News: Optoelectronics
9 February 2021
Emcore’s quarterly Broadband revenue up 68% year-on-year
For fiscal first-quarter 2021 (to end-December 2020), Emcore Corp of Alhambra, CA, USA – which provides mixed-signal products for the aerospace & defense and broadband communications markets – has reported revenue of $33.4m, roughly level with $33.5m last quarter (the largest quarterly revenue since December 2014) and up 31% on $25.5m a year ago.
Broadband segment revenue was $19.8m (59.3% of total revenue), up 4% on $19m last quarter and up 68% on $11.8m a year ago, driven by the continued surge in demand for cable TV optical transmitters and components, as MSOs continued to invest in their networks to break bottlenecks caused by bandwidth demand from work-at-home initiatives.
Aerospace & Defense (A&D) segment revenue was $13.6m (40.7% of total revenue), roughly level with $13.7m a year ago but down 6% on $14.5m last quarter, due primarily to the program timing for quartz micro-electro-mechanical system (QMEMS) Navigation products (for which revenue was down about 8%), since contract delivery dates tend to mirror the government’s fiscal year (which ends in September). Revenue for Defense Optoelectronics product lines was essentially flat, although the new millimeter-wave Q- and V-band products continue to gain customer interest in the market across military and commercial applications.
“From an operational perspective, the supply chain and operations team continued to meet the challenges of COVID-19 driven shortages,” notes president & CEO Jeff Rittichier. “The biggest difficulties were delays caused by air freight and customs, especially at the end of the quarter [impacting revenue by almost $0.5m]. While we foresaw these problems, they were a bit worse than we expected.”
On a non-GAAP basis, gross margin was 38%, level with last quarter but up from just 30% a year ago. Broadband’s gross margin saw a further rise, from 26% a year ago and 42% last quarter to 43%, driven primarily by the segment’s higher revenue. Conversely, A&D’s gross margin fell slightly further, from 33% a year ago and 32% last quarter to 31%.
Operating expenses (OpEx) improved again to $9.3m (28% of revenue), cut from $9.7m (29% of revenue) last quarter (having been 36.9% of revenue a year ago), due primarily to reduced project-related R&D expenses (with A&D R&D expenses falling from $4m to $3.56m, and Broadband R&D expenses falling from $0.62m to $0.53m).
As a result of another strong quarterly performance for revenue and gross margin, combined with the lower OpEx, net income was $3.4m ($0.11 per diluted share), a further improvement from $2.9m ($0.10 per diluted share) last quarter and a net loss of $1.8m ($0.06 per diluted share) a year ago.
“The Emcore team executed well in Q1/2021, combining revenue and gross margin consistency with lower operating expenses to drive strong sequential-quarter earnings growth,” comments Rittichier. “We continued to overcome COVID-19-related challenges in our supply chain and operations, and made good progress on product qualification and new programs capture despite the COVID headwinds.”
Cash generated from operations was $1.6m (level with last quarter). Capital expenditure (CapEx) was $900,000 (down from $1.1m). During the quarter, cash (net of a $6.5m loan payable) therefore rose by $0.7m, from $24m to $24.7m.
The transition of cable TV manufacturing operations from Emcore Asia (EA) in Beijing, China to Shenzhen-based electronics manufacturing services (EMS) provider Hytera Communications’ facility in Bangkok, Thailand made “significant progress against its operational milestones: transmitter yields in Bangkok remain on target and laser module yields continue to improve,” notes Rittichier. “Strong demand from our customers and the rash of COVID-19 outbreaks in both the Hebei province in China as well as Thailand dictate that our best strategy is to hedge the geographic risk of COVID-19 outbreak by continuing to operate Beijing and Bangkok in parallel until the end of the calendar year. In addition, our customers simply cannot afford the temporary loss of production capacity associated with the final move to Bangkok. We responded rapidly to challenges to keep production on plan, but these incidents demanded additional measures to deal with the problem. Going forward, we will also ship lasers for our sensing customers out of Alhambra to further hedge risk and increase production volumes,” he adds.
Due to the customs delays as well as the receipt of materials across three factories that are now producing laser modules, inventory levels increased quarter-over-quarter in fiscal Q1/2021. However, inventory should start to come down in the March quarter.
For fiscal second-quarter 2021 (to end-March), Emcore expects revenue to grow to $34-36m, driven by stronger-than-normal performance from CATV and QMEMS product line.
“Our biggest note of caution remains tied to COVID-19 impact on our personnel and supply chains in the US, China and Thailand,” says Rittichier.
“The Thai government started to allow foreign workers back into the country right at the end of the December quarter. They have since tightened entry requirements to only admit Thai citizens,” notes Rittichier. “While our Thai manufacturing teams continue to improve their effectiveness, adding the highly experienced EA engineers into the mix would have a positive impact,” he adds.
“The strong demand for cable TV products more than justifies parallel operations at both facilities [Beijing and Bangkok] until the end of the calendar year and enables us to better hedge the COVID-19 risks,” continues Rittichier. “Our customers expect certainty in their ship date and multi-facility operations helps to provide that.”
“We remain excited and confident about the growth prospects across our Aerospace & Defense product portfolio. On the Broadband side, we have a strong order book for our cable TV products through the September 2021 quarter, with MSOs favoring proven linear optics to provide the network bandwidth that customers need,” says Rittichier.
“Charter and Comcast recently announced earnings and their capital plans for the year. Comcast reported increases in scalable infrastructure balanced against reductions in CPE, while Charter highlighted the larger amount of nodes splitting that they’re doing to meet bandwidth demands. These statements are consistent with our strong order book through the September quarter. The trend should continue through at least the December quarter. Although the cyclical nature of the cable TV business gives us pause regarding the ultimate duration of this upgrade cycle, we remain confident that we can complete our move to variable cost manufacturing, while orders are strong,” says Rittichier.
“Looking beyond the very near-term in CATV, we believe that MSOs will continue to invest in linear optics technology to meet their needs. DAA or remote PHY keeps pushing further out to the right, while our development work on linear remote PHY shelf products continues to gain traction,” he adds.
“The broadband business unit also generated some important successes outside of cable television.
Most importantly, we’re seeing growing traction with our LiDAR and sensing components. On the LiDAR front, our chip design has already been qualified for the major design wins we announced with the tier-1 manufacturer. Beyond that we’re about to start sampling a second-generation package designed to at least three more tier-1 automotive subsystem manufacturers. Although volume shipments won’t really occur until sometime in fiscal year 2022, we’re excited with the response that we're getting from these customers,” continues Rittichier. “Our China rail design wins grew strong demand in the quarter, which should continue for the foreseeable future.”
“Outside of sensing, we continue to rack up design wins in highly differentiated chip products, and expect to see growth materialize toward the end of calendar year 2021. Taken together, the broadband business has many important growth opportunities outside of cable television,” Rittichier concludes.
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Emcore grows revenue 14% in June quarter, despite COVID-19-related constraints
Emcore’s cost cutting limits quarterly loss
Emcore hits adjusted EBITDA break-even two quarters ahead of schedule, aided by OpEx cuts
Emcore completes sale and leaseback of Concord facility, generating $12.8m
Emcore sells CATV production assets to Shenzhen-based Hytera for $5.5m
