For its fiscal third-quarter 2014 (to end-June), Emcore Corp of Albuquerque, NM, USA, which makes compound semiconductor-based components and subsystems for the fiber-optic and solar power markets, has reported revenue of $44.6m, up 5.5% on $42.2m last quarter and up 33% on $33.5m a year ago (and above the guidance of $40-44m).
Fiscal Q3/2013 Q4/2013 Q1/2014 Q2/2014 Q3/2014 Revenue $33.5m $43.1m $44.2m $42.2m $44.6m
Photovoltaics revenue was $18.4m (41% of total revenue), down slightly by 1.2% on $18.6m (44% of total revenue) last quarter but up 55% on $11.9m (36% of total revenue) a year ago (and a “pretty typical revenue run rate for the current state of this business”).
Driven by growth in the telecom and broadband cable TV product line, Fiber Optics revenue was $26.2m (59% of total revenue), up 10.8% on $23.6m (56% of total revenue) last quarter and up 21% on $21.6m (64% of total revenue) a year ago. In particular, in telecoms applications, revenue from 100G coherent products grew about 18% on last quarter to another record.
“We’ve seen significant improvement in the 100G and 400G coherent market,” says chief financial officer Mark B. Weinswig. “This has led to an increase in our revenues and in our overall gross margins for our telecom products.”
Fiber Optics gross margin has risen further, from just 3% a year ago to 8.2% last quarter before doubling to 16.4% this quarter, due mainly to the increase in revenue, better absorption of the fixed costs, and lower warranty costs. The improvement from the Fiber Optics business was primarily due to telecom ITLAs (integrable tunable laser assemblies) for 100Gb/s applications, despite margins being under pressure from the launch of the firm’s new micro-ITLA product (for which revenue was over $2m). Although still down on 28.6% a year ago, Photovoltaics gross margin has risen from 26.5% last quarter to 27.7%, due mainly to favorable variances realized during the quarter. Total gross margin has risen further, from 12.1% a year ago and 16.3% last quarter to 21.1%.
Total operating expenses have risen from $11.7m a year ago and $12.1m last quarter to $12.5m. This is mainly due to selling, general & administrative (SG&A) expenses rising from $7m a year ago and $6.9m last quarter to $7.8m, outweighing R&D expenses falling from $5.2m to $4.7m (level with a year ago). “We continue to invest significantly in R&D and the new product development by leveraging sponsored R&D and engineering service contracts,” notes president & CEO Hong Hou.
Total operating loss has been cut from $7.3m a year ago and $5.2m last quarter to $3.1m. In particular, Fiber Optics operating loss has been cut from $9m a year ago and $7.3m last quarter to $5.1m. Photovoltaics operating profit of $2m was roughly level with last quarter and up on $1.3m a year ago.
Non-GAAP net loss has been cut from $6.1m ($0.23 per share) a year ago and $2.6m ($0.08 per share) last quarter to $1.6m ($0.05 per share), due mainly to the better financial performance within the Fiber Optics segment. In particular, thanks to better absorption of fixed cost and cost-reduction efforts, the telecom division achieved the “important milestone” of positive EBITDA (excluding corporate allocations). Cash and cash equivalents stayed level during the quarter, at $18.2m. The firm’s line of credit was increased to $20.9m.
Order backlog for the Photovoltaics segment at the end of June (for delivery over the following 12 months) totaled a record $70.5m, up 37.2% from $51.4m as of end-March. Also, over the past few months Emcore has signed two “very significant” long-term agreements (LTAs) with its two leading aerospace clients, Space Systems/Loral (announced in mid-June) and Lockheed Martin Space Systems (announced in late July). Emcore also secured multiple contracts with other customers during the quarter worth $4.7m.
In the Fiber Optics segment, Emcore says it has seen signs of a recovery in cable TV infrastructure spending, especially towards the end of the quarter when it started seeing orders flowing in. “The book-to-bill was over 1.1 [for Fiber Optics] and the booking momentum into the September quarter seems to be continuing,” says Hou. In addition, Emcore continues to see strong 100G coherent product demand, yielding a book-to-bill for telecom products of 1.2, driven by strong demand for 100G coherent transmission from telecom carriers. Order backlog for this product line reached a record level. Also during the quarter, Emcore started shipping transmission products that comply with the DOCSIS 3.1 standard, as leading customers have recently released their first DOCSIS 3.1 transmission products. “We are deeply engaged in product design and qualification to address DOCSIS 3.1 standard and have finished several related product releases,” says Hou.
For fiscal fourth-quarter 2014 (to end-September), Emcore expects revenue of $41-45m. In particular, Fiber Optic revenue should grow (driven by stronger performance results from the telecom division, with micro-ITLA more than doubling, driving gross margin for the product to equal that for ITLA, for which revenue will probably start tapering off in the December quarter). Photovoltaics revenue is expected to fall (consistent with the seasonality experienced in the Space business – the firm anticipates record Photovoltaics revenue for the full fiscal year). Based on the order backlog and current demand, Emcore expects the Space Photovoltaic segment to rebound in the December quarter. The firm continues to believe that the target gross margin for Photovoltaics is roughly 30%.
“We are implementing certain cost-reduction initiatives to further reduce cost and improve our personal efficiency,” says Hou. “Our Fiber Optics business will be more sustainable financially once these initiatives are fully implemented,” he adds. “We expect to reach breakeven at quarterly revenue of $46-48m.”
