EMCORE Corp (EMKR) 2007 Q2 法說會逐字稿

At this time I would like to welcome everyone to the EMCORE Corporations' second-quarter fiscal 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. Following the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded. Listeners can also log on to www.EMCORE.com to access the webcast. Thank you. It is now my pleasure to turn the floor over to your host, Mr. Victor Allgeier of TTC Group. Sir, you may begin your conference.

Thank you and good morning, everyone. On Tuesday after the close of markets, EMCORE released its fiscal 2007 second-quarter results. By now you should have received a copy of the press release. If you have not received the release, please call our office at 646-290-6400.

With us today from EMCORE are Reuben F. Richards, Jr., Chief Executive Officer; Dr. Hong Hou, President and Chief Operating Officer; and Adam Gushard, Chief Financial Officer. Adam will review the financial results; and Reuben and Hong 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 Adam.

Thanks, Vic, and good morning to everybody. Today we're reviewing the results of our second quarter ended March 31, 2007. I will also provide some financial guidance on our third quarter just ended June 30.

As previously announced, EMCORE has withdrawn reliance upon its historical financial statements because previously reported operating costs do not correctly reflect non-cash stock-based compensation expense and related tax expenses associated with certain stock option grants. The preliminary unaudited results included in Tuesday's announcement did not include charges and expenses relating to the restatement of prior period financials or for any non-cash compensation-related charges that may have to be recorded in this period.

Also, just as a reminder, EMCORE sold its Electronic Materials and Device division in the fourth quarter of fiscal '06. So all revenues and expenses in fiscal '06 related to this division have been excluded for comparison and performance of continuing operations.

Moving on to the quarter, consolidated revenue for our second quarter ended March 31 was approximately $40 million. This represents an increase of approximately $3.6 million or 10% from last year, and an increase of approximately $1.2 million or 3% from last quarter.

Consolidated revenue for the six months ended March 31 totaled $78.1 million. This represents an increase of approximately $6.3 million or 9% from last year.

Both of our operating segments posted revenue increases when compared quarter-over-quarter and year-over-year. Fiber Optics revenue for the three months ended March 31 totaled $26.2 million. Now, this represents an increase of approximately $300,000 from last year, and an increase of approximately $900,000 or 3% from last quarter. For the six months ended March 31, Fiber Optics revenue increased to $51.6 million from $50.9 million as reported last year.

Our Fiber Optics division has experienced a significant increase in customer demand for its cable TV and broadband products, a trend that we expect to continue throughout fiscal 07. Also, despite higher revenue for our division, revenue from our legacy products that serve the digital fiber optics sector continue to be lower than last year, due to customer inventory management and increased competition. The good news is, based on the information we have available today, we expect a recovery of revenues from this product portfolio to occur in the current September quarter, as Reuben will elaborate on during his operational update.

Photovoltaics revenue for the three months ended March 31 totaled $13.4 million. This represents an increase of revenue of approximately $3.1 million or 30% from last year, and an increase of revenue of $200,000 from last quarter. For the six months ended March 31, Photovoltaics revenue increased to $26.6 million from $21 million reported last year.

Our Photovoltaics division continues to experience increased demand for space and terrestrial solar cells, solar panels, and government-related engineering and manufacturing contracts.

Moving on to backlog, backlog at March 31, 2007, was approximately $119 million, an increase of approximately 125% when compared to backlog at December 31, 2006, of $53 million. More importantly, backlog at June 30, 2007, the quarter that just ended, was approximately $120 million, of which $99 million related to our Photovoltaics division. Of the $120 million backlog, approximately $75 million is expected to be shipped within the next 12 months.

Now, these backlog numbers do not include supply agreements on terrestrial solar cells and concentrated photovoltaic systems.

Consolidated gross profit for the quarter ended March 31 totaled $6.9 million. This includes an inventory write-off of approximately $1.2 million related to excess and obsolete digital fiber optic components. Excluding this onetime inventory charge, gross profit for the quarter would have been $8.1 million, an increase from both $7.9 million reported last year and from $6.4 million reported last quarter.

I excluded the inventory charge since we consider it a onetime charge, and it is not comparable to financial results of prior periods.

Consolidated gross margin for the quarter ended March 31 was over 17%. Now, excluding the onetime inventory charge and non-cash stock-based compensation of $200,000, gross margin would have exceeded 21%. This represents a decrease from the 22% gross margin reported last year, but a sequential increase from the 16% reported last quarter.

Moving on to segments, Fiber Optics gross margins were 16% and 19% for the three and six months ended March 31. Excluding the onetime inventory charge, Fiber Optics gross margins were 20% and 21% for the three and six months ended March 31. For the quarterly period, Fiber Optics gross margin decreased from 25% as reported last year and from 22% gross margin as reported last quarter. The decrease in Fiber Optics gross margin was due to unabsorbed fixed overhead as a result of reduced digital Fiber Optics revenue.

Moving on to Photovoltaics, Photovoltaics gross margins were 20% and 14% for the three and six months ended March 31. For the quarterly period, Photovoltaics gross margin increased from 14% gross margin reported last year and increased from 7% gross margin as reported last quarter. Photovoltaics achieved significantly higher gross margins due to increased revenues and improved product mix.

Operating expenses for the three and six months ended March 31 totaled $20.9 million and $39.6 million.. A significant portion of the quarter-over-quarter and year-over-year increase in operating expenses was due to development costs incurred in our new terrestrial solar power business unit and professional fees incurred associated with our review of historical stock option grants.

Now, during the three and six months ended March 31, operating expenses included approximately $2.5 million and $4.5 million related to our new terrestrial solar power business unit, results well within our expectations. EMCORE expects to complete the second generation of its solar power concentrator system in the September quarter, and transfer system development to production in the fourth quarter of 07.

In addition, operating expenses during the three and six months ended March 31 included approximately $2.3 million and $4.3 million, respectively, of professional fees incurred from our review of historical stock option grants.

Excluding the expenses associated with our new terrestrial solar power business unit and the review of historical stock option grants, operating expenses for the three and six months ended March 31 totaled $16.1 million and $30.8 million. For the quarterly period, this represents only an increase of $300,000 in operating expenses, from $15.8 million reported in the prior year.

Quarterly operating expense would have been less than last year if it wasn't for additional expenses we incurred from recent acquisitions and our decision to close our New Jersey office, specifically related to severance-related expenses.

Operating loss for the three and six months ended March 31, 2007, totaled $14.1 million and $26.3 million. Excluding expenses associated with our new terrestrial solar power business unit and our review of historical stock option grants, our operating loss for the three and six months ended March 31 totaled $9.3 million and $17.6 million. For the quarterly period this represents an increase in operating loss of $1.4 million from $7.9 million recorded in the prior year. Now, as I just mentioned, this increase was primarily due to the onetime inventory charge.

Our Photovoltaics division, excluding our terrestrial solar power business unit, was net income positive in the March quarter.

As a reminder operating loss also includes non-cash stock-based compensation expense of approximately $1 million per quarter. This charge also affects reported gross margin by approximately 1 percentage point.

Below the line, EMCORE had net interest expense of approximately $92,000. Interest expense from our convertible note was partially offset by interest income earned on cash received from the sale of our GELcore joint venture and our Electronic Materials and Devices division back in fiscal '06.

The proceeds from the sale of these two assets have allowed us to aggressively pursue strategic initiatives. Now, as a reminder, in November 2006 EMCORE invested $13.5 million for a 27% equity interest in WorldWater & Power Corporation, a NASDAQ-listed company using the symbol WWAT. Now, WorldWater is a solar energy systems company offering both distributed energy systems as well as grid-type solar systems.

Our investment in WorldWater, which resides on our balance sheet at our original cost, was valued based on a $0.27 per share price. It does not reflect the significant appreciation in equity value based on their current stock price. We account for our investment in WorldWater as an equity investment, and recognize our portion of WorldWater's quarterly loss in our P&L, which totals $184,000 in the March quarter. Consistent with past practice, we record the effect of WorldWater's results of operations on our financials using a three-month lag.

Net loss for the three months ended March 31 totaled $14.4 million or a $0.28 loss per share. Net loss for the six months ended March 31 totaled $26.2 million or a $0.52 loss per share. When you exclude the expenses associated with our new terrestrial solar power business unit, our review of historical stock option grants, and other nonoperating income expenses --meaning net interest expense and equity loss in WorldWater -- our net loss for the three months ended March 31 totaled $9.3 million or an $0.18 loss per share. For the six months ended March 31, our net loss totaled $17.6 million or a $0.35 loss per share.

Moving to the balance sheet, cash and marketable securities at March 31 '07 totaled $77.1 million. Now, this represents a decrease of $9.9 million from the prior quarter. The decrease in cash was the result of payment of professional fees incurred relating to our review of historical stock option grants; legal costs associated with our patent infringement lawsuits against Optium Corporation; and capital expenditures. We have spent approximately $2.2 million on CapEx through March 31.

On the positive side of cash, we have made significant progress regarding collections during the quarter ended March 31. Trade receivables dropped approximately $2 million on increased quarterly revenues.

On the acquisition front, EMCORE acquired privately held Opticomm Corporation of San Diego, California, in April 2007. We anticipate that this transaction will provide approximately $7 million of revenue for calendar year '07, of which $3 million should occur in fiscal '07. Upon integration, Opticomm is expected to be operationally profitable.

Now, before I turn the call over to Reuben for his update on operations, I would like to provide a financial update on our third-quarter results ended June 30. Our books for the third quarter aren't closed yet, but prelim results are in.

Total consolidated revenue for the third quarter ended June 30 is expected to exceed $44 million. Now, this represents a revenue increase of over 21% year-over-year and 11% increase when compared to the March quarter.

As discussed, backlog remain significant, which is good guidance towards more revenue growth for the Company. Because of this order backlog we are more confident regarding our financial performance for the second half of 2007.

Focusing on bottom-line profitability, we continue to take steps to increase gross margin and improve overall operating performance.

Our Photovoltaics division, excluding the excluding the terrestrial solar power business unit, is again expected to be net income positive for the third quarter. With recent advances in solar cell efficiencies we expect order backlog to remain strong. In 2008, as revenue is earned on products developed by our new terrestrial solar power business unit, labor and operating expenses will be offset by revenue earned by this business unit; and expenses will shift from R&D to COGS. This should significantly lower OpEx as a percentage of revenue when compared to current financials.

Regarding the Fiber Optics division, in the current September quarter we expect a recovery of revenue for our legacy digital Fiber Optics products. With increased demand for our cable TV and broadband products, the Fiber Optics division should move closer to positive EBITDA in the September quarter.

Regarding site consolidation, since the last earnings call we have begun consolidating certain California-based facilities. We have also consolidated and closed a facility in Virginia, and by the end of September we should be completely out of our New Jersey facility. The shutdown costs associated with these facility closures should be incurred by September 30, resulting in significant cost savings in COGS and OpEx in fiscal '08.

Our operations also continue to be focused on material cost reduction through supply chains management, engineering cost reductions, and quality improvements. In May we announced the commencement of product shipments from our recently opened low-cost manufacturing facility in China. We plan to consolidate the manufacturing of cost-sensitive optoelectronic device products to our new China facility. This will lower labor and overall manufacturing costs, which will also improve gross margins in fiscal '08.

Finally, in closing, we have been working diligently to prepare our restated financial statements. We will file our 2006 Form 10-K and fiscal '07 first- and second-quarter Form 10-Qs with the SEC as soon as reasonably practical.

We expect once we are clear from the nonoperating SG&A expenses associated with the review of historical stock option grants we should be approximately two to three quarters away from profitability. With that let me turn the call over to Reuben for an operational update.

Thanks, Adam. I am going to focus this call on a discussion of the current market trends and operational factors affecting the Company's businesses and something -- a topic that Adam started, which was the Company's past profitability.

As indicated by the sequential revenue performance increases from March at $40 million to June exceeding $44 million, projected September revenues of $47 million, we are gaining a significant level of visibility in our business lines, driven by market trends that I will discuss later in the product-line discussion.

On a business unit level, during the March quarter Photovoltaics became EBIT positive; and in June the Photovoltaics business improved that profitability significantly to generate over $1 million in net income. The broadband business in March was EBITDA positive, and post restructuring charges will be EBIT positive for June.

The third business line, the 10-gig datacom-telecom business, was adversely affected by customer inventory issues in the March and June quarter that we have discussed previously. However, as Adam referred to, we are seeing a major uptick in the 10-gig business at the Company's largest customer in this space; that will bring production levels of the 10-gig LX4 units up to 2006 levels.

Product mix is improving, which resulted in improved gross margins for the March quarter versus December of 16% to 22%. We expect sequential improvement in June over the March period on increased revenue performance.

Lastly -- and Adam referred to the profitability. Lastly, it is the Company's objective to reduce our operating expenses from continuing operations from the $15 million a quarter level of the last two quarters to $13 million by consolidating operations. In that objective, as Adam pointed out, we have closed the Virginia facility in June. The New Jersey facility will be exited in August. The two Santa Clara facilities will be combined this month. And corporate salaries have been reduced by $2 million by consolidating responsibilities.

Total cost reduction is expected to be $8 million; and that will all be accomplished, finished, this quarter. Consequently taking $15 million in operating expenses down to $13 million.

In summary while we have incurred substantial levels of nonoperating expenses in the near term, the integrity, competitiveness, and operational profitability of the business lines has improved substantially over the last few quarters. And given the market demands, we feel will continue well beyond the end of the calendar year.

We feel that there are further opportunities to improve gross margins even beyond June through the new China facility. We have a clear understanding of the requirements to make the 10-gig business profitable again, which has clearly received a boost from the significant increase in LX4 orders for this current quarter. Given both the near-term revenue growth and increased revenue forecast for 2008 of between 210 and $230 million, improved gross margins quarter-over-quarter, and lower operating expenses, we feel strongly the Company will achieve profitability on an earnings level mid-2008.

From a product-line standpoint the drivers in the broadband business, which is defined as cable television, video over IP, fiber to the home, and mobile video, these are product lines which are expected to experience 30% to 40% year-over-year growth for both this year and next. The business drivers are a dramatic increase in capital spending by the cable television service providers, impacting both short-term and long-term competitive issues.

In terms of the short-term capital spend, companies like Comcast and Time Warner's acquisition of Adelphia networks and the upgrade of those assets is driving near-term revenue. Longer-term demand -- that is, two or three years out -- the service providers are upgrading their networks to 1 GHz to supply more bandwidth and provide more commercial -- which will enable them to provide more commercial services in competition with the phone companies.

The third factor is the buildout of new cable television networks in Eastern Europe. This buildout and the buildout in North America is likely to last two to three years. As a result we have had a number of customers come into to us, doubling or tripling unit volumes through the balance of this year. We have increased capacity 20% in the past quarter for broadband products.

Lastly on the broadband side, as Adam pointed out, we have solidified our businesses in the rapidly growing markets of mobile video and video over IP through the recent acquisition of Opticomm.

For 10-gigabit datacom-telecom, as I've pointed out, 10-gig had a tough first half of '07, with customers cutting back inventory levels. In some cases our largest customer cut inventory levels from 13 weeks down to one, which impacted both the March and June quarter.

While we expected growth in profitability would be driven by new products launched at OFC in March, in June we were notified of a significant increase in LX4 units to begin to ramp or begin shipment this quarter. Which certainly supports the two-quarter guideline we had been giving to return this product line to profitability.

I think the significance of this is that obviously our customer has had a number of its customers make major long-term commitments to LX4 as a platform for their enterprise networks, which I think is very optimistic for the economic life of LX4. I think it also speaks to the competitive aspects and versatility and performance characteristics of this product.

Further, the 10-gig, the new products, the 10-gig small form factor tunable, the XFP, and the SFP+ plus modules we expect to get traction -- or are seeing a significant level of traction, which will result in commercial productions late this quarter and throughout balance of the year. These coupled with the increase in LX4 will drive the datacom-telecom product lines to profitability.

In Photovoltaics, obviously very pleased with the level of profitability that -- an increasing profitability that the Photovoltaics group has been able to achieve. The current backlog of government and commercial satellite business on the satellite side exceeds $100 million. Revenues will see sequential growth over the next several quarters, as well as improvement in gross margins that we saw from the December to March; and are anticipating sequential improvement in the June period. We expected to see continued profitability off of March and June.

In terrestrial Photovoltaics, in addition to the $100 million system level contract with WorldWater over three years, the Company has an additional five-year contract with a European utility for $100 million to supply solar cells, which we are currently in production on. Fiscal 2007 revenues under the cell contract will be approximately $6 million.

In addition, in the past several weeks EMCORE has received additional purchase orders and multiyear agreements from customers in the Asia-Pacific region. A significant level of that will fall into the next two quarters.

We expect to deliver our first 1.5 MW concentrator photovoltaics system in calendar Q4. Based on current negotiations, there are likely to be increases in system shipments in the December quarter for the Spanish market.

From a technical development standpoint, EMCORE published results on a 30.6% efficient solar cell for satellite applications. This is a new device structure which we have obviously applied for patents on. And improving the baseline efficiencies from 28.5%. In addition this enables the terrestrial cell to move up to 37%. The effect of these developments will enable EMCORE to continue to reduce the cost per watt on both satellite and terrestrial platforms. We expect to announce further improvements in efficiency based on this new design shortly.

Lastly, in light of the current terrestrial photovoltaics contract and contracts under negotiations, we are increasing capacity in our Photovoltaics division by 25% over the next couple quarters.

In conclusion we feel the technologies, the products, and the low-cost manufacturing environment to both grow the existing profitable businesses and improve the profitability quarter-over-quarter. And once we exit the period of nonoperating corporate charges, we will be -- I think, as Adam alluded to -- within two quarters of profitability for the Company given the visibility in revenues, given the gross margin improvement, and given the reduction in the OpEx. With that I will turn it over to Q&A.

(OPERATOR INSTRUCTIONS)

Good morning. Just a couple, please. I guess, first of all on LX4, where do you feel (inaudible) product? Has it peaked? Where do you stand on the X2 form factor?

I think my answer a few weeks ago might have been different on this; but I think based on the unit volume shipment requirements for this quarter and what we anticipate for December, these are largely driven in part because inventories are historically low at the customer. But I think that a number of very substantial customers at Cisco have made commitments to LX4. I think this will extend the economic life of the product line, I would tell you, three to five years anyway (inaudible) a relatively robust (inaudible).

On X2, I think the commitment to the LX4 platform (technical difficulty) both the XENPAK and the X2 (inaudible) do not expect the X2 market space (inaudible) strategy. We do not expect to get a substantial volume of X2 as opposed to the XENPAK where we do expect a substantial (technical difficulty).

(inaudible) I think you talked about (inaudible).

It is a three-phase ramp-up. Initially, phase one is to consolidate all of the factories in (inaudible) Asia (inaudible) Beijing which will facilitate the more highly integrated product. So we are going to (inaudible) the optics and the optical packaging get qualified first, and then you will migrate it to products like the [SETX] products.

Thanks. Just finally, since you know your revenues for the June quarter, roughly what is the breakdown between Photovoltaics and Fiber Optics?

Yes, sure. Right now -- and again those numbers are prelims -- we are looking at a Fiber of $28 million; that is an increase from the last quarter. And also a significant increase on the solar to $16 million.

Ramesh Misra, C.E. Unterberg.

Good morning, guys. I think it would be very helpful if you could provide a breakdown. Can you hear me? It would be very helpful if you could provide us with a list of all the orders that you have received both on the satellite and terrestrial side of your solar over the last few months. Because clearly not all of those orders are included in your backlog; so I think it would be really helpful if you could do that.

Okay. I will start and, Adam, you can pitch in on this. On the satellite side, two long-term contracts, one with I guess a government entity. The remaining balance on that is about it $70 million, 65 to $70 million over the next two years -- 18 months to 24 months. Adam, I guess can give you the specifics.

Then there is a commercial contract that is approximately $35 million, which remains over the next 18 to 24 months. So that is $100 million in satellite backlog.

On the terrestrial side we have a 25-MW three-year contract with WorldWater. The first installment of that is 1.5 MW in '07; then it is 10; then 15.

Then on a solar cell level with a Spanish OEM for a pan-European utility, about $100 million. That works out to be about 5 to $6 million in '07; '08 is 12 to $15 million; and then it is about $25 million for the next three years. And I am sure I have forgotten something. Ad?

Just on the backlog numbers that I announced of $120 million as of June 30, those don't include the supply agreements on the terrestrial solar cells and the concentrated photovoltaic systems. So that is where you are probably not tying in on that stuff.

I have -- the government contract in the backlog, it exceeds 40; I think the number that was said was about 60. Other than that I think everything else is okay.

Okay. So with this kind of backlog, so far you've talked about just a roughly 25% increase in capacity over the next few quarters. Clearly to support this, it sounds like you would need to invest quite a bit more.

I think you will see us increase capacity, Ramesh, again in calendar '08. I think that is part of the plan. We just haven't released the POs to do that.

Okay. What are the cycle times before you -- from when you make that decision until when it actually comes into production, once that capacity is ready for production?

Four to six months.

Four to six months, okay. In terms of the 10-gig business, in the past you have talked about expanding your customer base. Can you say what is happening in that regard? Are there other customers besides Cisco beginning to look here?

Also a brief commentary on your LRM efforts?

Sure. On the 10-gig piece, I think the new products -- meaning 10-gig, small form factor tunables, the XFP, the SFP+ products -- all certainly refers to those. The tunables and the SFP are more telco products, where we are expanding with customers like Sycamore, and Sienna, and Lucent Alcatel, Alcatel Lucent, and some of the other telcos. Certainly we are getting a lot of traffic, a lot of activity, around the XFP part of that.

The small form factor tunable was very well received in customer demonstrations. Frankly the gating factor there is the tunable laser supply. We are entering an OEM agreement whereby we will manufacture the tunable lasers for the company that has designed this. So it ensures an uninterrupted supply of this as we [meet] commercial launch.

So I think we were originally contemplating that that would start generating revenues by the end of the fiscal year. I think it is going to be end of the calendar year. We are at least (inaudible) [quarter] away on the commercial launch of that. But I will tell you, it is nothing that we have heard from customers about this product, you know, would change our minds about how well accepted it is going to be.

Thanks very much.

Thanks and congratulations on the good news, Reuben. A couple questions for you. First, just clarification on the 210 to $230 million. Is that for fiscal 2008, or was what that calendar 2008?

Fiscal.

The profitability, is that EPS profitability?

In mid '08, yes.

All right. On the $13 million in OpEx, does that include options expense or exclude it?

I hope we don't have options expense after this quarter.

Unidentified Participant. All right.

(inaudible) have it, you know --

Well, yes, with 123R, yes.

So does it include it?

Yes.

All right. Then as a follow-up to the capacity question, does that bring your capacity to about 70 MW of terrestrial?

70, 75.

70, 75? All right. Then I was wondering what does the backlog in the cable TV look like?

As we sit here today, the cable TV business is a cycle -- a current business which is, you know, our book-to-ship is about 30 days. So typically we end -- or begin a quarter about 30%, 30, 35% booked for the quarter to meet targets.

Today we are about 75% booked for the quarter. So a broadband target of 24 or 25, 75% represents 16 to $18 million.

For the September quarter?

Yes.

Great. Then last question for you. Any update on that contract in -- the terrestrial contract in Colorado?

Still hammering things.

Could you maybe provide any additional color what the issue is? When does that power purchase provider start to break ground on the project? What needs to happen in order to finalize things?

It is just a pricing issue. And the timing is next quarter.

Next quarter they break ground?

I think they have been preparing the site actually for a couple months. But that is my understanding.

Any updates from other power purchase providers here in the US domestically that are close to making a decision to use concentrator technology?

There are ongoing conversations with about a dozen power generating companies on CPV. I will tell you that it is a much more advanced conversation in Europe, Spain, Italy, Greece, etc. about CPV than it is in the US.

Great, I will pass it on. Thank you.

(OPERATOR INSTRUCTIONS) Tim Savageaux, Merriman.

Good morning. Quick housekeeping question, sort of follows on the last one, which was -- what was sort of stock-based compensation in the OpEx line for the March quarter; and maybe expectations of where that kind of stabilizes?

(inaudible) I'm sorry, go ahead.

Sure. I mean, it's -- we are looking at $1 million on average for the past, and that is what we are using for our forecast going forward. So $1 million a quarter.

Okay, very good. On the cable side, Reuben, you have given some -- and you kind of hinted at this with the target to some degree. But in talking about the revenue breakout for Fiber Optics for June, I might have expected it to be a bit stronger, given your anecdotal commentary on cable. (inaudible) something a double-digit sequential growth happening on that side. So can we assume the 10-gig side remains relatively weak or gets weaker in the June quarter from where it was?

From March?

And then recovers sharply in September, I guess. Is that what you are saying?

The broadband, 10-gig business was down in June versus March; and the broadband business was up -- I would call it substantially June versus March. So for September the broadband business will continue to move up; but you will see a sequential improvement in the digital side.

Thanks very much. Nice [set of] nice results.

At this time our questioning queue is empty.

Okay. Well, thank you, everybody. Hope we were clear on the drivers for EMCORE achieving its profitability targets, improving gross margins. Obviously the revenue line we have some visibility on based on market trends and commitments at the customer level.

Profitability at gross margin level continues to improve quarter-over-quarter. As we reduce the operating expenses profitability is obviously a lot easier to achieve. We feel pretty good about our profitability targets for '08. So thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect your lines and have a wonderful day. Thank you.