Rubicon Technology, Inc. (RBCN)

Q2 2012 Earnings Call

August 2, 2012 5:00 p.m. ET


Dee Johnson - Vice President, Investor Relations

Raja Parvez - President, Chief Executive Officer and Director

William Weissman - Chief Financial Officer, Treasurer and Secretary


Avinash Kant - D. A. Davidson & Co.

Jed Dorsheimer - Canaccord

Chris Blansett - JPMorgan

Andrew Abrams - Avian Securities

Mahavir Sanghavi - UBS

Andrew Huang - Sterne Agee

Brian Lee - Goldman Sachs



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Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Rubicon Technology Incorporated Earnings Conference Call. My name is Diana and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time all participants are in listen-only mode (Operator Instructions) We will be facilitating a question and answer session following the presentation. I would now like to turn the presentation over to Dee Johnson, Vice President of Investor Relations. Please proceed.

Dee Johnson

Thank you, Diana. Good afternoon, everyone. We are pleased you could join us today for Rubicon's second quarter 2012 earnings conference call. With me today are Raja Parvez, Rubicon's President and Chief Executive officer, and Bill Weissman, Chief Financial Officer. We have allotted one hour for our call this afternoon. Raja will provide an overview of second quarter results of operations and discuss the current market environment, and then Bill will review our financial results in detail and discuss our outlook for the third quarter of 2012. We will then be happy to take your questions.

Today's call is being webcast through the Investor Relations section of our website located at . A replay of this call will be available for eight days and the webcast will be archived in the Investor Relations section of our 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 statements are necessarily subject to risks, uncertainties and assumptions of the future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the 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, Dee. Good afternoon everyone and thank you for joining us today. Revenue for the second quarter increased to $17 million from $10.2 million in the prior quarter with sales increasing for both six-inch wafers and smaller diameter core. Revenue from six-inch wafer sales increased 84% sequentially to $10.1 million and represented 59% of revenue for the quarter. Toward the end of the quarter, we resumed shipping six-inch wafers to our largest LED customer after a pause in their purchases due to excess inventory.

Also our six-inch sales to the silicon on sapphire market continued to increase, growing 62% sequentially to $7.4 million in the second quarter. Sales of 2 through 4-inch core doubled sequentially to $5.3 million in the second quarter as LED demand strengthened with increased utilization rates at most LED chip manufacturers. As expected substrate pricing remained low in the second quarter, particularly for 2 through 4-inch cores. LED demand has improved, however the industry is certainly not at full utilization in all regions.

More importantly, inventory levels at the major sapphire suppliers is being reduced but remains higher than normal which continued to keep pricing low. Gross margin was breakeven in the quarter, a sequential improvement of over 33 percentage points with increased revenue from higher margin large diameter wafer and corresponding improvement in utilization of our policing operations. And our operating loss was reduced from $6.6 million in the first quarter to $3.1 million in the second quarter. Lower 2 through 4-inch core pricing continues to be a drag on margins but we expect the pricing environment to improve as sapphire inventory levels are further reduced.

I am pleased with the growth in our six-inch wafer business in the quarter and expect additional growth in the second half of the year. While the down cycle in the LED market has delayed broader adoption of six-inch substrate among LED chip manufacturers, we saw a strong growth in the quarter from both SOS and LED market.

For those of you who are not familiar with the SOS or silicon on sapphire is a process develop by our customer to produce high performance radio frequency integrated circuits which are used in a variety of application but most notably in smartphone. It is a disruptive technology that is beginning to displace the legacy solution of multiple Gallium Arsenide chips with a single monolithically grown chip produced on a sapphire substrate. Using a six-inch sapphire wafer as a substrate, the SOS chip offers superior functionality to the legacy solution, including faster data throughput, reduced power usage, smaller form factor and reduced cross-talk.

As a result this technology is rapidly gaining market share. We have worked closely with our customer over the years and I am very pleased to see the success they are having now. Regarding six-inch adoption in the LED market as I mentioned, the recent weakness in this market resulted in low utilization rates at our customers. While most of the major LED chip manufacturers continue development work on six-inch, the focus recent has been on improving the utilization of their existing platform. Utilization rates have been gradually improving and we expect to see one or two more of the major chip manufacturers to begin using six-inch substrate in production in next year.

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