EMCORE Corp (EMKR) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Brandon. I'll be your conference facilitator at this time. At this time, I would like to welcome everyone to the Emcore Corporation's fourth quarter fiscal 2008 conference call. (OPERATOR INSTRUCTIONS)

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. Last night Emcore released its fiscal 2008 fourth quarter and year-end 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 Dr. Hong Hou, President and Chief Executive Officer; and John Markovich, Chief Financial Officer. John will review the financial results and Hong will discuss business highlights before we open the call up to 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'll now turn the call over to John.

Thank you, Vic, and good morning, everyone. Thank you for taking the time to participate in our call this morning. I'll start by providing you with some highlights of our '08 operating results and then address the fourth quarter.

Our consolidated revenue for the year totaled $239.3 million, which represents an approximately $70 million, or 41% increase over fiscal '07 revenues. And the $239 million in revenues includes $41.6 million of revenue contribution from the Intel acquisitions that we closed in February and April of this year. And over the course of 2008, we continue to expand our business internationally with international revenues as a percentage of total revenues expanding from 27% in 2007 to 39% in 2008. Our fiber optics business accounted for 72% of the consolidated 2008 revenues with the Photovoltaics business representing the remaining 28%.

Further, on a segment basis, fiber optics revenues totaled $171.3 million for the year, which represents a $60.9 million, or 55% increase from the prior year revenue of $110.4 million. Revenues for our Photovoltaics business totaled $68 million, which represents a 15% growth on a year-to-year basis.

Consolidated gross profit totaled $29.9 million for the year, which was essentially flat with the prior year, with consolidated gross margins declining from 17.9% in 2007 to 12.5% in fiscal '08 with the increases in fiber optics margins being more than offset by the declines in margins in the Photovoltaics business. On a non-GAAP basis, consolidated gross margins were 20.4% in fiscal '08 comprised of 23.9% gross margins in the fiber optics business, and 11.6% gross margins in our Photovoltaics business.

Our consolidated operating loss for the year declined by $4.1 million, or 7%, and totaled $53.4 million in fiscal '08 versus $57.5 million in '07. On a non-GAAP basis, the 2008 operating loss totaled $25.3 million. Our fiscal '08 net loss totaled $59 million or a loss per share of $0.87 compared to $58.7 million or a loss per share of $1.15 in the prior year. On a GAAP basis, or on a non-GAAP basis, rather, the fiscal '08 net loss was $27.1 million, or $0.40 per share.

With respect to our fourth quarter operating results, our consolidated revenue for the fourth quarter totaled $60.6 million, an increase of 29%, or $13.6 million when compared with the prior year fourth quarter revenues of $47 million. Fiber optics accounted for $46.1 million, or 76% of the quarter's revenue, which represents a 48%, or $14.9 million increase over the $31.2 million in fiber optics revenue reported in the prior year, with 35% of the quarter's revenue within the fiber optics segment being derived from the businesses that we acquired from Intel previously this year. Photovoltaics revenue totaled $14.5 million, or 24% of the quarter's revenue compared with $15.8 million reported in the fourth quarter of fiscal '07.

Moving on to gross profit margins, as a result of a number of year-end adjustments, including inventory reserves, which also took current quarter product price erosion into consideration, our fourth quarter consolidated gross profit was slightly less than break-even compared with $8.3 million in consolidated gross profit in the fourth quarter of 2007. On a non-GAAP basis, fourth quarter consolidated gross profit was $11.7 million and non-GAAP gross margins were 19.4%.

On a segment basis, fiberoptics gross margins were 8.9% compared with 17.4% in the prior year, with a decline in margins principally due to significant inventory valuation write-downs. On a non-GAAP basis, fiberoptics gross margins were 20.5% for the quarter. As a result of inventory write-downs and product warranty accruals associated with our CPV-related businesses, photovoltaics gross margins were a negative 31.6% compared with 17.3% in the prior period. On a non-GAAP basis, photovoltaics gross margins were 15.8% for the quarter.

The consolidated operating loss for the fourth quarter totaled $19.7 million, a $3.1 million increase from the $16.6 million operating loss reported in the fourth quarter of fiscal '07. On a non-GAAP basis, the fourth quarter operating loss was $8.1 million. The Company's net loss for the quarter totaled $19.4 million or a loss per share of $0.25, which is a $1.9 million increase over last year's fourth quarter loss of $17.5 million, or $0.34 per share. On a non-GAAP basis, our fourth quarter loss was $9 million, or a loss per share of $0.12.

Moving on to balance sheet and liquidity matters, as of September 30, our cash, cash equivalent, available for sale securities and restricted stock, restricted cash, totaled approximately $24.7 million with working capital totaling approximately $70 million.

As we previously announced, we closed a $25 million secured line of credit with Banc of America at the end of the fourth quarter and subsequent to the end of the quarter, we sold $1.7 million in previously liquid auction rate securities, entered into an agreement to sell a remaining $1.4 million in auction rate securities in June of '10 and negotiated terms to sell our non-core equity interests for $11.4 million. In addition, we are currently in negotiations with an investor to sell a minority interest in our Photovoltaics business as an initial step towards a spinoff of the business and we've received additional indications of interest from a number of other parties as well.

In addition to these financing initiatives, we have also taken a number of other measures to reduce our cost structure and improve our liquidity. These include a recent reduction in our workforce of approximately 100 personnel, a significant reduction in the fiscal '08 employee bonus payouts, the elimination of the fiscal '09 employee bonus and merit increases, the reduction in capital expenditures, and a major organizational emphasis on improving the efficiency of our working capital management.

With respect to our order backlog, as of September 30, we had a backlog of approximately $56.3 million, which was comprised of $35.2 million and photovoltaics backlog and $21.1 million in fiberoptics backlog. We define order backlog as purchase orders or supply agreements that have been accepted by the Company with expected product delivery or services to be performed within the next 12 months.

And with that, I will turn the call over to Hong for his operational and strategic update.

Thanks, John. Good morning, everybody. I will address the market and the business environment in our strategy in the various sectors of our business. Let me first discuss our business in the fiber optics area.

In the last quarter, we've successfully completed transaction and integration of telecom, enterprise and connect cable businesses acquired from Intel corporation earlier this year. All of our obligations and Intel transition service agreement are now complete and we have fully integrated the business into our organization structure. As a result of the transaction, our customers have indicated that they are satisfied with the continuation of the supply and better customer service provided by Emcore. The TSA or Transitional Service Agreement charges for the fourth quarter totaled $980,000, which is better than the previous expectation of $1.5 million.

For the Telecom business, the demand is actually pretty healthy, especially in the Asian market. However, the competition is fierce. As a result, product prices have eroded significantly. Fortunately, we are one of the few vertically integrated suppliers, having internal capability for chips and modules. In responding to the competition, we have been transitioning to low cost platforms. The qualification of this platforms has been completed and the transition is moving forward. With a more comprehensive - - competitive process and platform, we are developing our business opportunities very aggressively.

We have recently achieved significant market share for our (inaudible) lasers, integrated subassemblies, and transponder product from three major telecom equipment companies in Asia, of which two are new customers. While we are facing some initial margin pressure in this product line, we believe the strategy we have implemented will position the Company for accelerated growth through market share shifts.

In addition, our external cavity laser technology gives us a differentiating advantage in terms of the spectro instability performance. It's not only suited for the current 10 gigabit per second, but also for next generation 40, and the 100-gigabit per second application.

On the enterprise side of the business, with additional short-ridge, long-ridge and extended ridge of Xenpak transceiver products from the Intel acquisition, along with our internally developed LX 4 and CX 4, we offer the most comprehensive product portfolio of the value products. We have been winning market shares due to our good quality, on-time delivery, and competitive pricing. With a delay of SFP plus platform in some major customer accounts, the Xenpak products actually gained an extended lifecycle. Our Parallel Optical Transceiver business continues to experience a very rapid growth. The demand for SNAP-12 transmitters and receivers used for back [play] interconnect is a main driver.

The business was very strong in Q4 from [Cisco] for the new switch and router platform CRS-1. Through the Intel acquisition, we have added a new product line that connects cable. The active cables are connected by fiber cables based on parallel optical transceivers. It is a game changer for high performance computing. After initial marketing and the stringent qualification for customer acceptance, the demand is ramping up rapidly. We continue to lead this area through the introduction of a new product called quad data rate cable offering aggregated bandwidth of 40 gigabits per second.

In Q4, we implemented vendor managed inventory, our VMI program for major customers. We have been expediting our supply chain in manufacturing to meet the customer's projected demand. More than $5 million worth of products were transferred to VMI and was expected to be pulled before the end of Q4. However, very little was pulled from this inventory due to reported multiple cancellation of others from customers in the last two weeks of the September. This caused a $5 million shortfall of revenue in our fiber optics business for Q4. This newly implemented VMI will continue to add more demand in our working capital and adding more uncertainty in our revenue recognition, especially in this market conditions where every company is managing their inventory very closely.

Market conditions for cable TV broadband fiber optics business have remained flat quarter-over-quarter, but about 20% lower than the same period last year. While the cable TV multi-service operators, our MSOs, reported a good operating results, the capital spending has been at least 20% below their plan.

Due to the short lead time and the high diversity of the product permutation, customers carry very little inventory. We usually experience shipment (inaudible) with a significant amount shift in the last month of the quarter. However, the trajectory of the product shipment changed suddenly in the last two weeks of September, causing shortfall on our broadband business product revenue compared to (inaudible). As our Fiber-to-the-Home deployment and the increase of customer subswitches from the phone companies, MSO's are reportedly losing customers for video services. We believe that this will stimulate their capital spending again. Our surveys with our customer base indicate that this would happen in the second half of 2009.

FY '08 was a very productive year with respect to new product introduction. We introduced the five new product platforms in our broadband area in broadcasting and Qualm transmission. This product addressed a trend fiber recompetition in our cable TV network and continue to expand our market share. Once the capital spending resumes, we are better positioned for the (inaudible) in this business.

In the area of passive optical network transceiver for Fiber-to-the-Home applications, we continue to supply (B-pom) transceivers as one of the two qualified suppliers. In the September quarter, we were awarded a major design win from a leading equipment OEM. With (inaudible) shipments commencing in Q1 and ramping quickly throughout 2009. Furthermore, we have been leveraging our expertise in cable TV in Fiber-to-the-Home area and gained multiple design wins in radio frequency over (inaudible) called RFoC. We believe that RFoC will be the future trend of the (Greenfield) deployment of cable TV network. The fiber will be brought out away to the home in this (inaudible). Our video transport and specialty product sector was doing well.

We were awarded a 13-year supply contract of code decoy transmitters and receivers from a major defense contractor. Our lithium (inaudible) space modulator was also qualified for a very demanding space fiber optical (inaudible) application. This area of the product usually generates 50% of gross margin in a number of new fiber optical (inaudible) components and transceiver opportunities are on the horizon. So it will be a very nice upside once materialized.

During the September quarter, we were tracking well for our revenue (inaudible) in the first part of the quarter, but the demand seemed to drop off a cliff after September 15. And as a result, the optical revenue decreased from $53.6 million to $46.1 million sequentially. And the non-GAAP gross margin dropped from 27% to 20.3% due to the unabsorbed infrastructure fixed costs with the lower revenue.

The macroeconomic situation remains very challenging. While we have little control over the market, we keep our eyes on the spending very aggressively. This includes the workforce reduction and very close management of working capital as John highlighted earlier. We're also very selective and are focused on our effort in product development. We expect revenue of the fiber optics business for the December quarter to be flat sequentially. Based on the new design wins in newly qualified products and opportunities in the pipeline, we expect a noticeable business recovery in the March quarter.

The acquisition of Intel fiber optics business significantly strengthened Emcore's position in fiberoptics components and subsystem arena with a comprehensive and diversified product portfolio in broadband, telecom, enterprise, specialty and high performance computing markets, and vertically integrated with an offshore, low cost manufacturing infrastructure, we are optimistic that we'll be able to ride through this economic storm.

Now let me discuss the solar Photovoltaics part of our business. First, the space power business. In early September, executive management conducted a broad customer visit to the major aerospace companies. The feedback we got is that the demand for a commercial satellite program remains quite strong. Our major customers are expecting growth of 15% to 20% in 2009.

On the government program front however, most of the programs continue to slip due to the slowdown in congressional funding, although Emcore is baselined in a number of satellite programs. We have just signed a multiyear long-term purchase agreement with a major satellite integrator and are in negotiation of a new purchase agreement with existing major customer for their future demands. Our visibility for our space business is relatively good through mid-2009 with a challenging situation in the credit market, we are watching the development very closely.

With the lean manufacturing initiatives in engineering improvement, our product yield and operational efficiency in our solar cell fab have improved significantly in Q4. This has helped improve the gross margin of the space interterrestrial TV component products to historic levels on a non-GAAP basis.

Now let me turn the discussion to terrestrial solar power business. Just want to remind you, the products we are offering including concentrated photovoltaics, CPV components and systems. CPV technology continues to gain market acceptance and is a viable alternative to the competing solar technologies, such as polysilicon or thin film. There is an increasing number of companies that have had their CPV products certified for different market applications and some of the system integrators are just getting ready for large scale and cost effective deployment. We are pleased to see that this emerging technology is getting mature and being more broadly accepted.

As you know, the solar power business is still a policy-driven business. The incentives for solar energy in different markets have improved dramatically in recent months and the industry has accelerated deployment. However, in our September quarter, the incentive policy was at least favorable for the deployment of CPV.

During the quarter, solar power developers were very concerned about the change of a lucrative bid and [turf] policy in Spain after the September 30 deadline. The industry was going through a bidding [rush] but mostly based on proven and available products to investors. A major concern also exists for the US market, as it was not clear if and when investment tax credit would be extended beyond the end of year 2008.

This market conditions were certainly very adversely effecting adoption of emerging CPV technology. As a result, the take rate of CPV components reduced significantly and delivery schedules were pushed to the right. In the meantime, we have implemented more strict credit policy on customers who have less credit history. Some of the planned product shipments were not consummated because some with the payment terms were not satisfactorily met. As a result, our CPV revenue declined in Q4.

We continue to expand our customer base. In Q4, we signed two long-term purchase agreements for solar cell receiver product with two major customers based in the US for a total of over $40 million. We have also substantially reached a agreement with two other major customers with their CPV system product qualified for Spanish and European markets. We intend to announce this in the near future.

Our strategy continues to focus on the development of broader customer penetration rather than any specific customer so that we can always benefit from the CPV ramp-up no matter who wins in which market. We firmly believe that a CPV will become a viable technology to gain a significant portion of the solar photovoltaics market in the next couple years. We believe that Emcore will be the first company to benefit from the ramp of CPV business.

We continue to be the technology leader of solar cell technology. As reported before, our inverted metamorphic solar cell technology was recognized with a prestigious R&D 100 Award. It is anticipated that the efficiency levels in the 42% to 45% range will be achieved when adopted for use in the 500 to 1500 X concentrated illumination. Emcore expects to commercialize these technologies through applications for space power first due to infrastructure and then we will commercialize for terrestrial applications at end of of 2009.

With a considerable investment in the solar cell components, we have (inaudible) capacity of approximately 250-megawatts sales to receivers and 1000 X concentration. We have three receiver lines fully up and running in Albuquerque and a fourth line installed in Emcore China, it's operational as well. We believe this capacity will be able to serve the market demand over the next 12 months. Therefore, the capital spending will slow down significantly.

As for the CPV systems, we believe that we have done a good job in designing for performance and reliability. Our Gen II CPV system has been operating (inaudible) since 2008. For our commercial installation totaling approximately 1 megawatt with three in Spain and one in China have been completed and connected to the grid. They operate in accordance to the specifications.

In an effort to improve the market competitiveness of our CPV system product, we have increased our engineering effort for the next generation CPV system design and qualification. The cost for our Gen III product is targeted at $1.75 per watt with a module efficiency of 30%. Even with the price erosion of solar modules, we still expect the Gen III product to be very competitive. We'll continue to offer the Gen II product for sales of small project for the purpose of market development into the (inaudible) production of Gen III expected to be in effect in the second half of 2009. However, as we discontinue the produce, we have taken an approximately $4.5 million charge for Gen II inventory and the warranty reserves in the fourth quarter. All of our major bids for the future solar utility projects are based on Gen III products.

With respect to the business development activities of the CPV systems, we have recently signed a contract to sell a 100-kilowatt CPV system to a company in China. The market demand for solar-based renewable energy in China is emerging as a result of the Chinese government's solar power initiative. Total 80-megawatt spreading across eight western provinces in China. CPV offers advantages as the lowest carbon emission of the renewable energy options and discussions continues with a couple of potential partners on the intent to (inaudible) the manufacturing plant in China owned by Emcore to manufacture CPV systems designed and certified by us for the Chinese market.

In the midst of the current financial crisis, the Investment Tax Credit, ITC, in the US was approved to extend for 8 years to everyone's pleasant surprise. With that, the US is clearly becoming the center stage of solar power opportunities. Thus, we have adjusted our business development strategy to focus on the opportunities in the US especially in the southwestern states where the direct normal (inaudible) are more favorable for the CPV technology. We have in the meantime established network partnerships with several major companies worldwide to address the international markets.

Working with our strategic partners, we have responded jointly to a number of RFPs by public utility companies in the southwestern states. The role of our partners in this project is to organize equity in project financing and serve as owner/operators of the project. We were officially short listed for one project that totals 115-megawatt in Southern California and all the parties, meanwhile, are in the process of negotiating the final power purchase agreement. On another two recent bids, our other southwestern utility projects, we have been receiving very positive indications. We believe that we could be short listed for further negotiations for at least 34-megawatt for a total of 150-megawatt opportunities between the two projects. We expect official notifications by mid-January.

A (inaudible) will also commence the discussion and the finalization of a definitive agreement of the strategic partner, which is an international conglomerate. The construction of the solar park project is scheduled to start in late 2009 as a renewable portfolio standard, or RPF, will take in effect by 2010 in many states. This is clearly very exciting opportunities for the Company. We are in active discussion with several potential international partners to license a process for CPV system manufacturing in each of their local markets to accelerate our business growth.

In summary, we had a disappointing Q4 due to the macroeconomic situation in the CPV business launch. We have made a number of one-time write-offs and reserves in this past fiscal year in response to the current challenging market conditions. Going forward, our diversified product portfolio and cost reduction initiatives should put our fiberoptics business on a reasonable path of recovery. Our new product in CPV allows us to be competitive in the solar power market.

The new strategy in business opportunities are very exciting. We are on the launch pad for what we believe could be a significant business growth in the latter part of 2009. We expect the December quarter revenue to be relatively flat on a sequential basis, with a significantly improved bottom line. Fiscal year 2009 revenue is expected to increase by 10% compared to fiscal 2008.

With that, I will turn it over to Q&A.

Sure. (OPERATOR INSTRUCTIONS). Our first question comes from John Harmon of Needham & Company.

Hi, good morning.

Hi, John.

I'll just start off with a philosophical question and that is, Emcore's core strength in semiconductors, semiconductor materials and solar cells and there are start-ups in other companies that have emerged that are really focused on making the best concentrators they can. It seems like you probably developed your own concentrators to demonstrate the performance of your solar cell. So what's the long-term outlook for making concentrator systems, which probably seems like a non-core business for you?

John, you know, things like the Fiber Optics business, you have the vertically integrated infrastructure and capability that will ultimately give you the advantage for cost. We are - - our core competency is semiconductors. The solar cell side will continue to be our core competency, but as a systems side, that's addressed a bigger market opportunity. And plus, with the solar cell technology and the understanding on the performance we are able to optimize the performance of the system level. So we'll continue to push forward for both sides of the business, mainly the component side and systems side.

Okay, thank you. And secondly, you talked about a very aggressive pricing on optical modules. Was that in transponders, or what types of products was that. And in optical, do you think the, do you think demand has stabilized after it fell off a cliff, as you said, or how do things look in the December quarter?

Yes, the demand seems to be stabilized. As I said, our guidance, our visibility at this point for the December quarter to be flat with respect to the September quarter actually is not too bad, considering this quarter the situation has been very challenging from the broader market of view. The price pressure is mostly we have seen in the telecom area, the 10 gigabit tunable lasers and transponders.

Okay, thank you. And just finally, I'm curious, I guess the dropoff in demand was really late in the quarter, but it was so severe and you certainly you didn't hit your target of breakeven in the quarter. I'm just curious why you didn't preannounce since you really came up so short.

Yes, we - - this came on on pretty sudden. As I said earlier in the quarter, we were trending to our plan pretty nicely. There's just -- there's so much uncertainty, especially with our VMI, the vendor managed inventory. We produced a product according to the forecast to the plan and we expect them to pull from that so that we can recognize the revenue. In our financial systems typically has a delay in terms of getting the quarter closed. And also there is a time when the economic situation, when we're looking into the inventory into the accounts receivable and all of that, so there's so many moving parts that would not allow us to close the quarter sooner to announce it.

Thank you. And just one - - on that topic, one more if I may. What was your cash flow from operations, or what was your cash burn and what do you think it would be in the December quarter?

Hi, John. This is John Markovich. I'll address that. During the quarter, on a free cash flow basis, we consumed $6.6 million in cash, which over the last - - or the three prior quarters, that's the lowest amount of cash that we've burnt over the course of fiscal '08. And actually the first three quarters of fiscal '08 constituted approximately 90% of the cash burn for the entire fiscal year.

Okay. Just to clarify, you burned $6.6 million in Q4, or was that for the whole year?

On a free cash flow basis, which is our operating results net of our working capital accounts and net of capital expenditures, we consumed $6.6 million for the fourth quarter.

Okay, and you talked about the lack of the transition payments to Intel, and some head count reductions. Any help you could give us on what cash burn could go to in the December quarter?

We're not providing any guidance on the fourth quarter beyond the revenue that Hong outlined earlier.

Okay, thank you.

Thank you for your question. Our next question comes from Sam Dubinsky of Oppenheimer.

Hi, guys. Could you guys give me a quick rundown of your solar business the threshold business in terms cost per watt and where that's trending this year, both at the system level and also installed cost per watt for your customers? And as a follow-up to that, can you maybe just talk about how the demand environment is with main stream module, prices falling, how that's going to impact the solar business. Then I have a follow-up.

Yes. Sam, so for the Gen II product, as I outlined, was for the performance and reliability and time to market and one thing, which is most important one, was the cost was not very competitive. That's why we decided to use that generation only for the market development, basically the optical principle and everything else the same.

In Gen III, we have been developing in the last seven to eight months and with the cost target of $1.75 lower, that for the module pricing. And for the installation, we estimate a cost target of fully installed is less than $3 per watt. So that's our target and so far, it's trend to target very well. We have our prototype installed with the Gen III design. Again, you know, backyard, solar test field and is performing to our expectations. And so that's that's - - I know there are many reports about the polysilicon oversupply in year 2000. That will certainly drop, drive the price of the silicon margins down. But I think if we sell the module at a $2.30, $2.40 per watt of fully installed at a $4.50 that still will be very, very competitive.

Okay, and as a follow-up, could you give a little more color on the demand environment? I know some customers, probably pushouts and whatnot, and cancellation business, create quite a crisis. How do you see that panning out over the next few quarters in terms of your threshold backlog and also RFP activity?

Yes, I think the credit market certainly did not help because they are making it more difficult for the financing arrangement for some projects in the pipeline for our component customers. But I think we have seen many customers using this opportunity like what we did - - we are doing to get a new design to allow them to be more competitive. So the component demand, as I said for the December quarter, is still going to be low. But as I said also, a number of customers they had their product certified and qualified for the different market and they are giving us a projection and indicating that by the later part of 2009, the demand will pick up. So we'll just have to watch that very closely.

As for systems side, I think the - - because our design is mostly for the application of public, for the power utility applications, and RTS, renewable portfolio standard mandate provided different states in the US is going to be the tipping point for some public utility companies, may need solar allocation by as early as 2010 and in the construction of the project has to start in 2009.

Okay. Then my last question is just on some of your inventory charges, seems like we've had a couple of quarters of one-time charges. At what point do you see the charges start ending particularly in the solar business?

Yes, inventory charges for the solar business, I think this is the last quarter and - - the principle concern for that is we are discontinuing the Gen II product for the volume deployment, so we have raw material and some of the finished goods inventory. We believe we will sell the majority of them, but because of the certainty of timing so we were wise to take the charges on the inventory. And as for - - also we took some charges for the inventory on the Fiber Optics business. Those are - - still good inventory, but right now is probably the excess inventory considering the demand in - - it could be getting worse and based on that assumption, we took the charges. But we'll be trying everything we can to use up those inventory.

Okay, thanks, guys. Appreciate it.

Thank you, Sam.

Thank you for your question. There are no more questions at this time. I would now like to turn the floor over to management for any closing remarks.

Well, with that, let me make some closing remarks. Fiscal 2008 was a productive year for Emcore. During the year, we launched our new CPV terrestrial systems business and achieved significant market penetration in both CPV components and systems in the first full year of operation. And with most new technologies we incurred significant startup costs associated with establishing new product lines and building the required infrastructure. However, we have now established a leading position in this emerging market and positioned Emcore for future growth within the segment.

We also successfully completed the acquisition and integration of Intel operations telecom, enterprise and connect cable businesses. This acquisitions have served to significantly enhance our product portfolio and expand our customer base, providing increased leverage and scale within our Fiber Optic business. Although we remain quite cautious about our current economic downturn, we believe that the Company is now well positioned in this market and the Company remains very focused on continuing to lower our cost structure, managing our working capital and achieving profitability.

Thank you very much for your attention today, and we look forward to the next call.

Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines, and have a wonderful day.