EMCORE Corp (EMKR) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Emcore Corporation first-quarter fiscal 2010 earnings conference. (Operator Instructions). As a reminder today's call is being recorded. At this time I would like to turn the call over to Vic Allgeier, TTC Group. Please go ahead.

Thank you and good afternoon everyone. Yesterday after the close of markets Emcore released its fiscal 2010 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 press release and filings with the Securities and Exchange Commission. I will now turn the call over to John.

Thank you, Vic. And good afternoon everyone. Thank you for taking the time to participate in our call this afternoon. I will start by providing you with some highlights of our fiscal first-quarter operating results, review our backlog numbers, and conclude with an overview of our cash flow, balance sheet and liquidity measures.

Consolidated revenue for the fiscal fourth-quarter totaled $42.4 million, which is an increase of $1.9 million or 5% or $40.5 million reported in the immediately preceding fiscal 2009 fourth-quarter ended on September 30.

On a segment basis our Photovoltaics business accounted for $16.8 million or 40% of the Company's total revenue for the quarter, which represents an increase of approximately $400,000 or 3% from $16.4 million reported in the immediately preceding quarter, with the increase due primarily to a 14% increase in satellite solar power products revenue, offset by a decrease in terrestrial concentrated photovoltaic or CPV product revenues.

The fiber-optic segment accounted for $25.6 million or 60% of the Company's total revenue for the quarter, which represents an increase of $1.5 million or 6% from $24.1 million reported in the immediately preceding quarter, with the increase in revenue concentrated primarily in the broadband divisions, cable television, or CATV, productlines.

Moving on to gross profit and margins. On a GAAP basis the consolidated gross profit for the first quarter was $8 million, an improvement of $3.9 million or 97% from a $4.1 million gross profit reported in the immediately preceding quarter, and improvement of $6.4 million, or over 400%, when compared to the prior-year period.

This $8 million in gross profit represents the Company's best gross profit performance on a GAAP basis since the third quarter of fiscal 2008.

On a segment basis the first-quarter photovoltaic GAAP gross margin was 22.1%, which is a decrease from the 28.5% gross margin reported in the preceding quarter, but a meaningful increase from the 13.6% gross margin reported in the prior-year period.

After excluding certain adjustments as set forth in the non-GAAP tables contained in the earnings press release, the non-GAAP first-quarter photovoltaics gross margin of 22.1% improved when compared to the 10.9% non-GAAP gross margin in the preceding quarter, and the 14.3% non-GAAP gross margin in the prior-year period.

As set forth in the non-GAAP tables, the Company reversed $2.9 million in inventory reserves in the preceding September quarter that were associated with our legacy CPV products that we sold during that quarter.

The first-quarter Fiber optics GAAP gross margin was 16.7%, which represents a significant improvement from a negative 2.5% gross margin reported in the preceding quarter, and a negative 1.1% gross margin reported in the prior-year period.

The improvement in the Fiber optics gross margin was due to improved margins across the majority of the Company's Fiber optics productline, as well as lower inventory excess and obsolescence charges when compared to the preceding and prior-year quarters.

On a GAAP basis the consolidated net loss for the first quarter was $13.6 million, a slight increase from a net loss of $13.5 million reported in the preceding quarter, but a dramatic improvement from the net loss of $53.4 million reported in the prior-year period.

After excluding certain non-cash and other adjustments, including legal expenses associated with patent litigation, non-cash stock-based compensation expense from the surrender of stock options, and non-cash costs associated with the accounting treatment of the $25 million equity line of credit that we entered into October 1, all of which are set forth in the non-GAAP tables, the first-quarter consolidated non-GAAP net loss was $7.1 million, which represents a $2 million improvement from the $9.1 million net loss reported in the preceding quarter.

On a per-share basis the first-quarter GAAP net loss per share was $0.17, which was unchanged from the $0.17 net loss per share reported in the preceding quarter. On a non-GAAP basis the first-quarter net loss was $0.09, an improvement of $0.02 per share from the $0.11 non-GAAP loss per share reported in the preceding quarter.

Now on to order backlog. As of September 31, the Company had a consolidated order backlog of approximately $61.2 million, which is a $1.4 million or 2% increase from the $62.6 million order backlog reported as of the end of the preceding quarter ended on September 30.

On a segment basis the quarter-end photovoltaics order backlog totaled $42.3 million, a $5.4 million or 11% decrease from $47.7 million reported as of the end of the preceding quarter, with the decrease due entirely to the rescheduling of a portion of a major customer's shipments beyond the Company's 12 month backlog reporting horizon.

Over the last 12 months Emcore has received approximately $120 million in firm orders and purchase agreements for satellite solar products and service contracts, many of which are multiyear in duration.

The quarter-end Fiber optics order backlog totaled $18.9 million, which represents a $4 million or 26% increase from $14.9 million reported as of the end of the preceding quarter, with the increase due to a fairly broad-based demand across both customers and productlines. This is the third consecutive quarter-to-quarter increase in order backlog for our Fiber optics business segment.

Emcore's order backlog is defined as purchase orders, or supply agreements, accepted by the Company with expected product delivery and/or services to be performed within the subsequent 12 months.

Moving onto cash flow. During the three months ended December 31, the Company consumed $1.2 million in cash from operations, and over the last three quarters consumed less than $200,000 in cash from operations, due primarily to improved working capital management.

The first quarter represents the fourth consecutive quarter that the Company has generated cash from the reduction of inventory levels. And during the last 12 months the Company has monetized approximately $25.5 million of inventory and generated close to $17 million in cash from lowering our accounts receivable balances. And we achieved positive cash flow from operations for the quarters ended June 30 and September 30 of last year.

Moving onto the balance sheet and liquidity. As of December 31, cash, cash equivalents and restricted cash totaled approximately $16.5 million, with net working capital totaling $32 million.

The Company continues to maintain a $14 million working capital credit facility with Bank of America. And as previously disclosed on October 1, we closed a two-year $25 million committed equity line of credit with the Commerce Court Small Cap Value Fund, which to date we have not utilized.

In addition, the Company continues to evaluate its capital requirements and alternative sources of capital, including a potentially larger bank credit facility.

With respect to the separation of our Fiber optics and Photovoltaic businesses, the Company announced on February 3 that it has entered into an agreement to sell 60% of the Fiber optics business to, and enter into a joint venture with, the Tangshan Caofeidian Investment Corporation that Hong will address in further detail in his update.

For the current quarter ended March 31, we expect consolidated revenue to increase on a sequential basis to a range of $45 million to $47 million, with increases expected in both the Photovoltaic and Fiber optics segments.

With that, I would turn the call over to Hong for his operational and strategic update, as well as an overview of the Tanshan transaction.

Thanks, John. Good afternoon everybody. John has just provided a detailed financial review of the Q1 results. Now let me provide some updates on our operations and strategy.

Q1 of fiscal 2010 marks the continued improvement of our business performance for both our Photovoltaic and Fiber optics segments. We finished the December quarter with a greater than 5% sequential improvement in revenue, significantly improved gross margins totaling approximately 19% on a consolidated basis, and much improved visibility of our Fiber optics business through a significant quarter-to-quarter increase in the backlog.

Recently we entered into a money market agreement to separate our Fiber optics and solar businesses by carving out the Fiber optics business to form a joint venture with a nonoperating investment company in China. I will elaborate more on the strategic rationale for this transaction later in my overview.

First, let me provide you with an operations update on the Fiber optics business segment. For our broadband Fiber optics business the revenue from the cable TV productline in the December quarter increased over 25% sequentially compared to the immediate preceding quarter, while the revenue from the low-margin fiber-to-the-home productline declined. This favorable shift in product mix has resulted in a substantial improvement of the gross margin to 36% for the consolidated broadband business.

Visibility in the booking activity continue to be strong. The market drivers for our cable TV products are from primarily two aspects. The first, the infrastructure operates for the existing cable plant to 1 gigahertz. The second, the new deployment of a backbone infrastructure with an increased digital overlay to serve small and midsize businesses.

Based on the recent industry research reports and customer feedback, we believe that this sector of the business will continue to experience robust growth throughout the rest of the year.

We continue to introduce new products to our customers, including up to 80 channels QAM transmitters for digital overlay over the cable TV hybrid fiber-coaxial infrastructures, and radio frequency over a glass product to bridge the last mile to the home and businesses.

Our vertically integrated infrastructure and a comprehensive intellectual property profile continue to provide us with a competitive differentiator in the area of our business.

Our Satcom and Specialty photonics business includes a suite of new technology and product that is terahertz generation and detection technology, radio frequency to microwave system links, variable optical delay lines for remote sensing and [intainer], and key modulator components for fiber-optic gyros.

Many products in our portfolio provide unique technical solutions to the defense industry and military applications. Over the last year we have secured several long-term contracts that are expected to last for the next 5 to 10 years. Although the Satcom and Specialty photonics business is somewhat fragmented across customer base, the gross margin are typically in a range of 40% to 60%.

And we have several strong business opportunities in the pipeline as well.

For the telecom business we have seen a significant rebound in demand for tunable transponders and components. However, the competition in this area is still fierce due to the industry inventory levels and supply demand imbalance. Our effort to monetize excess inventories in this productline has for the most part been completed. In line with continuing to make progress in reducing the cost of this productlines, we expect continued incremental improvement in the gross margins of the telecom product and significantly lower inventory risks.

The tunable XFP has been widely acknowledged as the next-generation standard for 10 gigabit transport. It provides high density and the low power advantage compared to the 300 pin transponder products. According to the feedback that we have received from multiple customers we have provided samples to, our product, which utilize external cavity laser technology, is the only product in the industry that meets the 300 pin transponder performance specifications.

In addition, we are qualifying a miniature version of the external cavity laser tunable TOSA for next-generation low-cost 10 gigabit, 40 gigabit, and also 100 gigabit per second applications. We expect that the final tunable TOSA and XFP transceiver products, utilizing internally developed laser game chip and Mach-Zehnder modulators, will be a disruptive productline that will serve as the basis of significant revenue growth in the near future.

In our Datacom productlines the demand for parallel optic transmitters and receivers has ramped up significantly in the last quarter. This productline, utilizing vertical cavity surface emitting lasers and photodetector arrays, provide aggregated bandwidth of 40 to 80 gigabit per second in one link. Our new product, a quad data rate active optical cable offering aggregated bandwidth of 40 gigabit is fully qualified by multiple customers.

At the transmission bandwidth or cable increases, it becomes more and more advantageous and cost effective to replace copper cables with fiber. The demand for 10 gigabit Ethernet products in the last quarter have also increased. Throughout the last couple of quarters the inventory inventories throughout entire supply chain have played down to a minimum level, and we are now focusing on long term planning and supplier management to reduce the fulfillment long lead times.

Now let me discuss the solar photovoltaic side of our business. Our business in satellite solar power productlines experienced continued growth. The revenue in the December quarter for our satellite solar cell solar panels increased 12% sequentially.

We have a great revenue visibility with a total booking in the calendar year of 2009, as John talked about, totaling approximately $120 million in new orders, and with the contact options accounting for an additional $33 million to be fulfilled in the next three years.

Although our gross margins declined by 5% on a sequential quarterly basis last quarter due to an unfavorable product mix, we believe that profitability of our space photovoltaics business is very sustainable. The selling price has increased across several recent long-term purchase agreements, and cost has decreased through engineering improvements and improved supply-chain management.

We continue to be very proud of our technology heritage and outstanding reliability record of supporting over 70 space missions that have been launched and put into orbit over the last seven years, with a zero on orbit failures.

The recent solar panel programs award allow us to improve utilization of a solar panel manufacturing facility, thereby lowering our fixed cost per unit, and allowing our solar panel product to be more cost competitive. This will in turn provide additional opportunities for the Company to increase our marketshare in this productline.

Emcore is an established leading provider of the space, power for commercial satellite programs. However, we believe that there are tremendous opportunities for us in governmental and the defense programs, which we have a very minimal penetration at this point. While we will continue to protect and expand our marketshare in a commercial sector, we will invest significant resources to develop new business opportunities in the government and defense area. This represents a very obtainable upside to our current business.

Now let me turn to our terrestrial solar power business. The products we are offering in this area, including concentrator photovoltaic, our CPV components and systems. We have completed the design, and in the process of a certification of our Gen-III CPV system. We believe that the cost structure of this design is very competitive compared to the competing technologies. And we expect the competitiveness of this design will be further enhanced once we ramp to higher production volumes.

We are currently ramping up the manufacturing capacity in our China facility to package the solar cells and manufacture the CPV modules. Our Gen-III pilot programs in our current backlog will be fulfilled with the CPV modules made in our China factory.

We have been focusing on terrestrial solar business development efforts in the last quarter on solar power opportunities in new emerging markets, particularly in China. We believe that we may have several advantages due to the high module efficiency and the low capital requirement to build up significant capacity. As for developing market acceptance and product cost competitiveness, we are aggressively pursuing several joint venture partnership opportunities in China to serve as a gateway into the country's new favorable policy on renewable energy.

We believe that we are well-positioned to serve a relatively near-term opportunity to supply our Gen-III modules for a sizable utility scale project.

We have implemented a new marketing strategy that will allow us to focus on our traditional core competencies in technology innovation, systems design and engineering, while retaining our unique competitive advantage as the only vertically integrated competitor in the CTV market.

We will continue to develop and procure -- and pursue partnership opportunity and other ventures with major companies, both domestically and internationally to drive the deployment of our terrestrial CPV components and systems.

As a result of the various cost-cutting initiatives that we implemented over the course of the last year, we believe that our recurring operating expenses on a consolidated basis are now largely in line. However, the legal expenses in the December quarter were extraordinarily high, as we were funding two trials involving patent litigation cases, along with the professional service charges related to the pending transaction of the Fiber optics joint venture.

Now that we have concluded the trials and the majority of litigation expenses are now behind us, we will apply the same rigor in cost control and overhead reduction in the future.

Now let me discuss the transaction details, strategic rationale and financial benefits of the recent announcement we entered into -- the recent agreement we entered into rather, involving the sales of a majority interest in the majority of our fiber optics business in the corresponding formation of a joint venture.

On February 3, just last week, we entered into a share purchase agreement to create a joint venture with Tangshan Caofeidian Investment Corporation, or we call TCIC for short. They are original Chinese government-owned investment company that is focused on developing a high-tech and infrastructure industry in Caofeidian industrial zone, in Tangshan City, in Hebei Province of China, which is approximately 150 miles southeast of Beijing.

The agreement provides for TCIC to purchase a 60% interest in Emcore's Fiber optics business, which includes the telecom, enterprise, cable TV, fiber-to-the-premises and video transport productlines for approximately $27.8 million in cash. However, the satellite communication and Specialty photonics Fiber optics productlines will remain with Emcore for export control considerations.

Post closing this business will be operated as a privately held joint venture company. The new joint venture entity will be named Emcore Fiber optics Ltd., and will be registered in Hong Kong as a holding company, under which there will be two primary operating entities, one in the US and the other in China.

Emcore's Executive Chairman and Chairman of the Board, Mr. Reuben Richards, will resign his position as Executive Chairman, but remain as the Chairman of the Board of Emcore, and will assume the role of CEO for the joint venture. In addition, certain other Emcore senior executives and all the employees currently working for the transfered productlines will be offered positions with EFO, or Emcore Fiber optics.

The US operating entity of the joint venture will be formed through the current Fiber optics business unit located in the US. And the China operating entity will be based on the current Emcore operation located in China, but will be relocated to Tangshan Caofeidian industrial zone from the current location in Langfang.

This structure will provide the most seamless transition for our customers, suppliers and employees. Post closing, Emcore's business will be comprised of the satellite and terrestrial solar business and satellite communications and Specialty photonics Fiber optics productlines.

The agreement with Tangshan Caofeidian Investment Corporation also provides for them to provide the joint venture with additional funding of $27 million, and Emcore to provide $3 million after the close -- after closing to fund the joint venture's ongoing operations.

Furthermore, TCIC has committed to providing additional funding to support joint ventures of future strategic growth through acquisitions. Over the next several years the joint venture will focus on developing a high volume, low cost manufacturing infrastructure in China, as well as a local customer support organization to better serve the expanding customer base in China and worldwide.

Now let me discuss the strategic rationale for this pending transaction. Due to significant differences in the industry dynamics, and our present strategy between the Fiber optics and Photovoltaic businesses, along with the limited operations -- operational synergies, we believe that Emcore's shareholders will be better served if these businesses are operated as two separate business units.

This strategy was put in motion and announced publicly more than two years ago by our Board of Directors. The consummation of this transaction will result in the completion of this transformational restructuring of the Company.

This transaction essentially represented [rate] capitalization of the Company. Emcore will receive an approximately $27.8 million cash infusion, with an additional $30 million dedicated towards the financing of the joint venture Fiber optics business.

Emcore will utilize its cash infusion to support the growth of our solar business. This transaction creates two well-capitalized industry-leading companies within their respective industries, and allow management bandwidth and capital resources necessary to focus on growing each of its businesses.

After the transaction Emcore will become an almost pure play vertically integrated solar photovoltaic company with three product areas, space, solar cell and solar panels, concentrated photovoltaics, or CVT products, for terrestrial powers, and the the specialty Satcom products. Post transaction the annualized revenue run rate for this productline will be approximately $90 million to $100 million. We believe that we can be cash flow positive from day one.

With a relatively strong balance sheet, with the $27.8 million cash added to the balance sheet and potential upside from our joint venture equity interest down the road, the remaining Emcore will have near-term liquidity security to facilitate our long-term growth opportunities.

Additional capital from any future liquidity event related to the Fiber optics joint venture can be utilized to grow our CPV business on a non-dilutive basis to Emcore shareholders.

In addition to the financial benefits, this separation will allow Emcore management to focus on growing its photovoltaics and defense homeland security businesses. Emcore will continue to grow its revenue around its core space power business in addition to two other strong growth segments remains, as government and defense programs based on ultra-high efficiency solar cells, satellite communication systems and Specialty photonics products, and the second area currently is terrestrial CPV.

The government and defense products segment usually deliver high profit margin, while the CPV segment provides much greater growth opportunities. In conjunction with the establishment of the joint venture, Emcore and the Tangshan Caofeidian Investment Company will enter into a supplement -- also enter into a supplement agreement to -- pursuant to which Emcore agrees to establish its China terrestrial CPV manufacturing operations in Caofeidian industry zone.

The agreement includes a commitment by TCIC to provide Emcore with a $3.3 million loan, tax and rent incentives, and assistance in developing Emcore solar power business in China.

Moving on, I would like to make some comments to address potential concerns from a customers government programs. The business and technology included in this transaction are Fiber optics components used in a commercial telecom and datacomm, broadband communication applications. Other technologies, articles and software included in this transaction are covered by ECC and classification for export control, and none is (inaudible).

All solar cell products, satellite communication components and systems, as well as the Specialty photonics products are not included in this transaction, and will remain at Emcore Corporation. Emcore will implement a comprehensive technology control plan to ensure that the core photovoltaic and Specialty photonics technologies and (inaudible) integrity remaining at Emcore will be strictly protected.

Furthermore, Emcore will seek relevant government approvals, and this transaction will not be consummated until this approval and licenses have been received.

Another clarification that I would like to make is that this transaction should be seamless to Emcore shareholders. Our shareholders will retain their shares in Emcore with the joint venture interest represented through Emcore's 40% ownership in the joint venture.

Now let me discuss the benefits of this transaction to our Fiber optics business. We have a good -- a comprehensive infrastructure, strong product portfolio and market position over the past 12 years through organic growth and acquisitions. We are recognized as one of the leading players in the industry, with leading technologies and products in many areas. However, our Fiber optics business is somewhat subscale in size to compete effectively in this commodity market due to the lack of operating leverage.

Furthermore, we have been relatively weak in penetrating into China's rapidly growing market, and our cost structure is not as competitive in certain product areas. In order to grow this business through internal effort and external acquisition, we need substantial investment to secure a leading position in this area.

On the other hand, our CPV business is at the brink of significant growth. We will likely need significant working capital over the next one to two years to ramp this business, particularly in a CPV area. Today we do not have the sufficient capital resources and management bandwidth to capture all this opportunity in both the Fiber optics and the solar business.

Shortly after the closing of this transaction, the Fiber optics joint venture company will have $20 million on their balance sheet, with a commitment for another $10 million in funding a year later. This capital infusion will allow the fiber business to accelerate the introduction of new products to market, and aggressively expanding its business penetration in major OEM customers in China.

For instance, we have commenced engagement with a leading telecom equipment manufacturer at commercial engineering and executive levels recently. This is a leading OEM customer in China. Currently we are in the process of developing and qualifying nine productlines for an aggregate business opportunity of over $30 million annually.

This pending transaction was viewed very favorably by this customer. This transaction should result in a seamless transition with our customers. With exception of the name change impacting vendor and accounts payable -- account payable accounts, everything else should remain essentially the same. All contact information and employees interacting at the commercial, technical fulfillment and management levels will remain.

In future years we will work with our customers closely to plan and execute the transition of production from current sites to the JV's future Center of Excellence to be established in Tangshan Caofeidian.

Another matter that I would like to convey to our employees and the local community is that this transaction provides the required capital for the mid-term and long-term growth of both operating segments of the Emcore business. All the functions currently in the US will continue to stay in the US after this transaction. Therefore, we do not expect any impact on the employment situation for any current Emcore employees due to this transaction.

Based on the current projection we expect to add jobs in the US primarily in the area of engineering and production of our solar business. This transaction will be seamless to employees in terms of their job function and job security.

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

(Operator Instructions). Salomon Kamalodine, B. Riley.

You may have touched upon this briefly on the call, and I may have missed it, but can you just comment on the ultimate structure for the deal in choosing a 60/40 split for the optical components piece of the business? Just wondering what some of the motivations were there, and what the context was for choosing that structure as supposed to an entire divestitures of the unit?

That is a good question. There are two primary reasons. One is from their side. The investment company in Tangshan Caofeidian is not an operating entity. That means they don't have the executives, technical expertise, operation personnel to take over this asset and business and operate going forward. So they expect Emcore to have skin in the game and have to retain the key employees' help with a seamless transition. So that is their motivation from their side.

The motivation from Emcore's side is right now is a great opportunity for us to form this joint venture to tap into the market opportunity in China, tap into the low cost infrastructure for manufacturing, and in some sense the financing platform in that market. We believe we retain 40% interest, and the value of our 40% interest will grow significantly over time, as John and I talked about. And those future liquidity events of those interest will create hopefully tremendous financial resource for us to grow our solar business. So it is a mutually beneficial arrangement.

Can you provide a little bit of color around the Chinese partner in this venture? Is this unit going to be tacked upon other businesses that are in and around this space, or what is the Chinese partner going to do with this asset longer-term, and what does that imply for your 40%? Thanks.

So this investment company is not a well-known professional investment. Again this is the local regional government-owned investment firm, primarily for economic development region. Caofeidian is a special industry zone of Tangshan City. They have received over $26 billion in the last two decades to develop complete infrastructure in this new area, as I said, about 150 miles southeast of Beijing.

So they are known as the hub for energy, fossil fuel, and also chemical and heavy industry. So they wanted to balance the industry mix by attracting the high-tech industry into their industry zone.

The top three investment focus for them are the optoelectronics, solid-state lighting and photovoltaics. So Emcore, we have two of the three of their top priorities. That is why this makes perfect sense for them. And by forming the joint venture of the Fiber optics side, they also have agreed to provide all kind of incentives to attract us to relocate our CPV manufacturing currently in China, Langfang to Tangshan.

And you know, the economic development arm of the government help us to develop business in the CPV solar power area. As you know, solar renewable energy is pretty much a policy-driven business. The government leading the effort to develop the business opportunity for us should be very effective.

Okay, got it. Then just one final question. Again, just related to this transaction. I can understand the buyer's motivations here, but can you comment on the degree of interest that you may or may not have had for this asset from some of the more obvious potential buyers, meaning the other publicly traded companies in the US? Thanks.

I can't say anything specific, but our criteria in evaluating our different options and opportunities is what option create the best shareholders value. Secondly, from our past experience we know that how difficult the integration can be. So we wanted to structure it in such a way that it would create a most seamless transition to the customers, to the business, to the employees and suppliers. So this transaction really provide all the criteria.

[Brian Clifford], [Clifford Capital].

A couple of my questions were answered already, but I did want to see if you could flesh out -- I heard you mention some of the -- on the CPV side, the potential partnerships in China. I thought you I heard you say utility scale type orders. I just wondered if you can flesh that out a bit. And I'm not sure you can get into detail, but just tell us a little bit more about what is going on there, and the timing and maybe size relative to your backlog?

Unfortunately I can't go too specific on that. But I think that usually the process for this is -- you know, China, they have a lot of potential. Last year the installation has been very minimal for the solar installations, but now all the utility companies are pretty much state-owned utility companies, and they are developing the program opportunities.

So the first step is a demonstration of the technology, because the CPV, the emerging technology, they wanted to have a demo experience in roughly the size ranging from 1 to 5 megawatts. That would be followed by much larger opportunities six months later. So we will keep you updated once we make more progress in this area.

(Operator Instructions). [Michael Entrader], [Net Source Asset Management].

The first question was the order backlog for PV dropped by $5.4 million due to delays beyond the 12-month time horizon that you use to qualify the backlog orders. I wanted to know how much can that number grow due to delays within the backlog? And is there any possibility or expectation of a decrease in the backlog orders due to order cancellations, either from economic conditions or otherwise?

The order backlog we reported is for the coming 12 months. In many ways that we've had the luxury for the space solar business that the customer provides that long a forecast for us. So that does not affect the immediate quarter's revenue, because we have those already scheduled.

Plus those changes happen all the time. You can schedule in and out once they have one satellite program pulled in, they can pull in $4 million or $5 million easily. So you see the dynamics of the Fiber optics side, pretty much the entire backlog even for the next -- reported for the next 12 months, the majority of it anyway will be fulfilled in the coming quarter.

But the solar backlog for the next 12 months, we see no drop in the immediate quarter. As a matter of fact, as John already gave the guidance, we are guiding approximately 10% of sequential growth for the March quarter compared to the December quarter.

And so -- I think you have the possibility to schedule out or has a very good possibility to schedule back in again. But those are the multiyear purchase contracts with a firm commitment. So the customers, they do have the flexibility to schedule in or out.

Thank you for that. One other question having to do with the sale of the Fiber optics unit. How will the SG&A expenses be affected by the sale of the Fiber optics unit? And how long do you think it is going to take for that to precipitate through to actually affect how the numbers look?

We will provide the detailed numbers over time, but at a high level you can expect that the executive team, as you heard already, will be splitting between these two businesses. So this certain business is scalable -- certain expenses are scalable, but some of the expenses, like public reporting, all this auditing, and compliance costs associated with that may not be as scalable. But in general it is going to be reduced pretty significantly. So we will provide more specific guidance as we are making progress and closer to the close of this transaction.

Thank you very much. I appreciate your --

Jay Cooper, Loeb Partners Corp.

Would you have a projection -- a long-term projection of how important the concentrated PV will be in the Chinese market overall? And possibly how any vendors there might be in China supplying into that market?

That is a very good question. So far I would say we have not covered the entire potential customer base. We know that the CPV is getting more and more attention in China. As a matter of fact, they have formed a consortium association at the national level. I think the CPV in many sense fit into the sourcing profile of China, because they wanted to see what is the latest, greatest in terms of the performance in technology, and they specifically like the aspect that it doesn't need a whole lot of capital to ramp up, to build up a high capacity. So so those are the selling points.

I think if I had to estimate, it will probably be 5% to 10% of the total solar installation in the future be in the CPV mix of the CPV flavor.

(Operator Instructions). There are no further questions at this time. I would like to turn the call back over to management for any additional or closing remarks.

As you have heard by now, we have accomplished a lot in the past quarter in achieving our operations and strategic objectives. In addition to bringing this transaction to closure, the executive management is shifting their focus on the execution of our business plan.

As for the business outlook, we are gaining a much better visibility on our business, especially in the Fiber optics area recently. We expect the consolidated revenue to be in the range of $45 million to $47 million for the March quarter, which represents an approximately 10% sequential growth, with the increases in both the Photovoltaic and Fiber optics segments.

The Fiber optics transaction is expected to close within 90 days, pending relevant government and regulatory approvals and approvals of the Board of Directors of both parties.

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

Thank you very much. Again, that does conclude today's conference.