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11 February 2009


Emcore’s growth in PVs tempers optical communications slump

For its fiscal first-quarter 2009 (to end-December 2008), Emcore Corp of Albuquerque, NM, USA has reported revenue of $54.1m, up 15% on $46.9m a year ago but down 11% on $60.6m last quarter.

Fiber Optics revenue was $39.2m (72% of total revenue). This is up 15% on $34m a year ago (due mainly to the acquisitions early last year of the telecom, datacom, and optical cable interconnects-related assets of Intel Corp's Optical Platform Division). However, it is down 15% on $46.1m last quarter (due mainly to a significant drop in demand during the current macro-economic environment ,as well as continued pressure on selling prices as Emcore competes to maintain or increase market share).

Photovoltaics revenue was $14.9m (28% of total revenue). This is up 15% on $12.9m a year ago (with growth in all three product lines: satellite solar power, terrestrial concentrating photovoltaic, and service contracts) and up 3% on $14.5m last quarter.

Gross margin was 2.9%, down from 21.5% a year ago but an improvement from -0.8% last quarter. Fiber Optics gross margin has fallen from 8.9% last quarter to -1.1%, due mainly to a decline in average selling prices (especially for telecom components), unabsorbed overhead expenses, and inventory valuation write-downs of $4.8m. Photovoltaics gross margin was 13.7%, a big improvement from -31.6% last quarter (which was hit by $6.9m of inventory write-downs and product warranty accruals associated with the CPV-related business).

As a result of the unfavorable macroeconomic environment and a significant reduction in the firm’s market capitalization, Emcore impaired $31.8m of goodwill for Fiber Optics plus $1.9m related to in-process R&D acquired through the February 2008 acquisition of Intel’s telecom-related assets (amounting to $33.7m in non-cash charges).

Net loss has hence risen from last quarter $41.2m (which included $22.2m in charges) to $53.4m. However, non-GAAP net loss (excluding charges) is level on last quarter, at $8.9m.

During the quarter, cash, cash equivalents, restricted cash, and available-for-sale securities fell by about $5m to just $18.8m, while working capital was $75.4m. Outstanding loans under a $25m secured line of credit with Bank of America totaled $15.4m. To boost funds, Emcore freed up $2.6m in cash previously tied up in auction rate securities, and has since also sold its remaining stake in Entech Solar Inc (formerly WorldWater and Solar Technologies Corp) for $11.4m.

Emcore says that, during the December quarter, it received indications of interest from several investors regarding a minority equity investment directly into the Photovoltaics subsidiary (via private placement), which would serve as an initial step towards is potential spin off. Last month, Emcore also signed a letter of intent with a major international investment group that involves both investment and operational agreements. The role of the partner will be to organize equity and CPV project financing, and to serve as owner-operator of the project. “We are targeting to close one or more of these financing opportunities by late March or early April,” says president & CEO Hong Q. Hou.

In addition to these liquidity and financing initiatives, over the last three months Emcore has also implemented cost-reduction initiatives including: staff cuts of about 160 (17% of the workforce) yielding annualized savings of $9m; a significant reduction in the fiscal 2008 staff bonus plan payouts; the elimination of all fiscal 2009 staff merit increases; significant reductions in capital expenditures; and restrictions on staff travel and other discretionary spending.

“In response to a very challenging macroeconomic environment, we have implemented numerous cost-reduction and cash-generation initiatives and will continue to aggressively focus on improving our operational efficiency and working capital management in our Fiber Optics segment,” says Hou.

“However, the situation in our Photovoltaics segment is much more encouraging as our satellite solar power business is experiencing relatively stable demand, is approaching profitability, and is on the cusp of developing some significant new business opportunities based upon our technology leadership position in inverted metamorphic (IMM) triple and quadruple-junction solar cells,” Hou adds.

In the December quarter, Emcore signed a long-term purchase agreement for $70m with a major satellite integrator. It is also finalizing negotiations on a new purchase agreement with a major existing customer for future demand totaling $50m. “We expect to be sole and primary supplier of a space solar cells solar panels for three out of the four major aerospace companies in the US,” says Hou. Emcore has also been awarded a number of geosynchronous orbit satellite programs in the international markets.

Also during the December quarter, Emcore signed supply agreements with two major customers, with CPV systems qualified for the Spanish market. In addition, in mid-January, Emcore’s terrestrial solar power division was short-listed for a major solar utility project in south-western USA worth 50-80MW. The firm is also making significant progress in developing its Gen-III CPV system, for introduction in second-half 2009. All major future bids for solar utility projects will be based on Gen-III products.

“We have fairly good visibility [through mid-2009] and believe that our Photovoltaics business will continue to grow,” says Hou. At the end of December, order backlog was $53.2m ($30.2m Photovoltaics and $23m Fiber Optics). In fiscal second-quarter 2009 (to end-March), Emcore expects Fiber Optics revenue to be flat to 15% down sequentially. Nevertheless, the Fiber Optics segment continues to receive design wins from major customers, and believes it is well positioned for growth once the overall economy improves, according to Hou.

See related items:

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

Emcore grows 70% year-on-year

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