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Slack LED market weighs on sapphire maker Rubicon

21 Feb 2013

Provider of large-diameter sapphire wafers expects revenues to drop by more than half in first quarter of 2013.

Ongoing oversupply in the LED market will see sapphire wafer vendor Rubicon Technology’s sales cut in half in the current quarter, although the US-headquartered company is hopeful of a recovery prompted by solid-state lighting applications later this year.

Rubicon, which stopped selling two-inch and four-inch material into the market temporarily because prices had dropped so low, posted sales of $20.1 million for the closing three months of 2012 – slightly up on the prior quarter.

But cut-throat competition meant that those sales translated to an operating loss of $2.2 million. And while sales of six-inch sapphire wafers had been holding up well, Rubicon’s leading customers for the larger-format material now also hold excess supplies.

That means sales are set to fall to only $8 million in the current financial quarter, around only half of which will be attributable to six-inch sapphire. The company says that it will now resume sales of smaller wafers in a bid to maintain customer relationships and also shift some excess inventory.

Signs of life
CEO Raja Parvez told investors that the company would continue to cut costs – Rubicon has already shed a third of its US headcount in the current slump – by shifting more manufacturing processes to its subsidiary in Malaysia, and said that there were “some signs” of returning demand thanks to solid-state lighting.

“Similar to what we experienced last year, our largest LED customer for six-inch wafers has excess inventory and will not likely need additional material until the second quarter,” he added. But he also believes that the company will start to see strong orders for six-inch wafers in the second half, from both LED manufacturers and RF component makers who use a silicon-on-sapphire materials platform.

While that trend may see demand for sapphire wafers pick up again in around six months from now, in the meantime the company is working to develop new patterned sapphire substrates in both four-inch and six-inch formats. Those products are set to start shipping by the end of the year, the CEO said.

Outside of the slack LED market, Rubicon also sells sapphire material into optics applications and showed off a 12-inch optical window based on the material at the recent SPIE Photonics West exhibition, as well as a huge 85 kg boule of raw sapphire.

For optics, sapphire is useful because of its wide wavelength transmission range and ability to withstand extreme environments – making it a popular choice for a number of applications in defense and aerospace in particular.

Investors reacted negatively to Rubicon's outlook, with the company's stock slumping in value by 15% following the update. At just under $5, the stock is now trading at its lowest price since the credit crunch struck in late 2008, and way down on the peaks of early 2011 when LED makers rushed to buy supplies of sapphire to meet demand growing rapidly thanks to TV backlight applications.

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