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11 December 2008


Emcore revenues shrink 20%, driven by PV order push-outs

For fiscal 2008 (to end September), Emcore Corp of Albuquerque, NM, USA has reported revenue of $239.3m (up 41% on $169.6m the prior year), with international revenue more than doubling to $94.4m (rising from 27% to 39% of total revenue).

In particular, for its fiscal fourth quarter, revenue was $60.6m (up 29% on $47m a year ago but down 20% on last quarter's $75.5m).

The Fiber Optics segment contributed $46.1m (76% of total revenue), up 48% on $31.2m a year ago (66% of revenue) due mainly to acquiring the Telecom and the Enterprise & Storage as well as Connects Cable assets of Intel Corp’s Optical Platform Division in early 2008 (which added $16.3m, or 35% of Fiber Optics revenue, in fiscal Q4). However, Fiber Optics was still down 14% on last quarter’s $53.6m after a $5m shortfall as demand “dropped off a cliff” after 15 September, leading to multiple orders cancellations.

The Photovoltaics segment contributed $14.5m (24% of total revenue), down 34% on last quarter's $21.9m and 8% on $15.8m a year ago (34% of revenue). A $5.3m drop in US government contract revenue (due to the termination of engineering and manufacturing contracts) offset growth in space and terrestrial concentrating photovoltaic (CPV)-related product sales. In addition, the adoption of CPV technology was adversely affected by it not being clear whether the investment tax credit in the USA was to be extended beyond the end of 2008. The uptake rate for CPV components was hence reduced significantly and delivery schedules were pushed out.

Despite better utilization of the China manufacturing plant and the use of contract manufacturers, Fiber Optics gross margin has fallen from last quarter’s record 27% to just 8.9%, due mainly to significant inventory write-downs. Photovoltaics gross margin has fallen from 17.3% a year ago and -3% last quarter to -31.6% due to $6.9m of inventory write-downs and product warranty accruals associated with the CPV-related business, following significant project losses on several initial CPV system installation projects (mainly a result of higher-than-expected material, freight and installation costs). Overall gross margin is down from 18% last quarter to -0.8%.

Net loss has grown from $7.7m last quarter to $19.4m (after being cut from $17.5m the previous quarter). As of 30 September, cash, cash equivalents, available-for-sale securities and restricted cash totaled $24.7m, working capital totaled $70.5m, and the firm had no outstanding long-term debt.

Emcore also says that it is currently in negotiations with an investor to sell a minority equity stake in its Photovoltaics business as an initial step towards a potential spin off. “We’ve received additional indications of interest from a number of other parties as well,” adds chief financial officer John M. Markovich.

To conserve cash in response to the recent global economic uncertainty, Emcore has undertaken several cost-cutting initiatives, including a recent workforce reduction of about 100 staff and contractors, a significant reduction in fiscal 2008 staff bonuses, the elimination of fiscal 2009 merit increases, a significant reduction in capital expenditure, and greater emphasis on improving working capital management. “We’re also very selective in the focus on our efforts in product development,” says president & CEO Hong Q. Hou.

“During the year, we launched our new CPV terrestrial systems business and achieved significant market penetration in both CPV components and systems in the first full year of operation,” says Hou. In late November, Emcore announced its first deployment of a CPV solar power system in China with the XinAo Group, one of China's largest energy firms. Emcore and XinAo continue to discuss possible construction of a joint-owned plant in China to manufacture CPV systems designed and certified by Emcore for XinAo’s coal gasification project and the Chinese market.

“As with most new technologies, we incurred significant start-up costs associated with establishing new product lines and building the required infrastructure,” points out Hou. “However, we have now established a leading position in this emerging market and have positioned Emcore for future growth within this segment.”

Regarding the Fiber Optics segment, the Intel acquisitions significantly enhanced Emcore’s product portfolio and expanded its customer base, providing increased leverage and scale, says Hou. The comprehensive and diversified product portfolio in broadband, telecom, enterprise, specialty and high-performance computing markets, vertically integrated with an offshore low-cost manufacturing infrastructure, should put the fiber-optics business on the path to recovery, he reckons.

As of 30 September, Emcore’s order backlog totaled $56.3m ($35.2m for Photovoltaics and $21.1m for Fiber Optics). In particular, in early August Emcore said that it had entered into two new long-term supply agreements for solar cells and receivers with a total value of over $40m. The larger one is a four-year supply agreement for solar cells for incorporation into CPV solar power systems in the USA (focused on the California market). The firm has also substantially reached an agreement with two other major customers with their CPV system product qualified for the European market (to be announced in the near future), according to Hou.

In addition, in the midst of the current financial crisis, the investment tax credit in the USA was extended for eight years. “The USA is clearly becoming the center stage of the solar power opportunity. Thus we have adjusted our business development strategy to focus on the opportunities in the USA, especially in the south-western states,” says Hou. “Working with our strategic partners, we have responded jointly to a number of RFPs by public utility companies in the south-western states,” he adds. “The role of our partners in this project is to organize equity and project financing and serve as owner/operators of the project.” With three CPV receiver lines in Albuquerque and a fourth line in Langfang City, China now operational too, this capacity should be able to serve market demand over the next 12 months, so capital spending will slow significantly. However, Emcore is in active discussions with several potential international partners to license the CPV system manufacturing process in each of the firm's local markets to accelerate business growth.

Also, early September saw a long-term, multi-year purchase agreement with a major satellite integrator, and Emcore is currently negotiating a new purchase agreement with an existing major customer for their future demand. “Our visibility for our space business is relatively good through mid-2009,” adds Hou.

“Although we remain quite cautious about the current economic downturn, we believe that the company is now well positioned in its markets and our company remains very focused on continuing to lower our cost structure, managing our working capital and achieving profitability,” Hou says.

For the December quarter (fiscal Q1/2009), Emcore expects revenue to be relatively flat sequentially, both overall and in the fiber-optics business (as demand seems to have stabilized). In addition, the bottom line should improve significantly.

Based on new design wins and newly qualified products and opportunities in the pipeline, the March quarter (fiscal Q2/2009) should see a noticeable business recovery. For full-year fiscal 2009, revenue is expected to increase by 10% compared to fiscal 2008.

See related items:

Emcore grows 70% year-on-year

Emcore wins orders worth $40m for CPV solar cells and receivers

Emcore wins CPV receiver orders worth $29m

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