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Rubicon Reports Decline In Q3 Revenue

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Two-inch LED substrate demand down but bright outlook for sapphire substrates

Rubicon Technology, a provider of sapphire substrates and products to the LED, semiconductor, and optical industries, has third quarter revenue of $8.0 million, at the low end of  its previous guidance range. Revenue declined by $6.5 million sequentially, of which $5.5 million was attributable to lower two-inch core sales in the period.

With the LED market migrating from two-inch to four-inch substrates, much of the remaining two-inch demand comes from the mobile device market. William Weissman, Rubicon's Interim CEO and CFO commented: "While usage of two-inch material for the mobile device market continued to grow in the third quarter, that demand was largely satisfied by the considerable inventory of two-inch material in the supply chain. In addition, there has obviously been capacity added in the marketplace this year to serve the mobile device market.

"As a result, there were limited opportunities to sell two-inch material in the quarter. However, we are seeing a meaningful increase in two-inch orders in the fourth quarter."

The company reported continued progress with the introduction of its patterned sapphire substrate (PSS) product. Mr. Weissman said: "While the progress in PSS is not yet meaningfully reflected in our revenue, we are now qualifying with nearly all of the world's top-tier LED chip manufacturers. The size of the orders from certain customers will begin to increase over the next six months as we progress from initial qualification toward full qualification with those customers. We expect production orders by mid next year and, based on the progress we are making, we believe that our PSS capacity should be fully utilised by the end of next year."

GAAP loss per share in the third quarter was $0.53 and included certain non-cash charges, the majority of which were associated with changes made to the company's polishing platform in order to reduce product costs. Excluding these non-cash charges, non-GAAP loss per share was $0.36 in the third quarter, as compared with the company's guidance of a per share loss of between $0.39 and $0.44, due to a combination of reduced product costs and product mix.

Fourth Quarter Guidance

Commenting on the outlook for the fourth quarter of 2014, Mr. Weissman said: "We expect continued progress in growing the wafer business, particularly with PSS wafers. We are seeing improvement in the two-inch market, however, pricing remains very challenging. Although the pricing environment improved in the first half of the year, the excess supply of two-inch in the third quarter drove pricing for two-inch core 30 percent lower than the previous quarter. With inventory levels of two-inch material in the supply chain declining, we hope to see improvement in two-inch material pricing in the first quarter of 2015. 

"While we are seeing increasing interest in two-inch material in the fourth quarter, four-inch demand is very weak due to seasonality in the LED market. While the general lighting segment is growing steadily, the backlighting market continues to represent a large portion of overall LED demand and that segment continues to experience seasonality with the fourth quarter typically being the weakest quarter. This year, the seasonality is more impactful because of a higher level of inventory in the supply chain. As a result, we expect fourth quarter revenue to be similar to the third quarter but then to begin improving in the first quarter with a recovery in the four-inch market along with continued growth in our wafer business. We expect our GAAP loss per share in the fourth quarter to be between $0.38 and $0.42. While we expect continued reduction in product costs, the quarter will be impacted by the reduced core pricing and product mix."

Finally, Mr. Weissman stated, "The outlook for commercial sapphire remains very bright, with strong growth expected from both the LED and mobile device markets. However, the sapphire market remains a relatively young industry with new applications, seasonality and changes in the competitive landscape. Like other advanced materials industries, as the industry matures, the industry leaders will be companies with scale, but more importantly, with the strongest capability in terms of vertical integration. While the build out of our vertical integration model is costly in the near-term, we believe it will position us well to continue to innovate and capture significant market share in the evolving LED market."



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