Rubicon Technology CEO Discusses Q3 2010 Results - Earnings Call Transcript
Rubicon Technology Inc. (
)
Q3 2010 Earnings Call
November 4, 2010 5:00 pm ET
Executives
Bill Weissman - CFO
Raja Parvez - President and CEO
Analysts
Jed Dorsheimer - Canaccord
Chris Blansett - JPMorgan
Stephen Chin - UBS
Anil Doradla - William Blair
Avinash Kant - D. A. Davidson & Co.
Yair Reiner - Oppenheimer & Co.
Ahmar Zaman - Piper Jaffray
Andrew Abrams - Avian Securities
Bill Ong - Merriman Capital
Andrew Huang - Sterne Agee
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the third quarter 2010 Rubicon Technology earnings conference call. (Operator Instructions)
I'll now turn the presentation over to your host for today's conference, Mr. Bill Weissman, CFO.
Bill Weissman
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Good afternoon, everyone. We are pleased you could join us today for Rubicon's third quarter 2010 earnings conference call. My name is Bill Weissman, and I'm Rubicon's Chief Financial Officer. With me today is Raja Parvez, Rubicon's President and Chief Executive Officer.
We have allotted one hour for our call this afternoon. Raja will provide an overview of third quarter results of operations and discuss the current market environment. And then I will review our financial results in detail as well as discuss our outlook for the fourth quarter of 2010. We will then be happy to take your questions.
Today's call is being simulcast through our Investor Relations section of our website located at www.rubicon-es2.com. A replay of this call will be available for eight days and the webcast will be archived in the Investor Relations section of the website. As a reminder, our press release and preliminary financial statements are also available in the Investor Relations section of our website.
Before we begin, please be advised that certain statements in this presentation relate to future results that are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties and assumptions as to future events that may prove not to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.
Now, I'd like to introduce our President and CEO, Raja Parvez.
Raja Parvez
Thank you, Bill. Good afternoon, everyone, and thank you for joining us today. The third quarter was another very strong quarter for Rubicon with revenue increasing 30% sequentially to $20.5 million and gross margin rising another 8 percentage points to 54%. Diluted earnings per share in the quarter reached $0.35, a sequential increase of $0.17 per share.
Demand continued to be strong from the LED market with chip manufacturers continuing to add significant capacity as they install new MOCVD reactors in response to the projected rapid growth in the LED industry.
As a result of this strong demand, average selling prices for our substrates increased approximately 30% sequentially. While overall demand remained strong, there has been an increased level of inventory of LCD TV panels in the supply chain, which has resulted in some softening of demand for sapphire substrates in certain geographies.
So far, this has concentrated around a few customers that are more heavily focused on TV backlighting. Demand in most geographies and for the most applications has more than offset the temporary easing of demand for our TV backlighting in the third quarter.
We anticipate a similar situation in the fourth quarter and expect substrate pricing to increase in Q4 by at least 15% sequentially. Bill will comment more on our outlook for the fourth quarter in a few minutes.
Regarding the LED TV market, our customers expect the current excess panel inventories to clear out in the next few months. We could see some continued weakness in this segment in the short term. But again, demand from other applications has thus far more than compensated for this.
It is also important to remember that the penetration rate of LEDs in televisions is still quite low. Some analysts estimate the penetration rate of LED backlighting in LCD televisions in 2010 to be approximately 20% moving to 50% in 2011, indicating that there is still significant growth expected from this market segment in 2011 and subsequent years.
Revenue for 6-inch wafers increased from $4.4 million in the second quarter to $4.7 million in the third quarter. Demand for our 6-inch polished wafers continues to strengthen, and our polishing operation in the U.S. was operating at full capacity in the third quarter.
As our additional capacity begins to come online, we expect revenue from this product to become a larger percentage of our total revenue, with $71 million of sales already contracted through 2011.
Prices of all products increased in the quarter, with pricing for 2-inch sapphire core increasing the most. There are two key reasons for this. First, additional MOCVD reactor installations in Taiwan and China increased demand for 2-inch sapphire. And second, some of the larger 4-inch users are more focused on TV backlighting, which experienced some softness in the third quarter.
While three and 4-inch core pricing also increased in the quarter, there was greater imbalance in the supply and demand for 2-inch sapphire, resulting in a larger increase in pricing for that product. Consequently, 2-inch sales represented 46% of our substrate revenue in the third quarter as compared to 28% in the previous quarter.
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