EMCORE Corp (EMKR) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Emcore Corporation first quarter fiscal 2009 earnings conference call. Today's call is being recorded. All lines will be in listen-only until our Q&A session.

At this time, I would like to turn the conference to Victor Allgeier of the TTC Group. Please go ahead, sir.

Thank you, and good morning, everyone. Yesterday after the close of markets, Emcore released its fiscal 2009 first 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 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 will 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 will start by providing you with some highlights of our fiscal first quarter operating results and then address several backlog metrics, liquidity and financing matters in our recent cost reduction initiatives. Consolidated revenue for the first quarter totaled $54.1 million, an increase of 15% or $7.2 million when compared with prior year first quarter revenue of $46.9 million, and a decrease of 11% or $6.5 million when compared to the immediately preceding fourth quarter of fiscal 2008. Our fiber optics segment accounted for $39.2 million or 72% of the Company's total revenue for the quarter, which represents a 15% or $5.2 million increase over $34 million reported in the prior year period, and a 15% or $6.9 million decrease when compared to revenue of $46.1 million in the preceding quarter.

The year-over-year growth in fiber optics revenue was primarily due to the revenue associated with the telecom, datacom and optical cable interconnects-related assets of Intel's Optical Platform division that we acquired early last year. Our photovoltaics segment accounted for $14.9 million or 28% of the Company's total revenue for the quarter, which represents a 15% or $2 million increase from $12.9 million reported in the prior year period, and a 3% or $400,000 increase when compared to revenue of $14.5 million in the preceding quarter. On a year-over-year basis, all three product lines within the photovoltaics segment experience increases in revenue.

Moving on to gross profit in margins, after excluding nonrecurring inventory reserve adjustments, first quarter consolidated gross profit on a non-GAAP basis was $7.2 million, representing a gross margin of 13.3%. On a GAAP basis, first quarter consolidated gross profit was $1.6 million, which represents an $8.5 million increase -- decrease -- from $10.1 million recorded in the prior year period, and an increase of $2.1 million when compared to the immediately preceding quarter. The first quarter gross profit was depressed due to a general decline in average selling prices, particularly in the telecom components products, unabsorbed overhead expenses and inventory writedowns totaling approximately $5.6 million that were concentrated primarily in our fiber optic segment. On a segment basis, first quarter non-GAAP gross margin for the fiber optic segment was 11.2% and 18.8% for the photovoltaics segment.

For the quarter, fiber optics gross margin on a GAAP basis was negative 1.1% compared with 23.5% in the prior year period, with the decrease in gross margin due primarily to the items I highlighted earlier. The photovoltaics gross margin on a GAAP basis was 13.7%, which is a decrease from 16.4% in the prior year period with a significant increase from the negative 31.6% in the immediately preceding quarter, which was adversely impacted by inventory writedowns. After excluding nonrecurring and other non-cash charges, the first quarter non-GAAP consolidated operating loss was $8.8 million. On a GAAP basis, the consolidated operating loss was 52.5 million, which includes $33.7 million in non-cash charges related to the impairment of goodwill and in-process research and development that was concentrated primarily in our fiber optic segment.

This GAAP basis operating loss represents an increase from the $9.2 million operating loss reported in the prior year period and the $41.5 million operating loss reported in the preceding quarter that included $22.2 million in non-cash charges also associated with the impairment of goodwill and intangible assets. Net of non-recurring non-operating and other non-cash charges, the first quarter non-GAAP consolidated net loss was $8.9 million or $0.11 per share. On a GAAP basis, the first quarter net quarter first loss totaled $53.4 million or $0.69 per share compared to a net loss of $14.4 million or $0.28 per share reported in the prior year period. Now moving on to backlog, as of December 31, we had an order backlog of approximately $53.2 million, which consists of $30.2 million in photovoltaics backlog and $23 million in fiber optics 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.

Moving on to the balance sheet and liquidity matters, as of December 31, cash, cash equivalents, restricted cash and available for sale securities totaled $18.8 million, and network and capital totaled approximately $75 million. As we've previously announced, we closed the $25 million secured line of credit with Banc of America last September and had loans outstanding under the facility totaling $15.4 million as of December 31. During the quarter, we freed up a total of $2.6 million in cash that was previously tied up in auction rate preferred securities; and shortly after the end of the quarter, we sold all of the remaining interest in WorldWater and Solar Technologies, which has been recently renamed [Intec] Solar, for $11.4 million in cash.

As previously disclosed, the Company has received indications of interest from a number of investors regarding a minority equity investment in the Company's wholly-owned solar subsidiary that we are aggressively pursuing. Last month, we signed a letter of intent with a major international investment group that involves both investment and operational agreements; and concurrent with this development, we are pursuing interest in a minority equity investment in our solar sub from additional investors through a private placement process. In the very near future, we will commence management meetings with a number of interested investors, and are targeting to close one or more of these financing opportunities by late March or early April. In addition to these liquidity and financing initiatives, we have also implemented a number of cost reduction initiatives, including a reduction in our employee base of over 160 people or approximately 17% of our total workforce -- this translates into annualized cost savings in excess of $9 million -- a significant reduction in the fiscal '08 employee bonus playouts, the elimination of all fiscal '09 employee merit increases, significant reductions in capital expenditures and restrictions on employee travel and other discretionary expenditures.

Lastly, we are continuing to place great emphasis throughout the Company on improving the management of our working capital, particularly our inventory levels and cycle times. With that, I will turn the call over to Hong for his operational and strategic update.

Thank you, Jim. Good morning, everybody. First of all, let me summarize the Q1 financials. Revenue was $54.1 million, representing approximately an 11% sequential decline, of which the revenue from the solar business increased slightly while the revenue from the fiber fiber optics business declined about 15%. On a non-GAAP basis, the gross margins for the photovoltaics and fiber optic businesses were 18.8% and 11.2%, respectively, and the consolidated net loss was $8.9 million on a non-GAAP basis. We impaired $31.8 million of goodwill and $1.9 million of intangible assets this quarter related to the telecom business acquired from Intel Corporation.

At this point, all of the goodwill related to the fiber optics business has been impaired and written up. Next, I will address the market and business environment and our strategy in the various sectors of our business. Let me first discuss our business in the fiber optics area. Although we have built a comprehensive product portfolio in fiber optics components and subsystems, the demand (inaudible) stopped pretty much across all the product lines in the last quarter as a result of the industry-wide slowdown related to the economic downturn. For our broadband fiber optics business, the revenue within the cable TV product line for Q1 was relatively flat compared to the preceding quarter. The capital spending for transmission products as reported from the U.S. service providers remained low in the December quarter. The projections from, say, Time Warner Cable, one of the largest multi-service operators, for the year 2009 showed that capital spending could be increased by 20% year-over-year for our business sector.

However, the visibility of demand from our customers remains very poor. The revenue from our broadcasting in the QAM transmission products should start contributing to our revenue within the next couple quarters. Those are the new product lines we just recently qualified with the customers. And we believe this will continue our gains in market share. Once capital spending resumes, we expect to be better positioned than ever for the growth in this segment. In the area of fiber (inaudible) home applications, we were awarded a major design win for GPON transceivers in the September quarter from a leading equipment OEM, and commenced a volume shipment in our fiscal Q1. The demand for the rest of the fiscal year '09 for this product line appears very healthy. Verizon is looking to deploy units to over 1 million homes in 2009. We are one of the only two qualified PON transceiver suppliers to their fiber-to-the-home program.

Furthermore, we have been (inaudible) our expertise in cable TV and fiber-to-the-home area, and gained multiple design wins in things called [RFOC], radio frequency over class. We believe that RFOC will be the future trend of (inaudible) of deployment for cable TV hybrid fiber coaxial network. The fiber will be brought all the way to the home or business. This could potentially be the ultimate architecture to penetrate to every home or businesses through the current HFC network. Our video transport and microwave photonics specialty product sector continues to perform well. Revenue remains flat on a sequential basis, but the gross margin remains at typical of 50%. In addition, a number of new program opportunities are under development and they represent significant upside for this product segment. In general, the broadband business units did a good job in managing comps and improving our present efficiency. We were able to achieve positive EBITDA even with a depressed revenue level.

For the telecom business, we have been in the process of transitioning to low cost product platforms for laser modules and transponders. However, the Q1 demand was substantially lower than our forecast, and the product pricing has eroded significantly. We expect to improve the gross margin of this product line as we manage through the inventory and fully transition to the new low cost product platforms. As a result of this transform transition and decision to use the (inaudible) on some products, we took charges on some inventory in this segment of fiber optics business. We continue to invest in our telecom business. We are leveraging the differentiating capability of our external cavity laser technology and the vertically integrated infrastructure to focus our engineering resources in a development of [Turbo SFP] product lines in applications of our DCL for next generation 40 and 100 gigabyte per second applications.

In the December quarter, we experienced a moderate decline in demand for our XENPAC transceivers and Parallel Optical Transmitter receiver product line. However, we saw an increase in demand for the connect cable product, which are the active cables with electrical connectors based on parallel optical transceivers on both ends of the fiber cable. We continue to lead this area through the introduction of a new product, a [QAD] data based cable offering an aggregated bandwidth of 40 gigabit per second. As our transmission bandwidth over our cables increases, it becomes more and more advantageous and cost effective to replace the copper cable with fiber.

In Q1, we extended our Vendor Managed Inventory, our VMI program, for a major customer to include the parallel optical transmitters and receivers. The VMI program improved the demand visibility, but it will continue to require more working capital and more, certainty, revenue recognition, especially in this market where every company is managing their inventory very closely. As I discussed earlier, while we pretty much have our cost structure in line for the broadband business, we are experiencing a industry-wide slowdown in demand in telecom and datacom businesses. We will continue to focus on improving our operational efficiencies and closely managing the working capital in this area. Now let me discuss the solar photovoltaics side of our business. First, the sunlight power business. The visibility in our satellite business is relatively good through the mid-of 2009.

In the December quarter, we signed a long-term purchase agreement for approximately $17 million with a major satellite integrator. In addition, we are finalizing the negotiation of a new purchase agreement with a major existing customer for their future demands totaling approximately $50 million. We expect to be so -- a primary supplier of the space solar (inaudible), solar panels for three out of the four maker aerospace companies in the U.S. Furthermore, we have been recently awarded a number of geosynchronous orbit satellite programs in the international markets. We continue to make great progress in the technology advancement in product commercialization of Inverted Metamorphic, or IMM, solar sells. We have demonstrated yet another world record performance of convergent efficiency of 33.7%.

In AM0 -- this is space illumination condition with a quadruple junction IMM solar cell design. This performance, together with ultra lightweight of IMM solar cells, will enable disruptive new application for (inaudible) high flying aircraft for (inaudible) and reconnaissance. We expect major program wins in the next several months. It is anticipated that efficiency levels of approximately 45% could be achieved when we adopt this design platform for use, and they are 500 to 1500 times more concentrated illumination for terrestrial applications. We expect to commercialize this technology through applications for space power first and then for terrestrial applications by the end of 2009. With our leading manufacturing initiatives in engineering improvement, our product yield and our operational efficiencies in our solar cell fab have improved significantly.

Along with a favorable currency conversion rate for germanium substantive purchases, our space business was back to profitability in Q1. Now let me turn the discussion to the terrestrial solar power business. The products we are offering include concentrated photovoltaic, or CPV components and systems. As a leading supplier of CPV components, including solar cells and the packaged solar cell receiver, we continued to expand our customer base in the December quarter. We have signed supply agreements with two major customers having CPV system product qualified for the Spanish market. However, the tech rate of CPV components, and therefore of revenue from CPV components, continues to be low, the challenge that our customers face in securing financing for their projects, given the situation of the global credit market. Our strategy continues to focus on the development of a broad customer base rather than any specific customer, so that awakens our benefit from the CPV ramp up no matter who wins and in what market. We firmly believe that CPV will become a valuable technology which will gain a significant portion of the solar photovoltaic market in the next couple of years.

We believe that Emcore will be the first Company to benefit from the ramp of the CPV business. We have the capacity to serve the needs up to 250 megawatts, and therefore we do not anticipate the need for additional CapEx spending for this line of business in the next couple of years. As for the CPV systems, we completed another installation of 50-kilowatt in China. All five installations in Spain, China and U.S. are operating in accordance to the specifications. The longest operating history is demonstrated by the installation in the US in December 2007. The development of our GEN III CPV systems product is progressing well. It looks very achievable to attain a module efficiency of 30% at a cost which would be very competitive with the future price of silicon and [synthium] products.

New modules are already being viewed for demonstration and certification purposes. We expect a production of the Generation III product to begin in the second half of 2009. All of our major future bids for solar utility projects will be based on our GEN III products. In mid-January, we were officially notified that Emcore was placed on the short list of a bid in a major southwestern public utility company for 50 to 80 megawatts. Working with our strategic partner, we are providing regulatory and permitting information for the site of our bid. We expect the final award to be in the next couple of months. In the meantime, we are commencing the discussion and finalization of a definitive agreement with our strategic partner, which is an international conglomerate.

The role of our partner in this project is to organize equity in project financing and to serve as owner/operator of the project. We will continue to use this business model for other project in the horizon. We are still hopeful that we can win the 150-megawatt project in Southern California in the future. The construction of this solar park project is scheduled to start in late 2009, and a renewable portfolio standard of [RTS] will take in effect by 2011 in many states.

Furthermore, we expect an acceleration of this renewable energy project under the current administration, since such projects serve to stimulate economic growth. These are clearly very exciting opportunities for the Company. We are also in active discussions with several potential international partners to license the process for CPV systems manufacturing in each of their local markets. This business arrangement allows us to penetrate the key international market with local advantages, allowing Emcore to grow its business internationally in a more cost effective and efficient fashion.

In summary, we continue to experience a slowdown of our fiber optics business and the whole industry in this macro-economic situation. We need to continue to improve our operational efficiency and closely manage working capital and to take rate for our products significantly below previous forecast. On the other hand, we have made significant improvement in our solar photovoltaics sector. The space satellite business is back to profitability with a stronger competitive position and good visibility. We continue to expend and secure our leading position in the CPV area. The new CPV system product development is on schedule and on the cost target. The new business opportunity with a southwestern utility company and the relationship with our strategic partner represent exciting opportunities for Emcore.

We are on the launching pad for what we believe could be a significant business growth starting in later part of 2009. However, we are still consuming cash from our operations. Cost reduction and the liquidity are clearly the focus of the management. We have undertaken several cost cutting initiatives intended to conserve cash, including recent reductions in force, the elimination of fiscal 2009 merit increases, a significant reduction in capital expenditures, and a greater emphasis on improving working capital management. We will continue to closely managing of business and cash. As John discussed already about initiatives in activities in the financing area already, I'm not going to repeat a word here. But we will be commencing management presentations this week, and targeting to close up financing by the end of March, early April time frame.

Although we have fairly good visibility and believe that our photovoltaics business will continue to grow, our fiber optics revenue is expected to be flat to 15% down on a sequential quarterly basis. With that, I will turn it over to Q&A.

Thank you. (Operator Instructions). Our first question will come from John Harmon with Needham & Company.

Hi, good morning.

Good morning, John.

A couple of questions, please. Maybe I didn't hear. I heard you give some revenue guidance for your fiber optic business, but I didn't hear you give any guidance for your photovoltaics business.

Yes, John, on the photovoltaics business, we have better visibility than fiber optics business -- probably the best we can expect to guide is a flat quarter over quarter. Our fiber optics business is -- there's a range, so we gave from minus 15% to flat on a sequential basis.

Okay. Thank you. Help me with the numbers, please. I don't know if you gave an EBITDA number, but it looks like your cash decreased about $5 million in the quarter. Certainly you're looking at revenues down a little bit, then, in the March quarter; and assuming you took all of your annual cost reductions -- $9 million a year -- that's a couple million a quarter -- so you'd still probably will be burning about three to four million a quarter after your cost reductions. Am I looking at the math correctly?

You are, John.

Yes, John, one asset in there is while working capital, we added the quarter total up to 70 to $75 million. That's our inventory level. And the quality after the reevaluation of this inventory is fairly good. They are sellable products that access inventory. So that's why we said we place a very strong emphasis on the working capital of management. We can convert a lot of the inventory into cash. We expect to do that in this quarter.

Thank you. But a follow-up to that one, please. You said you would have to add some inventory to participate in VMI programs in optical. How much inventory do you think that will mean?

The VMI inventory level is anywhere from 3 to $7 million. And that's in a way a one-time event. We have done that from major product lines by the end of September. So we added parallel optical transmitters and receivers into the VMI inventory. So in that bucket, probably the inventory level will increase by a couple million dollars. Just across the board, we have a very high inventory level, because in the contract manufacturing model, you give a forecast and they purchase the material on our behalf. When the demand drops all of a sudden, we don't -- we can't react right away, so a lot of inventory flow over to our shelf. So we've put a lot of effort analyzing that in this quarter, and next quarters we are going to be liquidating a lot of the inventory we have.

Okay. I will pass it on. Thank you.

As a reminder, that's star-one to ask a question. We will go next to Jed Dorsheimer with Canaccord Adams.

Hi, thanks. Just a couple of quick questions. The Banc of America credit line, is that -- are all of your assets actually tied to that credit facility? And then how will that work if you -- if and when you able to spin out the PV business? Will that have to be paid off before you can do that?

Jed, the majority of our assets are secured under the credit facility. And once we get to the point of actually shifting assets and spinning off the subsidiary, it will require concurrence or an agreement with Banc of America in terms of that course of action.

All right. Great. And then Hong, on the New Mexico project -- or bid, excuse me -- I think you had mentioned -- or I think the timeframe in terms of expectations was that the international partner will be signed by year end. I'm wondering, should you actually win that New Mexico project, how should we look at the -- since the partner hasn't been signed yet, how should we look at the financing of that business? Can you maybe help elaborate on how that business -- how that bid will actually be financed should you win it?

Yes. So the process has two to three steps. The first step is, they generated a short list based on their evaluation on a technical and financial and non-technical financial aspect. So we passed that and we are on the short list. And right now, the second step of the process is we have to provide the regulatory and permitting information for the sites we bid on, and they will be doing analysis of interconnect in the capacity of the grid. And so we expect that process to take another two, three months or so, and then there will be the final award. So for the project timing, it will probably be the later part of 2009. The reason, as I said already, is most of the utility companies, they have to meet the RTS renewable portfolio standard by 2011 in -- so this utility company has a need of a solar power in their renewable portfolio. And with our strategic partners, we had signed an agreement; but now with us on the short list (inaudible), we are commencing the discussion and the negotiation of a definitive agreement.

Again, as I said, they will be -- the company will be the owner/operator for this project. We are the project manager, we are the supplier of the photovoltaics. We will be doing operating maintenance service when the solar park is established. So certainly I think they have the capability of doing equity financing. They have the good credit to organize the project financing through their leverage.

So let me ask the question a little bit differently. Is this project contingent upon you signing this international partner? And then why is it taking much longer than you expected in terms of partnering with this international conglomerate?

Yes, this project was jointly bid by us in partnership with this partner. So it's in a way the joint bid between us and that partner. And why it takes so long is because, you know, everybody like to build upon some success. So really, when we got selected to be one of the supplier on the short list, that is characterized as the first step of the success. So and then you can have a strong advocates internally to push forward for that partnership and manage to the next level.

And how are you dealing with the lack of test statistics? I think you said that the longest project -- which I presume is the one on the Emcore facilities -- is December 2007. And the biggest push back that we seen with CPV is not the technology -- you know, questions around the technology -- it is that it lacks the statistics to actually wrap the financing around some of these projects. So how are you dealing with that in it terms of this particular New Mexico bid?

Yes, for the product statistics operating reliability performance, clearly, we are designing this system for operation for 20, 25 years. We can't do the reliability by just letting it run for 25 years. But there is no acceleration test defined by the international standard. So we are doing acceleration tests on other key components according to the international standard, that then you can from that can project an operation life and reliability performance. I think that apply to every technology, even (inaudible), solar panel -- I don't think they start deploy for application after 20 years of test in the test field.

Sure. I think said differently, lack of real world statistics, there is greater risk with acceleration lifetimes, and risk is usually offset by lower pricing. In the case of thin film when it was first introduced, it had to offer a lower price compared to crystallin. In the case of CPV, could you maybe elaborate on are you having to come in at a 30% discount to the other bids that are out there?

Yes, I'm not sure you need to go that far; but you need to give them a reason to use the CPV. And I think the CPV works extremely well in the southwestern states because of the direct normal radiance, and also the efficient use of the land -- you know, when we are in the process of bidding for multiple projects, start realizing more and more strongly that that the cost of land is not small factor in there. So I think all in all, we have to provide a situation that the CPV is very beneficial compared to other competing technology.

Got you. Then lastly, and then I will jump back in the queue, you announced that you're commencing a financing. Have you filed a shelf for that financing? Or will you be filing that today?

We have not filed it, but we are considering it.

Right.

The financing involves, for the most part, the investment in the subsidiary.

So how would that work? Could you maybe elaborate on how that would work, John?

It would be a private placement in a wholly -- what is currently a wholly-owned subsidiary of Emcore Corporation. That's the current structure that we are contemplating.

All right. Thank you.

As a final reminder, that's star-one to ask a question. We will take a follow up question from John Harmon with Needham & Company.

Hi there. You talked a bit about the credit crisis acting on your CPV business. I mean, I was wondering if you could maybe talk about just three topics in relation to the business. Maybe a little more information on credit. The competitive environment. There are certainly a number of companies out there that are developing cells and concentrators. And finally, how much price competition matters right now. You talked about your GEN III systems being more price competitive.

Yes. John, I think for the CPV, the sweet spot of the applications is for a commercial enlarged scale utility deployment. So I think most of those projects do need the financing. We know some of our customers who are buying the component from us gave us a schedule in the past that was more optimistic because they feel that they can have the financing arranged to start a project. And we see some of these opportunities get delayed, and from the information we got from our customers that they were not able to get a project financing for those. So that's -- I think once the credit market is back, I think that sector is going to be accelerated. Second question, we did take a notice some of the companies start -- did advertising, (inaudible) solar cells for concentrator applications. We have some competitors in there, but in a way it's good in that it keeps us motivated to continue to advance the technology.

But in this area, so the solar cells only account for about 15 to 20% of total system cost; and 39% conversion efficiency and 35% conversion efficiency made a huge difference. You know, you basically have six times more leverage for the performance. For the little premium, you'll pay on high efficiency solar cells. And when you sit down and do the calculation, even if people give you 34, 35% solar cell for free, it was still not the cost competitive compared to buying a high performance solar cells.

On the GEN III, yes, we are -- continue through the development in the GEN III and GEN II. From a design concept point of view, there is no significant difference. But a GEN III is more disciplined engineering effort to take the cost out of the GEN II design. In many ways, GEN II was designed for performance and time to market. We achieved that, but we overengineered in many areas. So that's why we took it back to the drawing board and had a GEN III; and GEN III will maintain a lot of features of GEN II and improve the module conversion efficiency from 27.5% to 30%. So that's a further improvement because of the optics design and the improvement of the solar cell performance. But the cost structure will be significantly lower than GEN II.

Thank you. And I have a follow-up to an answer you gave to another analyst's question. I think it was regarding a project in New Mexico. You said that you were going to manage the project and provide maintenance services. I guess my question is, it seems like you are getting a bit outside is of your [perview] and the things that you do very well. If you could comment on that, please.

The core competency for us, we realize, is for CPV -- it's the product design and manufacturing. But for a lot of the solar utility projects, you need to have a partner -- strong partner -- so that you don't have to go back to the bank every time and negotiate; and that's why this partnership with this strategic international company is very important to us because once we have this umbrella agreement, we can go after many projects. Because we are local, we have better visibility in connection into the local community. So we will be managing the project, namely, and we will be finding and hiring construction companies in to have the solar park set up. And once it's operational -- ongoing operation maintenance -- we may not to roll up the sleeve for ourself, but we will be finding some companies locally to do that. The behalf of the owner/operator in this case is our strategic partner.

Okay, understood. Thank you.

Thank you.

We have no other questions at this time. I would like to turn the conference back to Dr. Hong Hou for closing remarks.

Thank you. With that, let me make some closing remarks. We are off to a rough start in fiscal 2009. Our fiber optics business continues to experience slow demand and increasing price on product pricing, especially for our telecom product lines, due to the extremely challenging macro-economic environment. We have implemented several cost reduction initiatives in the past couple months and will continue to focus on increasing our operational efficiency in the working capital management. On the other hand, we are turning around our solar photovoltaics business. The space business sector is profitable again, and the development of cost-effective concentrator photovoltaics systems is on schedule for production in the second half of this year.

In addition, there has been an exciting development on our solar photovoltaics business. We are officially on the short list of a major southwestern utility company in starting project planning. We are also building some major business opportunities based on our market leading technology of Inverted Metamorphic triple and quadruple (inaudible) solar cells. I want to thank you for your attention today. We look forward to the next call.

This does conclude our call. We like to thank everyone for their participation. Have a great day.