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4 November 2013

Rubicon’s revenue rebounds further, up 4.7% in Q3 to $11.1m

For third-quarter 2013, Rubicon Technology Inc of Bensenville, IL, USA (which makes monocrystalline sapphire substrates and products for the LED, RFIC, semiconductor and optical industries) has reported revenue of $11.1m, down 45% on $19.9m a year ago but rising for a second consecutive quarter, up 4.7% on $10.6m in Q2 (and up 34% on Q1’s sharp dip to $8.3m).

Fiscal Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013
Revenue $19.9m $20m $8.3m $10.6m $11.1m

Overall demand for sapphire was stronger, driven by the growing momentum of the general lighting segment of the LED market and demand from non-LED applications for mobile devices (such as the sapphire home button on the iPhone 5S, as well as the camera lens cover and dual flash now being adopted by more smartphone makers).

However, capacity constraints for the fabrication of 2- and 4-inch cores (which has been operating at near full utilization) meant that volumes of 2- and 4-inch cores sold were similar to Q2. Nevertheless, the increased demand for 2- and 4-inch sapphire cores meant that their pricing rose for the third consecutive quarter. Revenue from core sales hence rose by 19%, from $6m in Q2 to $7m in Q3.

This limited growth was counteracted by revenue for 6-inch polished wafers falling further, by $1.3m, to $1.9m in Q3 from $3.2m in Q2 (and down from $6.2m in Q1, $17.5m in Q4/2012). Nearly all 6-inch polished wafers were for silicon-on-sapphire (SoS), which has fallen further, to $1.8m from $3.2m in Q2 (and down from $6.1m in Q1, $7m in Q4/2012 and $8.7m in Q3/2012). The remaining $0.1m of 6-inch polished wafers was for the LED market (since 6-inch sapphire LED revenue has been going through a hiatus for a few quarters since the surge to $10.5m in Q4/2012).

Revenue for optical products and R&D activities totaled $1.9m, up on $1.2m in Q2.

Operating expenses were $3.1m, consistent with last quarter. Of this, R&D expense rose $200,000 due to increased activity on patterned sapphire substrate (PSS) development.

Compared with net income of $0.27m ($0.01 per share) a year ago, net loss was $5.8m ($0.26 per share), albeit levelling off with $5.9m ($0.26 per share) last quarter after steadily worsening quarterly losses over the last year. Capital expenditure was $4m (mostly on PSS infrastructure). During the quarter, cash and short-term investments fell from $40.9m to $36.6m (with no debt).

Product mix, lower utilization of wafer polishing operations and a slightly lower effective tax benefit rate partly offset the gain in profit margin from the higher pricing on 2- and 4-inch cores. In particular, idle plant costs accounted for a significant portion of the firm’s negative gross margin. However, while plant utilization remains low, the firm is beginning the process of re-starting all of its crystal growth furnaces now that boule inventory levels have been greatly reduced. All furnaces should be operational by the end of first-quarter 2014 (in order to maintain the current volume of core sales). “We plan to aggressively ramp up the crystal growth operations in the coming months,” says president & CEO Raja Parvez. Idle plant cost rose from $3.7m in Q2 to $3.9m in Q3, but about $1m of this quarterly cost should be eliminated at full utilization in crystal growth.

“With the rising demand for sapphire, pricing has been steadily rising and current market pricing - which will be reflected in our fourth quarter numbers - is now back to approximately break-even for our 2- and 4-inch core products,” says Parvez. “Given the momentum of the LED general lighting market and introduction of new applications for sapphire, we expect pricing to continue to strengthen going into next year.”

During the quarter, Rubicon launched its 4- and 6-inch PSS products and reported that seven tier-one LED chip makers have already requested samples. “PSS will be a strong growth driver for our wafer business,” believes Parvez. “While we are a few quarters away from volume production orders, we believe that PSS wafer sales should generate at least $15m in revenue for us in 2014.”

Rubicon also reported that orders from its major SoS customer are very limited due to excess wafer inventory at the customer. That customer is also introducing new RF chips (starting early next year) that will be produced on silicon-on-insulator (SOI), displacing some of their SoS-based chips. The firm’s future sapphire purchases will likely be lower than they have been historically.

“Idle plant costs in the second quarter totaled $3.9m, which continued to be a significant portion of our gross loss. However, our crystal growth operations will be ramping back up, which will begin to reduce that number,” notes chief technology officer William Weissman. “Utilization of our polishing operations will improve with the strengthening of 6-inch wafer orders and the start of patterned substrate production,” he adds.

“We believe sapphire demand will continue to strengthen and we expect pricing for 2- and 4-inch cores to be higher in the fourth quarter and have added some additional core fabrication capacity,” says Weissman. “With lower-than-expected wafer orders from the SoS market, our wafer revenue will be lower in the fourth quarter [about $1m, half for SoS and half for LEDs], offsetting most of the sequential price and volume increases for 2- and 4-inch core. Therefore, we are expecting fourth quarter revenue to be similar to the third quarter,” he adds.

“We are very optimistic about wafer demand next year, but it could take another couple of quarters to see a meaningful improvement in wafer orders,” cautions Weissman. “Idle plant costs will remain high in the fourth quarter, but we will begin to see some reduction in idle plant costs as we have now started the process of re-starting idle crystal growth furnaces.” Rubicon expects similar capital expenditure in Q4, primarily on the remainder of the PSS equipment and enhancing the polishing platform to further reduce wafer cost. Rubicon hence expects a slightly reduced loss per share of $0.20-0.24.

“While demand for 6-inch wafers in the LED market is limited at the moment, we believe that we will finally begin to see greater adoption of 6-inch wafers among major LED chip manufacturers within the next year,” says Parvez. “MOCVD’s utilization rates are increasing and, in order to grow, chip manufacturers will either have to invest in new tools or find a way to increase throughput from their existing infrastructure. In either case, there is an opportunity for them to benefit from moving to a larger-diameter platform,” he adds. “We have been aggressively marketing 6-inch wafers to the top-tier LED chip manufacturers and are seeing an increased level of interest in larger wafers.” In Q4, Rubicon will begin shipping 6-inch qualification samples to one of these Tier 1 chip makers and expects to see production volume orders from this customer as early as Q2/2014. “The industry’s migration to 6-inch, while gaining momentum, will nonetheless take time to develop,” Parvez cautions. “However, most industry analysts agree that it is the logical progression, and we believe that the activity around 6-inch wafers in the LED market will build throughout next year.”

See related items:

Rubicon's revenue rises 28% in Q2, driven by strengthening LED market

Rubicon’s revenue falls in Q1 as 6” customers reduce inventory

Rubicon’s 6" sapphire sales growth for LEDs offsets drop for SoS and low pricing for 2-4" cores

Rubicon reports positive third-quarter results

Tags: Rubicon Sapphire substrates

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