EMCORE Corp (EMKR) 2013 Q3 法說會逐字稿

Welcome ladies and gentlemen to the EMCORE Corporation third quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. After our prepared remarks we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions)

As a reminder, this call is being recorded.

I would now like to turn the conference over to Victor Allgeier. Please go ahead.

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 27(a) of the Securities Act of 1933 and Section 21(e) 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 and 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 U.S. Securities and Exchange Commission that are available on the SEC's website located at www.SEC.gov including the sections entitled Risk Factors in our annual report on Form 10-K and the 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 third fiscal quarter operating results and our balance sheet. Please note that we have included a supplemental presentation on our website to assist in better understanding the Company's results.

Consolidated revenue for our third fiscal quarter totaled $33.5 million which is a decrease of $8.8 million or 21% over the previous quarter. The decrease was primarily due to lower photovoltaic revenue as we had a large international order that was delayed. Our Q3 revenue guidance was $35 million to $39 million.

On a segment basis, our photovoltaics business accounted for $11.9 million or 36% of the Company's total revenue. This represents a $7.2 million or 38% decrease from the prior quarter. As we have said previously, while we remain confident in the long term prospects of the photovoltaics business, our revenues in any given quarter may be a bit lumpy.

In Q3 we experienced this lumpiness when the delivery of an international shipment of a few million dollars was delayed until Q4. Since June 30, we have shipped the product to the customer and we expect to recognize this revenue in Q4.

The fiber optics segment accounted for $21.6 million or 64% of the Company's total revenue. This represents a decrease of roughly $1.6 million or 7% from the prior quarter. Hong will discuss the outlook for the fiber optics business later in the call.

On a segment basis, photovoltaic gross margin decreased four percentage points to 28.6%. We continue to believe that this business' target gross margins is at 30%.

Fiber optics gross margin was 3%, four percentage points lower than the prior quarter. We recorded an excess in obsolete inventory charge of almost $1 million in the quarter. Otherwise, the gross margin for the fiber optics business would have been closer to 7%.

Our gross margins have been impacted primarily due to lower revenue levels and negative impact from our tunable XFP product line through the ramp up stage. 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 contract manufacturer and our fiber optic revenue increase.

Consolidated gross margin was 12.1%, a 6.4 percentage point decrease from the prior quarter primarily attributable to lower fiber optics and photovoltaic segment margins.

Total operating expenses for R&D and SG&A were $11.7 million excluding any flood related charges and recoveries, gain on sales of assets, legal settlements, and impairment charges. The increase in our operating expenses from the prior quarter was primarily due to increases in certain R&D areas. We believe that our operating expenses should be around $11.5 million per quarter going forward.

On a GAAP basis, the consolidated net loss for the third quarter was $7.3 million. Our GAAP net loss per basic and diluted share was $0.27. Our non-GAAP net loss after excluding certain adjustments all of which are set forth in the non-GAAP tables included in today's release was a loss of $5.9 million versus $33,000 of income in the prior quarter. Please note that we have included additional information regarding amortization, stock comp, and other items in today's release and in our supplemental presentation to provide further clarity on our results.

Now on to order backlog which we define as purchase orders or supply agreements accepted by the Company with expected product delivery and/or services to be performed within the next 12 months.

At June 30, the Company had a space solar order backlog of approximately $58 million versus $36.5 million at the end of the prior quarter. The significant increase was primarily from large international orders.

Moving on to the balance sheet, at the end of June, the Company's cash and cash equivalents and restricted cash balance was $6.6 million. This did not include any proceeds from the $4.8 million sale of our interest in the solar joint venture which we announced in June. We expect to recognize the gain from the JV sale transaction in the fourth quarter.

Over the past year we have made significant strides in improving the business structure. We look forward to showing further progress as we continue to drive execution and increase our revenue levels.

In July, in order to continue to drive our breakeven revenue level down further, we implemented a headcount reduction and cost reduction effort.

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 fourth quarter.

Thanks, Mark. Good afternoon everyone. As Mark discussed, we achieved consolidated revenues of $33.5 million in the June quarter which was below our guidance. This was mainly due to a delay in the delivery of a large solar cell shipment to an international customer. The required approval for the shipment was delayed beyond the June 30 cutoff date. This shipment, however, has since been made successfully and its revenues recognized in the current quarter.

Several other unexpected events also contributed to the low revenue level in the June quarter and the resulting operating loss. We experienced lower than expected orders in our broadband business due to an unusual reduction in MSO CapEx and delayed revenue contribution from new product, tunable XFP, due to production ramp up challenges.

Our Management Team has already responded to these challenges with the implementation of several cost reduction initiatives, as Mark mentioned, that include headcount reduction and discretionary spending reduction in our broadband business in addition to other concerted efforts to focus on revenue growth and process improvement on new product introductions in our telecom component business.

We now believe that we have a sustainable cost structure in place that will successfully return us to profitability in the near future. Our goal is to reduce our breakeven quarterly revenue rate to between $46 million and $48 million.

Today, we are seeing significant improvement in the market situation and product demand in the business areas we serve. We expect a strong September quarter in both photovoltaics and fiber optic segments and have an even more optimistic outlook for the December quarter.

Now let me give you an update on our businesses and how we're responding to the current market conditions. First, I will start with the space photovoltaic business segment.

As we indicated in the last quarter's conference call, we saw a gap in aerospace programs in the June quarter which led to a lower than typical revenue run rate. In addition, we experienced a delay in the approval of a large shipment to the international customer.

The gross margin for the space photovoltaic business was 28.6%, a sequential decline compared to the last quarter due to the lower revenue. Despite this decline in revenue, the space photovoltaic division still generated more than $1.3 million net profit in the June quarter which indicates that this business has an effective cost structure and continues to be a positive Cap generating entity.

In the past quarter, the space photovoltaic division was awarded more than ten separate contracts from customers both in the U.S. and around the globe. Total value of those contract awards was in excess of $35 million. As a result, the order backlog for this division as of June 30 for delivery over the next 12 months showed a sequential increase of $21.5 million to a total of $58 million which is at record levels.

We're also seeing several recent orders to one of our major commercial telecommunications satellite manufacture customers which represented a strong rebound from an otherwise sluggish trend seen in the early part of 2013.

With the recent bookings in Q3 and expected bookings in our Q4, our outlook for the next four quarters for this division looks very solid. We expect a robust business for EMCORE from this business segment in the near future.

We also continue to make progress on developing new products with higher performance and lighter weight solar cells for spacecraft applications with the introduction of our IMM solar cell technology into volume manufacturing over the next couple years. We believe this enabling technology will set us apart from the competition and creates a competitive edge for our customers.

Now let me discuss the sale of EMCORE's equity stake in the CPV Joint Venture, Suncore. EMCORE had a 40% equity interest in the joint venture with San'an Optoelectronics in China to design and manufacture CPV's solar modules and systems. Due to the dramatic change in the market dynamics and the competitive landscape of solar power industry, the joint venture needed to expand its business scope into project development and in some cases, even as a project owner/operator. This business direction is beyond the current and planned scope of EMCORE's business.

With the approval of EMCORE's Board of Directors, we negotiated and entered into an equity transfer agreement in June pursuant to which the Company agreed to sell its 40% equity interest in Suncore to San'an Optoelectronics for $4.8 million. Closing is expected to occur in the current quarter. The net book value of the joint venture was zero on EMCORE's balance sheet as of June 30, 2013. The gain related to this transaction is expected to be booked in the September quarter upon the closing of the transaction.

Going forward, EMCORE will continue to be the primary supplier to Suncore for concentrator solar cells. However, EMCORE now has minimal exposure to the risks of the solar power market going forward.

Now let me discuss our market position and business outlook in our fiber optics business segment. In the broadband cable TV business, as indicated in our conference call for the March quarter, the demand from MSOs for infrastructure upgrade was slow in the first quarter of the year. Beginning in June, our cable TV broadband customers stated that their inventory had been reduced to a reasonable level due to a demand uptick from their customers. As a result, the booking activity from our customers in the broadband business started to show a significant improvement. This is consistent with the capital spending plans that were announced over the last couple days by the MSOs.

Over the past week, two major cable service operators reported their CapEx in the June quarter and their budget for the rest of 2013. Compared to the March quarter, their June quarter CapEx spending increased over 20% in the infrastructure upgrade category which is most related to our business.

We started seeing the momentum towards the latter part of June quarter as our customers are depleting their inventories. It is positive to note that both MSOs are projecting higher total CapEx spending in 2013 than in 2012 and the largest MSO in the U.S. reported about 10% more CapEx spending for the second half of the year than the first half. Therefore, we are optimistic about the rebound of the cable TV demand for the September quarter and the December quarter.

Our strategy in expanding our business to a return path in node is bearing fruit. We were awarded with the first node receiver design win at one of the major equipment manufacturers. This is expected to add a new line of business to our broadband division.

The good news is that the standard committees in the cable TV broadband industry have never been so dynamic and excited in formulating drastic system operative strategies. The industry has been projecting that downstream bandwidth with experience a cumulative annual growth rate greater than 50% per year and upstream of 30% per year. This demand trajectory is consistent with their experience over the past 30 years.

DOCSIS 3.1 is to modernize the Mac and Cisco leaders and spectrum plan to increase the transmission bandwidth with the existing cable plant infrastructure. Facility constraints in power, air conditioning, floor space, etcetera, will require improved power efficiency and channel densities in this decade. That is the major driver for the CCAP rollout.

The transport equipment is required to be able to transmit signal up to 1.2 gigahertz, even in the future 1.8 gigahertz over the life of the HFC infrastructures, some of which were deployed decades ago and designed to transmit signals up to one gigahertz only. This retrofit strategy is most effective in expanding the bandwidth capacity of the HFC infrastructure and compete with fiber to the home service provided by telcos.

Many cable TV industry experts claims that the bandwidth provided by CCAP and DOCSIS 3.1 can compete with any fiber to the home technology. We are engaging with all the equipment manufacturers very closely in designing and qualifying transmitter receiver products which comply with the new standards.

Two out of three leading cable TV equipment manufacturers have completed the validation of a new transmitter product to the DOCSIS 3.1 standard and then they have begun shipment of this new product.

The revenue for CATV broadband business is expected to show a marked improvement in the September quarter. We are optimistic about the future of this business based on the engagement level and the qualification activities on our new product as well as the CapEx outlook given by the MSOs. Armed with a new cost structure we have put in place, we believe the business can return to profitability in the near future.

Moving on to our business in telecom segment, during the June quarter the revenue from telecom product lines was flat compared to the March quarter. We lost some IPLA market share during annual pricing negotiations primarily for 40 gig (inaudible) and some demand decrease from a leading equipment manufacturer of coherent products. This was primarily related to the change from two lasers to one laser in the coherent line card design enabled by their new DST chip. However, the demand for our coherent products remained strong throughout the quarter despite these issues.

During the June quarter we saw certain customers pulling in their outers for ITLAs to support their demand for 100 gigabyte line cards. We hope this momentum will continue throughout the current quarter.

As indicated by the latest Infonetics presentation, the 100 gigabyte line cards and transponders are the most economical way to expand bandwidth. The 100 gig coherent optics is expected to grow from 5% of the total ports today to 37% by 2015. EMCORE's ITLA and micro ITLA will continue to be the leading solution for the transmitter components and should benefit from this trend in the market.

EMCORE's ITLA design continues to demonstrate advantages over our competition especially when it comes to longer distance and higher data rate such as a 100 gig and a 400 gig. While this is early, we are starting to see demands for new coherent modulates in applications such as 16 QAM targeted at 400 gigabyte applications. EMCORE's ITLAs are confirmed as the lead supplier for every 16 QAM 400 gig coherent OEM program.

On the micro ITLA front, we have experienced a great market response and strong design inactivity since we commenced volume production in March. Currently, we have engaged in more than ten design programs for 100 gigabyte coherent applications. We continue to enjoy the lead in the industry as EMCORE's micro ITLAs enabled the first transponder coherent 100 gig line cards.

The qualification that validates the process of our customers' next generation 100 gigabyte platforms are expected to be completed in the September quarter. We expect a significant increase in demand for micro ITLAs once the customers commence volume production for their new line cards latter part of this year.

Micro ITLA not only enables new applications due to its superior performance with low power consumption and small phone sector but also serves as our key strategy to drive positive market share shift and the micro ITLA will eventually cannibalize the regular ITLA market.

On the tunable XFP product line, we secured more design wins from a major customer on several platforms due to low power consumption and a superior OSNR performance of our tunable XFP product. We are able to start meeting customers' volume demand despite lower yield than our target.

We conducted a thorough review on the tunable XFP assembly and testing processes during the quarter. The engineering team was able to fully understand the root causes for the low yield and implemented corrective actions. Although this is a product line which is losing money due to the yield that you see currently -- just for your information, this is about a $2 million loss in the gross margin in Q3 in the June quarter, but we expect that yield and throughput for the September quarter will demonstrate a marked improvement in the reach to a desirable yield in throughput level by the December quarter. At that level, we expect positive contribution margins from this product line.

We are confident about the competitive advantage of EMCORE's tunable XFP in both negative and zero chirp with a full (inaudible), better OSNR in the higher output power. These are the key attribute requirements for replacing 300 pin transponders which have started from this year.

Our engineering team is developing a compact integrated tunable transmitter for a 100 gig coherent market. This is the evolution in our advancement in Indium phosphides for lasers and modulator technology. This new development provide improvements in sites, power consumption, output power, line width and cost which enable new market segments for fast growing coherent market. We plan to demonstrate our prototype unit in an upcoming trade show. Our goal is to stay ahead of the competition with the best technology developed and to commercialize a full line of products for 100 gig and 400 gig coherent applications.

Turning to guidance, for the fourth quarter of the fiscal year 2013 ending September, our revenue expectation is in the range of $42 million to $45 million with an improvement from both in fiber optics and space photovoltaics segments. We expect to see a significant positive impact to our bottom line due to the increased revenue, cost reduction and the yield improvement effort.

In summary, we feel that we are coming out of a trough with significantly improved revenue outlook, improved engineering yield, and reduced cost space. Our focus this quarter is on completing multi new product introductions for our cable TV business and ramping up the revenue contribution from the tunable XFP product line. We are back on track and we look forward to discussing our progress in the future quarters.

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

(Operator Instructions)

And our first question in queue is from Krishna Shankar of ROTH Capital. Your line is open. Please go ahead.

For the September quarter, do you expect growth in each of the three segments within the fiber optics area -- the ITLA, tunable XFP, and the cable broadband, will all those three areas grow significantly in the September quarter?

Yes Krishna, that is our expectation and for those three product lines in the fiber optic segment we expect pretty significant growth in all of them. The ITLA will continue to be very strong and micro ITLA will be contributing to revenue but not in a significant way in the September quarter but it is going to be significant in the December quarter. The tunable XFP, this third time around we are very confident that revenue is going to be growing finally with a respectable yield but in the December quarter, as I talked about, our yield levels are going to be meeting our expectation so that tunable XFP will start contributing a positive margin in the December quarter but the cable TV side, we are asking, we are expecting the September quarter is going to be a pretty significant growth over the June quarter and December quarter is already looking stronger from the dynamics, the comments sent in from our customers.

So yes, we do expect across our product lines in our fiber optic segment that September is going to be a much better quarter.

And in photovoltaics, you had kind of a lumpy June quarter but given the backlog and the visibility you now have, do you see relatively smooth growth going forward over the next few quarters in the photovoltaic part of the business?

Yes, unfortunately that business was a little bit lumpy. The June quarter we experienced the gap but our backlog has been, as I said, a record -- historically at record level. The $58 million, that was not even counting on the new satellite awards. One of our major customers in the last four weeks, they won three satellite awards and just for your information, in the last entire year of 2012 they won three satellite awards so it was really -- the photovoltaic division looks very, very solid and we expect next three, four quarters also to be very robust in terms of the outlook and operating profit.

Our next question in queue is from Dave Kang of B. Riley. Your line is open.

First of all, Mark, can I get some numbers from you? Can I get CapEx and depreciation and amortization, those two numbers?

Yes, of course. Thanks, Dave. On the depreciation side, depreciation for the quarter was $1.7 million and our CapEx was also right around $1.6 million.

Okay and then going forward, CapEx will be around that level or --?

CapEx is actually going to be down quite significantly so we did see this year to date we've had CapEx that is a little bit higher than normal because of ramping up for the tunable XFP but we believe that our 930 numbers will be closer to kind of our normal $1 million to $1.25 million per quarter of CapEx but depreciation will be relatively constant.

And then just wanted to clarify, you said OpEx of $11.5 million for out quarters, is that GAAP or non-GAAP?

That is GAAP.

GAAP, okay, and then the biggest component there is stock compensation and that is going to be what, a little over $1 million?

Stock compensation we did disclose in the press release but for SG&A and R&D total for the June 30 quarter, it was about $800,000 that we had for those two functions and FAS 123R expense.

Did you talk about the new breakeven point with all the cost reductions and all that?

We did. A couple quarters ago we mentioned that when we had met the non-GAAP profitable level we were able to do it at around $46 million, $48 million. Right now our breakeven revenue rate for non-GAAP, non-GAAP breakeven is about $48 million to $50 million. With some of the reductions that we've done and the movements that we've been doing over the last couple quarters we've been trying to reduce that number down to $46 million to $48 million and that's our goal for right now so with our guidance of $42 million to $45 million, we're getting pretty close to reaching that revenue breakeven level that we need.

And then to breakeven at that level, $46 million to $48 million, your gross margin assumption is what?

Right now it's kind of, for our solar business, it's close to our target gross margin which we announced is about 30% and on the fiber optics side we have obviously a much lower point that we need for that level to be at a breakeven point so something closer to the, right around 20% or so.

20% blended or fiber optics?

Just for fiber optics.

Fiber optics, got it, and then I can get -- what was the mix between, within fiber optics, what was the mix between ITLA and cable TV?

On what we call the digital products which includes the ITLA product line, that business was about $10 million in the quarter.

It was flat.

Yes, and then our broadband business was about $11.8 million.

And then, I hate to keep asking you all these numbers but then what was the mix between 40G and 100G in ITLA? Is it still about 50/50 or --?

We have a hard time to really tell. Our customers are using honestly the same parts for 40 and 100 but I believe most of our parts are used for 100 gig and if I had to speculate, I would say probably over 80% of our ITLAs are used for 100 gig applications.

Okay and then on the (inaudible), it sounds like more revenues in December but what about September? Are we recognizing any revenues in September quarter? Is it going to be another half a million or so?

In September I think we should be right around $2 million if not more.

$2 million (inaudible)?

Yes.

But then -- so you had $2 million loss in June quarter. What is that loss going to be in the September quarter with $2 million revenues?

The June quarter loss has a lot to do with we reviewed, as I said, thoroughly the process, assembly process and testing process. There is some part we put aside, it was a deviate from our standard part so we had to reserve about, what, about $0.8 million also so half of that loss was really to clean the line so that we have focus on a converged process and moving forward, that loss should be reduced pretty significantly.

But still, you won't be zero though, right?

It's not zero but it will be close.

Close to zero, okay. And then obviously, you said contribution margins in the December quarter so I'm assuming maybe over $3 million in December quarter? I hate to ask for guidance but just the directional?

Yes, the directional certainly would be more than $2 million. As I said, we are focusing on fewer customers, focusing on fewer, bigger customers. To serve multiple platforms we've got a pretty healthy share allocation so start doing the VMI programs with customers and I do think the trend will be very positive.

Our next question in queue is from Alex Henderson of Needham & Company. Your line is open.

A couple of questions, first off, on the micro ITLA side, just so that I understand with good clarity, the qualification process relative to you testing and relative to your customers testing any blades that might incorporate that micro ITLA has already been fully completed so that we are not at risk of any delays in the timing of ramp up based on OEM qualification processes?

Our component level qualification has completed and we are at this point just supporting our customers' line card or transponder qualification. For 10, 12 programs they made our -- at a different pace. Some of them are close to completion already for their product qualification and at this point, we're more supporting in that firmware level. Some customers wanted to put the firmware future mostly at a transponder level but there are some other customers that like to put the futures in the micro ITLA levels so with the support at that level through different customer programs.

I think it's going to be over half of the 10, 12 programs, they will complete their product line level qualification in the September quarter. That's why we are expecting pretty significant ramp for micro ITLA demand in the December quarter as we expected before.

Okay and so as we are looking at the December quarter, what should we think about the mix between conventional ITLA and the micro ITLA as a percent of the ITLA revenues? How should we be thinking about that for the December period?

I will say it will probably be 80/20, 80 in the regular, 20 in the micro or even if there is really ramp up, faster in the micro ITLA. For the transponder demand it could drive to 70/30.

Okay and I assume you've got pretty good handle on the margins on the product at this point and you think you're feeling comfortable that those margins as they ramp will be comparable to your conventional ITLA business?

Yes.

Let me shift gears to the tunable XFP side. I'm a little puzzled by the commentary because I'm not sure I understood it. The first one is you made the comment that you're fixing the issues and that you expect to ramp this to a point where it can be positive contribution to 4Q calendar, the December quarter so I think in past you've talked about $4 million to $5 million in revenue run rate for that to be breakeven. Is that what you mean by contribution or are you meaning that it will have a gross margin contribution to covering your overhead?

Let me just clarify that June quarter, we lost about $2 million with very minimal revenue, we cleaned the line. In the September quarter I think we're going to be exceeding $2 million in revenue from the tunable XFP. We'll be losing less than $1 million in projection but in the December quarter, (inaudible) revenues are going to be continuing to trend up to $3 million, $4 million. We'll have the positive gross income because R&D, SG&A levels still the same so that positive gross income is going to be contributing to the bottom line as well.

When you're talking about breakeven, that's a fully allocated version and what you're talking about here is a gross margin contribution to covering your overhead costs, your OpEx costs.

Right.

So it's not a breakeven product. Do you expect that to be able to reach breakeven quickly thereafter?

Yes, I think as we said before, at a $5 million level we're still holding, even though with some price erosion, but we have been making a lot of progress in cost reducing this product as well. At the $5 million quarterly revenue level we should be reaching breakeven for that product line standalone.

Second question, I understood that a big portion of the problem had to do with the testing system giving you false negatives on some of the inventory that you've written off. First off, is that accurate and second, if that is accurate, should we anticipate at some point some of that inventory will find its way back through the income statement and if that's the case, how do you plan to account for that?

It's a good question, Alex, but we were focusing on implementing the new (inaudible) software/firmware so we still had a (inaudible) in there. We haven't gone back and sourced through that yet so we have increased the demand from customers and we believe we have a very robust process to continue to improve and we do have superior product performance so our focus with limited resources at this point is just producing new products to meet a customer requirement. Then we'll go back and comb through those parts we set aside.

So have you fully resolved the software issue and the test interface issue so that it no longer is a problem and then you've got that resolved or is there more work to be done? How should we be thinking about where you are on the visibility of finishing that fix?

We got that resolved. We got that validated. We got that implemented so right now, it's in a production line not in an engineering lab anymore.

So as you're ramping that up, what risks do we have left on it?

I think this area we don't have a whole lot of good credibility because we tried so I don't want to promise anything but we are absolutely making solid progress towards step one in production. I feel good about it.

Okay, let me turn it over to the cable side. A lot of the discussion you've given here is around improved conditions on capital spending from the key customers, pretty generic stuff talking about CapEx on earnings release report and the like. Where are you in actually seeing the pickup in orders? I mean, P.O.s in hand speak a lot louder than what us analysts can do out on the street trying to figure out what cable spending is going to look like which is what you're seeming to point to.

Yes, so the P.O. in hand, the P.O.s in hand started from the month of June. We have been pushing very hard, pushing our customers but their supply chain basically was telling us early in the June quarter that they were sitting on a pile of inventories so they had to deplete that but we have continued to communicate with our customers and in the month of June we started seeing the purchase orders flowing in and that momentum is continuing and we are reaching out to our customers asking them to give a more outlook down the road so they start projecting two months, three months, four months down the road what the demand is going to be so that is what we're gauging from the market dynamics but in the past, as I said, in April if you asked customers, they would say we don't even know what the demand is going to be because we're sitting on a pile of inventory as well so they have since depleted that pile of inventory and then the orders start flowing to us.

Just to be clear, as you've looked out at the share issues, there is no share erosion issues or competitive dynamic changes or product obsolescence issues? This is strictly an inventory correction and seasonal swing in demand associated with the timing of rolling out the DOCSIS 3.1 plus the normal seasonality of ordering of CapEx. Is that correct?

Yes, so this is really just the seasonality and the inventory correction primarily. We did lose a little bit of share in the European market for laser components and receiver components but that only accounts for about 5% of our total broadband business revenue so for example, the $20 million number, we used to do $19 million, $20 million of which about $1 million is for the components from the European market but during the flood we were not able to serve multiple customer fronts and we lost some market share with those customers but the majority of the business decline was just the inventory correction and macroeconomics for the cable TV, not because of share loss.

I apologize for asking so many questions. I'll cede the floor, thank you.

(Operator Instructions)

And with that, I'm showing no further questions in queue. I'd like to turn it back to management for closing remarks.

Thank you very much for dialing in today. We plan to present at Citi's 2013 Global Technology Conference on September 3, 2013 in New York City and ROTH Capital Partners Semiconductor Corporate Access Day in San Francisco on September 9, 2013. We look forward to talking to you during those events. Thank you very much, bye.

Again, thank you ladies and gentlemen for joining today's conference. You may now disconnect. Have a great day.