities should add to our revenue substantially over the next couple of years.”

See related items:

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%

Emcore revenue recovers a further 5%, driven by space PVs and CATV

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