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17 December 2018

Emcore quarterly revenue rebounds by 42.5%, driven by larger-than-expected cable TV orders

For full-year fiscal 2018 (to end September), Emcore Corp of Alhambra, CA, USA – which provides indium phosphide (InP)-based optical chips, components, subsystems and systems for the broadband and specialty fiber-optics markets – has reported revenue down by 30.3%, from $122.9m for fiscal 2017 to $85.6m for fiscal 2018. “2018 was a challenging year for us as we worked through an inventory overhang in the cable TV supply chain,” notes president & CEO Jeffrey Rittichier.

However, despite being down 13.7% on $29.2m a year ago, fiscal fourth-quarter 2018 revenue of $25.2m has rebounded by 42.5% from $17.7m last quarter (and above the initial guidance of $21-23m, and at the upper end of the revised guidance of $24.2-25.2m). The recovery was driven by larger-than-expected cable TV orders (received late in Q4) related to increasing adoption of the linear externally modulated laser (L-EML) product line, coupled with the expected return to normalized inventory levels of legacy distributed feedback (DFB) products at a CATV customer (that was working through an inventory overhang throughout much of fiscal 2018) plus completion of the long-term Navigation supply agreement.

“Our L-EML product line continues to perform beyond expectations, with record volumes of L-EML transmitter shipped in the quarter, including production shipments of all seven of the L-EML design wins that we previously announced,” says president & CEO Jeff Rittichier. “It further validates the competitive advantage that the L-EML provides. By enabling substantially higher transmission efficiency versus legacy DFB solutions, our L-EML transmitters give MSOs a cost-effective powerful tool to break bottlenecks in their networks without ripping up and replacing their existing linear based infrastructure,” he adds.

All end-markets grew sequentially, with CATV driving the largest upside within the broadband market and Chips and Navigation products growing in line with expectations. Of total revenue, cable TV comprised 71% (up from 66% last quarter, with L-EML products comprising over half of CATV revenue). Of the 29% in non-CATV revenue, Chips comprised 10%, Satcom video & wireless 9%, and Navigation 10%.

In the chip market, Emcore continued to see sequential growth, driven by increased demand in 2.5 GPON products within China. “We see this growth trend accelerating substantially in the fourth quarter, with strengthening demand in both PON and non-PON-related products driving the increase,” says Rittichier.

On a non-GAAP basis, full-year gross margin fell from 35.1% in fiscal 2017 to 22.2% in fiscal 2018. However, despite still being well down on 36.9% a year ago, quarterly gross margin has more than doubled from just 7.3% last quarter to 18.1% in fiscal Q4. This was driven largely by unique events in Q3 that did not repeat in Q4, offset by additional excess & obsolete (E&O) charges due to accelerating adoption of L-EML products, incremental long-term inventory impairments as well as expediting charges related to sourcing raw materials for the L-EML order. The latter expenses totaled $1.5m (6% of sales). Pro forma for these expenses, gross margin would have been 23.5%, within expectations as the firm continues to increase chip capacity and transition to L-EML-based transmitters (which in the near-term carry a lower gross margin than the corporate average).

Operating expenses (OpEx) have risen further, from $8.9m a year ago and $9.1m last quarter to $10m (with full-year OpEx rising from $34.8m for 2017 to $36.8m for 2018). “In Q4, we continued to increase our R&D investments in Navigation products, while selling, general & administrative (SG&A) was primarily impacted by an increase in consulting and litigation-related expenses (rising from $0.13m to $1.17m),” notes chief financial officer Jikun Kim.

Compared with income of $14.3m ($0.52 per diluted share) for fiscal 2017, full-year fiscal 2018 yielded a pre-tax loss of $11.3m (-$0.41 per diluted share). However, quarterly loss has been halved from $6.7m (-$0.26 per diluted share) last quarter to $3.3m (-$0.12 per diluted share) in fiscal Q4, although this compares with income of $3.4m ($0.12 per diluted share) a year ago.

Capital expenditure (CapEx) rose from $1m last quarter to $2.8m (out of $6.6m for the full year). Depreciation remained at $1.5m.Cash and cash equivalents were $63.1m, having fallen by $2.2m over the quarter and by $5.2m over the year.

“In the fourth quarter, we received a sizable L-EML order which was well above our customer's original forecast. While we do not expect this level of activity to repeat in the first quarter, we are encouraged by the overall pace at which the industry is moving to this technology,” says Rittichier. “We expect that our CATV business will be on a solid footing in fiscal-year 2019,” he adds. “We’ve also entered the year with robust backlog in our Navigation and Chip product lines and look forward to realizing growth in these areas.”

For fiscal first-quarter 2019 (to end-December 2018) Emcore expects revenue of $23-25m, with growth in all three non-CATV product lines helping to offset a more normalized demand environment within the CATV market. “With the inventory overhang [in legacy DFB products] now exhausted, we expect demand for these products to serve as a baseline to cable TV product revenue as our customers transition to L-EML solutions,” says Rittichier. L-EML products could rise to 60-80% of CATV revenue in full-year fiscal 2019, it is reckoned.

Chief financial officer Jikun Kim is leaving Emcore on 31 December to tend to personal obligations. The firm has an external search underway to identify a replacement.

See related items:

Emcore’s inventory correction from main CATV customer offset by revenue growth from other customers in Q2

Emcore’s quarterly revenue falls 22% after larger-than-expected inventory correction from main broadband CATV customer

Emcore lowers quarterly revenue forecast from $21-23m to $18-19m

Emcore’s quarterly revenue down 17.6% while awaiting qualification of L-EML RFoG micro-nodes

Emcore’s quarterly revenue suppressed by vendor-managed-inventory deferral

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