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Q2 2008 Emcore Earnings Conference Call - Final

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OPERATOR: Good morning, ladies and gentlemen. My name is Jenny Lee, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Emcore Corporation second quarter fiscal 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. Following the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded. Listeners can also log on to www.emcore.com to access the webcast. Thank you. It is now my pleasure to turn the floor over to your host Mr. Victor Allgeier of TTC Group. Sir, you may begin your conference.

VICTOR ALLGEIER, INVESTOR RELATIONS CONTACT, TTC GROUP: Good morning everyone. After the close of markets , Emcore released it's fiscal 2008 second quarter and six months result by now you should have received a copy of the press release. If you have not received the release, please call our office at 646-290-6400.

With us today from Emcore are Reuben F. Richards, Jr., Executive Chairman, Dr. Hong Hou President and Chief Executive Officer, and Adam Gushard, Interim Chief Financial Officer. Adam will review the financial results and Reuben and Hong will describe the business highlight.

Before we begin we would like to remind you that come of the comments made during the conference call and some of the responses to your questions by management may contain forward-looking statements that are subject to risks and uncertainties as described in Emcore's earnings press release and filings with the SEC.

I'll now turn the call over to

ADAM GUSHARD, INTERIM CFO, EMCORE: Thanks Vic and good morning to everybody. I think it's best if I start by saying what a quarter. We've accomplished a lot over the last three months included we've concerted $85 million of debt to equity, we raised $100 million in equity placement. We completed two of the largest acquisition in the companies history and we received clearance from the SEC regarding their investigation of last years stock option restatement.

We settled the derivative class action lawsuit which was completely covered by insurance proceeds and if that is not enough we had a deal with false and misleading attacks on our recently launched solar power terrestrial business and its customers, from aggressive shore positions. So we've been very busy but before I dive into those significant accomplishments, let me focus on the results for our second quarter ended March 31st. Then afterwards I'll provide some financial guidance for the second half of fiscal 2008 and look to get everybody comfortable on our targets. Starting with the P&L consolidated revenue for the quarter was 66.3 million. This represents a revenue increase of over 42% when compared to last year and a revenue increase of 20% when compared to last quarter.

Consolidated revenue for the six month ended March 31st, exceeded 103 million, which represents an increase of 32% when compared to last year. Both of our operating segments posted significant increases in quarterly revenue when compared quarter-over-quarter and year-over-year. On a segment basis, fiber optics revenue totaled 37.6 million. That is a 44% increase when compared to last year and an 11% increase when compared to last quarter. For the six months ended March 31st, fiber optics revenue increased 39% when compared to last year exceeding $71 million.

During the quarter we recognized revenue slightly ahead of budget with continued success regarding revenue growth from our data comp product line. Photovoltaics revenue for the quarter total 18.6 million, that is a 39% increase when compared to last year and a 44% increase in revenue when compared to the last quarter. For the six months ended March 31st, Photovoltaics increased 19% when compared to last year, exceeding $31 million. The significant increase in revenue was due to the launch of new concentrator Photovoltaics or CPV products for solar power applications.

Total revenue from CPV components and systems was $4.4 million for the quarter. That is over a $4 million increase of CPV related revenue when compared to last quarter. Next quarter CPV is expected to increase dramatically again as production ramps on our first CPV manufacturing line which is placed in March, now will be in production for the entire June quarter. By the end of quarter three production is also going to benefit from the operation of three totally separate CPV manufacturing lines in Albuquerque.

Moving on to gross profit and margin excluding stock based compensation expense, fiber optics gross margin exceeded 24% for the three and six months ended March 31st. As expected our fiber optics gross margins continue to increase due to increased revenue, lower manufacturing overhead costs due to restructuring efforts we completed last year and objectives achieved at our low cost manufacturing facility in China. Comparing results to last year gross margin significantly increased from 17% and 19% as reported for the three and six months ended March 31st, 2007.

It's also important to note that fiber optics gross margins increased from the prior quarter even despite the fact that we incurred an expense transition charges from Intel relating to the telecom asset acquisition. In our Photovoltaics segment, as mentioned in yesterday's earnings release, we incurred approximately 6.3 million in inventory write down and start-up costs at our new solar cell receiver manufacturing line at our new CPV business.

During the quarter our Albuquerque fab capacity increased by 35%, which will enable us to ramp-up volume of CPV related products in the second half of fiscal 2008. Photovoltaics operations has spent a considerable amount of time and effort upgrading equipment and reorganizationing the fab to optimize the process flow. On a GAAP, basis Photovoltaics gross margins were negative 12% and zero for the three and six months, ended March 31st, adversely impacted by these nonrecurrent charges.

Excluding stock-based compensation expense and these one time P&L charges, Photovoltaics gross margin would have been 22% an increase from 17% from the previous quarter. On a consolidated basis adjusted gross profit and gross margin was 12.9 million or 23% for the three months ended March 31st. On a GAAP basis, consolidated gross margin for the quarter ended March 31st was approximately 12% adversely impacted by the 6.3 million of nonrecurrent charges. This represents a decrease from 18% gross margin as reported in the same period last year.

I should point out consolidated gross margin for the six months ended March 31st was 16%, which was higher than gross margin reported in the same period last year. Despite the fact that we incurred one time P&L charges in our Photovoltaics division and having also incurred transition service charges from Intel relating to our acquisition. Setting expectations for gross margin in the second half of fiscal 2008 we have forecast a continued improvement in fiber optics gross margins, due to anticipated quarter-over-quarter revenue growth. We also expect to recovery of Photovoltaics gross margin as more labor and fab overhead is absorbed by higher CPV product related revenue.

Moving on, operating expenses for the quarter totaled 19.6 million, on a GAAP basis operating expenses decreased for both the three and six months period when compared to last year. Referring to the non-GAAP tables I provided in yesterday's earnings release, operating expenses increased 2.9 million when compared to the prior quarter. This increase was due to our recent acquisition and new CPV product and business introduction cost. During the quarter we incurred 1.6 million in operating expenses associated with the acquisition of Intel telecom division and transitional services being provided by Intel.

Operating expenses also increased 1.4 million related to cost incurred developing our new terrestrial solar power product lines. The benefit of $1 million listed in the non-GAAP tables under the caption stock option restatement, is due to the settlement of our derivative class action lawsuit and reversal of accruals booked. As a percentage of revenue adjusted quarterly operating expenses decreased from 39% of revenue in the prior year to 35% of revenue in the current quarter. A trend which is expected to continue as revenues increase higher than operating expenses incurred to support such revenues. Operating loss for the three months ended March 31st, totaled 12.9 million.

On a GAAP basis operating loss decreased from both the three and six month period when compared to last year. Excluding stock-based compensation expense and other nonrecurrent charges, our adjusted operating loss for the three and six month ended March 31st totaled $6 million and $11.9 million respectively. Adjusted net loss for the three months ended March 31st totaled $6 million or $0.09 loss per share. For the six months ended March 31st adjusted net loss is 12.7 million or $0.22 loss per share.

On a GAAP basis net loss for the three and six months period ended March 31st, totaled 17.5 million or $0.27 loss per share and 31.9 million or $0.55 per share, respectively. Closing out with a few more highlights regarding P&L for the quarter. If you simply back out the debt conversion charge of $4.6 million which most of you have already discounted, Emcore would have posted its best quarter over the last year and a half. Depreciation and amortization totalled approximately 4.7 million for the quarter and adjusted EBITDA after excluding one time charges in the non-GAAP tables and a nonrecurrent P&L charge incurred this quarter totaled negative 1.3 million.

Now if you exclude the 1.1 million Intel [TSA] charge we incurred in March, adjusted EBITDA dropped to negative 200,000. Now turning to the balance sheet as of March 31st, 2008, total cash, cash equivalence, markable securities and long term cash investment total 30.5 million. This represents a net decrease of 600,000 from the prior quarter.

As a reminder, in February we raised 94 million net of issuance cost via private equity placement involving eight million shares of our common stock and some warrants. Emcore used 75 million of the net proceeds to acquire the telcom assets of Intel's Optical Platform Division. Our cash flow statement, which will be filed with the SEC on Monday as part of our form 10-Q should highlight generated positive cash flow from operations for the six months ended March 31st. Also during fiscal 2008 the Company purchased approximately 9.6 million in equipment to develop and manufacture CPV component systems. Increases in working capital mainly AR inventory, as well as increases in fixed asset, intangible assets, and goodwill relate to our telecom asset acquisition.

The balance sheet does not include the second asset acquisition relating to Intel's storage and connect cable business since that deal was closing in April 2008. As I mentioned before our balance sheet is now debt-free and a debt conversion to equity will result in reduction of future interest payments of approximately 4.7 million on annual basis through May 2011. Our balance sheet still includes 13.5 million investment in WorldWater and Solar Technologies listed on NASDAQ as WWAT.OB. This investment is on our balance sheet at original cost. Value based on $0.27 per share price.

Our balance sheet does not reflect the appreciation and equity value based on WorldWater recent stock price and at the current market value our investment in WorldWater is worth $50 million. Share dilution totaled 21.4 million shares for the quarter. Detailed as follows. Convertible debt to equity 12.2 million shares, private equity financing, eight million shares, the Intel telecom asset deal was about 700,000 shares, and other option exercise 401(k) was half a million shares. These transactions increased outstanding share from 52.2 million shares to 73.6 million shares at the end of March.

Moving on to order backlog our order backlog is significant and continues to increase. Because of our order backlog we are more confident regarding our revenue guidance and financial performance in fiscal 2008 and beyond. As of March 31st, Emcore had an order backlog of approximately 158 million, compared to a backlog of 156 million as of December 31st. The March 31st order backlog is comprised of 133 million for our Photovoltaics segment and 25 million for our fiber optics segment.

Within our Photovoltaics segment 41 million relates to our satellite solar power business and 92 million relates to our terrestrial solar power business. Approximately seven million of the terrestrial solar power backlog relates to books CPV orders in Spain, which are expected to be completed by December 2008. Backlog does not include announced terrestrial solar power system agreements in Canada, South Korea and the U.S. since contract terms production requirements and delivery dates are still being worked out. Once this is finalize we'll be able to identify period for revenue recognition and announce signed contracts. Backlog also does not include recently announced orders after March 31st. Now before I turn the call over to Hong for his update in operations I would like to provide some financial guidance for the remaining half of fiscal 2008.

In April we announced the acquisition of Intel enterprise storage and cable's connect business. We are still compiling the numbers and expect to respin our financial forecast to include this acquisition sometime this quarter. At this point including this recent acquisition quarter three revenue is estimated to be approximately 77 to 80 million. Fiscal 2008 revenue guidance is now increased to 280 to 295 million based on current available information. The results from our fiber optics operations continue to exceed internal expectation.

Our broad band business is net income positive for the the six months ended March 31st. Our recent acquisition of Intel telecom assets was close to break even for the month of March and our data com base strong revenue growth quarter-over-quarter. Now although Photovoltaics gross margins were affected by some one time P&L charges this quarter, manufacturing operations has been restructured to execute on significant revenue growth for the second half of fiscal 2008.

And finally possibility is still the main objective for Emcore's management. Being debt-free other nonoperating income expense should be minimum going forward. Assuming consolidated gross margins return to the low 20s even on significant revenue growth and operating expenses remain in check, increasing only to support direct revenue growth and those expenses associated with the acquisitions. Emcore should be on track to be profitable by the end of September quarter and with that let me turn the call over to Hong for his operational update.

HONG HOU, PRESIDENT AND CHIEF EXECUTIVE OFFICER, EMCORE: Thanks Adam. Good morning, everybody. First let me start with an executive summary of our Q2 financials. The revenue was $56.3 million. That represent a 20% quarter-over-quarter growth. Adjusted gross margin was 23% with fiber optics at 24.3% and Photovoltaics at 22%. Adjusted EBITDA was approximately negative $200,000.

We increased our revenue guidance of Q3 to $77 to $80 million and revenue for fiscal year '08 to $280 to $295 million. In summary, Emcore achieved a significant revenue growth and met the guidance. We came in very close to the EBITDA break even target excluding the one-time adjustment.

Moving on, I will address the strategic opportunities and the trends that are affecting our businesses. Obviously Q2 has been a very busy quarter for Emcore. And we accomplished a lot. Several major developments have set Emcore on a much better path of the business drill and proposition.

Let me first discuss our business in the fiber optics area. We successfully closed this transaction of Intel telecom asset purchase for $85 million on February 22. Subsequently we have negotiated, signed and closed the acquisition of Intel's enterprise storage and connect cable businesses in April with 3.7 million share of Emcore's restricted stock. The asset include intellectual property, inventory, fixed assets and technology related to telecom products, such as tunable laser, sub assemblies and tunable transponders. XENPAK, X2, FFT and SOP Plus optical transceivers for total storage and storage area network customers as well as Intel connect cables, active cable interconnect for high performance computing clusters. This asset represents Intel investment of over a billion dollar in the last seven years. The technology an product highly regarded and accepted by the industry.

The customer base includes who is who of the telecom and datacom equipment OEM. The manufacturing of this product has been transitioned to outsource contract manufacturers. Many of the manufacturing is with the same company that Emcore has been partnering with for contract manufacturing services. So the integration is very manageable and the cost reduction synergy is being achieved already. We discussed the telecom business in our last call. It represents the fastest growing sector of the telecom components and sub systems business in the current agile communication network design.

According to some industry analysts the demand in this area will grow over 40% year-over-year. The connect cable product line based on parallel optical transceiver is a game changer for performance computing. Introduction in November 2007 it has gained acceptance by our major computer manufacturers. This product line will have higher profit margin and will be the fastest growing sector of the asset we purchased.

With the addition of enterprise product from this acquisition, we have the most complete product portfolio in some ten gigabit ethernet area to major customers. We are very hopeful that our execution on high quality, on time delivery, and competitive value along with an enhanced portfolio earn us a spot as a preferred supplier. This will help our future business development. The businesses acquired from Intel is expected to add approximately $50 million in revenue in our fiscal year 2008 and $140 million in our FY 2009. This will have positive contribution to our EBITDA as soon as we finish the transition service with Intel.

As Adam discussed the transition service is provided by Intel charged to Emcore with their cost structure to facilitate and utterly transition for the acquired asset from Intel to Emcore. Usually takes about two to three months. Our business from the internally developed product is experiencing a very rapid growth. The parallel optical transceiver used for data point interconnect is the main driver. The demand has increased significantly from Cisco from their switch and router platform called CRS1. After restructuring nine months ago, Emcore datacom business has been turning the corner and delivering over 15 to 20% revenue growth sequentially in the last three quarters. Our broad band business performs to expectation given the business seasonality.

The March quarter is historically the lowest revenue of the year. Cable TV and phone service providers, were slow in their effort for infrastructure upgrade in the first calendar quarter. However, in the recent earnings call, they all are commenting that they will be accelerating the CapEx spending. Talking to our customers in a recent quarterly business reviews, we feel that the fundamentals of the business remain very strong, and we are expanding our product offering to our customers. Despite some revenue decline for this business unit, we still achieved a healthy gross margin and achieved operational profitability in the last quarter.

Some cost reduction effort will materialize towards the second half of the year through our contract manufacturers. Our facility in China is producing in high volume on every product line we transferred. So we expect that this business to do well continuously. Gross revenue and gross margin in our fiber optics sector has increased from the previous quarter. The revenue increased approximately 10% from $34 million to $37.6 million and gross margin improved slightly from 24% to 24.3% sequentially. We forecast the fiber optics revenue to be in the range of $53 to $55 million for Q3 and further gross margin reduction -- gross margin improvement in Q3 ending on June 30.

The acquisition strengthened Emcore's position in fiber optics components and subsystem area significantly. With the added and existing product portfolio, Emcore is poised as a major player in broadband, telecom, enterprise and the high performance computing market with a competitive -- comprehensive product portfolio leading products and technology vertically integrated and absorb low cost manufacturing infrastructure for sustainable and a profitable growth in the future.

The remaining task and the focus for execution. Now let me discuss our solar Photovoltaics side of the business. There was several major achievement in the business development of the execution in Q2. We received 4.6 million follow on production order of solar cell receiver assembly from Extremadura in Spain.

As a leading concentrator Photovoltaics of CPV integrator, they were recently acquired by a major renewable energy company Renovalia in Spain. Where in our further discussion on long term supply contract for their projected businesses in late 2008 and 2009. We announced the supply contract with ES system in Korea early this week. The $28 million order with advance deposit to secure the production priority, is to be used in their fully licensed and founded solar projects. ES Systems has been procuring solar cell receivers under the existing supply agreement from Green and Gold Energy or GGE of Australia.

Recently GGE has been encouraging direct supply relationships between their major licensees and Emcore. We expect more orders from GGE the licensee, under similar terms in the near future. On the CPV system front, Emcore signed an agreement to supply CPV systems to XinAo Group in China. Pending successful evaluation on the initial 50 kilowatt CPV system to be shipped by the end of May, we see a requirement of minimum 60 megawatt of power for the XinAo innovative coal-gas vacation project in the next 24 months.

The revenue opportunity for this project, system sales initially and key component sales in tech transfer later, is well over $50 million. It's also important to note that the recent bookings are based on fully licensed and founded project from reputable renewable energy companies that have been engaging in this line of business for many years. Emcore solar cell receivers are widely recognized in the industry. We are the only company who offers 20 years performance and reliable warranty. The demand for over 20 customers is increasing and some of them are poised for volume deployment in 2008.

Our Gen2 CPV system is helping operating XinAo since January 2008. Generating electricity and fitting to the Emcore buildings in Albuquerque. It has been performing to and above the design target. In the meantime, many CE and UL certification tasks will performed on the systems. We expect to finish our reliability and compliance task in the next couple of months. We now have 50 kilowatt installation in our test field in Albuquerque.

Now let me discuss about the capacity increase. It's been involved in three levels of operations. For wafer fab our equipment purchased in 2007and Adam discussed over $9 million early on had been installed and put in production. The fab capacity increased about 35%. In addition to serving the sustainable demand for space applications, our current fab capacity can support more than 250 megawatt of CPV business.

As for the solar cell receiver manufacturing capacity, due to the delay in equipment delivery for our automated receiver manufacturing line, as we discussed previously, our first line was finally up and running in March. Our second automated line has entered into the volume production already and we expect to commence shipment from the third receiver line in June. These are installed in Albuquerque.

Combined the three lines we have a manufacturing capacity of 600,000 units per month or 20 megawatts per month by the end of this quarter. The fourth line is being set up in our facility in China and expected to be in production by August. So combined capacity of four assembly lines should be over 300 megawatts on an annualized basis. The manufacturing of the CPV system is currently done in our facility in Mexico. We have produced and delivered hundreds of solar based CPV modules. They have been shipped to Spain and being installed.

It is apparently more -- most cost effective to have the final assembly done at the site of the final installation. We are looking to establish the site of assembly as we are winning more projects in Spain. Manufacturing capacity can be ramped-up in two to three months and does not cost much capital to increase to edit the system level compared to other PV technologies. Therefore the return on investment for this technology is very attractive. So going forward the capital -- CapEx requirement for the system capacity ramp-up is very manageable.





As you know the solar power installation is still a policy driven business as a new feed-in tariff in Spain is announced and extension of the investment tax credit in the U.S., the installation will be accelerated in Spain and in the U.S. However, the current policy changed in Korea has stimulated the acceleration of the solar farm installation. Korean government has announced an increase of the total install capacity target from 100 to 500 megawatts while maintaining the solar power feed-in tariff equivalent to $0.73 per kilowatt hour for system deployed by September 30, 2008.

Moving on to space power side. Emcore is space lined in a number of new government satellite programs, some of the programs have been delayed due to congressional funding. We expect to receive new programs grants in the second half of the year. The demand from commercial satellite programs is pretty robust. We are in the final negotiation on the long-term supply agreement with a major aerospace company which represents a $35 million commitment over four years. As discussed by Adam, the revenue for our Photovoltaics business improved significantly from $13 million last quarter to $18.6 million this quarter. It represents a 44% increase sequentially.

The majority of the solar revenue growth is attributable to our emerging business in CPV component and systems, which totaled $4.4 million for three months ended March 31st, 2008. This represents over ten-fold increasing revenue when comparing quarter-over-quarter. CPV related revenue is expected to increase dramatically in the June quarter, as production ramps on multiple manufacturing line. The capacity ramp and new product introduction in our emerging CPV component and the system businesses, impose more cost than our original plan.

During the quarter, we took a total charge of approximately $6.3 million related to the inventory write down and one-time start up cost. This certainly drove to the gross margin. However it is a one-time event and the worst is behind us. We expect the gross margin to be at or above the historic level going forward. We expect the revenue from Photovoltaics sector for the June quarter, to be over $25 million. Of which the revenue from CPV business should be over $50 million. Furthermore, the CPV revenue for the September quarter is projected to be around $30 million.

As discussed by Adam in detail the debt conversion eliminates the debt and reduce the interest expenses from this point on. We reached $100 million through private equity financing to pay for the Intel asset acquisition. With debt-free and the cash in hand will be enough to execute our business plan for the year. We are focused to drive the profitability, we expect our operating profitability in the June quarter and a positive EPS in the September quarter.

Our backlog in Photovoltaics business area continue to provide a good visibility and diversity of customer base for a significant revenue growth. As of March 31st, 2008, the Company had an order backlog of approximately $158 million of which $133 million is for Photovoltaics segment and $25 million is for our fiber optics segment.

We forecast the significant revenue increase in the June quarter to be in the range of $77 to $80 million due to the CPV revenue increase and the Intel asset acquisition. We've increased FY'08 revenue guidance to the range of $280 to $295 million. With that I will turn it over to Q&A.

OPERATOR: Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from John Lau, Jefferies.

JOHN LAU, ANALYST, JEFFERIES & COMPANY: I wanted to talk to you and Adam I wanted to talk to you about the March quarter results. You mentioned that -- hello?

ADAM GUSHARD: Are you there?

JOHN LAU: Sorry about that interruption. In terms of OpEx you mentioned that they were higher due to some of the transitional cost for Intel. Do you anticipate that those costs will start to come down back down again after that transition is done?

ADAM GUSHARD: Absolutely that is correct. Right now those costs are being incurred at Intel and they are charging that to us and as we integrate that business with ours and the staff Emcore takes more responsibility on it's shoulders to run the business, we should see those costs come down.

JOHN LAU: And then second of all can you give us more color as to the backlog currently? There has been some significant changes since the March numbers that you posted. Can you give us a little more insight as to that and the quality of those orders coming in? Thank you.

HONG HOU: Yes. John, I can probably answer that question for you. Our backlog as you know most of the backlog is in Photovoltaics area. The nature of the business for Photovoltaics and fiber optics is very different. Fiber optics is almost just in time, the turn pipe of business. So even though the backlog is slow, but still we have very good visibility through the business engagement.

For the Photovoltaics side, in the past I think the backlog included some of the customers projections in what they can do in future years. In recent development has been more positive that most of the customers orders are based on the fully funded and fully licensed project and they have in this line of business as I discussed for many years. So if you have to say certainly we feel more comfortable to increase the capacity to meet the demand on those customers. Just a little bit on the -- the diversity of the customers also has been increasing. Everybody has a different way of doing business.

Some of them like to project up front and some of them like to qualify the product first. We as the leading supplier of the CPV receivers providing a product to over 20 customers, and the different stage of finishing and in new terms we will be negotiating with most of the customers are with advanced deposit to secure a production priority. To put a little bit more color on the service agreement with Intel, so it's not necessary for the transaction. We have the same manufacturing site and we have been able to hire other key people from Intel to continue the engagement and conducting the business.

But ERP system the enterprise reporting infrastructure for order entry, for utilizing and for material management production planning, is different from ours. It's going to take us about a couple months to transition all the data over to our site. When that is complete, project the cost for the integration will be reduced significantly. We will go with Emcore's structure.

JOHN LAU: Following up on your comments with regard to the order backlog and quality, can you comment a little bit more about the recent ES Systems order that you received on Monday? I know that it's replacing some of the original orders from Green and Gold. Can you tell us the pedigree of ES Systems? Is it fully funded and how that is giving you an increased confidence in your backlog? Thank you.

HONG HOU: We probably don't have a whole of information publicly available to the ES Systems. They are a company based in Korea. Has been in the silicon module manufacturing using some of the Japanese made silicon solar sells in the last decade or so. They have the installation for over ten megawatts throughout Korea already. The recent feed-in tariff changed really very nice catalyst for that marketplace.

$0.73 per kilowatt hour represents probably the highest feed-in tariff in the ES Systems. The license the contrib design from Green and Gold Energy many more couple of years ago refined that and really started in manufacturing , high volume manufacturing in February. So the $28 million advance deposit and the provision to accelerate the supply. So they project to pull pretty much out $28 million orders in the next 12 months. So in the interim I think probably in May there will be steel sourcing from both places, both through GGE and from us directly. I think in June there will be cutting over to the orders from them

REUBEN RICHARDS, CEO, EMCORE: And John, the EPV team has been to Korea. They have reviewed their projects, been to site. They've determined the equity and debt financing on these projects. So when Hong talks about a fully funded and licensed project, that's all in place. As he said, in Korea it's going to be a first -- they raised the cap on a number of megawatts installed.

The feed-in tariff is very generous and it is more than likely that ES will take everything we can produce for the next couple of quarters while they get that deployed. So from a heritage standpoint, these guys know what they are doing and the PV business they are financing and their projects are in place. And they have also represented a percentage of the Green and Gold original purchase orders, so we've been shipping to them since the March quarter. And they are a very good customer.

As Hong pointed out, that's a very solid business opportunity. We think it's only going to get bigger and as well as some of the customers that Hong didn't talk about, but we've had more purchase orders during the quarter.

JOHN LAU: Great thank you. I'll circle back if I have any additional questions. Thank you.

OPERATOR: Thank you our next question comes from Jed Dorsheimer, Canaccord Adams.

JED DORSHEIMER, ANALYST, CONACCORD ADAMS: Hi. Thanks. A couple of questions. First Hong it sounds like 35% increase in your fab capacity most of that sounds like it was on the receiver lines. How many reactors do you now have for the solar side of the business?

HONG HOU: Jed, We have a fleet of nine reactors right now in the installation. We have a tenth one on the way over. It probably will be arriving in a week or so. We have planned to add another two reactors. So I would say right now the capacity from nine reactors.

JED DORSHEIMER: Got you. And so when you comment about the 300 megawatts annually, it sounds like -- is that being limited by the receiver? So should that number I would assume would come up with the additional three reactors?

HONG HOU: Yes. The capacity has been limited by the receiver -- receiver line. I think we talked about that last quarter due to the equipment delay that has been a choke point. Right now I think the first two lines are up and running and the third line would be in June and the fourth line from China, will be up and running by August. So by the end of this quarter, I think the bottleneck would be punched through really basically solar cell capacity will be matching the subassembly capacity at the receiver level.

REUBEN RICHARDS: And Jed to put it in dollar terms, 300 megawatts capacity at $0.40 is $120 million on an annual basis revenue run rate.

JED DORSHEIMER: Great. That's helpful. Thank you. What's your current cell efficiency right now?

HONG HOU: The cell efficiency was shipped at a minimum average of 36% and we have achieved over 40% under 500x concentration on our standard concentration we called TT1,000. One centimeter by one centimeter. So the production is a minimum average of 36%.

JED DORSHEIMER: Alright, and then looking at the I guess with an average of 36%, what is the total install cost of a system?

HONG HOU: We have done some exercise and Jed, just to -- using the 1,000 watt per meter squared, the solar flex, the hardware level costs, without installation in the land troughs, should be about $0.08 to $0.10 per hour. That is the hardware cost level. Of course the installation in the land troughs is highly variable depends on the geographical location of the project.

JED DORSHEIMER: All right. Do you have on a per watt basis, do you have an idea what your -- the reason that I'm asking is silicon -- most silicon systems won't use trackers. So there's a higher maintenance cost associated with the tracking systems and it sounds like you have a pretty clear road map of increasing the 30% deficiency which will reduce your cost by every 100 basis point improvement in efficiency. I am trying to wondering what discount a CPV system has to be at to stimulate the decision to go with CPV versus silicon?

HONG HOU: Yes. I think that is a common misperception that because of the moving part of the CPV system the maintenance cost is higher. The solar power application, makes CPV technology the most suitable for the great time utility application. It needs some level of attendance. CPV maintenance is very low maintenance. We have system installed in our backyard since January. So basically they are operating unattended.

But I have to say certainly you compare to the silicon panel, you can have a higher operational maintenance cost. But I would say it's very minimum. Certainly it's our focus to drive the cost structure more competitive so we can offer advantage in cost rather than just to compensate for the short comings. Currently we are offering the marketplace average price at a system of $4.00 per watt.

This is a generation two design. We launched into the next generation design, gen three, and really the target is to reduce the cost by 40%. And then we have another step to further cost reduction. So again our road map calls for cost reduction by 50% in the next two years.

JED DORSHEIMER: So just to -- because there's been a lot of numbers that you've provided. The $0.08 to $0.10 a kilowatt hour, is that based on your calculations? Is that based off of a $4 per watt system cost?

HONG HOU: That is based -- yes.

JED DORSHEIMER: All right. Great. That's helpful. Just two more questions and then I'll pass it on. The 6.3 -- was it $6.3 million write down for the inventory adjustment in the PV the one time? I guess could you just provide a little bit more details and I apologize if you've done this, of exactly what that was for, why the inventory write down there?

ADAM GUSHARD: Sure, Jed. This is Adam. I don't want to spend a lot of time focusing on these charges now that they are behind us but 2.3 of that cost related to the start up of our cost on our new solar power CPV business. Okay?. 2.5 million of that cost related to inventory write down and adjustment for the satellite business and the 1.5 million related to the increased capacity on the fab side as we built up the terrestrial cell and receiver line. That will get you to the 6.3.

JED DORSHEIMER: The 2.5 Adam just so we have a comfort that it's not going to be continuing type of thing, why was the write down on the satellite side?

ADAM GUSHARD: It was just a review of work orders and cost internally so we do this every single quarter and took a look at where the cost basis in the backlog and the orders and the business going forward. That is something we just do internally as an executive management team.

JED DORSHEIMER: That's helpful and then last question. Profitability in September on an EPS basis, is this GAAP or non-GAAP?

ADAM GUSHARD: This should be GAAP. I mean revenues will be close to $100 million. So you get to the margin of 20%, you can control your operating expenses. We should be there. You won't see a lot of charge below operations like income and expense. The interest income expense, because we don't have any expense on the detect. So we should be there.

JED DORSHEIMER: That's great. Good job turning this around. I'll pass it on. Thanks

OPERATOR: Thank you. Our next question comes from Ramesh Misra of Collin Stewart.

RAMESH MISRA, ANALYST, COLLINS STEWART: Good morning guys had you hear me?

ADAM GUSHARD: Yes.

RAMESH MISRA: A little bit of bookkeeping questions. How much was the Intel contribution in the March quarter?

HONG HOU: Yes. Ramesh. I think it's better than we projected, but going forward just for the consistency we don't want it to break down the different sectors different pipeline in terms of revenue but it's going very well.

RAMESH MISRA: Okay. So in terms of your CPV guidance for Q3 you said it's around $15 million. So you are suggesting that the satellite solar business would likely be down in Q3 quarter-over-quarter?

HONG HOU: Not really. The Q3 -- the total revenue of $25 million in the Photovoltaics sector of which is 15 is CPV --

RAMESH MISRA: 14.6 in --

HONG HOU: That's right. Our satellite carries about half -- a little bit lumpiness between the quarters and there is sometimes a program. Between a program there is a gap. Q3 might be a little bit lower than Q2 for the satellite side. The satellite side is pretty robust. I don't see that as our trend.

RAMESH MISRA: So nothing systemic. It's just a lumpiness basically?

HONG HOU: Right.

RAMESH MISRA: Can you talk about the CPV customers in Q3? I know you've talked about ES systems. I guess basically through Green and Gold and then CF La Mancha. Are there other customers that you would be shipping to in Q3 and recognize revenues for?

HONG HOU: In Q3, Ramesh the CPV customers you named a couple major ones like ES Systems and CF La Mancha. I think there will be another three major ones we are shipping in high volume and we are shipping a lower volume to another 15 customers. So I would say the major ones in Q3 contributing to $15 million revenue including the system as well. Contributing to Q3 receiver revenue will be the top five customers.

RAMESH MISRA: Okay. Great. Now this question is actually a clarification. This ES Systems order that you announced early this week of $28 million Hong. Am I correct in assuming that this is separate from the products that are being sourced by ES Systems through Green and Gold or is it basically a transition of some of the Green and Gold stuff over to this contract?

HONG HOU: I think we need some further clarification as well, but right now as I've said, Green and Gold has been encouraging their licensees -- major licensees to come to turn with us directly. I assume probably more a transition instead of a duplicated orders.

REUBEN RICHARDS: I can answer that. We did ship in March to Green and Gold or to ES under the Green and Gold order, but Green and Gold didn't represent anything close to the number that the purchase order represents. So it's a separate purchase order, Ramesh/

RAMESH MISRA: Okay. Great. And in terms of gross margin, where do you see ending at -- by fiscal Q4?

HONG HOU: The Q4 consolidated gross margin we are projecting between the fiber and solar sector consolidated should be at about 24, 25%.

RAMESH MISRA: Okay. Great. Thanks very much, guys.

HONG HOU: Thank you.

OPERATOR: Our next question comes from John Harmon of Needham & Company.

REUBEN RICHARDS: Hi John.

JOHN HARMON, ANALYST, NEEDHAM & COMPANY: Good morning.

REUBEN RICHARDS: Good morning.

JOHN HARMON: A couple of questions. First of all, looking at your non-GAAP net loss of $6 million in the quarter, can you walk us through how you get to profitability from there? How much comes from margin expense and how much from revenue growth, how much from cost cuts? I don't know if you gave this number, but what is the net income per segment in Q2?

ADAM GUSHARD: John, it's Adam. We don't really break out the net income by segment. I did announce on the call that our broadband business was profitable for the last six months and I brought some highlights on that. But let's just walk back to quarter one where we had $47 million in revenues over the quarter. We had an EBITDA burn of $3 million and adjusted EBITDA burn and the revenues increased in this last quarter almost $10 million bucks.

When we had some one time charges in the inventory and the TSA charges that brought us down as well for the quarter. But as revenue increase and as Hong mentioned, if we get to 24, 25% gross margin the operating expenses remain in line and in check. They will increase slightly as the revenue increase you expect that to get the revenues out the door. But we should get to profitability and we are not going to have the interest expense below the line that will affect us as well.

JOHN HARMON: Okay, so it's really just revenue growth that gets you there. Do both of your business lines turn profitable at the same time in Q4, is that the way you expect it to work?

ADAM GUSHARD: That is our expectation by the end of the calendar year what we've announced previously and we are still holding to those targets we want to get those businesses online and both profitable so not one group is supporting another group.

JOHN HARMON: Okay. I just wanted to clarify. I think you said you expect to turn profitable by the end of Q4. You are not guaranteeing you are profitable for the whole quarter right?

ADAM GUSHARD: For the Q4.

JOHN HARMON: So you expect the quarter to be profitable?

ADAM GUSHARD: Yes.

JOHN HARMON: Okay, thank you. About this transition service agreement with Intel I don't know if you broke out how much is running? Maybe you could do that. And you said it is really just tied to transitioning the ERP systems which will take a couple of months. Is that correct?

ADAM GUSHARD: That's right. But I don't want to really dive into the amounts of the TSA because each month it's going to vary and now with the other acquisition we have a separate TSA to manage while we try to get away from the other TSA from the first acquisition. So that amount will vary. But maybe Hong will comment. But our goal is to get into those business and integrate within our own operation as soon as possible.

JOHN HARMON: Maybe you can just talk about what is involved. When do you expect to move both Intel businesses in the same building for example?

HONG HOU: So John, right now the enterprise business and the telecom business, they are in a general -- generally the same area, but they are in a different building. After the second transaction is done, we are working with the landlord for a lease agreement.

We are going to have the enterprise business consolidated into the same location as where the telecom business is. So we are going to be there, and that is certainly combined the two sides where you have some synergy on engineering and customer services in the business management product line management so that is our plan. I think the head count of the combined business two asset purchase in the innovate area should be right around 100 people.

JOHN HARMON: Okay. And this last question briefly. Is there a lot to do in integrating the business with your contract manufacturers? That seems trivial but is it easier or difficult?

HONG HOU: I think this will be the easy one considering the nature of the integration. It was never easy but I think they use a fiber net and contract manufacturer for the majority of their product. We already there and we've been doing the integration planning since February. So I think so far going very well.

JOHN HARMON: Great. Thank you very much.

HONG HOU: Thank you Jim.

OPERATOR: Our next question comes from Sam Dubinsky of Oppenheimer.

SAM DUBINSKY, ANALYST, OPPENHEIMER: Hey guys. A couple of quick questions here. I'm confused in terms of guidance of the satellite commentary. As I look at some numbers you've given on the past. I think satellite backlog is down over ten million and solar will be up over 15 million that means satellite has to be taking a hair cut. Unless I am reading it wrong. And then I was just wondering how I should view satellite through the remainder of the year, because I know you said a new contract is coming on line? What point does the new contract start contributing again?

HONG HOU: You are right. The last quarter the solar revenue was what, 13.4 million. So that's primarily the satellite order -- in Q3 the satellite side is probably about $10 million. But there's the gap between programs. The satellite program is one program they wanted to get out of solar cell and received together and pack under one satellite and sometimes they will not allow us to do the partial shipment even though production activities do happening that we may not be able to ship the whole program and recognize the revenue. But we are in negotiation.

The final stage negotiation of a long-term agreement with another major aerospace company, and we probably will hear anytime some of the major government programs we've been based on. So in my view I think the satellite space business is still a pretty robust. You are right. I think that Q3 may be a little lower, but fortunately we can use every capacity, every little bit capacity from the wafer fab available to serve the CPV customer.

SAM DUBINSKY: So basically my follow-up question is I have two follow ups. Eventually we'll the satellite business approach historically or exceeded and then B, my question is what percentage of cell capacity today in terms of megawatts goes to satellite?

HONG HOU: Yes. The megawatts is not exactly the fair comparison because the land based CPV system using concentration but separate from the manufacturing capacity it's about two third they use for satellite. Two third for satellite today. So it would not break our heart to reduce that percentage to shift over to CPV business which we'll have a higher gross margin.





SAM DUBINSKY: So satellite is weak and that gets stopped off by the terrestrial business?

HONG HOU: Right.

SAM DUBINSKY: And then I know you don't want to break out the Intel business, but now after all the acquisition you've been doing you have a distinct product buckets split between cable, enterprise and telecom. Could you maybe just discuss on a normally quarter run rate after all the acquisitions are fully in the model what percentage of your business including acquisition to Emcore will be enterprise, telecom and cable?

HONG HOU: Yes. As I mentioned, the consolidated one we have other pieces integrated together and fully contributing to our annualized revenue, the fiber optics piece in 2008 because of partial contribution of the year is going to be right around $200 million in 2009 should be about $300 million. 2009 certainly there's no partial contribution.

SAM DUBINSKY: Fiscal year 2009?

HONG HOU: Yes.

SAM DUBINSKY: Okay. And I know you gave targets where datacom acquisition you said, I believe 45 million on an annualized run rate. Could you maybe talk about what type of organic growth you are expecting within that Intel business to get to that $45 million?

HONG HOU: The $45 million where we project a 12 month revenue from the Intel telecom datacom business and you said the question was without --.

SAM DUBINSKY: What question is what type of growth rate from an Intel were you expecting?. Because I assume that 45 million, it will grow to 45 million in 12 months and I know they have some other products and I know they have some new product on the backplay interconnect side. So I was wondering how much organic growth internally from the Intel business were you expecting?

HONG HOU: Yes. It depends on the different product line, for some of the storage area network product lines. We are probably not as competitive as a major players in that area. We are going to be continued to service the current customers that that's not the area we will see a lot of growth.

But on the other hand like connect cables, as a parallel optics cables for high performance computing, we expect dramatic growth. All together the revenue from our combined asset for datacom we project probably the first year from the next 12 months to the next year is going to be about 15% year-over-year and then after that it's going to be about like a 25 to 30% year-over-year.

SAM DUBINSKY: Okay. And my last question on the solar side once you guys ramp capacity am I to assume that you would be 100% or near 100% utilized once the lines are up and running for each segment of that business?

HONG HOU: Yes. I think right now we are in the way the hand to mouth in capacity , we can use more capacity increase for the fab capacity and that's why I said the Q3. Between programs situation for space really helped us to manage through this capacity ramp issue when we get a new reactor installed, the capacity will further improve and we'll be in a better

SAM DUBINSKY: Okay, and of the 4.4 million that you shipped this quarter what percentage was cell versus receiver?

HONG HOU: That is a combined CPV. We are not going to be breaking down the different customers, the different sectors the different product lines.

SAM DUBINSKY: Understood. Thanks guys.

OPERATOR: Our next question comes from John Gruber of Gruber [McVein].

JOHN GRUBER, ANALYST, GRUBER MCVEIN: My question was partially answered. It was on the 6.3 PV write off. How much inventory do you have in satellite? 2.5 sounds like an awful big number for that. Is that a big percentage?

ADAM GUSHARD: We have never broken out inventory or the details of any of our working capital accounts on our balance sheet. And we know our inventory is in line with what operations should be going forward and making sure that the turns make sense for the business to get the profit ability.

REUBEN RICHARDS: We have some issues like some contaminated wafers from a vendor which we were in dispute over and we decided to just write it off. Issues like that.

JOHN GRUBER: Thank you.

OPERATOR: Our next question comes from Dave Kang Roth Capital.

DAVE KANG, ANALYST, ROTH CAPITAL: Good morning. Most of my questions have been answered, but Reuben or Hong you talked about calendar '08 and calendar '09 revenue expectation last quarter. Do you care to update those numbers this time around?

REUBEN RICHARDS: Yes. Clearly we've updated the fiscal year September and clearly calendar year '08 will increase, but we didn't focus on a number for doing that. We'll have to get back to you Dave.

DAVE KANG: Okay. Fair enough. Go ahead.

HONG HOU: Dave, we probably can look back in the envelope. As Reuben focused on the calendar year. We will get back to you on that.

DAVE KANG: Okay. That's fair enough. And then on the backlog you gave at the end of March quarter number. I was wondering what the current backlog was now that it's first week of May or second week of May?

HONG HOU: Yes. We haven't --

ADAM GUSHARD: We haven't worked out those reports for this call. We have to do stuff internally and we have to make sure that these acquisitions are integrated successfully and we didn't plan on reporting that number.

REUBEN RICHARDS: And David, in the press release on Monday on ES Systems and the $28 million order, we talk about what the receiver -- the receiver backlog had increased to over whatever it is 110.

DAVE KANG: Right.

REUBEN RICHARDS: But company wide and as Hong pointed out there is an LTA where very close to signing with what I'll call government satellite integrator that is pretty substantial and that will be included in the quarter also, because we expect to get it done this quarter.

DAVE KANG: Right. I mean the only reason I'm asking is because the backlog only it was up only a couple million dollars from December to March, and I thought should have done more -- shouldn't have gone up more?

REUBEN RICHARDS: Don't forget that was for the March period. We announced a lot of orders since then.

HONG HOU: And David you can view it the reduction in the backlog is also representing you convert the orders into the shipment. We shipped 4.4 million of CPV revenue.

ADAM GUSHARD: It was a strong quarter increase quarter-over-quarter.

REUBEN RICHARDS: You'll see a significant increase in shippable backlog at the end of this quarter.

DAVE KANG: Sure. Just wondering how much with all this stuff going on just wondering of the GGE is in the current backlog of $158 million at the end of March.

HONG HOU: $77 million. We probably haven't broken down by the customers. But in that regard I think right now it's in a transition some of the licensees and ordering from us directly. Actually we like that because GGE they consolidated the projected demand from their licensees and negotiated with us on better term to them and when we redo this these orders with major licensees, we are able to get much better term in the higher margin on the same products.

REUBEN RICHARDS: As I think we've said a number of times now and it's important to remember that GGE represented the aggregation of their licensees. So you have half a dozen operating companies that are -- that we are shipping to under the purchase orders in various parts of the globe. So it's -- the diversification there is it sounds like a big number for one company. It's not really. It covers a number of operating companies.

DAVE KANG: Right and then on the fiscal '08. On the guidance just wondering when do we expect or when should we expect some of the major contracts? You talked about Canadian contract, Korean contract, and some that are not reflected in the train guidance. When should we expect those to start filtering to the guidance and the backlog?

REUBEN RICHARDS: On Canada, on prod engineering, we have a bank commitment that is currently in place to fund the entire project. That is all 60 megawatts. We are going through and negotiating the lending contracts as we speak and that ought to get done this quarter. So I think you'll see something going forward.

DAVE KANG: So just to clarify Reuben 60 megawatts that is a system level and it will be $4 per watt? Is that still the metrics roughly speaking?

REUBEN RICHARDS: 60 megawatts -- your question was what is the total commitment there?

DAVE KANG: Yes. You said 60 megawatts and I think we are using $4 per watt.

REUBEN RICHARDS: Yes, it's over $200 million.

DAVE KANG: Right, right,that's what I thought. Go ahead. Sorry to interrupt you.

REUBEN RICHARDS: Oh, so we expect that to be put to bed this quarter. Clearly asset and revise revenues on that basis.

DAVE KANG: Okay. Just lastly Adam just wondering if I can get the depreciation and amortization for the June quarter? What do you think that will be and also CapEx for this June quarter?

ADAM GUSHARD: I expect depreciation and amortization to kick up slightly because of the acquisition we did about 4.8 million that I announced. SO I expect it to kick up a little bit What was your second question?

DAVE KANG: The expected CapEx.

ADAM GUSHARD: You mean.

HONG HOU: CapEx for the June quarter will be less than $2 million.

DAVE KANG: Okay. Thank you very much.

OPERATOR: Our next question comes from Lenny [Brecken], [Brecken] Capital.

LENNY BRECKEN, ANALYST, BRECKEN CAPITAL: I just wanted to hone in on your confidence. I know a lot of questions was asked about your backlog and things of that sort and the terrestrial solar. But can you just hone in on what gives you specifically the confidence that you will meet or exceed numbers in the second half? I want you to summarize it I know you touched on it throughout the quarter but I wanted to be very clear on your confidence and the fact that you raised guidance in that respect as well as the rest of the business in the second half.

REUBEN RICHARDS: Let me address that really briefly. First of all we are kind of halfway through the quarter, right. And in the two business segment, fiber optics generally purchase orders are while they are elected to turn business and while they are let on a 30-day book to ship basis. With every one of our customers we have four months worth of forecast that they require we bill to. So on the basis that have, we are well beyond the end of the June quarter for fiber optics in the production plan. So while again it's a charge business, I think it's -- at this point there isn't going to be much variability in that number.

Again on the -- and on the PV side, certainly satellite is a program driven business. It's long cycle it's book to ship in six months. A lot of the government groups commit their programs on these fixed schedules and we have our obligation is to ship according to that or we have some rather owneress penalties. And on the terrestrial side, again largely driven by the renewal of the tariff regime and the European markets, the Korean, the European markets which we already have orders. We are not shipping -- there is no order we need to fill to hit these numbers. So it's a straight up manufacturing requirement to hit the numbers for the quarter.

And so we actually as you know, we increased Q3 revenue guidance from our original guidance and that's on the basis of some pretty good visibility from now through the end of the quarter. I will also tell you that I think some of the operating efficiency productivity gains and everything that we saw in the March quarter, we are going to be built on, and people asked about what is our confidence in the second half from a profitability standpoint. If you take an $80 million quarter at a 25% gross margin, which is roughly where we are today, that pretty much covers your OpEx.

So it's a -- from this point, I think we feel pretty comfortable one with our visibility for the June quarter bookings going into Q4 and so long as we execute and that's been an operational issue, but so long as we execute those forecasts are well in hand.

LENNY BRECKEN: One follow-up question. From your commentary I am going to infer that there won't be any one-time charges at least anticipated this quarter and the margins in the solar business should be at or better than what they were in the quarter that you just reported. Correct?

REUBEN RICHARDS: Yes. On the solar business -- and like the fiber it depends on product mix, but the fact that the revenues are going to be up substantially for CPV components, that is a much higher gross margin than we experienced in satellite side. So it is -- we expect improvement.

ADAM GUSHARD: And then on the other one time stuff that we talked about and we are getting tired of talking the stock option restatement expenses and severance and restructuring and nonrecurring legal, we shouldn't see anything. It will be -- I'm hoping the non-GAAP tables that we provide on the next quarter financial release will be a lot easier to put together.

LENNY BRECKEN: Thank you.

OPERATOR: Our next question comes from Michael Coady, B. Riley.

MICHAEL COADY, ANALYST, B. RILEY: Thanks. Good morning. With some of the issues we've seen with companies cash balances could you talk about where yours are invested in particularly the long invested cash?

ADAM GUSHARD: The arc investments that we have? The auction rate securities? Is that what you are talking about?

MICHAEL COADY: Yes.

ADAM GUSHARD: Yes. So we closed out the quarter similar to last quarter, over 30 million We have about $5 million. We'll have a significant disclosure because we are required to do so in the Q that we will file on Monday. But basically we've always heavily invested in auction rate securities in the past just because you obtain a lot higher interest rates on those investments and that market is sort of collapsed in February and just luckily we don't have that much money into that into auction rate securities. We have about $5 million bucks into that. We don't consider it an impairment problem at this point but it's more of a liquidity issue.

And so we class those investments down to long term. We took a look at the underlying securities that those investments are diving into and we are working with the banks. We know that the interest rates continue to increase as the auctions fail every seven to 21 days and we are working with the ones that hold the paper and we expect that to be a million dollars to be redeemed this quarter. I'm hoping by the end of the year we can close those things out but we are doing the right thing by accounting, and the disclosure side.

REUBEN RICHARDS: These are collaterized obligation it's better than two to one asset coverage and incurred coverage ratios. So the banks don't want to pay this increasing rate environment. And so on an orderly redemption basis they are redeeming every quarter.

ADAM GUSHARD: That was a great question. Thanks

MICHAEL COADY: Thanks Adam and Reuben for the explanation. Given the projections for the June quarter everything is detailed. Would you care to project cash at quarter end?

ADAM GUSHARD: We expect the cash to go up and we can hit our operation target that is the whole point. We are focused on being profitable. So any kind of cash fluctuation we see going forward should be for CapEx or maybe some timing on working capital changes, but other than that the focus now for the operation assist being profitable and generating cash.

MICHAEL COADY: Okay and just one final question. I saw the 8K filed last night regarding the Intel operations and they had some pretty dramatic losses in terms of gross deficit and net loss. Was Intel allocating expenses improperly into those divisions? Can you explain how you go from negative 34% gross margin to being profitable?

REUBEN RICHARDS: A number of different things. Let me -- one is included in those numbers is Intel corporate overhead. Included in those numbers is E&O on a quarterly basis that Intel has some very -- I don't know -- I guess strict E&O policies. A long winded explanation but they would purchase,consumables and that might be lasers, it could be modulators, it could be whatever. On an annual purchase basis and then if the inventory didn't move in six months, which there is no way it could, they would write it down.

So you sort of bake in $2 to $3 million a quarter in inventory write downs. You have the Intel overhead. You've got a staffing level that we are only taking a fraction of. So you are moving from what is a high fixed cost and balance sheet driven P&L to a variable cost and our experience with the telecom business in March was that gross margins were above corporate average once they became part of Emcore.

ADAM GUSHARD: That was one of the reasons that our press release was a little late last night just because the dead line was yesterday to file that 8K. You also noticed and you made a great point there that on the combined business that we actually went to the SEC and obtained a waiver just because we thought on a pro forma basis combining these two numbers didn't make any sense and what the business would look like under Emcore's name. So we weren't even required to put the pro forma P&L because the numbers would have been ugly and we just know it will be so much better under the Emcore name.

REUBEN RICHARDS: Remember Michael this is an asset purchase.

MICHAEL COADY: Right.

REUBEN RICHARDS: And so the assets come across a book or fair market whichever is lower. So you are going to have a lower fixed cost environment. You are going to have a fraction of the head count that they used to have, and you are going to use Emcore sourced components.

So there's a tremendous amount of operating leverage across the board for this business for us. We expect that this business will contribute above corporate average going forward.

ADAM GUSHARD: In fact it already has.

HONG HOU: Michael, it's going to be under very different operational model under Emcore. Even Intel before they sold those assets, they had funds because they had duplicated resources for production in-house and also they had to pay for the contract manufacturers because they were in the process of transferring those manufacturing to off shore. So we took about one third of the overall head count without moving any capability with the smaller company more nimble I think it will be very different operational model. So those pro forma certainly is a reflection of entering Intel's accounting but doesn't represent the ongoing business perspective.

MICHAEL COADY: Okay. Thanks a lot for the thorough explanation. I appreciate it. Let me just touch on one more thing quickly.

The fiber optics revenue roughly at 37 million you don't want to break out Intel but it looks like the Intel assets were performing better than expected then the core fiber optics were down a little bit, you mentioned weakness in cable TV business. Could you talk about a magnitude of that decline and given, I think Reuben you said, your four month visibility how that happened in your confidence in that bouncing back in the June quarter? And that will be it for me. Thanks a lot.

REUBEN RICHARDS: Sure. Well, Michael I think you are familiar that the March quarter has historically or has been the lowest revenue quarter of the year for the cable television business, largely the cable TV MSOs sort of fully flexed their CapEx spending budget. At the end of the year gets deployed, which means that -- and then the budgets for the subsequent year they'll get approved until sometime early in the '08 or the March quarter.

So March has always been down seasonally. As Hong said in his presentation, it was met expectations, but that's nothing more than seasonality. What was very strong as Hong also pointed out and I will let him jump in here, but was the datacom piece at Emcore particularly parallel optics.

HONG HOU: So Michael the softness is probably orders 10% level, it's not likely to fall off of the bottom. Regardless of seasonality pattern five out of the last seven years. Also affect by the economic uncertainties, the service providers they are holding on cash. Their Q1 CapEx from the AT& T, Verizon, Time Warner, soft they all -- slower than they projected. They will step up. All of them accelerate CapEx to a largely in line for the year.

So I wouldn't concern too much about the broadband side. I think as I've said the fundamental is very strong. We've talked to our customers very -- every week and we have the quarterly business review with their operations and marketing sales and customer services, technology group. We are fully engaged.

REUBEN RICHARDS: And based on visibility broadband is back up again this quarter.

MICHAEL COADY: Okay. Thanks again. Good luck in the back half of the year.

OPERATOR: Our next question is from Andy Schopick,Nutmeg Securities

ANDY SCHOPICK, ANALYST, NUTMEG SECURITIES: Thank you. Good morning. Adam, I have a couple of questions for you that I would like to ask first. The statement in the earnings press release about the company generated positive cash flows from operations for the six month period. Now, I'm at a disadvantage because I don't have the cash flow statement in front of me, but clearly with the net losses that were incurred, with the inventory and receivables being up quarter to quarter, inventory up 13.9 -- 13.9 million and receivables up 11.5 million, I'm not sure that I understand how you could even make that statement.

So I am going to ask a follow-up question. How are you going to account for advance deposits? Would that be reflected as a separate line item or as deferred revenue and would that be included in operating cash flow?

ADAM GUSHARD: Yes, any kind of deposits we have will be considered a liability, right? I mean we are accepting cash on future business and so it will be no different from the accounts payable and accrued expenses. And I think I've only seem the prelim cash flow statement but basically it looks like we've done a good job managing the changes in working capital for the six month period and then we'll just try to do the same thing going forward for the next half of the year.

ANDY SCHOPICK: It's not intuitive to me looking at this today so I guess I will have to see that cash flow statement to understand the comment that you've made here.

ADAM GUSHARD: You have to back out. For the total loss for the period we have some significant stock-based compensation charge, that is all non-cash.

That will get back down and the appreciation and amortization, the loss from the convertible notes. Those are some of the costs that will be backed out and then you have your timing differences and your assets and liabilities, just to get out the operating activities from being cash provided for the quarter.

ANDY SCHOPICK: Are the Company's gross margin objectives basically around 25%? Is that really what you think the potential gross margin of the business will be?

HONG HOU: Andy, by the end of the fiscal year '08 our objective is get to 25%. Of course in '09 we want it to improve above 25%.

ANDY SCHOPICK: Are there any -- is the company going to give any further guidance on its gross margin objective perhaps later in the year?

HONG HOU: Yes. As we finish the integration of these two assets we are going to be in the next quarter's conference give the guidance for the gross margin for Q4 and '09 as well.

ANDY SCHOPICK: Okay. I do want to ask this question. Are any of your customers receiving any stock purchase warrants or stock in connection with any of the contracts your relationship? I would like to get a clear answer to that one.

ADAM GUSHARD: No. I'm not even sure what you are talking about.

ANDY SCHOPICK: Whether or not there's any stock consideration involved with any of these customers in terms of some of these contracts? Whether any of them GGE or anybody else has any type of equity participation?

ADAM GUSHARD: Absolutely not. Why would you do something like that.

ANDY SCHOPICK: I'm glad to hear you answer that question. That's all that I want to say there.

ADAM GUSHARD: Thank you.

ANDY SCHOPICK: Life expectancy on the SunCube, does anybody have any idea what the life expectancy of the SunCube would be? Or what the degradation of the output will be over time? There's just not a lot out there in terms of information.

HONG HOU: I think Andy you probably have to contact the SunCube. We provide the components to SunCube. SunCube is the system. Certainly we warranty our product for performance and reliability. You have to contact the manufacturer of SunCube to get that information.

ADAM GUSHARD: Well one other question. If you are going to give a 20 year CPV performance warranty? Adam, will that require a build up of warranty reserves with providing that type of extended warranty. Yes, we're talking a look into the accounting guidance provided on that and we will end up disclosing such in the Q's going forward how that will be built up over time. That is not a one-time charge.





ANDY SCHOPICK: I know.

REUBEN RICHARDS: Andy, and furthermore, in the satellite business, we have to give a 20 year warranty too.

ANDY SCHOPICK: Not the first time.

REUBEN RICHARDS: Not our first time at this.

ANDY SCHOPICK: Oh, yes, but we are talking about some very big volume here going forward in the CPV area. One last thing on the Intel acquisition. There was a comment made about this and I immediately went looking for it because I've been trying to find this filing and I wasn't aware that it had actually been done last night. These numbers I don't know how to interpret these.

They are very bothering some at first glance when you look at what you purchased and what the actual performance of this business has been. I'm not sure that I understand how you are going to substantially improve the financial return here.

REUBEN RICHARDS: Andy, we just answered that question. And, look, all I'll tell you that for the March quarter the telecom asset came in at higher than corporate average. We explained to you why that business couldn't be profitable under the Intel architecture, how we are taking a fraction of the cost with the business. I don't think we need to address it again.

ANDY SCHOPICK: All right.

ADAM GUSHARD: We went back to the SEC as well and told them the same kind of story and showed them what it would like like. They said don't even include it because it won't be apples to apples.

ANDY SCHOPICK: But I think that you can understand that people who are just looking at this for the first time will perhaps come to a not so good conclusion.

ADAM GUSHARD: That is why we put -- throughout the 8-K, there are a lot of statement. Unfortunately, you file and it ends up to be a public document for everybody. It is probably repeated several times that this isn't reflective of what the business will look like on a combined basis. So get back on your cash flow thing, I am looking at it real quick. The timing difference that you are talking about the increases and the working capital for acquisitions, we are not really including that in the cash generating from operation.

It was more excluding that operation. So when you do see the swings, from bringing on all that inventory, bringing on all that intangible asset and everything else you end up not showing that because it's a positive cash flow from operations just because of the acquisition, but on a stand-alone excluding that, I think we are there. So let's all dive in later-- we'll disclose this such in the queue.

ANDY SCHOPICK: Alright, I can follow-up with you later, after I have a chance to review it in detail.

ADAM GUSHARD: Thanks a lot.

OPERATOR: Our next question and last question comes from Jed Dorsheimer Canaccord Adams.

JED DORSHEIMER: Hi, thanks. Just a quick follow up. Just looking at the September guidance. If CPV is at 30 million and you expect to be around $100 million in that quarter. Just getting to the $70 million in the communications business, if Intel is going to contribute about 30 to $35 million in '08? Which area is going to be seen the most growth in that com segment?

HONG HOU: Jed, The telecom turnable modules and turnable transponders is one area. The connector cable, that is another area of the nice growth. Organically the broadband seasonality will come back to our favor and parallel module will be drilling. Don't forget Jed we are saying the Q4 CPV revenue at 30 and also $10 to $15 million space business.

JED DORSHEIMER: That is the delta that I had. Thank you very much.

OPERATOR: I would now like to turn the floor back to management for any closing remarks.

HONG HOU: Well thank you very much would that I would like to make some closing remarks. We are very pleased with our strategic achievement in the quarter and the business development in a terrestrial solar power area continues to be very successful. Continue to broaden our customer base and book new orders. This quarter represents the first significant revenue from this new line of business we have invested in over the last couple of years. We are happy to achieve the aggressive top-line growth and met our revenue guidance.

We are close to our EBITDA target with adjusted numbers, given the fact that there is a cost in adjustment a one-time event. The business fundamentals remain strong and will continue to grow and we will achieve operational profitability in the second half of 2008. That's our physical year. The management team intensely focused on delivering that profitability.

But I also mention in the Board meeting at the end of March, the Board of Directors has authorized the management of the company to prepare a comprehensive operational and strategic plan for the separation of the companies fiber optics and Photovoltaics businesses, into separate companies. We are excited to be taking the first of steps in this process, which we believe will allow us to maximize the potential of both of our businesses segments.

We'll be working closely with the investment, accounting and the legal advisors over the coming months, to develop structure for the separation and that will maximize operating efficiency as well maximizing shareholder value. Thank you very much for your attention today and we look forward to the next call.

OPERATOR: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines, and have a wonderful day.

[Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

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