For first-quarter 2014, Rubicon Technology Inc of Bensenville, IL, USA (which makes monocrystalline sapphire substrates and products for the LED, semiconductor and optical industries) has reported revenue of $14.3m, up 24% on $11.5m last quarter and 72% on $8.3m a year ago (rising for a fourth consecutive quarter).
Fiscal Q1/2013 Q2/2013 Q3/2013 Q4/2013 Q1/2014 Revenue $8.3m $10.6m $11.1m $11.5m $14.3m
Optical and R&D revenue was $1.8m, up on $1.6m last quarter and $1.2m a year ago. However, most revenue growth was due to 2- and 4-inch core sales of $11.4m, up 23% on $9.2m last quarter and compared with just $1m a year ago.
The general lighting segment of the LED market continued to strengthen as adoption of the technology continues to gain momentum, says Rubicon. Overall LED growth was tempered by seasonality associated with the backlighting market (from which demand is typically lower at the beginning of the year). Overall demand was hence similar to last quarter and sapphire pricing therefore remained fairly consistent.
After more than halving to $0.8m last quarter, revenue from wafer sales rebounded slightly to $1.1m. All of this came from the LED market (up by $0.8m), which included an increase in 6-inch polished wafer orders. This more than offset the absence of wafer revenue from the silicon-on-sapphire (SoS) market (versus $500,000 last quarter), as expected due to excess sapphire inventory and technology changes at the firm's SoS customer. Revenue from patterned sapphire substrates (PSS) was minimal, as Rubicon is still shipping small volumes for qualification (after introducing the product only last October). However, the firm has received the first production order for PSS: 2000 4-inch wafers for delivery in second-quarter 2014. It also received its first production order of 4-inch polished wafers, starting in the latter part of Q1. "Patterned sapphire substrates and polished wafers are an important part of our strategy, and I am pleased with the sales progress we made in the quarter," says president & CEO Raja Parvez.
Operating costs fell to $2.4m, as a result of increased utilization of crystal growth operations and the increased activity in wafering operations. However, much of the latter was dedicated to producing samples and establishing the polishing line for 4-inch wafers.
The high cost of producing low volumes of PSS and polished wafers and the cost of establishing a 4-inch polishing line, combined with the challenging pricing environment, has resulted in losses on wafer products. Rubicon's pre-tax loss rose from $9.1m last quarter to $10.9m. Also, due to the increased number of wafers in inventory at the end of the period and wafer costs exceeding market price, there was a $1.1m adjustment to align wafer inventory down to the market value.
Although crystal growth operations ran at full capacity throughout the quarter while continue to draw down the boule inventory, Rubicon's polishing and patterning operations continue to be under-utilized. "Idle plant and development costs at our wafering facility are the main cause of our negative margins," notes chief financial officer William Weissman. "However, utilization will be improving with the recent sales activity [as 4-inch polished wafer production ramps up], and we expect wafer costs to come down over the course of this year as we move from development to production," he adds.
Net loss of $10.9m ($0.43 per share) is up on $3.4m ($0.15 per share) a year ago but down from $15.2m ($0.67 per share) last quarter. During the quarter, Rubicon used about $6m in cash: $4m in operations and $2m in capital expenditure (up from $1.4m last quarter). Nevertheless, cash and cash equivalents rose from $21.5m to $27.7m. In addition, $35m was raised through the sale of common stock (increasing cash and short-term investments to $63m, with no debt), so that Rubicon can expand capacity as the market strengthens and continue to develop new products.
For second-quarter 2014, Rubicon expects the LED market to continue to strengthen, resulting in some pricing improvement for cores, particularly for 4-inch material. Core sales volumes will decline somewhat as the firm has exhausted its excess boule inventory. "We will see meaningfully higher wafer revenue in the second quarter, which will improve utilization but, in the near-term, will not improve margins," believes Parvez. With reduced core revenue offsetting increased wafer revenue, total revenue should be similar to Q1. Loss per share should be $0.38-0.46 (a relatively wide range because the timing of orders and shipments will affect the size of wafer inventory at the end of the quarter, which will impact the size of any mark-to-market adjustments).
"We are building momentum in the wafer business, shipping both 4-inch and 6-inch polished wafers, and we have orders to ship PSS wafers in the second quarter," says Parvez. "With increasing volume and experience, and as customer specifications are defined, we will reduce our idle plant costs and our wafer product cost," he adds. "The higher wafer sales mix will allow us to generate significant growth without adding crystal growth capacity and improve margins as our utilization and efficiency increase."
