EMCORE Corp (EMKR) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Emcore Corporation second quarter results conference call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star 0. I would like to advise everyone that this is being recorded and broadcast over the web at www.Viavid.Com. I will now turn the conference over to Mr. Victor. Please go ahead, sir.

Thank you and good morning, everyone. Yesterday Emcore released its 2002 second quarter results. If you have not received a release, please call our office at 212-794-1050. With us are Reuben Richards, Thomas Werthan and David Hess. Tom will review information and Reuben will as well. Before we begin, we would like to remind you some of the comments made during the conference call and some of the responses to your questions by management may contain forward-looking statements that are subject to risks and uncertainties as described in the press releases and filings with the SEC. I will now turn the call over to Tom.

Thanks, Vic. Good morning to everyone. Thank you as we review the second quarter 2002. Let me start with revenues. They came in at 23.1. Up 21% sequentially from the 19.1 million in the first quarter. Let me review the revenue performance by product. In our systems group, revenues were 4.3 million. That is down 58% sequentially from Q1. Wireless components down about% from Q1. Components and modules, meaning any product that we make with a Vixal is up 52% from the first quarter [INAUDIBLE] and on our Photovoltaic revenues, it was up 500% sequential. So net/net, this was our best quarter ever for revenues. Gross profit was 3.1 million or 13.5%. That's a modest increase from the first quarter's 13.3%. Again, let me explain the dropoff in margins that we experienced. Just to review for everybody, in fiscal '01, we did expand to Albuquerque building in the FAB. In New Jersey, we spent 25 million in the same type of cost outlay. In summary, we spent about 85 million on capacity expansion thus increasing our [INAUDIBLE] costs. That, coupled with the decline in revenues, obviously adversely impacted the gross margins. We're not [INAUDIBLE] enough overhead at these revenue levels. Operating expenses decreased modestly and are down 17% from the beginning of the year. Sales General and administration is down slightly during the quarter. Decrease would have been much greater, but during the quarter we did a couple things to try to increase revenues on our equipment side with the tight market on equipment. One, we felt it absolutely necessary to increase the samples we are sending out to prospective customers in order to boost sales. We initiated a program to let potential customers come to Emcore. Again, in this economic climate, we feel it's imperative to do everything and anything we can to secure a purchase order. As a result, we spent about a half million dollars and anticipated a concerted effort in this area. One nice thing is bookings did total about $9 million for the quarter. That was our best quarter since last March. R&D was also down slightly in the quarter. And additional savings in R&D and sales General administration will be realized as we progress through our fiscal year. Below the line, the joint venture loss was $850,000. This was an increase from last quarter but it was still substantially below the guidance we indicated during our last conference call. Net interest expense was interest on the convertible bond due in 2006. Obviously netted against interest income. Let me spend a few moments addressing the impairment structuring charges. They came in over 50 million. Of this, approximately 9 million was related to the equipment division and 41 million was related to our material product lines. On the equipment side, to break out that 9 million, 1.2 million related to accounts receivables, 3 million for inventory, 4.2 million of equipment impairments and 700,000 for severance payments. On the materials side, the 40 million breaks down as follows. 1.3 million in accounts receivables, 7.2 million of inventory, 31 million of equipment impairment and about a half million dollars in severance. All of these charges are representative of changes to our business models. For example, our projected use of capacity has been adjusted downward, therefore we are required to run impairment tests. Thus they accurately reflect the markets that we serve. Background was 70 million however, some Photovoltaic business, the only purchase orders shippable within a year, we are recording a backlog of 64 million. With the acquisition of Textstar, we are seeing a change in traditional ordering. Since satellites are generally scheduled for launches years in advance, we expect to and have received purchase orders that generally will not ship within one year. So we will exclude these orders from backlog but certainly report the bookings each quarter. The breakout is 30 million on systems, 33 million on materials. Bookings in the quarter during the quarter were 9 million for systems and 11 million for materials, however, as I just [INAUDIBLE], some of the materials books, meaning Photovoltaics go out for one year, so they are not included in backlog. Just to reiterate the purchase order that we have, while the purchase ordered we have total 63 million, they really represent what our customers feel is their best estimates of anticipated requirements given the general business climate that we're seeing. It is quite possible that the POS can either increase or decrease. Let me comment on the balance sheet before turning the call over to Reuben. Cash and marketable securities March 31st was 96.1 million. Let me reconcile cash usage for everybody. Again, the total decrease was 31.5 million. We spent 25.1 million on the Textstar acquisition. We spent 20 million on CAP-X. This is the lowest operational burn rate in some [INAUDIBLE]. Accounts receivable also decreased about 2.5 million and inventory decreased by 4 million. All of these improvements are restructuring charges. CAP-X going forward is basically sustaining CAP-X and will not be more than 3 to 3.5 million a quarter. To quickly summer as Q2 highlights, gross margin was up sequentially, R&D and SG&A was down substantially, and the cash burn from operations was down 4 million. A.R. decreased and inventory increased. With that I all attorney turn the call over to Reuben.

Good morning, everybody. I'm going to first on the address the March restructuring and its impact company going forward. Then review the quarter and comment on market outlook product by product. The octaves for our restructuring in March were to achieve, one, cash cash flow break even for fiscal year 2002 and two, to take advantage to design and ramp up revenues for subsequent quarters. The results have been significant. On the cost side, since calendar Q4, we have eliminated about 30% of the workforce over 300 jobs and reduced cash flow by approximately 20 million on an annual basis. Further, we have named Larry Kapitan the Chief Operating Officer. He joined Emcore and has a track record of success at both Emcore and his previous employer of improving operations and profitability as well as ramping new products and technologies. In connection with his new position, Emcore restructured operations to more efficiently meet our operating objectives and improving yields and lowering costs. And by focusing development efforts on new products that will produce commercial revenues over the next few quarters. As a result of this effort, it will result in continued improved financial results in manufacturing and cost efficiencies over the next several quarters. From a product standpoint, the March quarter was characterized by a substantial number of new design wins and qualifications with customer as cross all of our product lines. It was perhaps the most prolific quarter in terms of new design wins in the past several years for the company. The March quarter was also, as Tom pointed out, the highest revenue quarter for Emcore's material business in history, and given the new design wins and product qualifications, the outlook in general for the material side of the business is quite optimistic. In satellite, during the quarter as Tom pointed out, we closed the acquisition of Textstar and recorded the highest revenue period of about 11.5 million in this product line's history. And that includes only a contribution from Textstar of about a half a million dollars. That means that both shipments were going to both new and existing customers. Since the acquisition closed in March, Emcore has booked an additional 11 million to 12 million in new customer business based on the new market-leading solar cell technology and the company's ability to provide its customers with solar panels. As Tom said, not all of that will fall into the years' backlog because some of it is a little further out, but the number of new RFQ's, request for quotations for Emcore panels with the new cell technology is substantial and there's a very good probability we with continue this booking rate. Further more, the acquisition and subsequent forward integration into panels has given us better visibility into revenue forecasts, and by coupling Emcore more tightly with our major satellite integrators. And fiber optics, revenues for the quarter increased 52% quarter over quarter. During the quarter, Emcore got significant new design wins and finished with several major customers. In this area, we are seeing significant growth in the 2 gigabit fiber channel for storage area networks and orders for this quarter, meaning June, are substantially above the March quarter from existing customers. In addition, we got two new significant design wins and qualifications completed. And this will result in Emcore having a dominant position and market share in the storage area and network space at 2 1/2 gigabits. And parallel optics, orders have been steady, consistent with projections from customers. But still at the preproduction level. Product released from most of the optical networking customers is expected in September of '02. In September '02 time frame with product ramps in calendar Q4 of this year. More significantly, new products released in the quarter are getting substantial customer attention and interaction. Principally among those is the 10 gigabit transmit and receive optical subassemblies where the 10 gigabit ethernet application is being widely engineered into optical back planes. We have had a number of design wins, major customers and the product launches are being accelerated. Also, products released during the quarter were a strong factor for transponder or OC-172 and product releases have gotten significant customer interactions. In the wireless side, the March quarter was flat with December, which was a positive sign since March quarter is historical been -- has historically been a down quarter in the wireless business. Visibility in this product line is month to month, however, the industry trends are moving in the right directions as our customer base are driving increased adoption of the [INAUDIBLE] to provide better increased functionality incorporation of faster and more access to data rates and more access to internet. In Turbo Disk, as Tom pointed out, the March quarter was the most severely impacted quarter in the company's history from the cancellation of pushouts from last October. The outlook for subsequent quarters, June and September, is much improved. And as Tom says, the book to bill ratio continues to be at a steady, better than 1 to 1 ratio. In Gel Corps, this asset continues to perform to expectation, the forecast for calendar year '02. The growth engine there is really a channel letter for outdoor signage for store front. And they are getting a lot of new design wins and attractions with their customers. And in closing, while it is early in the quarter, things were on track on both target revenues and our objectives with regard to operating cash flow. And with that, I'll close my comments and open it for Q&A.

Thank you. One moment, please. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Your questions will be pulled in the order they are received. If you would like to decline from the polling process, please press the star followed by the two. Please lift the hand set if you are using a speaker phone. First question comes from [INAUDIBLE] Financial securities. Please go ahead.

This is Kelly Fong. Are you guys seeing any strength for any particular aspect within your systems business?

Kelly, if you look at what we booked in the last quarter, it's pretty well evenly split between [INAUDIBLE] leds and laser applications.

I'd add to that, it's almost all larger scale gallon nitrate systems. So there is a General trend on, Kelly, in moving towards the larger scale production systems. This does two things. One is it's a [INAUDIBLE] throughput and it's vastly improved through the systems. So your customers end up getting a better device at a lower cost.

Okay.

And that's the trend we're seeing there. In datacom, telecom, we're still saying this optical control unit in the larger scale reactors drive a lot of laser opportunities. So, again, the size of the systems is increasing.

Okay. And kind of as a follow-up to that question, what kind of material systems mix as a percentage of total sales do you expect going forward?

We think, Kelly, that Photovoltaics will certainly be the strongest of the three -- the three groups, meaning wireless, Photovoltaics and the fiscal groups. Lots of design wins on the Vixal side. I will see the design winds wins are great wins for us but they are new product launches for our customers. So there is a great deal of, you know, not high visibility as to when they will launch. They are telling us they are launching, but when they actually come in, we are not sure. If they all launch, then the Vixal line will stay strongest. It's really month to month.

Did you ask about systems or about just General product lines?

Just about total systems business versus total materials business.

Systems will be up from here. The quarter that we had was just over $4 million representing three systems. And more is scheduled in this June quarter. So, you know, we think we have certainly hit the bottom on the equipment side.

Okay. Thank you very much, gentlemen.

The next question comes from John Lau, Soundview Technology. Please go ahead.

Yes, hi, Reuben.

Hi, John.

Hi. On the fiber optic side, I wanted to ask you a little bit more about the 2 1/2 gigabit. You saw strength there. Compared to the one gigabit per second market, are you gaining market share as it shifts and more importantly, is the total market for the storage area still growing well? Thanks.

Yeah, I would certainly say, normally answer that in sort of reverse fashion. Existing customers. Emcore had what I would call sort of a 75% market share of the 2 1/2 gig market for fiber channel, and I think in this past quarter, we've increased that by the new designs sort of the remaining two players. I think on, you know, the general trend in the industry is going to be that, you know, the fiber channel market seems to be very strong on our traditional customer base. In some cases, the orders have doubled or tripled in the June quarter versus the March quarter. And that would certainly in intone a fair amount of strength in the storage area network side. And I think in general, the trend is in the one gig, where Emcore does not have much of a presence, I think a lot of these companies are looking at driving two gig parts into one gig applications to get higher volumes and get lower pricing for their 2 gig applications. Although, while companies have said that, that hasn't really started yet, but we expect it will.

Okay. And moving over to the solar cell site. Now that the Textstar application is complete, could you tell us how the qualifications would go on for that migration path? Thank you.

Yeah, sure. We are, you know, in terms of the product migration, right now, and you saw revenues in the March quarter, based on the Emcore 28% efficient triple junction cell, we would expect that the panels going out probably from the September quarter on will be populated mostly by the 28% cell. I will also tell you there will be another product released this quarter that will be targeted. It will be another version of the 28% cell with an integral bypass diode to slightly different design. It's targeted to the European markets. That will be released this quarter. Again, pretty much the same efficiency cell, just a slightly different device structure. But more addresses the European market concerns in terms of their satellite integrators. And beyond that, you know, we feel that we have a substantial product technology lead in this market space. We intend to continue to capitalize on that. But beyond these two releases, we think that a lot of the designs over next 18 months will incorporate one of these two products.

And finally to complete that out, now that you have the panel capabilities, are you going to be utilizing that capability across all of the different customers trying to do that on all of the different customers going forward?

Oh, absolutely. And we've actually already succeeded in doing that.

Great. Thank you.

Next question comes from Michael Mistia. Please go ahead.

Hi, this is Natalie in for Michael. Actually, I don't know if I missed it, but I was wondering did you guys mention guidance for the June quarter?

Yeah, we said, you know, while it's still early in the quarter, our, you know, things are still on track with the guidance.

Okay. And then I was wondering if you have any new customers on the horizon that you could be signing up soon and what the impact would be in terms of revenue, and if you could specify whether it's it would be on the materials or systems business?

Yeah. Well, certainly in the fiber optics side, as I said, we had a substantial number of new design wins. And, you know, in the second half of this year, well, actually starting this quarter, with at least one of them, but certainly the second half of the year, we think that a number of these customers have certainly had the capability of becoming sort of 10% customers of the company. You know, going forward. So the answer is, yeah. A number of new design wins and customer [INAUDIBLE] same thing in satellite. Same sort of in-process stuff many wireless. So, you know, again, in general, the product acceptance seems to be in new product rollout seem to be getting a lot of interest and a lot of attraction with our customers.

Okay, great. And then, I was just wondering if you could maybe give more insight on when you see the systems business returning to health and what would drive that?

Yeah. Well, certainly, you know, I mean, I think the March quarter was abysmal from that standpoint but we're seeing, you know, we'll see, you know, a substantial step up in revenues in the June quarter. You know, the bookings in March were pretty good. And I think that, you know, we're kind of looking at the September/October time frame when we think we're going to get back to sort of a normalized run rate. I mean, I think that recently our sales guys have told us that the number of RFQ's has increased substantially over what the first three months of the year was.

And then just as clarification, what do you consider a more normal run rate?

You know, my guess is, you know, sort of a I don't know, anywhere from a 12 to 18 million dollar, you know, make it $15 million to $20 million quarter.

Okay, great. I have no further questions. Thank you.

Next question comes from Steven Kauffler, Wacovia. Please go ahead.

Hi. Just to follow up on that. Basically, Tom, you said you got $9 million in bookings for systems in the quarter, right?

That's correct.

So as I remember the lead times on these things were normally like about nine months. I assume that comes down.

That was really in the heyday. We're down to four to six months now. Repeat systems we can get out in 4 months. A new order is about six months.

: Okay. So really, those 9 million bookings, like the earliest a lot of that could hit would be like in June/July, right? In terms of revenues?

Yeah, probably those in January would be about June, July. Those in February, add four to six months to that, right.

So really, it seems like -- I forget what you did in the March quarter in terms of bookings, but we should really just assume about the same level of revenues and systems for the coming quarter, is that correct?

The revenues in the March quarter, Steve, were roughly $4.4 million.

Don't forget what we ship? June is what we booked in the December quarter.

If not earlier.

What were bookings in December?

We will know -- Bookings in the March quarter were just under 9 million.

What was December? I forgot.

Let me look at that while I just answer the question. So June revenues will certainly be up from this quarter's 4.4 million.

Mm-hmm. And on fiber optics in general, Reuben, can you just remind us and give specific customer names on specific applications? I know you were working on Juniper, I know you were working on Cisco. Where are you on those specific customers?

Yeah. You know what, without using the names you used, but to say that of the top five optical networking companies, Emcore is the primary vender to three and certainly two of the top three. In terms of the parallel optics for VSR, OC-192 and for the transceiver for optical backplains, those are two different product lines, most of these are going into, you know, we're at, as I said on the call, what I'll call a preproduction level. The product rollout, the product releases of these customers, they have the boxes, if you will, in customer hands. We have finished qual, meaning we wouldn't have been shipping if we hadn't finished qual. So I think from a qualification, we are just waiting on, you know, the product releases to customers, which we expect in or we're being told is in September. And then the product ramp thereafter.

Okay. And can you just remind us again, how JDS Uniphase's acquisition of the IBM property impacted you?

Well, not much. I mean, we're a vendor to that asset of 2 1/2 gig parts.

Mm-hmm.

And, you know, the -- when they -- when the change of control took place, I think Emcore as well as other vendors wanted to requal, but that, you know, seems to be, you know, going forward, you know, sort of the real revenue impact there will probably be end of this quarter, beginning of next.

So you think there will be some impact?

I think there will be some impact.

Okay. All right, that's it for now. Thanks.

The next question comes from Jay Dabuchar, Pacific Edge.

Thank you. Tom, what was the depreciation, [INAUDIBLE]?

4.95 million.

Okay. And any 10% customers?

Yeah. Wireless we had a 10% customer.

Okay.

Photovoltaics we had two 10% customers.

Okay. I'm a little confused -- well, I guess first, let's walk through the backlog. The backlog dropped from 75 million to 63 million sequentially?

That's correct.

Okay, but systems actually went up and had a good improvement from 23 to 30?

That's right.

Okay, so then materials dropped from 52 to 33?

Yeah, right. 33, 34, that's right.

Okay so basically, [INAUDIBLE] zero bookings in materials [INAUDIBLE] you shipped about 18 million and that's what the backlog dropped by --

Partially correct. We did ship 18 million. We did book 11 but I have to defer some of that for the [INAUDIBLE] that goes out beyond a year. Then we had one solar program pushed out beyond one year. It's still a valid [INAUDIBLE] Launch date was extended. So we had 3 million really bush booked and 3 million pushed out.

Further on that, JD, on the fiber optic and wireless side, you know, we ship -- we book and ship within the quarter. You know, the requirements so that isn't going to show up in backlog.

Got ya. Okay, I guess what I'm getting confused about is material had its best quarter ever, we're getting tons of orders, we're designed into every conceivable major customer, why do we have to take a 30 -- $30 million charge this quarter?

If you go back to what GAAP requires, and if you go back to what we spent on [INAUDIBLE] expansion, JD, just to summarize in a nutshell when we were going through this capacity expansion, you know, we had grown 80% a year for two years. Like many other companies thought that would continue for a while. Our capacity expansion basically allows to us ship out of here roughly half a billion dollars. And we're doing, you know, a run rate of $23 million, $25 million. That's 20% of our capacity, so you have to perform this impairment test and only get into the complications of the FASB that you are doing but you have to run this test to see if your assets are impaired.

Okay.

It becomes more of a utilization issue than anything.

I guess you said you burned less than 4 million in the quarter?

Not including the acquisition, which was a little over 25 million and capital equipment outlay which was 2.5 million.

So you had depreciation of 4 million. What other noncash expenses make up -- you had an operating loss of 16 million. If I take out depreciation of 4, I still have a operating loss of 11 million. That's cash expense eventually, right?

Say that one more time.

Well, you had an operating loss of $16 million. You can pull out depreciation of the noncash expense in there, right? That's 4 million. So we're looking at an operating loss -- I'm trying to get to really what cash flow from operations is.

I think if you look at the cash flow statement -- remember, when you run a cash flow statement, you have to take into account what happens to your current assets and liabilities.

Right.

Remember, when receivables go down, inventories go down, that's a source of cash.

So let's put it this way. What was cash flow from operations before changes and wark working capitol capital? Because there's no cash flow statement here.

Let me send out a cash flow statement to you.

Okay.

It will be in the queue someone after you.

You don't have a number from cash flow for operations? The problem is, if I look at the cash flow, the net cash provided or used by operating activities came to 4.5 million.

Okay, but that includes -- remember, in that, you've got to start with the -- you have to head back the $58 million in loss, the depreciation.

Okay. All right. I guess I'll get it from you offline then. Thanks, Tom.

Right.

The next question comes from Brett Hoddis, Merrill Lynch. Please go ahead.

Hi, I'm calling in for Brett. A couple quick questions. On the Vixal side, could you talk about why you're winning some of the design wins there and who you are competing against and how you are positioned versus them?

Sure. I think, you know, our historic competition has come from Honeywell. And Honeywell dominates the one gig market, but the 2 gig parts are a different product technology. The one gig's an implant, the two gig's an oxide. We've just been at the oxides for longer and I think our parts perform better. And, you know, on that basis, that coupled with we have a fairly clever new packaging design on the optical subassemblies that customers like a lot. So, you know, it's the packaging and the performance.

Okay. And on the parallel side, [INAUDIBLE] the two gig what you are talking about is on the [INAUDIBLE] market. And on the parallel side for some of the datacom or telecom companies, is there anybody out there with competitive parallel products?

You know, there are some start ups. We haven't honestly seen that we know about, haven't really seen them get much play with customers.

Okay. And on the solar cell side, I think was most of your revenue in the quarter largely from one customer or a couple of customers or pretty concentrated?

There were two or three customers. Probably two of them were the principal ones. Three with greater percentage of our revenues. Two on solar and one on wireless.

Okay. Do you think with the acquisition of Textstar, do you think the customer was going to broaden out a bit?

Yeah, absolutely. Not only domestically, but in Europe. You know, we expect, you know, that our customer base will expand from sort of where we are now, which is three or four to maybe up to ten. UNKN0OWN SPEAKER: Okay. And could you run through what ESP's you were getting on the solar cells when you sold individually and now what you think you would be with the panels and say with the margins?

You know what? We kind of don't want to give you that information.

Okay. That's fair. Okay, thanks a lot.

The next question comes from Tim Shutser, Morgan Stanley. Please go ahead.

Hi there, guys. Just a couple of questions really focusing in on the systems side. Just following up maybe first off, the question that was asked earlier. Could you just remind us what the systems order intake was for the December quarter? Do you have that number?

I can get that for you, hang on one second.

Tim, go ahead with the second part. Let me just find the bookings for the first quarter.

Well, it was just, I mean, I guess just under 9 million in terms of systems order intake for the quarter was the net figure. Could you just give us an idea of what you saw in terms of cancellations and pushouts in the systems business?

Nothing. Our opening backlog of 23. We shipped about, a little over 3. That is, you know, 4.4 million in revenues. Some of that was services and spare parts so it doesn't come out.

Right.

And it gets you to the $30 million ending balance. So no pushouts or cancellations within the quarter.

Okay. Just in terms of ASP's, I'm just sort of back of the envelope calculating something at around 1.5, 1.6.

that's -- that's how -- I mean, '01, our ASP's were 1.3 and down a little from that.

You said down from 1.3?

Right.

Okay. And if I remember rightly from last quarter's call, you know, things is kind of the premium ASP tool going ought out at over 2 million. Is that accurate?

That's correct.

And just on the guidance again for maybe systems for this year, is it still reasonable to expect 45, 50 million revenue for the full year, for the full financial year?

Probably not. I mean, we'll certainly go increase from this quarter on.

Right.

Forward, but I don't think we'll hit 50 million.

Okay. Start with a four?

I'll get to your problem in a minute.

Okay. I guess final question from my side would just be market share. Because I guess that's the two major competitors here, yourselves and Ekstrom. I think the entire market is overseen consolidating somewhat over size opinion I was wondering if you could give us some flavor how market share was panning out. Particularly in terms of your revenues, there's a far greater focus and contribution from the device strip material side.

Right. Again, the market share data is a little bit difficult to come by. You know, our revenues in fiscal year '01, we did about 134 million in revenues versus Ekstrom. Again, not clear what they sold in [INAUDIBLE] versus high K diode electronics, but they were probably somewhere around 170 million, which would be a guess. In any event, it may be lower than that, so our split in the market is historically about 55, 45, or 60-40. Frankly, what we're seeing in kind of new design wins, which are substantially below what they were a year ago, sort of maintains -- I would say we're maintaining those market shares.

Okay. Do you have the order intake numbers for the December quarter?

The order bookings were 13 million but the cancellations were equal to that. So the net bookings were zero.

Okay. Terrific. Thank you very much, guys.

The next question comes from Chris Versace, SBR. Please go ahead.

Hi, Reuben, Tom. Just a couple of questions. Getting back to Natalie's question earlier money maybe I missed it as well. Could you once again share the target revenue and operating cash flow targets that you talked about?

Yeah. You know, fundamentally what we said was on a run rate where we wanted to get to by the end of this quarter in June was to achieve cash flow break even from operations based on the revenue forecast that we have out there.

Okay. So you are saying based on say let's just say first-call consensus forecast?

Yeah.

Okay. With regard to, you know, the issues that were taken in the quarter, the numbers that Tom shared with us, how is that going to change your, you know, operating income EPS break-even levels?

Chris, if you look at the really, the equipment impairment, the depreciation on that number basically goes away. So ballpark, if you say that we had add about 50 million, I think it was about 40 million in equipment impairment, that's, you know, pretty much a straight line over five years will give you what the operational improvement will be.

Okay, okay. And you are saying there weren't any system, you know, cancellations or pushouts or anything like that, right, Tom?

That's correct, for the quarter.

Okay. So if we take a look at it, where you guys are headed, how well booked are you for the current quarter? In other words, what's your turns business going to look like to make those numbers?

We certainly have excess capacity if that's the question.

Well, you know, let me put it this way. We've got sort of, when you talk about inventory turns, we've got a long cycle business and three short-cycle businesses. Excuse me. I should put solar cells, part of solar cells sort of split between long cycle and short cycle. The short cycle business is meaning fiber optics and wireless. You know, our book to ship should be three weeks. And actually on wireless, it's probably closer to one week. On a book to ship basis. So that, you know, inventory turns, we should be turning those two product lines a lot during the quarter. In terms of the solar cells production for the quarter, either at a cell level or panel level, it's probably pretty well fixed. That's for the quarter. And then Turbo Disk, as Tom pointed out earlier, the, you know, the bookings in December generally are what fall into the June quarter.

Okay. Okay.

Does that answer your question?

Yeah, yeah. I was looking more for a number. You were saying you were 80% booked for the quarter, your turns businesses, 15, 25%, that was what I was hoping would you say. Something in those numbers.

Yeah, you know, right now, what we can tell you is, again, the wireless visibility, as as I said, month to month. Right now, based on the first month, we're right on target.

Okay. Okay. And then just one last thing. Since you have closed Textstar, how should we think about that in terms of the operating model margins, impact, R&D, that sort of thing?

Yeah, R&D, we don't have -- R&D should be unchanged, vis-a-vis the Textstar acquisition. You know, what really this is, the Textstar acquisition creates a packaging, if you will, capability for Emcore for satellite at a panel level. Basically what we're doing and what's been consistent with the company's strategy at the beginning is we're taking our chip technology which we think is market-leading in this case and driving it into this package. And creating, you know, a cost per value scenario that customers will find attractive on a cost per watt basis, which is how the satellite integrators will look at their cost of a solar panel. You know, our margins should, in fact, improve slightly, you know, sort of from the low 40s to mid 40s on this product line largely because, you know, we're not dealing -- we're not having to deal with our customers on a component level. We're dealing on a systems level. And that helps our ASP's.

And just one point of clarification. Was that the only business that was, you know, positive in terms of gross profits during the quarter?

In terms of -- no, equipment.

Prewrite off, Chris, Photovoltaic certainly was. Wireless was positive, but not very high. And the other two were not.

Okay. Thank you.

Chris, let me just expound on what Reuben was saying. The value added in the whole panel is really the efficiency of the solar cell. That's what, you know, creates the value to the satellite manufacturer. So there's not a lot of R&D that needs to be done to the panel outside.

Okay, thank you.

It should stay relatively stable.

Thanks, Tom.

The next question comes from [INAUDIBLE] Q Investments.

Thank you. I actually have a few questions to go through. First question is how much of the charges are cash charges? And what period of time will those cash charges be taken?

Of the 50 million?

Yes.

Yeah. Well, the equipment writedown is a noncash charge.

Right.

I mean, they are really all noncash charges other than severance, which is about 1.1 million.

So that's all theirs, right?

That's right. The receivables that total about 2.5 million, while [INAUDIBLE] for them, if we don't collect them it does impact cash.

But nothing goes out from cash here on?

Other than severance, that's right.

Okay. And of your cash and marketable securities, where's any equity investment in there?

No. No. There was a residual amount left on the Uniroyal stock, but that write off was taken in the first quarter.

So it's all real cash?

That's correct, right.

Okay. And in terms of your cost savings, can you kind of quantify for us just so that I'm not sure what people are looking at when's out there, but when you say you are going to go to cash flow neutral, are you talking on an even it type of bases? From your numbers, the cash flow was 11 million excluding working capital items. Are you saying that will go from negative 11 to break even?

I don't think we'll hit it in Q3. One of the RPS for that is we did give a couple of customers extended payment terms. The cash savings from the reduction reduction in workforce is in the cutting of expenses should total about $20 million in cash, about 60% of that are salaries and benefits.

Okay, and that should flow into the next quarter?

We should see pretty good savings starting in the next quarter because the rift took place in February.

Is it if a [INAUDIBLE] -- when is it to think you are cash breaking with the cash flow?

On a quarterly basis in the September quarter. On a run rate, by the end of this quarter.

Okay. That's all. Thank you.

The next question comes from [INAUDIBLE] Calpesh. Please go ahead.

Good morning, guys. On the EPI [INAUDIBLE] in September and March it sounds like you were down 6%. Could you, you know, break up for us what was INGAAP versus other and the top three customers coming from wireless, was it Motorola?

One is, everything wireless is all INGAAP. We don't do anything at all.

Okay. REUBEN RICHARDS In that group, we also ship the sensor to General Motors.

Okay.

And that was about a half million in both quarters, so actually, it was about 700,000 the first quarter, half a million the second quarter. So part of the decrease was from the sensor side that we shipped to General Motors. Yes, Motorola is our largest customer.

And that's them, right?

Combination. Three products. BHEMP, HBT's and an e-mode device which is a hybrid money.

Okay. Also, what was the split on INGAAP between 6 inch and 4 inch?

Almost all 6.

What was it again?

Almost all 6 inch.

Almost all 6 inch?

Yes.

Okay. And are you seeing any pricing change on the both from the supplies as well as from your customers?

Yeah, we are renegotiating our long-term supply agreement with our wafer supplier so prices have come down there. And as always, price pressure on whatever we're selling in this marketplace.

Is it more, less or, you know, pretty even?

I think it's been pretty even over the last six months or so.

Thank you very much.

Ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you are using a speaker phone, please lift the hand set before pressing any keys. [PAUSE] There are no further questions at this time, sir. Please continue.

Well, thank you, everybody. Again, we're optimistic about the way the quarter turned out and what the prospects are for a number of the product lines going forward as I hope you got from this call.

And with that, just a quick comment. We are having problems with our phone system, so if you call in, please be patient. Thanks.

So thanks, everyone.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your lines.