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Emcore Successfully Transitions Despite Worse Economic Environment in 20 Years
November 15, 2003...Emcore Corporation of Somerset, New Jersey USA (and Albuquerque, New Mexico and Alhambra, California) hosted its first earnings report conference call since announcing the sale of the company's TurboDisc division to Veeco Instruments, reporting FY '03 earnings, which reflected that Emcore is already well on its way toward becoming a company totally focused on materials, components and subsystems. Prior to the call, Reuben F. Richards, Jr., President and CEO of Emcore, commented in the company news release that included the earnings report details, “The divestiture of the MOCVD division is obviously an important strategic realignment of the Company’s business lines into higher revenue growth opportunities. It represents an exciting time for us. We are now completely focused on the markets in which we see the most significant long term growth.” And addressing the challenges Emcore now faces, he added “While the optical market has been challenging, Emcore has made a successful transition in what many consider to be one of the worst economic environments in twenty years. While we have sold the capital equipment business, we retain the process technology base to continue to improve both production efficiency and device design. Consequently, there are even greater opportunities for growth and profitability that will benefit both employees and investors alike.” During the call, Reuben underscored that GELcore, Emcore's HB-LED integration joint venture with GE, has officially turned profitable, (+$107,000) and has required no subsidizing from either of its parent companies during the past fiscal year. For the latest update on where Emcore is now headed, and a closer look at precisely what part of Emcore is making the transition to becoming Veeco, and what remains at Emcore's Corporate HQ and materials foundry in Somerset, we refer you to The McDonald Report, this issue, titled Emcore In Focus.
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Emcore in Focus
November 15, 2003...The name of the game now, at least in the telecom sector, is obviously recover and rebuild. That's why we've selected "Recover and Rebuild" as the theme of the upcoming annual Compound Semi Outlook Conference (Dec. 15-17 in Dallas). From what was clearly Emcore's most notable and pivotal fiscal yearend earnings report and conference call (held Thursday, November 13th from Emcore corporate headquarters in Somerset, New Jersey USA), and after talking with various people within Emcore, my assessment is that the company is taking the kind of self initiative needed right now to get the telecom industry (and other beleaguered application sectors) back on track. As you can see in our news coverage, Reuben Richards was bold enough to underscore that this is, indeed "what many consider to be one of the worse economic environments in twenty years." I fully agree.
Emcore's solution is an excellent case study for others. One needs only to take a good hard look back at what has evolved over those 20 years, at what inflated The Bubble and finally caused it to burst, and then track the dramatic changes that have taken place during the ensuing recession. From there, a smart company takes complete stock of itself and chooses the right fresh new path that holds the best chance for recovery of the entire, close knit international communities that revolve around a given company and its markets. Then you roll up your sleeves and get to work, and focus, focus... focus! In the case of fielding the industry's best MOCVD platforms during an unprecedented international buildup, Emcore people, past and present, can look back and say Mission Accomplished. That's the message that was inscribed on the classic gold watch given to Bill Kroll when he retired as Emcore's Executive VP in 2000. In addition to helping take Emcore public and creating their "Integrated CS Solutions" slogan, Bill was a catalyst in establishing GELcore. All of us who were in on the hey days of the late 1990s should feel much the same way: "Mission Accomplished."
In this devastating downturn, the key is creating a "win-win," especially during an acquisition phase. The win on both sides is one that lessens the bleeding and keep layoffs and further painful cutbacks to a minimum. That's really all the current economic climate permits us to do. Unemployment in the advanced technologies remains tragically high, those with jobs haven't seen a raise in over a year, and many of us in entrepreneurial endeavors are literally working for free just to keep things going. Considering the obstacles and challenges, and so many unforeseen turns of events on the global political and economic fronts, Emcore appears to have pulled it off as successful a "win-win" scenario as possible.
After the unprecedented buildup of GaN tools in Asia and in the USA, both TurboDisc epitaxial reactors and Aixtron's Planetary reactors, have probably taken MOCVD technology to a plateau, at least for the time being. While there will likely be sustainable growth in the design, production and purchase of epi tools, both MOCVD and MBE, with so many companies still facing undercapacity on their manufacturing fabs floors, we're not likely to see any dramatic ramps for awhile, except perhaps in oxide tools as the silicon industry gets back on track and climbs on the epi bandwagon. And if there should be a sudden surge in the compounds, Emcore wisely retained "favored nation status" with Veeco to conveniently obtain any tools they'll need over the next few years. The most likely to succeed will be those who don't just add more tools, but those who maximize their tools to produce higher and higher yields. Emcore, like their counterparts who have years of epitaxial growth experience, are building on their proven processing intellectual property (IP) and constantly innovating.
Emcore sold Veeco the hardware IP, but it retained the TurboDisc process IP that some feel are the true Crown Jewels of the industry. Emcore's long-established epiwafer material foundry in Somerset is doing quite well, with an increased backlog and healthy new bookings. Plans are for Veeco to occupy the Belmont Avenue facility and continue business as usual on the tool production side, and as the walls go up between the two, Emcore reopens their entry on Elizabeth Avenue, as Veeco's neighbor. It's a nice neighborhood. No need for anyone to move. Veeco management immediately came in and started to get to know their newly acquired employees after the acquisition was announced. Email addresses are changing, and layoffs (though painful, as always, for everyone involved) were minimal, with Emcore picking up the severance.
Emcore's Albuquerque manufacturing facility is going strong, renting excess space for the time being to neighboring, fabless companies on the upswing. That neighborhood includes Sandia National Labs and the University of New Mexico, with commercial activities continually spinning off and around both. After 20 years of installed TurboDisc processing experience under the industry's belt, the hand-on use of ones favorite tool in a state-of-the-art facility is a major draw. And it looks like the satellite launch business is on the upswing, with 15 launches planned for '04. Emcore's solar products are firmly entrenched in the satellite communications field, and with virtually no competition now in high efficiency solar cells, Emcore's satellite business boils down to the total number of new launches.
The work Emcore's Ortel group is doing in Alhambra, California, appears to be indicative of where Emcore sees especially promising prospects. As Reuben put it in the earnings report, "The high-speed data and telecommunications markets will see substantial growth in the coming years and that is the market we will continue to focus on and profit from. With that focus we expect Emcore to achieve positive operating income during fiscal year 2004.” The 10G business that revolves around 1310nm is where the prospects look best, and Emcore is going to mine that field hard. The acquisition of Molex' 10G transceiver business, though small on paper (less than $1 million) the people, their expertise and customer base, and the IP acquired, fortifies the Ortel offerings in 10G and provides a more complete product portfolio. With Emcore's legacy 850nm VCSEL expertise, which it originally acquired years ago, from VCSEL pioneers at Mode, VCSEL technology remains a basic building block process to get the sustainable lines needed to conquer major market share in 10G fielded systems.
And Emcore's GELcore just turned the corner to profitability. GELcore, an advanced LED joint venture between Emcore and GE (Emcore owning 49%, GE 51%), has officially matured to the point where it hasn't needed an allowance from either of its parents now for a full year. And further, GELcore has made quite a name for itself in this, the only CS sector to be thriving, riding on the apron strings of the GE name recognition, and the young JV's products can literally be found on the shelves of WalMart. Products can't get more mainstream and high volume than that! GELcore buys its die from various providers, adds tremendous value all the way up the supply chain from there, and rolls out finished product to the end user. Their blue spectrum work, headed eventually to literally replace the Edison white lightbulb, earns GELcore a preferred speaker slot now at the leading advanced LED international meets, including our own Blue 2003 last June in Dallas and follow-on Blue 2004 in Asia next May, and the famed HB-LED industry summit conference, Strategies in Light which has just unveiled their full conference program for February 2-4 in San Mateo, California.
Having nourished the industry with good tools, Emcore is moving on up the foodchain... with $86 million in the bank and expectations to turn the corner towards profitability again, and become a $90-100 million company in FY '04. They've clearly accomplished a major mission in helping provide the compound semi industry with the tools that pushed the compounds to areas in solid state lighting and lasers, into hostile environments, and extended wireless and optoelectronic communications into realms silicon could never have taken us. With TurboDisc changing to Veeco, the wind is now taken out of the sails (and sales) that leveraged the tired mantra of TurboDisc "competing with its customers." And we're all glad that's over. With Veeco being able to offer both MBE and MOCVD, the tool game will change, slightly, with the most exciting prospects possibly coming to the fore as the compounds converge with silicon. Veeco is already taking the initiative in educating the silicon industry on the prospects of moving to epitaxy and clustering tools to attain the geometries necessary for next gen ICs and other smaller, smarter components.
We look forward to hearing from both Veeco and Emcore at CS Outlook in December, and to hearing from other companies that have fresh ideas about how to get the communications sectors back on track and expand compound semi expertise and experience into even more exciting fields. This may indeed be the worse economic climate in 20 years, but traditional industry leaders, like Emcore, aren't going to sit on the sideline and watch any more companies go under... and certainly not their own. They're fighting back. They're taking the initiative. And when things truly do turn around and all those talented EE's and support people get back to work, the companies those are the companies that will deserve the credit.
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