EMCORE Corp (EMKR) 2002 Q3 法說會逐字稿

Good morning ladies and gentlemen and 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. Instruction will be provided at that time for you to queue up for questions. If anyone has any difficulty during the conference, please press "*" "0" for operator assistance. I would like to advice everyone that this conference call is being recorded and webcast at www.viavid.com. I would now like to turn the conference over to Victor Allgeier of TTC Group. Please go ahead sir.

Thank you and good morning everyone. Yesterday after the close of markets, EMCORE released its fiscal 2002 third quarter results. By now, you should have received a copy of the press release. If you have not received a release, please call our office at 212-227-0997. With us today from EMCORE are Reuben F. Richards, Jr., President and Chief Executive Officer; Tom Werthan, Vice President and Chief Financial Officer; and David [Hess], Vice President of Finance. Tom will review the financial results and Reuben will discuss business highlights before we open the call up to your questions. Before we begin, we would like to remind you that 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 EMCORE's earnings press release and filings with the SEC. I will now turn the call over to Tom.

Thanks Vick. Good morning to everyone and thanks for joining us today as we review the third quarter. Our cost cutting initiatives have really started to pay off and produced substantial savings from an operating standpoint as well as the cash flow viewpoint. Operating expenses in the third quarter decreased 3 million, or 15 percent sequentially, and as we indicated in the press release, we have recently taken steps to realize an additional 8 million of annualized savings consisting of about 6 million on payroll and 2 million in other areas. Headcount is now at 540 employees and that represents a 38 percent staff reduction since the beginning of the fiscal year, and total projected savings are now in access of 25 million. Revenue for the quarter came in at 20.3 million. This is down 12 percent sequentially from the 23.1 million in the second quarter. Most of the decrease related to a plus $2 million TurboDisc reactor sale that was delayed and let me explain what happened. This is a unit at a customer for evaluation and they requested an additional three-month extension prior to making their purchasing decision, and they have since indicated that they will take delivery of this system this quarter. Let me review the revenue performance by product. On VSCEL/fiber optic side, revenues came in at 2.6 million. That is up about 28 percent sequentially from last quarter. On the wireless side, revenues were about 4.7 million that's 10 to 12 percent or about $0.5 million from the March quarter. On the photovoltaics or solar cell side, revenues were 3.1 million. That stands 73 percent from last quarter but remember last quarter was an excess of $11 million, and as mentioned in the past, this product line will not have linear revenues. And finally on the system side, revenues came at 9.9 million. That's an increase of 5.5 million or a 128 percent sequentially and bookings were up as well. Gross margins were 12.5 percent. That is down from 13.5 percent from last quarter and the drop was really due to the decrease in revenues of about 2.5 million or so. Again, the drop loss in margins from prior years is a result of capacity expansion. Essentially, we are at about 20 percent capacity, which means we are just not absorbing enough of our overhead resulting in lower margin.

Word on what we're seeing for the fourth quarter ending September 30th, we believe revenues will come in between $23 million and $28 million. We will see an increase in reactor cells and photovoltaics while VCSEL and wireless revenues will be flat to perhaps up slightly. The reason for the wide range of revenues is really three fold and let me review them now. First, we haven't ordered that the [shift] we must receive in export license for. We have no reason to believe we will not receive it but given our history of timely receipt of export licenses we're just remaining cautious. Second, all of our TurboDisc reactors must be accepted by the customer at our manufacturing plants, and it's possible a customer may delay their visit, which would result in a timing issue. And finally on the wireless side, we are receiving [POs] on a month-to-month basis. July was fine, August so far is a bit lighter than expected, and obviously, we are waiting on September. This also occurs but to a lesser extent on the VCSEL component product line but the visibility on these products is somewhat limited. SG&A was 6.5 million, that's a decrease of about $0.5 million from last quarter and R&D was 9.4 million, a decrease of 2.5 million from the previous quarter prior to last quarter's restructuring charges. The savings from our cost cutting programs are now materializing. Below the line, net interest expense came in at 1.8 million. That's essentially the debt service on the subordinated bond netted against interest income and our portion of the loss generated by GELcore, our JV with GE Lighting came in at 770,000, a decrease of 82,000 from the prior quarter.

Let me review backlog for a moment. Bookings for the quarter ended June 30th were 22 million broken out 12 million on equipments and 10 million on materials. There were better than our one-to-one booking ratio. The [eminent] backlog was 59 million consisting of 32 million in equipments and 27 million on materials. Again, let me just comment on backlog in general. It does represent purchase orders on hand. However, in this business environment, we are experiencing purchase orders, you know, basically represent our customers best [AUDIO GAP] estimate of their anticipated requirement, and given the business climate, these can either go up or go down. Few minutes on the balance sheet before turning the call over to Reuben, cash decreased by 7 million since last quarter; 4.4 million of the decrease was the interest expense on a subordinated debt and about 800,000 was for capital equipment additions. CAPEX going forward, as we mentioned in the past, should stay at or below this level. From an EBITDA standpoint, this cash decrease was about 9 million. AR decreased by 4.5 million, inventory was down about 1.5 million. AP was flat and accrued expenses were down about 1 million. The changes in current assets/liabilities were positive by about $5 million this quarter. In summary, we are certainly pleased that the expenses have decreased substantially to hit our EPS targets and are optimistic about revenue growth for this next quarter. And with that, I will turn the call over to Reuben.

Thank you Tom. Good morning everybody. The focus of management in EMCORE for the past two quarters has really been two fold. One, to achieve a cost structure for the company that would leave us in a position to generate cash from operations regardless of market conditions or competitive dynamics. And two, to position our product line so that we can take advantage of early design wins and subsequently ramp revenues. What this means is that what EMCORE has achieved in the past quarters is that whether or not we have to compete on technology, on price, or both to grow revenues, we can do this and still generate cash from operations, and we have achieved these goals. In the past quarter, we have seen substantial improvements in operations particularly in manufacturing where increased yields and reduced costs have allowed us to further reduce the company's cost structure without sacrificing product or market opportunities. To date, the company has cut more than 25 million from its operations and the past quarter was one of the most prolific periods in terms of new technologies released by EMCORE. From a product standpoint, the June quarter continued the trend that started in March of a substantial number of new design wins of market share gains and a qualification completion and new product introduction across a number of product lines particularly in fiber optics and in the TurboDisc systems. In TurboDisc, revenues for the quarter more than doubled from March to June based on significant market share gains, specifically in the new large area -- large-scale gallium nitride LED systems that we call GaNzilla. EMCORE has achieved a majority of the large-scale production slots at the major nitride LED producers in both Europe and North America. Almost all of these production slots [indiscernible] gallium nitride LED [indiscernible] blue green UV or EMCORE.

Growth in this product sector continues to be LED driven and the systems business continues to be LED driven. And with these design wins, we believe that the tier two producers in Asia will follow the market leaders in acquiring EMCORE systems. Booking for the quarter was 12 million or a book-to-bill of 1.21 and bookings have continued strongly into July where we have booked an additional four large area GaN systems or GaNzillas. During the quarter, EMCORE released a new system design for production of lasers for consumer electronics. This is a new platform incorporating the new optical controlling unit in a system, which allows better device performance and higher yields. A number of customers are currently evaluating the system and we feel that sales particularly in the Japanese market will be robust in the second half of the calendar year. Further during the quarter, EMCORE announced a new patent on dye separation -- on a dye separation technology that fundamentally increases yields over 30 percent in LED production. We are in the process of negotiating licensing deals with five to six customers at this time. In fiber optics, product ramps from customers that finish qualification late in the March quarter and increased production demand across the chip sales continues from March.

We continue to see strength in fiber channel applications where EMCORE has increased its market share of the 2.5 gig market for storage area networks, and we expect this trend to continue in the September quarter with revenues growing beyond what we experienced in the June quarter. In parallel optics for VSR OC-192, we are still expecting product roll outs and production ramps in the December quarter and the parallel optic transponder recently won a prestigious R&D 100 Award as the first commercially available 300 pin transponder for VSR OC-192 application. New products such as the 10 gigabit optical subassembly and receive optical subassembly are getting substantial customer attention, and we expect qualification to be completed with two significant customers this quarter and revenues to start in the September and October timeframe. In wireless, revenues were down slightly from March but ahead of a year ago. EMCORE continue to ship in volume three InGap products P-HEMTs, iMode and HBTs to our major customers. These chips are in the premium phones of a number of handset providers. We have finished call at another large PA manufacture for InGap HBTs and are making regular monthly shipment. Further, the last major PA provider to the handset manufacturers we started call this past month and we expect to get data back shortly. The revenue trends for wireless remain steady for the September quarter. During the quarter, in wireless, EMCORE announced a $4 million DARPA contract to produce gallium nitride FETs for high frequency and high temperature electronics. EMCORE has also entered into agreements to supply gallium nitride electronics to Furukawa, to Rockwell, to TRW. We feel that the performance characteristics of the GaN electronic devices has superior cost performance advantages to existing technologies and over the next year will contribute a significant level of revenues to wireless division. EMCORE is currently working with additional companies -- customers on design wins for these applications. The markets for gallium nitride FETs are Military, Avionics and Radar, which enable substantial weight savings and enhanced performance and increased reliability. Automotive radar where gallium arsenide and indium phosphate MMIC technology is unreliable at high temperatures -- power switching and cars satellite communications and wireless base stations as a replacement for silicon LM DMOS, due to power and frequency requirements. In satellite, the revenues for the quarter were down substantially from March reflecting timing issues on quarter-to-quarter seasonality based on large satellite shipments of panels due to go to major satellite programs. Bookings for the quarter remained strong with a number of new satellite wins, which will be announced shortly.

And we would expect revenues to increase substantially to the June level going forward. During the period, EMCORE introduced a new solar cell incorporating a monolithic diode, allowing customers easier panel integration and lower panel cost, and this product is being qualified by the major European satellite integrators and we'll expect orders in the next three to six month. As Tom cited, GELcore continues to track to expectations, revenue growth coming from channel [letters] signal and automotive applications and also in the quarter EMCORE achieved, it's the first company in our industry to do this, QS 9000 certification on the quality system, and we also received the Infineon supplier of the year award. In closing, to go back to the initial statement, we have been focused on our cost structure to get into a position regardless of market to generate cash from operations and to introduce new technology platforms and products to ramp revenue growth, and we think we have achieved both of those in this past quarter. Thank you, and I will open it for Q&A.

Thank you. One moment please. Ladies and gentlemen, we are now conduct the question and answer session. If you have a question, please press "*" followed by the "1" on your touchtone phone. You will hear three-tone prompt acknowledging your request. Your questions will be pooled in the order they are received. If you would like to decline from the polling queue, please press "*" "2." Please ensure that you lift the handset if you are using a speakerphone before pressing any keys. One moment please for the first question. Thank you. The first question comes from Brett Hodess from Merrill Lynch. Please go ahead sir.

Hi, this is Sameer Desai for Brett. First question is, Tom, on the orders that you have for materials of 10 million, could you break that out in terms of different products by market?

Sameer, we are not going to break out the various segments but [vcells] were pretty strong in that area.

Okay. The next question is, on the equipment side, are you seeing any buys in any of the other end markets whether it be wireless or optical technology buys or is it almost -- is it all LEDs?

It's -- Brett, it's Reuben. It's mostly LEDs. I would say probably 75 percent at this point.

Yes.

Consumer electronics would be second and you know, there is still one or two datacom, telecom sales but not a lot.

On the LED side, it's mostly large areas systems also?

Yes, and that's an area which in the past six months EMCORE has kept a dominant position, particularly at the major LED suppliers.

The other question was then on the equipment side. Why do you thing you are getting share there?

Because, you know, particularly in an environment Brett where most of the sales today are LED driven. The economics in LEDs are driving producers to larger scale systems. The major producers in Europe and Northern America have been ordering multiple systems of the gallium nitrides, and we are pretty familiar with the number of systems that they are ordering and I would say we have a dominant market share there.

I think a lot of growth in LED market is, as we have been as we have been hearing a lot of, I think, increased calls couple of days though you talked a lot about blue and white LEDs kind of -- some of the newer phones that are coming out. Do you see that as the driver there?

Well, yes, you know, what's happening is there have been a number of handset makers and one other things that the additional applications in LEDs are finding in handset is to light up the dial pad as well as for the display area. So the number of the LEDs per handset, it is increasing. So -- as they are finding and -- that is particularly -- I think it's blue driven but there may be some white in there as well.

Question is, where do you see gross margins towards in the next couple of quarters. Would some of these cost savings that you have just announced, the further 6 million and 3 million that you just announced today, is that going to be coming out of the operating side, is that on the gross margin side?

A little of both Sameer, but mostly on the operating side. In terms of gross margins, you know, the equipment side is hovering around 30 percent, as revenues' driving factor there is to get -- you know, to increase revenues, to increase gross margins. Material side is lower than that. Again revenue growth will drive that, you know, will increase that the most effective way. In terms of where we will go over the next couple of quarters, you will see an increase -- you know, a step function increase over the next few quarters.

The last question was on the solar cell side. Can you talk a little bit about how the integration of textile, in terms of improving some of the efficiencies there, is going and also if that helped win some new customers in terms of being able to offer panels now [as well as] the solar cells?

Sure. You know, one of the things that you experience in satellite, as we saw this quarter, is that -- you know, that the revenue quarter-over-quarter is lumpy meaning as you are shipping panels to the satellite integrators for large [asynchronous] satellite, revenues will be way up. And in periods that you're not shipping panels, but we're mostly making either solar cell revenues or [kick] solar cells, packaged solar cells, you know. So there is some quarter-to-quarter seasonality based on the timing of satellite launches. What we're saying is that in essence being able to provide a panel versus only being able to provide a solar cell, meaning the device, increases the ASP on a consolidated basis by about 20 or 25 percent.

Okay. Great.

And controls cost. So we're able to offer a -- you know, a fully integrated solution at a fundamentally, virtually a lower cost to us and with higher ASPs. So we're seeing gross margin improvements by being at the panel levels.

Okay. Thanks a lot.

The next question comes from Mr. Hans Mosesmann from Prudential Securities. Please go ahead, sir.

Hey, thank you. Rubin, regarding wireless being down, what was the driver there with end demand market share losses? Can you give us more detail?

Yes. In -- you know, wireless was down by, you know, from March by about 400,000, you know, plus or minus 10 percent variant. You know, the -- I would call, you know, our two major customers on the wireless side were both up; but the -- sort of the other numbers, we had seen a large -- larger orders from a couple of players, where we are one of a number of suppliers to sort of go flat or slightly down. So there is no one customer that would account for the delta in the revenue hunch. What we're seeing, you know, particularly, that Motorola is a lot of strength. The iModes are in their premium phones and, you know, those are selling well. So we're -- and that's a big chunk of our revenue. So, you know, we're pleased by what that represents and the outlook for that business. And if we can, you know -- if one of these other two PA manufacturers gets a design win; that will be a step function in revenues for us.

Okay. And two more questions on the satellite front. Is there any particular launch or a series of launches that we can expect here that will be a catalyst for that part of your business over the next couple of quarters?

Yes, we have our first set of panels starts shipping to one of the major satellite integrators in, I guess, the end of this quarter and into the December quarter. So beyond that, there are some follow-on orders, which are substantial revenue opportunities. So if we successfully complete this, those will be follow-on expectations. So we would expect that the successes of these early panels will lead to additional satellite wins.

All right. Can you give us the application for these satellites? What will they be used for?

Sure. The first shipment is going to a -- it's a communication satellite. It's used in, I would guess, direct broadcast. It's the best way to put it. And the second one is a GPS. Third one -- or the second one would be communication, third one would be GPS, and then they're still [indiscernible] sort of a datacom backlog.

Okay. And one last...

Also, roughly Hans there's still communications based.

Okay. Yes, mostly.

Fine.

And one last question on the equipment side of thing. You indicated in the -- in your introduction that two or three players in Asia would likely follow the large scale moves that some of the majors have made. Don't we have a fair amount of capacity already over there or what would we believe that -- you know that could happen or if it's going to happen any time soon?

Right. Yes, they do have a fair amount of capacity. But, you know, one of the issues with this product technology Hans is that it's, you know, they are seeing in blue LEDs, and I don't know what you hear from other companies, but my guess is it's probably a 20 to 30 percent decline in ASPs year-over-year; and they've seen that consistently over the last couple of years. And as ASPs decline, they're finding more and more applications of buying [indiscernible] out. As an overall market, unit sales of LED, whether it's chips or packaged parts, are up substantially; but the -- you know -- and I think our forecast is chip sales were up 15 percent -- but ASPs are, you know, down 15 percent. And as a result to maintain margin, you need to be able to scale your production; and that's why people are buying these.

Okay. Thanks a lot.

And the throughput is 3x what the last version of our TurboDisc reactor was.

But basically, just to stay in the business long-term, you have to go to the...

Yes, they have to reduce their costs...

They have.

...to be competitive. Right.

Thanks a lot.

Our next question comes from Mr. Michael Masdea from Credit Suisse First Boston. Please go ahead, sir.

All right. Thanks. You know, you talked a little bit about the wireless side. Can you talk about -- given that the utilization rates, a lot of these wireless PA guys, can you talk about when you see that kind of getting to the point where they start ordering again from your discussions with them?

You know -- here's one of the things. You know, from our standpoint, Michael, we campaign a one-material technology that's Indium Gallium Phosphide or InGaP. And it's -- whether it's in a P-HEMT or HEMT form or high electronic mobility transistor and HBT, we think that that is a material characteristic that gives better reliability, better linearity, better signals in all these ratio. One of the problems that InGap has faced is that it is still largely a CDMA platform, although, it's also -- CDMA and TDMA. TDMA I think tends -- most people will tell you its sort of a -- is a declining standard meaning, you know, fewer people are incorporating that. But it's still a very low cost and very efficient way to do power amplifiers. The biggest market, which is GSM, no one has yet come with an InGap design, although, everybody in the industry is working on it, and that means, you know, across the board. As soon as people get a GSM design with InGap, and again, I think the design rules for a GSM part around InGap are going to be wider than one with AlGaAs. And it's a matter of time before they -- before people get [called] on a GSM standard. When that happens, you'll see revenues ramp substantially in terms of new products.

Okay. Just give us some exposure with some of the big auto customers out there? And give us kind of an update on how the auto markets look and if you've seen any weakness there or things still continue strong?

You know, we see -- I think the best way to put it is, it is still a very price sensitive market. We are seeing demand go up. We're seeing new design wins there on the center side. The problem is that there is even -- you know, there is a lot of pressure on the pricing aspect of it. They are intent on pulling a lot of the costs out of their electronics systems. So you know, again it's a -- net to net, we've been able to reduce our costs, so that we've been maintaining margin on those products. But it's a -- as a revenue number it's going to end being relatively stable.

On the system side, could you talk about how ASPs trended over last few quarters?

Yes I'm sorry -- one of the things that we are seeing is GELcore, just on the automotive front, is that they are getting a number of design wins in more applications and automotive for LEDs starting in model year '04. So I think that's a positive trend to that aspect of the business, but it is price sensitive.

Mike the ASPs on the equipment side -- I'll have to answer it kind of in two ways for you. On the traditional systems there is price pressure. That's the smaller reactors that are in production [hazards]. On the larger reactors, that's actually helped the average selling price, because they sell for basically $2 million and up, maybe a little bit less to various players. So overall, because we are selling more large-scale area machines, the ASPs are actually going up. But when you classify them into different categories the smaller machines have price pressure on them.

Okay. And I assume that the margins has over -- your gross margin a little bit more favorable on those large machines or is that...

That's correct. Right.

00:3158 Michael Masdea: On the [indiscernible] and on the LED side from the Japanese or -- I think you mentioned JVC and SEC and UEC. Are a lot of what you're looking for, going forward, these follow-up tier II guys that kind of come into the market or is there follow on orders from the big guys?

We have follow on orders from the big guys. And the tier II guys are, you know, I would say one or two of the orders that we got in July are coming from the tier II guys in Taiwan and we're in Asia -- I guess is the better way to put it. And so, you know, we do expect and I think the history is that most of the Asian markets has tended to track what happens in North America and Europe fairly closely. So we do expect that to happen.

Great. The last question is on GELcore. Where is a lot of their spending going these days -- I mean -- and kind of what disability do you have on them to kind of turn the corner and seeing the profitability?

Standing is -- we remember that the business thesis behind GELcore is that one; they wanted to go out and capture the end market applications. And they've been able to do that in signals, they've been able to do in channel letters, and small area illuminations with LEDs. They have been able to do it in automotive. And then drive proprietary technologies into those applications of sockets. So really what's happening is, you're getting R&D spending, a lot of it is in the applications and engineering, but you know, probably still, I don't know -- 30 to 40 percent is still based on chip design and increasing output and lowering costs.

All right.

on a -- at a chip level.

Great. Thanks.

Our next question comes from Mr. [JD Abachar] from Pacific Edge. Please go ahead sir.

Hi. Thanks for taking my call. First, what was the depreciation in the quarter?

Well JD, depreciation was about 3.8 million, but non-cash items such as, you know, GELcore and other items totaled about 4.9 million.

Nine, so if I add this 4.4 million in interest expense to the EBITDA, you had a cash burn of about 13.5 million?

No. If you look at our operating loss it was about 15 and reduced the non-cash item to get that into, you know, little under 10.

Okay. Where do you think the breakeven point is?

We need to get our net loss -- let me define cash flow breakeven from operations for everyone. We need to have an operating loss of about -- between $5 million and $6 million because that's our non-cash charges. So we've got to increase -- you know, that $15 million loss has to come down to between 5 and 6 million. And we're on track to get there in about two -- you know, by the December quarter.

Okay. You talked about taking a lot of market share in the equipment side. Is that in the specific targeted markets that you're going after or is that overall? Because it looks like Exatron is four times your size and does it seem to hit the same bump in a row that you have in terms of a drop off in sale?

Yes. Well don't forget our product markets are different than Exatron's. Meaning, we only sell MOCVD, and it's only focused on really three markets, which is LED, datacom, telecom or [indiscernible] in satellite. So it's a -- there is a big difference in terms of the product offerings. But in any event, right now in MOCVD, which is the production technology, I would say 75 to 80 percent of new purchase orders are coming out of the LED market. And in that case almost all of the new orders are based around large area production systems, and of that, we have one, I would say, the lion's share.

Okay. And if I remember correctly from the last call, when you acquired Textstar it was doing about 25 million a year, and you said you were negotiating about $60 million worth of run rate order? What were Textstar revenues in the quarter?

We don't break them out JD. It's just a -- it's one member for Photovoltaics, if I [take in] at the 3.1 million that the division did, it's probably about 50-50.

Okay. Okay.

Remember the California operation does the kick cell, which is kicking our solar cell that's made in New Mexico. So it's really -- you know, you can't really break it out, because a lot of the raw materials come from New Mexico to California.

Okay, got you. And let's see the auto sensor revenue is in the vixel category or in the wireless category?

No, in the wireless.

Okay, that's right. And finally, can you give us just a rough idea of -- in the wireless sector sort of how it breaks out between the three technologies HBT and pHEMT and in iMode?

Yes. Let's see, since the beginning of the year in an InGap HBT we have shipped about what 5.5 million Tom?

It's about...

5 million InGap.

iMode and HBT are the bulk.

Yes, right.

With pHEMT lesser.

Yes, I would say that the pHEMT -- straight pHEMT is a nominal number, you know, may be a million -- I would say 5 million were InGap HBTs and the balance is probably iMode.

Got you. Great, thank you.

The next question comes from Mr. [Chris Bersae] from SBR. Please go ahead sir.

It's [Almond Reuben], just a couple of questions. You guys are making some progress on your, you know, cost reduction, you've put some more inline. How should we thinking about what breakeven revenues are for the overall company and kind of by segment too -- either operating profit or EPS kind of whichever you would prefer?

Chris, in terms of, you know, cash flow or P&L breakeven, we're probably in the low 40s right now. Cash flow breakeven is lower, because we have about, you know, between 5 and 6 million, as I just mentioned, in the quarter that is non-cash related.

And when you say P&L, Tom, is that operating profit or bottom line?

Operating -- that's operating profit; we're not including debt service.

Okay, and by segment?

I wouldn't break that out, but just overall, you know, the gross margins on equipment are hovering around 30 percent and materials are somewhat less than that.

Okay. And then you guys talked about an uptick in satellite for the September quarter. Should we be thinking you're going to rebound back to what the March quarter levels were or will it be somewhere below -- you know, between the two, June and March?

Certainly higher, but somewhere between the two. Somewhere you know -- last quarter we did 11 million, this year -- this quarter we did little over 3. It's closer to the 11 than the 3, but it's going to be between the two.

Okay. And I guess the question, you know, just getting back to the gross margins. Were both systems in the materials businesses -- were they gross profit positive in the June quarter?

Systems, absolutely. Materials was close, it was close. It was, you know, not high gross margins though. Different products were different but for the most part the gross margin performance was not very good.

Okay, and then just a couple...

Chris, just to answer on your last question where [affordable] tax will be this quarter. When I referred to that export license before, that is affordable tax.

Okay. And then just a couple of other, you know, thought questions. I mean -- you guys again trying to address the cost structure, bring down your OPEX and improve your margins. When do you start to think about reducing that interest expense, maybe buying back some debt?

Yes, I think, if we are cash flow breakeven from operations, a very nice use of our cash would be to reduce our debt, particularly since the bond is selling at, you know, substantial discount at par.

Right, right and okay. And then, Reuben you mentioned that Jaguar has some nice auto wins in 2004. Are any of those domestic?

Actually, they got one program with one of the major auto producers in North America for all models, '04 through '08.

Okay. And, just in terms of large systems, if that's where all the, you know, LED growth is coming from. How long is it before HTRON kind of rolls up their sleeves and, you know, puts something out there in the market?

They are doing that -- they are trying to do that now.

So have they started to gain any traction? Are they, you know, doing anything there? Any success for them, or are you guys just steam-rolling them?

You know what, I think, that frankly their -- we would guess that the marketing ploy that they're using right now with the customers is pretty much a sign of desperation. Meaning, they're going into customers' offering terms that I don't think anybody in the capital could normally touch with a 10-foot pole.

Okay, and then just one last one. Tom, I don't know if you -- may be I missed it, did you give the average ASP for the quarter for the systems' business?

I didn't Chris, what I said is the ASPs overall are rising because the large areas sell far substantially more. There is price pressure on the traditional, you know, what we would label as production systems at the 180-millimeter width.

Okay, thanks.

Our next question comes from Mr. Christian [Wecap] from [Commerce] Bank. Please go ahead sir.

Hi. First of all, congratulations on the improvement in the profitability. I've got a couple of questions concerning only the systems business. Could you explain a little bit the competitive situation in that area and also elaborating a little bit more on market share; I joined the call later? I understand that you have 75 to 80 percent of your systems are going into LEDs right now, and that you have the lion's share of the market versus HTRON, is that correct?

A large part of the large-scale production, yes.

Of the large-scale production. And -- of the overall systems delivered, how high would you see your market share in there?

It's tough to breakout market share. Rueben referred to it before. It's not really apples-to-apples when you compare HTRON to EMCORE. As Reuben...

Yes.

...mentioned we only sell MOCVD tools. HTRON certainly sells MOCVD tools, but they also sell different configurations for High-k Dielectrics or certain other materials. So you can't compare that, and I don't believe they break that out in their financials. So we don't know what they're selling in that area. In addition, we cannot or are severely limited to what we are allowed to ship into China because of the technology, and they ship a fair number of machines into China so we can't really effectively compete there because of export issues with our government. So market share is a little tough to break out, but from apples-to-apples, if you look at the last introduction of next generation equipment, which is a large area again, we think we have won the vast majority of design wins there.

Over the last quarter, or is that most recently?

Yes, probably, the last two quarters.

Last two quarters, okay.

The system hasn't been out much longer than that.

Okay. In terms of pricing, do you have an impression that you're really competing over prices with HTRON? Is that purely on a technology base?

It certainly is something that they do, from a pricing standpoint in terms of offering terms that, you know, EMCORE generally thinks is a bad business practice. We try and win on the basis of performance wherever possible, obviously.

You mean they're delivering them and have great payment terms or you mean they're giving direct discounts?

It could be either.

Either, okay. Are you planning to compete with these on a price level or will you say you'll just capitalize on your technological position?

We would prefer to do the latter, and you know -- and maintain -- we think it's more important to maintain margins.

The reality is we are -- you know, we have to compete on price. I don't [indiscernible] right, you know.

But you would not lead the falling prices?

No.

You would only go to the same level as they do. You would not lead the decline in prices?

No, we would not.

Okay. And my last question [really] -- do you have had over the last quarter delayed orders or do you see cancellations out there through your systems?

No, no delays or -- the only delay was what I referred to earlier was we have a system at a customer for evaluation and they've requested a three-month extension prior to making their decision but they have since indicated that they would take it, but no cancellations during the last two quarters.

Okay, good. That's all. Thanks.

Thanks.

Our next question comes from Pranav Parikh from Q Investments. Please go ahead with your question.

Yes, thank you. A few questions. I just wanted to clarify. Did you say your depreciation was 3.8 million? Is that total D&A or is that just D and is there...

That's depreciation, but total non-cash charges totaled about $5 million.

Okay, and that's consistent with the five quarters. Okay. So right now you're running at about a cash loss of 8 to 9 million.

From an EBITDA standpoint, that's right.

Yes. How do you get back to breakeven? Does that primarily come from revenue [indiscernible]?

Well, couple of ways. One is, you know, we are anticipating an increase in revenues, which will certainly help, and obviously, as we announced in beginning of the call we just took another, you know, almost $10 million out of annual operating expenses.

Right, that takes you down, right.

That would certainly help us.

Okay. So part -- 2.5 million per quarter comes from expenses and the rest from increase in revenues?

Right, yes.

Okay and what -- did you say your CAPEX was less than 1 million?

Yes, it was about, you know, less than 800,000 for the quarter. That's been consistent the last couple of quarters, and there are no plans to increase that. It's really sustaining CAPEX at this point. We have plenty of capacity.

Right, got it. Okay, that's all I had. Thank you.

Our next question comes from Mr. Steven [Koffler] from Wachovia. Please go ahead sir.

Hi, this is actually [Maurice Shiffer] for Steve Koffler. I was wondering if you guys had any 10 percent customers this quarter?

To [date] we had one 10 percent customer, slightly over $2 million, which would be 10 percent in the quarter.

Was it in...

In wireless.

Wireless. What about backlog? I don't think I heard that.

Backlog at the end of the quarter is 59 million, and the breakout is 32 million on equipment and 27 on materials.

Okay, that's it. Thank you very much.

Ladies and gentlemen if there are any additional questions at this time, please press "*" followed by the "1." As a reminder, if you are using a speakerphone, please lift the handset before pressing any key. The next question comes from [Deter Webber] from Morgan Stanley. Please go ahead, sir.

Hi there. I would only have, sort of, one follow up question as most of them have already been answered and that is your revenue guidance for 23 million to 28 million for the coming quarter, do you expect that to come mainly through your backlog or sort of your expectations for the orders over the next couple of quarters?

You know, just a couple of things. On the material side generally, you know, some of it will come out of backlog but only a small amount. We really are booked to ship on the -- either the fiber optic or the wirelesses and measured in a couple of weeks. So our orders -- the orders we received in the quarter we expect to ship in the quarter. So that will certainly be part of it. The orders on capital equipment will come out of backlog.

That's right. As will, for the most part, out of [the tax] but wireless and fiber optic, as we mentioned earlier, are really [peers] on a month-to-month basis.

Okay, so I mean, sort of, can you say [you get one] into considering that you have 12 million orders for the equipment side. You expect that one to be decrease from around - from declined levels. Is that correct?

Let me tell you that equipment and Photovoltaics will both be up in this quarter, and I would anticipate that [these cells] will have a rise and wireless will be flat paced, possibly slightly up.

Okay. Thanks very much [indiscernible].

Thanks.

There are no further questions at this time sir. Please continue.

Yes. Thank you everybody for attending the call. One is we shared in the release and on the call -- we feel we're in a cost structure now where beginning in October we will be at least breakeven if not generating cash from operations, and we have a cost structure that can compete in any economic environment, and with the new products that we released the last quarter, some which will come out this quarter, we have a very strong competitive portfolio of products. A lot of new markets and new product opportunities to drive revenue growth. With that, thank you very much.