EMCORE Corp (EMKR) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the EMCORE Corporation first quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. However, later we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to your host for today, Mr. Victor Allgeier. Sir, you may begin.

Thank you, and good afternoon, everyone. Before we begin we would like to remind you that the information provided herein may include forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Exchange Act of 1934. These forward-looking statements are largely based on our current expectations and projections about future events and financial trends affecting the financial condition of our business.

Such forward-looking statements include in particular projections about future results, statements about our plans, strategies, business prospects, changes in trends in our business and the markets in which we operate. Management cautions that these forward-looking statements relate to future events or future financial performance and are subject to business, economic and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance or achievements of our business or our industry to be materially different from those expressed or implied by any forward-looking statements.

Neither management nor any other person assumes responsibility for the accuracy or completeness of the forward-looking statements. We caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in our filings with the US Securities and Exchange Commission that are available on the SEC website at www.sec.gov, including the sections entitled Risk Factors in our annual report on Form 10-K and our quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements to conform such statements to actual results or to changes in our expectations except as required by applicable law or regulation.

With us today from EMCORE are Dr. Hong Hou, President and Chief Executive Officer, and Mark Weinswig, Chief Financial Officer. Mark will review the financial results and Hong will discuss business highlights before we open the call up to questions. I will now turn the call over to Mark.

Thank you, Vic, and good afternoon, everyone. Today I'm going to focus my discussion on our first fiscal quarter operating results and our balance sheet. Consolidated revenue for the first fiscal quarter totaled $49.3 million, which is an increase of $1.8 million or 4% over the previous quarter. The increase was primarily due to higher solar revenue driven by increased shipments. Our Q1 revenue guidance was $49 million to $51 million.

On a segment basis Photovoltaics business accounted for $19.6 million or 40% of the Company's total revenue. This represents a $2.2 million or 13% increase from the prior quarter. This was the first quarter with a full impact of the previous sale of the terrestrial systems business product lines reflected. As discussed previously in the fourth quarter, EMCORE sold assets relating to the terrestrial systems product lines to Suncore as part of our realignment strategy.

As we have said previously, while we believe in the long-term growth prospects of the space solar power business, our revenues in any given quarter may be a bit lumpy. The Fiber Optics segment accounted for $29.6 million or 60% of the Company's total revenue. This represents a decrease of $4.4 million or are 1% from the prior quarter. Hong will discuss the outlook for the Fiber Optics business later in the call.

Consolidated gross margin was 22.2%, a 12.5 percentage point increase from the prior quarter, primarily attributable to higher Fiber Optics segment and Photovoltaics segment margins. On a segment basis, Photovoltaics gross margin increased 8 percentage points to 30.5%, driven by higher revenue levels and the sale of the lower margin terrestrial systems product lines. We were able to reach gross margins of 30% this quarter, which is in our target range.

Fiber Optics gross margin was 16.7%, a 14 percentage point increase higher are than the [prior] quarter, primarily from E&O charges -- excess and obsolete -- and yield variances associated with our manufacturing transfer from California to China and Thailand. This includes the impact of negative gross margins of over $2 million and our tuneable XFP product line through the ramp up.

Excluding the TXFP, our gross margin would have been closer to our target range of more than 25%. We expect our gross margins in the Fiber Optics segment to improve in future quarters as we complete the ramp up of our new product line at our CM and the transfer of our manufacturing of our internal -- to our internal manufacturing resources overseas. We believe that during this quarter EMCORE will be complete with its rebuild effort.

Total operating expenses for R&D and SG&A were $12.3 million, excluding the flood related charges and recoveries, gain on sale of assets, legal settlements and other items. The decrease in our SG&A operating expenses from the prior quarter was primarily due to severance related realignment costs in Q4 and lower expenses associated with the terrestrial solar product lines that were sold in September of 2012. R&D increased from the prior quarter as we repositioned resources back to product development efforts.

On a GAAP basis, the consolidated net income for the first quarter was $2.8 million, $9.4 million better than the prior quarter. We will continue to drive our results in future quarters as we ramp up our Fiber Optics manufacturing lines overseas, reduce our R&D levels in certain areas and reduce overhead costs. Our GAAP net income per basic and diluted share was $0.11.

Our non-GAAP net income after excluding certain adjustments, all of which are set forth in the non-GAAP tables included in today's release, was income of $0.1 million versus a $6.6 million loss in the prior quarter. Please note that we have included additional information regarding amortization, stock comp and other items in today's release to provide further clarity on our results.

This is the first quarter that the Company has been both GAAP and non-GAAP profitable. We are very pleased by this achievement. Now on to our order backlog, which we define as purchase orders or supply agreements accepted by the Company with expected product delivery and/or services and revenue to be recognized within the next 12 months. At December 31, the Company had a solar order backlog for approximately $35.3 million.

Moving on to the balance sheet. At the end of December the Company's cash, cash equivalents and restricted cash balance was $12.9 million. Our net cash increased $3.8 million from the prior quarter, primarily due to $9.5 million of proceeds from the stock sale on October 2012, partially offset by increased inventory levels to meet the ramp up in production and lower accounts payable levels.

Regarding the insurance recovery for the flood damage, in September we completed the agreement with our contract manufacturer relating to consigned inventory and equipment damaged in October 2011. We have finalized an agreement that is expected to yield a total of $23 million in cash proceeds and the elimination of liabilities. Gains will be recognized on the income statement upon the receipt or title transfer, which we anticipate to occur by March 31, 2013.

During the fourth quarter we received $4 million of cash receipts, and during the first quarter we he eliminated $4.2 million of obligations. In March we expect additional receipts and or the elimination of liability obligations of roughly $15 million per the agreement.

Over the past few months we have made significant strides in improving the business structure, as evidenced by our move to profitability. We look forward to showing further progress as we continue to drive execution. With that, I will turn the call over to Hong, who will discuss the Company's strategic and operating initiatives and provide revenue guidance for the second quarter.

Thank you, Mark. Good afternoon, everyone. As Mark discussed, we achieved consolidated revenues of $49.3 million, which represents a 4% increase sequentially from $47.5 million in the September quarter. The revenue from the Fiber Optics segment was roughly flat, while the revenue from the solar business increased 13% sequentially from $17.4 million to $19.6 million.

The gross margin for both the solar Photovoltaics and the broadband Fiber Optics business improved significantly to approximately 30%, and overall operating expenses were well under control thanks to the business realignment completed in the September quarter. The net profit for the quarter was $2.8 million or approximately $0.11 per share are. This demonstrates the positive outcome of restructuring and the flood recovery that the Company has been focusing on over the last year. This is clearly a very significant milestone for the Company.

Now let me give you an update on our business. First I will start with the solar Photovoltaics business segment. Our revenue in the space Photovoltaics [first quarter] demonstrated a substantial sequential increase due to strong demand in space programs. With some CapEx investment early in the year, manufacturing process was further improved and we achieved a tangible benefit of our initiatives to focus on our personal efficiency and increased product yield.

As a result, the gross profit margin for this division recovered to over 30% level. With divestiture of the CPV systems business, the operating expenses was reduced by more than $2 million per quarter. This benefit from the restructuring is projected to be sustainable going forward and will serve as the baseline for us as we continue to drive profitability.

The operating income for this business segment was more than $3 million in the December quarter on a revenue of $19.6 million, which is the [among the best results] that this business has been able to achieve in its history. The order backlog for solar business as of December 31 showed a sequential decline $8 million to $35.3 million. We have, however, received a notice of award from an international customer recently with a total contract value in excess of $20 million. We are currently in the final stages of executing this contract, which will significantly add to our order backlog. Several other smaller value new awards are also expected in the near term.

We have a number of government-sponsored research programs, which are targeting high efficiency and lighter weight solar cells for spacecraft applications. We have made great progress in advancing the technology and product performance and believe that we hold a significant lead over our closest competitor in several key technology areas. We currently hold the world record for space solar cell efficiency with our IMM design with metric values in excess of 35%. We plan to introduce this new is solar cell to [wallens] manufacturing over the next couple years.

In summary, our position is well established in the industry, and our production infrastructure is well capitalized. The is solar business is expected to continue to generate nice operating profit and positive cash flow going forward. Our forecasted FY 2013 revenue is expected to be at a record level and our profitability currently projected to show continued improvements throughout the year.

Now let me discuss the market position and business outlook in the Fiber Optics business segment. In the broadband cable TV business, during the September quarter our revenue recovered to pre-flood levels, and the gross margin recovered to the high 20s.

The broadband Fiber Optics business generated positive operating income in the December quarter for the first time since the flood. As we discussed previously, the cable TV is industry is going through a rapid transition from the original transmission architecture to DWDM and the longer distance based transmission solutions.

We have been very active in the [sender setting] committees to help define the new vendor road maps allowing substantial increase of transmission bandwidth in the linear optics broadband infrastructure. A number of new products were introduced to the market to allow the reach of medium distance in the range of 50 kilometers. This requires high power DWDM lasers with a very low [chirp] in combination with modulators.

Our internal laser supply enables a more competitive pricing and a faster time to market. A number of MSOs in the US are testing and qualifying this product for the domestic HFC network upgrades. The ramp of this product architecture in the US market should represent rapid growth and enable EMCORE's leading position in this technology.

Many of these new products are currently used for greenfield deployment in some South American countries, as they are building up the infrastructure for hosting the Olympics and World Cup games over the next several years. We sell our cable TV product to the equipment manufactures like Cisco, Motorola, Aurora, et cetera. We are working on expanding market penetration through is system integrators and distributors in their local markets.

Another very favorable dynamic is developing in China's market. China has just rolled out a new switching standard for the cable TV network called China DOCSIS or are C-DOCSIS. This is to mimic the standard of [EoC] networks in the US to enable the offering of high speed internet and voice over IP.

This is very encouraging, as it signals a transition from a predominantly video broadcasting network infrastructure to a comprehensive triple play one with QAM modulations to improve the network's capability and capacity. This transition would not be possible without new products that we have been supplying to the US market.

As one of the major MSOs announced last week, their CapEx spending for 2013 will increase by 3%, of which the spending for upgrade and scalable infrastructure, which is more related to the sales of our products, will increase by about 8.4%. However, the CapEx for the last quarter -- the December quarter spending decreased 22% compared to the year before.

This lower spending caused some backup in the supply chain, so we have seen slowdown in booking activities in December and January for cable TV's products from our customers. Although short term we see seasonality in demand decline, we are very bullish about the future of this business based on the engagement levels and qualification activities on our new product as well as the outlook given by your customers. We believe the business will return to the approximately $20 million quarterly revenue levels in the second half of the year in our broadband Fiber Optics business.

During the December quarter the revenue from our telecom product lines was flat compared to the September quarter. The unit volume of the ITLAs shipped was at a record high level, increasing sequentially by about 10%. The revenue on the other hand was about the same. Demand is still very strong, but we lost some market share during the annual price negotiations with some customers. Although we have seen some new entrants into this market during our recovery from the flood, we believe that the coherent market segment continues to grow rapidly. Even with additional competitors.

Our capacity increased through the addition of process and test equipment as well as [the] production cycle time reduction is on schedule. Currently, our revenue for ITLAs is not limited by the manufacturing capacity. Our microITLA design is based on the same external cavity laser platform as ITLA, but it provides superior performance and an enhanced functionality in a much smaller form factor than ITLA.

The microITLA products are going through [Telcordia] qualifications, and we expect to complete the initial qualification by the end of March. Concurrently, some key customers are integrating this into their systems and conducting system level validation. We have been closely engaged with three major customers on five different coherent system platforms. The feedback has been extremely positive. The projected demand from these programs are about 50,000 units or about $40 million per year.

I believe we he have the right strategy to grow a 40 and 100 gig coherent business by addressing the customers' future needs instead of dropping price and compress margins. The first part of the strategy is that our products deliver superior performance in narrow [long] width and high powered, which are important attributes, especially for a 100 gigabit per second applications. It is believed that more 100 gig systems will be manufactured and delivered than 40 gig in 2013. Our ITLAs are designed as a process of record for 100 G coherent systems in most of the major OEMs.

Second, the introduction of microITLA is to address a new application for who 40 and 100 gig transponders. This is a market that a traditional ITLA cannot address, and to the best of our knowledge we have a significant lead over our competition on microITLAs. Thirdly, microITLA will cannibalize the ITLA market over time for coherent [line turn] due you to superior performance with low power consumption, smaller form factors, and a lower operating and product cost.

We believe this strategy will drive positive share shift to us without hurting our profit margin. Our goal is to stay ahead of the competition with advanced technology development and to commercialize a full line of products for 40 and 100 gig coherent applications.

During the December quarter we had a major challenge in ramping up the manufacturing volume of tunable XFP transceivers. The primary reason for the hiccup was due to the stringent requirement for optical alignment capability, given the very low margin in design tolerance of certain components. Over the last couple months we have been focused in this area.

The good news is that we have improved the process and tightened the spec distribution of the key component. As a result, the yield has improved dramatically. We are now loading up the line with new components and expect to ramp up start in March. Our tuneable XFP product has been designed in -- [on]15 customer programs, and we have received a significant share allocation commitments from key customers.

We understand that the field is getting more crowded with the three suppliers already shipping in volume. The competitive advantage of EMCORE's tuneable XFP is that our product demonstrates better performance with both negative and zero chirp, full vent tunability and high power. There are [key attribute] requirements for replacing 300 pin transponders. The primary application for tunable XFP in 2012 has been to replace fixed wavelength DWDM XFPs.

We believe the 300 pin transponder replacement cycle is starting now. This is one of the few cases that when we debut customers will come. As Mark has discussed, the loss related to tuneable XFP in the December quarter was approximately $4 million, which includes the material scrub and warranty reserves. The successful launch of tuneable XFP products this time around is expected to have significantly positive impact to our consolidated financials.

Turning to guidance for the second quarter of the fiscal year 2013, ending March 31. We expect to have revenues in the range of $45 million to $49 million. The sequential revenue decline is primarily due to seasonal demand softness in cable TV and delay of revenue contribution from tuneable XFP. However, the impact to the bottom line will be very manageable as we cut the loss through restructuring and recovering of our Fiber Optics manufacturing to a variable cost basis. We have worked hard to establish that profitability focused culture, and we are seeing the benefit of that hard work now.

In summary, we achieved a sequential revenue growth in the December quarter and, more importantly, achieved net profitability on both GAAP and non-GAAP basis. We have established the business structure in our personal discipline that will make financial performance more predictable going forward. We continue to be excited about the combination of [our] business and product portfolios, and the tremendous potential of revenue growth in the improvement in profitability.

Our focus this quarter is on improvement in yield and production output of tuneable XFP. We look forward to discussing our progress in future quarters. With that I will turn the call over to Q&A.

(Operator Instructions). The first question from the line of Dave Kang from B. Riley. Your line is open. Please go ahead.

Thank you. Good afternoon. So first question is regarding your $20 million PV order. Can you go over the shipment time frame? And so with that order will the second quarter backlog -- PV backlog will be back to a September quarter level?

Yes. So, Dave, this is the order from an international customer, and the schedule -- the delivery schedule is over the next two years.

Two years, okay.

So the shipment will actually start from this March quarter. But as of the December 31 the contract was now finalized, therefore we were not able to add into the order backlog.

Got it. Got it. And then moving to cable TV, so you said business rebound in second half. Did you mean the second half calendar or fiscal 2013?

Second half calendar was [imagined] --

Okay.

Time Warner Cable just announced last week, as I said, the overall CapEx spending will increase by about 3%, but the part related to our business will increase in 2013 by 8.4%. So watching for the service providers' CapEx very closely in this next week, Comcast will announce their CapEx plans. But we are bullish for the year, but it was due to the later softness in December and January booking.

Right. I guess C-DOS is an opportunity for you, but what about the US market going to DWDM? I mean, won't that draw additional competitors as the industry goes to DWDM?

So the US transmission architecture has gone through you two generations of transition, from the original almost like a relay structure from the 1550 nanometer broadcast transmission from [hat end] to hub and then 1310 from hub to node, transition to basically 15150 nanometer DWDM transmitter from hat end to node. So the third generation we are talking about is to is stretch the distance of the DWDM transmitter from typically about 20 kilometers to right now 50 kilometers. So there is a lot of excitement from the service provider side. They want to have that capability to reduce their operating expenses from their network. We are expecting a pretty meaningful ramp in the second half of this calendar year.

Got it. And then moving to telecom, you said you lost some market shares in 40 G, 100. Were you referring to mainly 40 G, or are you actually -- or did you lose some market share in 100 G as well, and is it possible to quantify that?

We believe it is primarily 40 G. But our friends, they claim they can do 40 and 100 so -- but from our information our customer base, who are the leaders doing 100 G line cards are using our product almost exclusively. So --

So are you seeing your friend during the bid competition, or are you not seeing your friend there?

Our competitors. So they -- during the annual negotiation and market share allocation, I think they probably offered more pricing for some customers. They can lead with the performance level that our competitors are offering for are 40 gig applications. They probably allocated more shares to them than to us.

Got it. All right. Thank you. I will cede the floor.

Is thank you, Dave.

Thank you. Our next question comes from the line of Edward Zabitsky from ACI research. Your line is open. Please go ahead.

-- job putting the Company in a stronger position than it was a year and a half ago. So I had a couple of questions. First of all, regarding the outlook on -- for the March quarter, I was wondering by segment what you are thinking in terms of -- in terms of do you expect Fiber Optics to be up or down or are flat? And same would be true for the PV segment. And second question relates to the it TXFP market. I'm wondering now what is your time frame for getting a ramp, and what kind of numbers are we looking at in terms of the March quarter and beyond? Thanks.

Thank you, Ed. To answer your first question, yes, our guidance for the March quarter declined primarily from the fiber side. The PV was still maintaining a pretty high level quarter over quarter, and for Fiber Optics it is not declining from every product line. The one probably contributing to most of the decline is, as I said, is the cable TV side. That industry, that market, it does have a little bit seasonality. The first quarter, usually it is the slowest.

To answer your second question, the tuneable XFP, we expect to ramp starting in March, because the production cycle time from the initial component loading chip to chip on block to [toset] and then tuneable XFP and testing is about six weeks. So we started loading the line already, and we should get meaningful revenue in the March month, but a significant ramp is going to happen in the June quarter.

Okay. Now, going back to the ITLAs and microITLAs. What do you -- obviously you should have with the new gen and ending out in front, you should have a -- I'm not concerned about the gross margins, just wondering what kind of pricing differentials per unit that we would be talking about for that transition from to the next?

From the cost point of view the microITLA clearly is more favorable than ITLA. Pretty significant. But from the pricing point of view, it is [all] market driven, and it is going to be more favorable than ITLA, but we are not going to be -- we will initially be able to enjoy a higher margin as we expect. So we are going to be price competitively, but not going to be a huge decrease from ITLA. The cost wise, we should improve -- have a pretty marked improvement from ITLA to microITLA.

Right. So it sounds -- just to try to summarize what you said, it sounds like you will at least initially get some gross margin improvement while taking a small reduction in per unit pricing?

Yes.

Is that fair to say?

Yes.

Okay. That's pretty good. I will let someone else ask some questions. Thank you.

Thank you.

Thank you. Our next question comes from the line of Alex Henderson from Needham. Your line is open. Please go ahead.

You guys got a profit. Nice job. I'm really glad to see that, guys. Congratulations.

Thank you. Thank you, Alex.

So I guess the piece that I really want to focus on is the tuneable XFP piece. Trying to understand -- you said you had $4 million in costs associated with that in the December quarter. You obviously have some startup costs associated with that again in the March quarter and a sequential is change in the revenue associated with it. So can help us out with it a little bit? I assume you had so run some product through you that line before you got the full qualification and recalibration done on it. How much are we talking about of that $4 million cost in December quarter falling out in the March quarter? Is it half of it? And then another half into the June quarter? How should we think about that?

Alex, a good question. In the March quarter apparently we will not having the material scrub warranty reserve related to tuneable XFP, but the startup cost is going to be higher. The loading for the line is light, and also we are going to be having more technical people involvement. So I would say probably the loss is going to be reduced by half of it, and I think we are expecting to really running in a normal pace and normal cost structure as we projected in the June quarter. So I think from the tuneable XFP side in the March quarter we will certainly have the improvement in the financial results.

So it sounds like you cut that in half in the March quarter, and then do you get to the break even revenue level or turn a profit in it in the June quarter? Is that the way you are thinking of it?

That is our expectation, yes.

So if you are looking at pretty solid orders in the hand, it sounds like that would imply a pretty nice sequential improvement in revenues associated with that. I would assume this quarter, because you have got it up and loaded for a portion of March, that it will be more than that $1 million kind of run rate that you have been kind of limping along at. Can you give us some sense of how that -- what that looks like sequentially?

Yes, so, Alex, probably in about a month or so we will be in a better position to tell. At this point the results is very encouraging, but when we talk about a yield and the cost structure, we wanted to be -- the data to be statistically more significant. So at this point I'm -- we are holding our breath on that, but so far it is very encouraging. But we are not to the point I can say with a confidence about the ramp up target for the June quarter in terms of the revenue. But in either case, it is going to be a significant ramp, significantly higher than $1 million. [For the run rate].

Just going back to the ITLAs for a second. Just to be clear. It sounds like -- and I'm pretty sure this is the case -- the loss of market share was a conscious decision that you made. My understanding is that your pricing was down a lot less than the 10% to 15%, and much of the industry up in the 15% range, typical range of price decline. You held the price here? Is that what is going on with the share erosion?

Yes. And there are two dynamics in play. Usually in the telecom industry the suppliers will have to rebid for their market share with the key OEMs. So we have that part. But also remember last year during the flood recovery our customers offered up 20% price increase compared to 2011 pricing in order to get a share allocation. So we were trying to hold on as much of the 20% increase as possible.

So from the math you can tell we basically gave away half of it. And we lost some market share, but you are absolutely right, that was almost by design, because otherwise we have to increase the capital expenditure to extend the volume. And then the industry in the meantime, as I talked about, is transitioning to microITLA in about a year or two time frame. We will not have enough runway to recover the additional CapEx investment to get that additional market share. So it works out well for us.

Okay. And then just so I understand, on the solar are side the sequential -- I mean, that is a very nice number in solar revenues for the quarter. It is a little higher than I would have expected, and as I know it is kind of lumpy. Should I be looking at that coming down from the $19.6 million level back down into the mid $18 million level kind of range? Sequentially moderating somewhat? Is that part of the decline, or are you actually still looking at that holding up at that pretty rich level.

This is going to be like between $18.5 million and $19.5 million. Roughly about the same level. We are going to be able it to hold on that level pretty well. But you are right, that space business is going to be a little bit lumpy. For the June quarter or September quarter it could be -- that lumpiness could come in play, but right now I would say we have enough visibility and the confidence to project that in the March quarter our revenue from the PV is going to be pretty much flat and maintained at a pretty high level, as high as the December level or just a slight decline.

I'm going to put you on the spot with one last question. So you are profitable in the December quarter, which is just great to see. And it sounds like you got a $2 million reduction in costs in the tuneable XFP. You've got a couple of other things moving around a little bit. Is it reasonable to think that the cost reduction in tuneable XFP will offset any margin pressures that result from slightly lower revenue sequentially and due to pricing in the March quarter so that we are able to sustain that profitability?

Alex, this is Mark. Thank you for the question. I can promise you that is the one thing we are definitely focusing on right now is how you to retain that profitability level. As Hong mentioned in the opening remarks, we are trying to in still the profitability culture. This quarter obviously we have a little bit of a decline from the seasonality and other challenges, just it being the March quarter, but we are doing whatever we can to try and bring the cost structure in line and really bring in place an organization that can be profitability -- profitable at much lower levels.

Over the next six months you will start to -- continue to see the break even levels continue to decline each other quarter as we basically start to implement additional actions to reduce the break even level. For the March quarter, it is just a little bit early to tell, but you can be guaranteed that we are really focused on trying to retain that this quarter.

So in the vicinity of break even it sounds like, which isn't a bad result on the a seasonally weak quarter. Great, thank you very much.

In addition, Alex, just one quick thing is that on an EBITDA perspective we will be able to generate some positive EBITDA this quarter, regardless of whether we just miss on the non-GAAP level.

Great. Thank you.

Thank you.

Thank you. (Operator Instructions). Our next question from the line of Krishna Shankar of ROTH Capital. Your line is open. Please go ahead.

Yes, Hong and Mark, congratulations on getting it to profitability. I just had a question. Sounds like the June quarter could see pretty good sequential growth in all of the product lines. Solar could be a little lumpy. Within Fiber Optics you could see a pickup back in the cable business and also tunable XFP and ITLA. So do you think you will get to the target gross margins for the three segments within the Fiber Optics in the June quarter, or just give us a reminder us what are the target gross margins?

Thank you for the question, Krishna. When we look at our three different business segments -- or three different business divisions, we have the cable TV broadband business, which we -- which our goal is to be in the high 20s to roughly about 30% is kind of our gross margin target. We were able to meet that level in the current quarter, and we are -- even though we are having a little bit of decline in business, we are going and make sure to do what we can to retain those levels. And that's at about -- kind of in the revenue run rate of $18 million to $20 million a quarter. So we should be able to retain kind of the target margins there.

On the solar business target margins have been right around 30%. We were able to meet that level this quarter. On the telecom side our gross margin level -- gross margin level should be in the 25% to 30% range. In the June quarter, if we are able to ramp up the tuneable XFP, it will -- we will be able to significantly improve our as a results, but we will be below kind of our target levels for the June quarter. But hopefully as we go forward and the TXFP business starts to ramp, we will be able to make it to the target margins. But for us that's -- it is a little early in the June quarter to be able to meet our target margins, but we are getting much closer.

Okay. And for the tuneable XFP business, since you're -- you feel that you have [solved some of the productions] issues, you already have orders and backlog in hand for the revenues that you anticipate to get in the June quarter for the tuneable XFP business?

Yes, we have a pretty healthy backlog right now for initial ramp up. And also the customers, as I said, for this product they will come when we can build. It really -- in a way, in this market when we have -- already have three competitors shipping in volume, the only reason that customers are waiting for our product is because our product solved their -- pretty stringent specification requirement, and we see -- they gave us some projection on the 300 pin replacement and the volume for it, so is we are optimistic about the future quarters as we ramp up the production capacity.

And finally on microITLA, how rapidly will that ramp, and what will it impact on gross margin starting in 2013? Can you talk about the ramp on the microITLA?

Yes, the microITLA, the ramp up is easier than tuneable XFP, because we can leverage the production infrastructure that we have already established for ITLA. For example, the testing, they are identical. So really it depends on, as I talked about these five platforms and our customers are doing qualification and validation, how quickly they can start implementing that.

Those are going to be the first wave of demand. Then there are other things for cannibalization to the traditional ITLA is going to be happening over the next two years or so. So if you look at ITLA and microITLA all together in one product line -- that is [the way] we view it -- is going to increase in volume pretty significantly, but there is going to be some shift between the volume of ITLA and microITLA. So certainly microITLA is the product of the future.

Great. Thank you.

Thank you.

Thank you. And with no further questions in queue, I would like to turn the conference back over to management for any further closing remarks.

Thank you very much for dialing in today. Over the next couple of months we plan to present at the 2013 Piper Jaffray technology conference in New York City on March 12, and the 25th annual ROTH conference in Dana Point, California, on March 18. In addition, we will be exhibiting and meeting with customers and industry analysts at the 2013 OFC conference in Anaheim, California, from March 19 through the March 21. So we look forward to meeting you and talking to you during these events. Thank you very much. Bye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.