Revenue decreased both year-over-year and sequentially, largely as a result of weak demand from the LED market

Rubicon Technology, a provider of sapphire substrates and products to the LED, RFIC, semiconductor, and optical industries, has reported financial results for its fourth quarter ended December 31, 2011.

Fourth quarter revenue was $19.4 million, slightly below the range of its management’s November guidance. 

 



 

Gross margin in the fourth quarter was 12.1 percent, which was impacted by reductions in pricing and by lower utilisation of the Company’s fabrication and polishing operations. Operating loss was $0.7 million, offset by a reduction of the full year tax rate to 30.3 percent, resulting in fourth-quarter earnings of $0.04 per diluted share.

 



 

Raja Parvez, President and CEO of Rubicon Technologies, commented, “Market conditions were very challenging in the fourth quarter. Demand was limited, for both sapphire wafers and cores, because of excess inventory in the LED supply chain. We are now beginning to see some improvement, however, with orders for two through four inch cores increasing in the first quarter. We have continued to maintain high utilisation of our crystal growth facilities throughout this slowdown because we are confident that demand will be strong in the second half of 2012. The LED industry’s largest potential market, general lighting, is in its infancy, and the more established markets for LEDs such as consumer electronics and the automotive industry have plenty of growth opportunities as well.”

Rubicon previously disclosed that it signed a new agreement with its key customer for six inch polished wafers which outlines a base level of shipments from June through December 2012. The Company’s previous agreement with this customer expired in December 2011. Due to the challenging market conditions, the Company gave certain concessions to this customer in the fourth quarter by reducing the volumes and pricing requirements under the previous contract. Rubicon also provided accommodations to certain other key customers of its two through four inch cores and consequently wrote off $1.7 million of accounts receivable in the fourth quarter.

“We have worked very closely with our major customers to help them through this challenging period and to ensure that our relationships remain strong and mutually beneficial,” Parvez continued. “We are pleased to have signed a 2012 contract with our foremost large-diameter substrate customer. The use of large diameter sapphire substrates is expected to grow significantly in coming years as LED chip manufacturers continue to look for ways to drive greater efficiency throughout the supply chain. As the most experienced and reliable supplier of large-diameter sapphire substrates, Rubicon is well positioned to benefit from this trend. ”

“We are moving steadily forward on the initiatives that will further extend our cost leadership,” continued Parvez. “We are increasing our vertical integration by deploying our internally developed raw material processing capability, which we expect will decrease our raw material costs by at least 20 percent when fully implemented. We are relocating much of our slicing and polishing capacity in Illinois to our new facility in Malaysia which will be our primary finishing location as the market improves and will provide state-of-the-art capability in a low-cost environment.”

The Company ended the fourth quarter with $55.0 million in cash and short-term investments and no debt.

First Quarter 2012 Guidance

Commenting on the outlook for the first quarter of 2012, Parvez said, “We are seeing signs of improvement in the LED market in the first quarter. Orders for two-inch through four-inch cores have begun to recover somewhat but, given that it is early in the recovery, prices remain low. Our LED customers have substantial inventory of 6 inch polished wafers, and we expect few orders from that market segment in the quarter. In the Silicon on Sapphire (SoS) market, demand for large-diameter wafers continues to grow, but this is a smaller market. As a result, we expect that total revenue for the first quarter of 2012 will be between $8 and $12 million. At this level of revenue, and with further reduced utilisation in our fabrication and polishing operations this quarter, we anticipate a loss of between $0.10 and $0.14 per share in the first quarter. I believe that as pricing and utilisation improve we will gradually move back to our targeted gross margin of over 40 percent.”

“We expect capacity utilisation among the LED chip makers to continue to improve throughout the first half of this year,” Parvez added.

“Looking beyond the first half of 2012, the outlook for sapphire substrates is for very strong growth, as LEDs gain momentum in the general lighting market, where LED penetration presently is only in the single digits, and as LED penetration into the auto market continues and the backlighting market strengthens. Rubicon continues to be the market leader in terms of capability and cost, and we are well positioned for the market rebound,” he concluded.

Conference Call Details

An audio replay of the conference call hosted by Rubicon to review the fourth quarter 2011 results and the first quarter 2012 outlook will remain available until 11:59 p.m. Eastern time on March 1, 2012, and can be accessed by dialling

(888) 286-8010   (from within the U.S.)  or (617) 801-6888 (from outside the U.S.)

Callers should reference conference ID 26365848.

The webcast is also archived on the company's website.