NEW YORK ( TheStreet) -- Heavily shorted LED market sapphire substrate provider Rubicon Technology ( RBCN) easily beat earnings expectations after Wednesday's closing bell, sending the shares higher in after-hours action.

Bensenville, Ill.-based Rubicon reported fourth-quarter earnings of $15.4 million, or 64 cents a share, well ahead of the average estimate of analysts polled by Thomson Reuters for a profit of 50 cents a share in the December period.

The company's fiscal first-quarter outlook was also strong as it forecast earnings of 62 to 65 cents a share for the three months ending in March vs. the current average analysts' view of 52 cents a share.

Revenue of $29.5 million for the fourth quarter was ahead of Wall Street's consensus view of $26.8 million, as was the company's projection for revenue of $34 million to $36 million in the first quarter vs. the average analysts' estimate of $31 million.

Rubicon shares were last quoted at $24.85, up 17.7%, on after-hours volume of around 330,000, according to

Over the past year, short interest in Rubicon Technology shares has doubled to more than 10 million shares of the 22.9 million outstanding shares of the LED company (even higher if the float is taken into account). Fears of a sapphire market glut have dogged the company. The most recent Nasdaq short interest report as of Jan. 31 shows that the 10 million share short position in Rubicon Technology remained steady headed into earnings season.

Shorts had predicted that pricing would fall off, and there was a bearish call on Rubicon recently from Canaccord Adams for a fourth-quarter pricing peak.

Beyond the printed earnings number and guidance, the Rubicon results showed better-than-expected success with its 6-inch sapphire wafer, a premium product that generates higher margins.

It's an important differentiating factor for a company that has attracted heavy short interest based on the theory that margins will fall. Rubicon margins hits 63% in the fourth quarter. The company guided margins lower for the first quarter, but at guidance of high 50s for the first quarter, the margins are still healthy.

Commenting on the 6-inch wafer success, Rubicon CEO Raja Parvez said in the company's press release: "Revenue from our 6 inch polished wafers increased over 70 percent sequentially to $8.1 million in the fourth quarter. Demand for 6 inch wafers is increasing and we expect significant growth in this product in the second half of this year as more LED chip manufacturers have announced their intention to move into production on 6 inch wafers later this year."

Rubicon Technology earnings does not tend to be a sideways trade, and whether it's up or down, it's usually by a hefty percentage of share value, consistent with the volatile nature of LED stocks.

Bullishly inclined analysts at D.A. Davidson and Kaufman Brothers didn't see any slowdown in Rubicon's business during the fourth quarter, and the company backed up the bullish view.

Reacting to the results, Ross Young, senior v.p. and analyst at IMS Research wrote in an email to TheStreet that the 6 inch volumes grew faster than expected. He also noted Rubicon is bringing polishing in-house, which boosts margins, and that margins were still high, even in the other sapphire wafers, not just the 6-inch.

"The fact that they outgrew guidance at 6 inch contributed to their beat on margins. Also, as one of the top tiered suppliers, they are likely feeling less pricing pressure than 2nd and 3rd tier suppliers," Young said.

The big earnings beat and guidance raise doesn't mean it's onwards and upwards for Rubicon in the long-run, but that could be the case in the short-term. The company still facing growing competition from the likes of solar sector arms dealer GT Solar ( SOLR) which has entered the sapphire equipment business, and there is still significant risk of an overheated LED market based on the pace at which China is ordering LED tools.

The competition and supply/demand situation means that pricing and margins will have to trend down at some point, but the 6-inch wafer success also demonstrates that Rubicon may be able to better defend its margins in this environment.

"As the mix shifts to larger wafers, Rubicon can hold margins even with prices declining," Kaufman Brothers analyst Jeff Bencik said in an email to TheStreet.

-- Written by Eric Rosenbaum from New York.


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